-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FVYiwj/gUjUuRUxQ48tK/7rMj5fgsrY0xn5SVksg0/Giqqpwmo4e6BVL3pVukdjh luS68S7dgkRrSDJ5QPQe7Q== 0000109710-94-000026.txt : 19940819 0000109710-94-000026.hdr.sgml : 19940819 ACCESSION NUMBER: 0000109710-94-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLARK EQUIPMENT CO /DE/ CENTRAL INDEX KEY: 0000109710 STANDARD INDUSTRIAL CLASSIFICATION: 3537 IRS NUMBER: 380425350 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05646 FILM NUMBER: 94544031 BUSINESS ADDRESS: STREET 1: 100 N MICHIGAN ST STREET 2: PO BOX 7008 CITY: SOUTH BEND STATE: IN ZIP: 46634 BUSINESS PHONE: 2192390100 MAIL ADDRESS: STREET 2: 100 N MICHIGAN ST P O BOX 7008 CITY: SOUTH BEND STATE: IN ZIP: 46634 FORMER COMPANY: FORMER CONFORMED NAME: CLARK EQUIPMENT CO DATE OF NAME CHANGE: 19691109 10-Q 1 2ND QTR 10-Q FILING SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended Commission File Number: 1-5646 June 30, 1994 CLARK EQUIPMENT COMPANY (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of 38-0425350 incorporation or organization) (IRS Employer Identification No.) 100 North Michigan Street 46634 P.O. Box 7008 (Zip Code) South Bend, Indiana (Address of Principal Executive Offices) Registrant's telephone number, including area code: (219) 239-0100 Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 17,396,906 shares of $7.50 Par Value Common Stock were outstanding at the close of business on August 8, 1994. -1- Total Number of Pages: 27 Exhibit Index at Page: 21 PART I FINANCIAL INFORMATION The following items are attached to this report: For Clark Equipment Company and Consolidated Subsidiaries: Statement of Income and Retained Earnings Balance Sheet Statement of Cash Flows Management's Discussion and Analysis of Financial Condition and Results of Operations For 50 Percent Owned Company Selected Financial Data - VME Group, N.V. PART II OTHER INFORMATION Item 1. Legal Proceedings Burkeen et al. v Clark Equipment Company On March 26, 1993, James R. Burkeen, Betty F. Burkeen and Burkeen Manufacturing Company filed a Complaint in the United States District Court for the Northern District of Mississippi. The Complaint alleged fraud, negligent misrepresentation, breach of contract, breach of duty of good faith and fair dealing, breach of warranty and tortious interference with contract and business relations in connection with Registrant's sale of its trencher equipment business to Burkeen Manufacturing Company in December of 1991. Burkeen Manufacturing Company sought compensatory damages of $40,000,000, James R. Burkeen and Betty F. Burkeen sought compensatory damages of $5,000,000 and all plaintiffs sought punitive damages of $90,000,000. The Registrant filed an Answer denying liability and a Counterclaim seeking recovery of certain amounts owed by Burkeen Manufacturing Company in connection with the sale. In June of 1994, this lawsuit was settled on terms which are not material to Registrant's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders The Registrant held its Annual Meeting of Stockholders on May 10, 1994. At this meeting, the following matters were submitted to a vote of the stockholders: (1) the election of directors; (2) the ratification of the appointment of Price Waterhouse as the Registrant's independent accountants for the fiscal year ended December 31, 1994; (3) the approval of the Clark Equipment Company 1994 Long Term Incentive Plan and (4) the approval of the Clark Equipment Company Stock Acquisition Plan for Non-Employee Directors. Set forth below is a summary of the results of the stockholders' vote on these items: -2- Number of Number of Votes Against Absten- Broker Votes For or Withheld tions Non-Votes (1) Election of Directors James C. Chapman 14,662,821 94,074 0 0 Donald N. Frey 14,649,358 107,537 0 0 James A.D. Geier 14,662,352 94,543 0 0 Gaynor N. Kelley 14,665,730 91,165 0 0 Leo J. McKernan 14,653,653 103,242 0 0 Ray B. Mundt 14,665,296 91,599 0 0 Frank M. Sims 14,662,268 94,627 0 0 (2) Ratification of 14,656,269 36,944 63,682 0 Appointment of Price Waterhouse (3) Approval of Clark 10,489,294 2,377,838 492,357 1,397,406 Equipment Company 1994 Long-Term Incentive Plan (4) Approval of Clark 11,863,530 991,438 504,521 1,397,406 Equipment Company Stock Acquisition Plan for Non- Employee Directors Item 5. Other Information Attached hereto as Exhibit (99) is a Computation of Registrant's Ratio of Earnings to Fixed Charges for the six months ended June 30, 1994. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (See attached Exhibit List and Index) (b) Reports on Form 8-K: 1. The Registrant filed a Form 8-K dated April 20, 1994 reporting on Item 5, OTHER EVENTS, and Item 7, FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. 2. The Registrant filed a Form 8-K dated April 25, 1994 reporting on Item 5, OTHER EVENTS, and Item 7, FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. This Form 8-K included Registrant's income statement and balance sheet for the period ended March 31, 1994. 3. The Registrant filed a Form 8-K dated May 16, 1994 reporting on Item 5, OTHER EVENTS, and Item 7, FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. -3- 4. The Registrant filed a Form 8-K dated May 27, 1994 reporting on Item 2, ACQUISITION OR DISPOSITION OF ASSETS, and Item 7, FINANCIAL STATEMENTS AND EXHIBITS. 5. The Registrant filed a Form 8-K dated May 27, 1994 reporting on Item 2, ACQUISITION OR DISPOSITION OF ASSETS, and Item 7, FINANCIAL STATEMENTS AND EXHIBITS. This Form 8-K included the following financial statements: (a) pro forma income statements of the Registrant for the years ended December 31, 1993, 1992 and 1991 which reflect the deconsolidation of Clark Automotive Products Corporation ("CAPCO") and (b) a pro forma balance sheet of Registrant as of March 31, 1994 which reflects the deconsolidation of CAPCO. -4- *********** SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 15, 1994 By: /s/ B. D. Henely B. D. Henely Vice President, General Counsel and Secretary (Duly Authorized Officer) Date: August 15, 1994 By: /s/ W. N. Harper W. N. Harper Vice President and Controller (Principal Accounting Officer) -5- CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES STATEMENT OF INCOME AND RETAINED EARNINGS (UNAUDITED)
For the Period Ended June 30, (Amounts in Thousands, except per share data) Second Quarter Six Months 1994 1993* 1994 1993* Net sales....................................$ 242,525 $ 187,333 $ 447,688 $ 350,360 Operating costs and expenses: Cost of goods sold......................... 190,035 147,038 352,122 276,261 Selling, general and administrative expenses................. 28,993 25,111 54,540 47,321 219,028 172,149 406,662 323,582 Operating income.............................. 23,497 15,184 41,026 26,778 Other income, net............................. 2,845 2,748 9,861 5,169 Interest expense.............................. (4,661) (5,693) (10,231) (10,592) Pre-tax income from consolidated operations... 21,681 12,239 40,656 21,355 Provision for income taxes.................... 7,417 3,886 14,076 5,993 Income from consolidated operations........... 14,264 8,353 26,580 15,362 Equity in net income (loss) of associated company...................... 15,488 888 28,637 (4,334) Income from continuing operations............. 29,752 9,241 55,217 11,028 Discontinued operations: Income (loss) from operations.............. (164) 1,558 1,275 2,375 Gain on sale............................... 32,884 0 32,884 0 Income from discontinued operations........... 32,720 1,558 34,159 2,375 Income before effect of change in accounting principle............. 62,472 10,799 89,376 13,403 Effect of accounting change--income taxes..... - - - 6,150 Net income.................................... 62,472 10,799 89,376 19,553 Add: Income retained at beginning of period.................. 119,612 53,551 92,708 44,869 Deduct: Excess cost of treasury shares issued over the cost of certain employee benefits...... 0 4 0 76 Income retained at end of period.............$ 182,084 $ 64,346 $ 182,084 $ 64,346 Income per share: From continuing operations................$ 1.71 $ .53 $ 3.17 $ .63 From discontinued operations............... 1.88 .09 1.96 .14 From effect of accounting change........... - - - .35 Net income................................$ 3.59 $ .62 $ 5.13 $ 1.12 Average number of shares...................... 17,399 17,438 17,424 17,418 Number of shares outstanding at end of period........................... 17,394 17,368 17,394 17,368 * Restated to reflect the deconsolidation of the automotive business. See Notes to Financial Statements - 6 -
CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES BALANCE SHEET
Amounts in Thousands Jun. 30, Dec. 31, 1994 1993 ASSETS Unaudited Audited Current Assets: Cash, cash equivalents and short-term investments................$ 225,452 $ 235,828 Accounts and notes receivable.................................... 113,272 77,103 Accounts receivable from associated companies.................... 599 2,041 Refundable income taxes........................................... 0 3,543 Inventories: Raw materials................................................. 36,685 32,212 Work-in-process and finished goods............................ 75,963 65,928 Manufacturing supplies........................................ 4,076 10,480 Total inventory........................................ 116,724 108,620 Deferred tax assets.............................................. 28,321 29,202 Other current assets............................................. 5,560 5,434 Total current assets................................... 489,928 461,771 Investments and advances ........................................ 164,271 122,106 Deferred tax assets - net........................................ 105,718 101,018 Property, plant and equipment - at cost.......................... 383,746 487,330 Less accumulated depreciation.................................... 206,286 285,406 Net property, plant and equipment...................... 177,460 201,924 Assets held for sale ............................................ 8,662 6,765 Goodwill......................................................... 169,338 67,461 Other assets..................................................... 33,219 40,890 $1,148,596 $1,001,935 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable....................................................$ 17,852 $ 22,512 Accounts payable and accruals.................................... 128,201 115,333 Accrued payrolls, social security and general taxes.............. 30,432 34,809 Accrued postretirement benefits - current........................ 20,412 19,560 Taxes on income.................................................. 12,078 4,139 Deferred income taxes............................................ 4,348 800 Current installments on long-term debt........................... 20,100 9,612 Total current liabilities.............................. 233,423 206,765 Long-term debt................................................... 194,657 204,770 Other non-current liabilities.................................... 95,474 74,686 Accrued postretirement benefits.................................. 239,921 233,239 Deferred income taxes............................................ 15,986 14,322 Total liabilities...................................... 779,461 733,782 Stockholders' Equity: Preferred stock - authorized 3,000,000 shares at $1.00 par value - none issued........................................... - - Capital stock common - authorized 40,000,000 shares at $7.50 par value - issued 19,194,684 shares and 19,194,334 shares at June 30, 1994 and December 31, 1993, respectively.......... 143,960 143,958 Capital in excess of par value of stock.......................... 179,944 179,582 Retained earnings................................................ 182,084 92,708 Cumulative translation and other adjustments..................... (51,901) (67,083) 454,087 349,165 Less, common stock held in treasury, at cost - 1,800,410 shares and 1,792,431 shares at June 30, 1994 and December 31, 1993, respectively............................... (53,668) (49,728) Less, unallocated LESOP shares purchased with debt - 1,009,155 shares at June 30, 1994 and December 31, 1993, respectively............................................ (31,284) (31,284) Total stockholders' equity............................. 369,135 268,153 $1,148,596 $1,001,935 See Notes to Financial Statements - 7 -
CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES STATEMENT OF CASH FLOWS
Six months ended June 30 Amounts in Thousands 1994 1993 Unaudited Unaudited CASH FLOWS FROM OPERATING ACTIVITIES: Net income......................................................$ 89,376 $ 19,553 Adjustments to reconcile net income to net cash provided by operating activities: Effect of accounting changes............................... 0 (6,150) Depreciation............................................... 17,881 18,789 Amortization of intangibles................................ 1,286 1,061 Net gain on sale of a business............................. (32,884) 0 Exchange (gain) loss....................................... 1,621 (1,921) Employee benefit expense funded with treasury stock........ 1,351 403 Loss (earnings) of unconsolidated companies................ (28,637) 4,334 Increase in receivables and other current assets........... (30,852) (41,886) Decrease in refundable income taxes........................ 3,543 0 Decrease (increase) in inventory........................... (5,915) 1,426 Decrease in net deferred tax assets........................ 274 681 Increase in payables and accruals.......................... 17,567 26,905 Increase in postretirement benefit accruals................ 3,198 1,251 Decrease (increase) in other non-current assets............ 9,141 (639) Increase (decrease) in other long-term liabilities......... 8,420 (3,699) Other...................................................... 167 30 Net cash provided by operating activities.................. 55,537 20,138 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of business (net of business' cash).......... 103,405 0 Cost of acquisition - net of cash acquired...................... (144,326) 0 Additions to properties......................................... (18,121) (10,252) Sales of properties............................................. 446 421 Decrease (increase) in short-term investments................... 34,600 (40,600) Decrease in investments and advances--associated companies...... 0 3,959 Net cash used in investing activities...................... (23,996) (46,472) CASH FLOWS FROM FINANCING ACTIVITIES: Additions to long-term borrowings............................... 26 90,597 Payments on long-term debt...................................... (849) (72,472) Decrease in notes payable--current.............................. (6,484) (1,167) Proceeds from sale of stock under option plans.................. 10 0 Other........................................................... 2,266 179 Net cash provided (used) in financing activities........... (5,031) 17,137 Effect of exchange rate changes on cash......................... (2,286) 1,536 Increase (decrease) in cash and cash equivalents................ 24,224 (7,661) Cash and cash equivalents at beginning of year.................. 35,228 71,024 Cash and cash equivalents at end of period...................... 59,452 63,363 Short-term investments (cost approximates market)............... 166,000 161,500 Cash, cash equivalents and short-term investments...............$ 225,452 $ 224,863 See Notes to Financial Statements - 8 -
CLARK EQUIPMENT COMPANY AND CONSOLIDATED SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS General Information These financial statements have been prepared from the unaudited financial records of the Registrant (also referred to herein as the "Company" or "Clark"). The statements should be read in conjunction with the Company's 1993 Annual Report filed on Form 10-K. In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the interim periods have been reflected. Net income per share amounts are in dollars, based on the average number of shares outstanding for the period, taking into account the dilutive effect of common stock equivalents under the Registrant's stock option plans. The number of shares used to compute net income per share for the six month period ended June 30, 1994 and June 30, 1993, were 17,424,203 and 17,417,987, respectively. There were no dividends paid during the six months ending June 30, 1994 or June 30, 1993. 7,738 shares of common stock were reserved for issuance pursuant to the exercise of options under the 1985 Stock Option Plan on June 30, 1994. Options for 7,738 shares were outstanding under the 1985 Stock Option Plan on the same date. Recent Developments In the second quarter of 1994, the Company completed the sale of Clark Automotive Products Corporation ("CAPCO") to the public through an initial public offering. CAPCO was a business unit of Clark which manufactured transmissions, primarily for on-highway applications for sale in Brazil and North America. Clark sold approximately 91 percent of its interest in CAPCO and received net proceeds of approximately $103 million. A gain of approximately $33 million was realized on the sale. CAPCO has been included in the financial statements as a discontinued operation for all periods presented. On May 13, 1994, the Company completed the purchase of Blaw-Knox Construction Equipment Corporation ("Blaw-Knox") from White Consolidated Industries ("WCI"). Blaw-Knox is a leading manufacturer of asphalt pavers which are sold in North America and into other world markets. The preliminary purchase price was approximately $144 million. The purchase price is subject to final adjustment pursuant to the terms of the Agreement of Purchase and Sale between WCI and Clark. The balance sheet and the results of operations of Blaw-Knox are included in the consolidated accounts of Clark subsequent to the acquisition date. If Blaw-Knox had been consolidated with Clark from January 1, 1993, pro forma year-to-date sales would have been $486.3 million in 1994 and $395.8 million in 1993. Pro forma second quarter sales would have been $254.3 million in 1994 and $209.8 million in 1993. The Blaw-Knox acquisition as of an earlier date would not have materially affected Clark's net income from continuing operations in either 1994 or 1993. -9- Contingencies The Company is self-insured with respect to product liability risk, although insurance coverage is obtained for catastrophic losses. The Company has pending approximately 78 claims, with respect to which approximately 42 suits have been filed alleging damages for injuries or deaths arising from accidents involving products manufactured by the Company's continuing operations. In the aggregate, these claims could be material to the Company. At June 30, 1994, the Company had reserves of approximately $12 million related to product liability exposures. The Company is involved in numerous other lawsuits arising out of the ordinary conduct of its business. These lawsuits pertain to various matters, including warranties, civil rights, safety, anti-trust, and other issues. The ultimate results of these claims and proceedings at June 30, 1994 are subject to a high degree of estimation and cannot be determined with complete precision. However, in the opinion of management, either adequate provision for anticipated costs has been made through insurance coverage or accruals, or the ultimate costs will not materially affect the consolidated financial position of the Company. The Company has given certain guarantees to third parties and has entered into certain repurchase arrangements relating to product distribution and product financing activities involving the Company's continuing operations. As of June 30, 1994, guarantees are approximately $23 million and repurchase arrangements relating to product financing by an independent finance company approximate $67 million. It is not practicable to determine the additional amount subject to repurchase solely under dealer distribution agreements. Under the repurchase arrangements, when dealer terminations do occur, a newly selected dealer generally acquires the assets of the prior dealer and assumes any related financial obligations. Accordingly, the risk of loss to Clark is minimal, and historically Clark has incurred only immaterial losses relating to these arrangements. The Company is or may be liable for other matters, including contingencies related to the sale of its forklift truck business, Clark Material Handling Company ("CMHC") and environmental issues (see pages 15 - 16 "Management's Discussion and Analysis of Operations"). -10- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Overview: Recent Developments In the second quarter of 1994, the Company completed the sale of Clark Automotive Products Corporation ("CAPCO") to the public through an initial public offering. CAPCO was a business unit of Clark which manufactured transmissions, primarily for on-highway applications for sale in Brazil and North America. Clark sold approximately 91 percent of its interest in CAPCO and received net proceeds of approximately $103 million. A gain of approximately $33 million was realized on the sale. CAPCO has been included in the financial statements as a discontinued operation for all periods presented. On May 13, 1994, the Company completed the purchase of Blaw-Knox Construction Equipment Corporation ("Blaw-Knox") from White Consolidated Industries ("WCI"). Blaw-Knox is a leading manufacturer of asphalt pavers which are sold in North America and into other world markets. The preliminary purchase price was approximately $144 million. The purchase price is subject to final adjustment pursuant to the terms of the Agreement of Purchase and Sale between WCI and Clark. The balance sheet and the results of operations of Blaw-Knox are included in the consolidated accounts of Clark subsequent to the acquisition date. If Blaw-Knox had been consolidated with Clark from January 1, 1993, pro forma year-to-date sales would have been $486.3 million in 1994 and $395.8 million in 1993. Pro forma second quarter sales would have been $254.3 million in 1994 and $209.8 million in 1993. The Blaw-Knox acquisition as of an earlier date would not have materially affected Clark's net income from continuing operations in either 1994 or 1993. General Discussion of Second Quarter and Six Month Results: Second quarter 1994 sales increased 29.5 percent over second quarter 1993 sales. The increase was the result of improved sales levels at both Clark-Hurth and Melroe and reflects incremental sales of approximately $14.8 million as a result of the acquisition of Blaw-Knox in May of 1994. The increased sales resulted in higher income from consolidated operations which amounted to $14.3 million in the second quarter of 1994 compared to $8.4 million in the second quarter of 1993. VME, Clark's 50 percent owned construction machinery joint venture, also reported significantly higher earnings in 1994 as a result of improved economic conditions, currency devaluations and past actions taken to reduce costs. Clark's share of VME's earnings were $15.5 million in the second quarter of 1994 compared to $.9 million in the second quarter of 1993. Clark's overall results from continuing operations improved to $29.8 million or $1.71 per share in the second quarter of 1994 from $9.2 million or $.53 per share in the same period of 1993. Income from discontinued operations, which primarily related to the gain on the sale of CAPCO in 1994, increased to $32.7 million or $1.88 per share in the second quarter of 1994 compared with $1.6 million or $.09 per share in the same period of 1993. The income from discontinued operations in 1993 related to the operations of CAPCO. -11- In the first six months of 1994, Clark earned $55.2 million or $3.17 per share from continuing operations compared to $11.0 million or $.63 per share in the first six months of 1993. The improvement resulted from a 28 percent growth in sales relating to consolidated operations and significantly improved VME earnings. Comparative earnings, including continuing and discontinued operations and the impacts of accounting changes, were $89.4 million or $5.13 per share in the first six months of 1994 compared to $19.6 million or $1.12 per share in the first six months of 1993. The 1993 results include a change in accounting for income taxes at VME which contributed $6.2 million or $0.35 per share to earnings. Results of Operations: Second Quarter of 1994 Compared to Second Quarter of 1993: Sales in the second quarter of 1994 were $242.5 million compared with $187.3 million in the second quarter of 1993. The consolidated sales increase of $55.2 million relates mostly to volume improvements and reflects incremental sales of $14.8 million as a result of the acquisition of Blaw-Knox in May of 1994. Minor price increases also contributed to the sales improvement. Unfavorable foreign currency translation impacts decreased sales by about $1.2 million. Strength in North American construction machinery markets was the primary cause of the second quarter 1994 sales increase. Selected European markets also showed some improvement. Excluding Blaw-Knox sales, North American sales increased by $31.7 million, or 26.4 percent in the second quarter of 1994 when compared with the second quarter of 1993 and overseas sales increased $8.7 million, or 12.9 percent when comparing the same period. Gross margins were $52.5 million, or 21.6 percent of sales in the second quarter of 1994 compared with $40.3 million, or 21.5 percent of sales in the same period of 1993. The $12.2 million margin increase was the result of higher sales. Foreign currency translation and exchange results included in cost of sales were losses of $1.5 million in 1994 and gains of $1.5 million in 1993. Selling, general and administrative expenses were $29.0 million or 12.0 percent of sales in the second quarter of 1994 compared with $25.1 million or 13.4 percent of sales in the second quarter of 1993. The increase in expenditures was principally related to expense associated with stock appreciation rights ($1.1 million) and volume/promotional related selling expense ($2.8 million). Operating income from continuing consolidated operations increased about 55 percent to $23.5 million from the 1993 second quarter level of $15.2 million. Operating income as a percentage of sales was 9.7 percent in the second quarter of 1994 compared to 8.1 percent in the second quarter of 1993. Increased operating income is attributable to higher sales and higher gross margins, partially offset by increases in selling, general and administrative expenses. Other income of $2.8 million in the second quarter of 1994 approximated the 1993 level. Both years related principally to interest income. Interest expense decreased approximately $1.0 million in the second quarter of 1994 when compared to the same period of 1993 due to lower average debt balances outstanding during the second quarter of 1994. -12- Pre-tax income from consolidated continuing operations in the second quarter of 1994 was $21.7 million compared to $12.2 million for the same period of 1993. The improved results reflect higher sales and improved gross margins. Tax provisions of $7.4 million and $3.9 million were recorded in the respective second quarter periods of 1994 and 1993. The effective tax rate in the second quarter of 1994 was 34.2 percent which approximates the statutory rate. The 1993 second quarter rate of 31.8 percent was lower than the U.S. statutory rate because of expected utilization of certain foreign net operating loss carryforwards and U.S. capital loss carryforwards. Clark's share of VME earnings for the second quarter increased to $15.5 million, or $0.89 per share, compared to $0.9 million, or $0.05 per share, in the same 1993 period. VME's consolidated sales were $406.0 million, up 24 percent from second quarter 1993 sales of $327.1 million and 24 percent above first quarter 1994. VME earnings improvements were driven by higher sales volumes, improved price realization, and lower interest costs due to declining debt levels. VME's North American markets continued to show strength in all product areas while most European economies continued their slow progress toward economic recovery. Results from continuing operations, which includes the results of VME, were income of $29.8 million and $9.2 million, respectively, in the second quarter of 1994 and 1993. Discontinued operations, which primarily related to the gain on the sale of CAPCO in the second quarter of 1994, increased to $32.7 million compared with $1.6 million in the second quarter of 1993. The income from discontinued operations in 1993 related to the operations of CAPCO. In the aggregate, Clark recorded income of $62.5 million, or $3.59 per share in the second quarter of 1994 and $10.8 million, or $0.62 per share in the same period of 1993. First Half of 1994 Compared to First Half of 1993: Sales in the first half of 1994 were $447.7 million compared with $350.4 million in the first six months of 1993. The consolidated sales increase of $97.3 million relates mostly to volume improvements and reflects incremental sales of $14.8 million as a result of the acquisition of Blaw- Knox in May of 1994. Minor price increases also contributed to the sales improvement. Unfavorable foreign currency translation impacts decreased sales by about $2.2 million. Strength in North American construction machinery markets was the primary cause of the first half 1994 sales increase. Selected European markets also showed some improvement. Excluding Blaw-Knox sales, North American sales increased by $69.4 million, or 31.1 percent in the first half of 1994 when compared with the first half of 1993 and overseas sales increased $13.1 million, or 10.3 percent when comparing the same period. Gross margins were $95.6 million, or 21.3 percent of sales in the first half of 1994 compared with $74.1 million, or 21.1 percent of sales in the same period of 1993. The $21.5 million margin increase was principally the result of higher sales. Foreign currency translation and exchange results included in cost of sales were losses of $1.6 million in the first six months of 1994 and gains of $4.0 million in the first six months of 1993. -13- Selling, general and administrative expenses were $54.5 million or 12.2 percent of sales in the first half of 1994 compared with $47.3 million or 13.5 percent of sales in the first six months of 1993. The increase in expenditures was principally related to expense associated with stock appreciation rights ($5.3 million) and volume/promotional related selling expense ($3.1 million) which increase was offset by certain 1993 expenses which were not incurred during 1994. Operating income from continuing consolidated operations increased about 53 percent to $41.0 million from the 1993 first half level of $26.8 million. Operating income as a percentage of sales was 9.2 percent in the first half of 1994 and 7.6 percent in the first half of 1993. The increased level of operating income is attributable to higher sales and higher gross margins, partially offset by increases in selling, general and administrative expenses. Other income increased by $4.7 million from the first half 1993 level to $9.9 million. This principally resulted from an increase of $0.8 million in interest income and a gain of about $4.1 million on the sale of certain overseas bonds. Interest expense decreased approximately $0.4 million in the first half of 1994 when compared to the same period of 1993 due to lower average debt balances outstanding during the first half of 1994. Pre-tax income from consolidated continuing operations in the first half of 1994 was $40.7 million compared to $21.4 million for the same period of 1993. The improved results reflect higher sales and improved gross margins. Tax provisions of $14.1 million and $6.0 million were recorded in the respective first six month periods of 1994 and 1993. The effective tax rate in the first half of 1994 was 34.6 percent which approximates the statutory rate. The 1993 first half rate of 28.1 percent was lower than the U.S. statutory rate because of expected utilization of certain foreign net operating loss carryforwards and U.S. capital loss carryforwards. Through June 30, 1994, Clark has recorded equity income in VME of $28.6 million. This compares to a loss of $4.3 million in the first six month period of 1993. VME's consolidated sales for the first half increased by 20.3 percent to $733.6 million compared to last year. Higher unit and spare parts sales drove the gain. Market conditions in North America continued to strengthen in all product lines and selected markets in Western Europe, such as Great Britain and Scandinavia, also improved. The German market, though down, has been above expectations. Results from continuing operations, which include the results of VME, were income of $55.2 million and $11.0 million, respectively, in the first half of 1994 and 1993. Income from discontinued operations, which consisted primarily of the $32.9 million gain on the sale of CAPCO, increased to $34.2 million compared to $2.4 million in the first half of 1993. The income from discontinued operations in 1993 related to the operations of CAPCO. Including the discontinued operations, but before the effect of a change in accounting principles, Clark recorded income of $89.4 million, or $5.13 per share, in the first half of 1994 and $13.4 million or $0.77 per share, for the same period of 1993. Also, effective January 1, 1993, VME adopted FAS -14- No. 109, "Accounting for Income Taxes" and Clark's 50 percent share of the impact of the accounting change was $6.2 million, or $0.35 per share. In the aggregate, Clark recorded net results of $19.6 million, or $1.12 per share, for the first half of 1993. Contingencies: Environmental The Company is involved in environmental clean-up activities or litigation in connection with ten former waste disposal sites and four former U.S. plant locations. The Company is also involved in an environmental clean- up action at one current location. The Company is also a defendant in a lawsuit filed by the United States Environmental Protection Agency which seeks civil penalties for alleged violations of the Clean Water Act arising out of the discharge of certain metal finishing wastewaters generated at the Company's Melroe facility in Gwinner, North Dakota. At each of the ten waste disposal sites, Clark contracted with independent waste disposal operators to properly handle the disposal of its waste. The Environmental Protection Agency (EPA) also has identified other parties responsible for clean-up costs at the waste disposal sites. The Company has and will continue to accrue these costs when the liability can be reasonably estimated. As of June 30, 1994, the Company had reserves of approximately $16.1 million for potential future environmental clean-up costs. The environmental reserves represent Clark's current estimate of its liability for environmental clean-up costs and are not reduced by any possible recoveries from insurance companies or other potentially responsible parties not specifically identified by the EPA. Although management cannot determine whether or not a material effect on future operations is reasonably likely to occur, it believes that the recorded reserve levels are appropriate estimates of the potential liability. Further, management believes that the additional maximum exposure level in excess of the recorded reserve level would not be material to the financial condition of the Company. Although settlement of the reserves will cause future cash outlays, it is not expected that such outlays will materially impact the Company's liquidity position. The Company's expenditures in the first half of 1994 relating to environmental compliance and clean-up activities were immaterial. Sale of Clark Material Handling Company ("CMHC") The Company sold its forklift truck business, CMHC, to Terex on July 31, 1992. As part of the sale, Terex and CMHC assumed substantially all of the obligations of the Company relating to the CMHC operations, including: 1) contingent liabilities of the Company with respect to floor plan and rental repurchase agreements, 2) certain guarantees of obligations of third parties, and 3) existing and future product liability claims involving CMHC products. In the event that Terex and CMHC fail to perform or are unable to discharge any of the assumed obligations, the Company could be required to discharge such obligations. 1) Repurchase Agreements At the time of the sale, the Company had agreed with an independent finance company to repurchase approximately $220 million of CMHC dealer floor plan and rental inventory in the event of a default by individual dealers for whom the inventory is financed. Since the sale, dealer floor plan and rental inventory obligations have been liquidating in the normal course of business and stand at -15- approximately $60 million at June 30, 1994. These obligations will continue to liquidate in an orderly fashion. The Company will not be required to perform these repurchase obligations unless the dealer defaults in the underlying obligations and Terex and CMHC default in their repurchase obligations. Should that occur, the collateral value securing the obligations should be sufficient to reduce any loss to an immaterial amount. 2) Third Party Guarantees The Company has guaranteed approximately $21 million of obligations of third parties relating to the CMHC operation. Approximately $14 million of these guarantees relate to national account rental arrangements with a number of large creditworthy customers. Approximately $7 million relates to capital loans given by a finance company to independent CMHC dealers, which are secured by a lien on substantially all of the dealer's assets. These guaranteed obligations are expected to liquidate over time. The Company believes, based on past experience, that the national account customers and dealers, who are the primary obligors, will meet their obligations, resulting in immaterial losses to the Company regardless of whether CMHC and Terex are able to perform their obligations. 3) Product Liability Claims CMHC had approximately $45 million of reserves relating to existing product liability claims at the time of the sale. Future accidents will likely occur, which will result in increased product liability exposure over time. The Company will incur losses relating to these product liability claims if CMHC and Terex fail to perform their obligations. The impact of any such losses would be mitigated by available tax benefits and by insurance coverage that is available for catastrophic losses. Cash settlement of product liability claims are generally made over extended periods of time, thereby significantly reducing the impact of cash flow in any one year. Uncertainty exists as to the ultimate effect on Clark if Terex and CMHC fail to perform these obligations and commitments. While the aggregate losses associated with these obligations could be material, the Company does not believe such an event would materially affect the Company's ability to meet its cash requirements. In its Form 10-Q for the first quarter of 1994, Terex reported that it was continuing to incur operating losses and had a deficit stockholders' investment. In their latest report on the financial statements that were filed as part of Terex's Form 10-K for 1992, Terex's independent accountants indicated that Terex's recurring losses, its capital deficiency, and its inability to borrow additional funds under a bank lending agreement raised doubts about Terex's ability to continue as a going concern. In August 1994, Terex announced that in the second quarter of 1994, it earned $10 million, which included $19.7 million from the sale of certain non-strategic assets. Other: Clark has certain other contingent liabilities which have arisen in the normal course of business. These are discussed further in the Notes to the Financial Statements on page 10. -16- Liquidity and Capital Resources: At June 30, 1994, the Company's cash and short-term investments amounted to $225.5 million compared with $235.8 million at December 31, 1993. The decrease in cash is principally due to the expenditure of approximately $144 million for the acquisition of Blaw-Knox; partially offset by proceeds from the sale of CAPCO of approximately $103 million and cash flow from operations of approximately $31 million. On April 6, 1994, the Company entered into a $100 million Master Credit Agreement with nine banks. The new agreement has a term of three years and replaces a previous agreement of $66.2 million. There were no outstanding borrowings under the Company's line of credit as of June 30, 1994. In the first quarter of 1993, the Company filed a shelf registration statement with the Securities and Exchange Commission to register $150 million of medium term notes. To date, $90.2 million of the medium term notes have been issued, leaving $59.8 million available for future issuance. The Company believes that it has adequate liquidity either through cash reserves, its line of credit, or through its access to public and private markets to meet its operating needs and strategic objectives. Capital Investment (Including CAPCO): Capital expenditures were $18.1 million in the first half of 1994 as compared to $10.3 million in the first six months of 1993. A comparative breakdown of expenditures is as follows: In Millions 1994 1993 By Type: . Capital facilities and equipment $14.4 $ 8.3 . Tooling 3.7 2.0 Total $18.1 $10.3 By Location: . North America $ 8.0 $ 7.5 . Foreign locations 10.1 2.8 Total $18.1 $10.3 Depreciation of fixed assets was $17.9 million in the first half of 1994 as compared to $18.8 million in the first half of 1993. Capitalization: At June 30, 1994, debt as a percentage of total capitalization (total debt and stockholders' equity) was 38.7 percent compared with 46.9 percent at December 31, 1993. The improvement in the ratio relates to increased stockholders' equity, principally, the current year income of $89.4 million. Total debt at June 30, 1994 decreased to $232.6 million from the December 31, 1993, level of $236.9 million. Stockholders' equity per share was $21.22 at June 30, 1994 and $15.41 at December 31, 1993. Outlook: The backlog at June 30, 1994 was $191.2 million, up from $121.0 million at June 30, 1993. The backlog amount in the second quarter of 1994 includes Blaw-Knox. -17- The Company believes the level of business activity as demonstrated by the second quarter results and order rates provide an optimistic picture of business activity for the balance of the year. Although normal seasonal patterns indicate that third quarter results will come in below seasonal peaks reached in the second quarter, third quarter 1994 results should show a substantial improvement over 1993 performance levels. -18- SELECTED FINANCIAL DATA - VME GROUP N.V. In 1985 a joint venture was formed combining the construction machinery businesses of Clark Equipment Company and AB Volvo of Sweden. VME Group N.V. ("VME") is owned 50 percent each by Clark and Volvo as a result of their contribution of ownership in their construction machinery subsidiaries VME Americas Inc. (then Clark Michigan Company) and VME Holding Sweden AB (then Volvo BM AB), respectively. Following are condensed consolidated financial data of VME Group N.V. (amounts in millions): 2nd Quarter Six Months 1994 1993 1994 1993 Sales $406.0 $327.1 $733.6 $609.6 Income (loss) before income taxes and changes in accounting principle 44.4 10.5 84.7 (0.8) Provision for income taxes 12.8 6.8 26.3 5.5 Income (loss) before changes in accounting principle 31.6 3.7 58.4 (6.3) Effect of change in accounting principle - - - 12.3 Net income $ 31.6 $ 3.7 $ 58.4 $ 6.0 VME's sales during the first half of 1994 were $733.6 million, an increase of $124.0 million from the $609.6 million recorded in the first half of 1993. The increase resulted because demand for construction equipment continued to strengthen in North America and Great Britain and started to show improvement from low levels in other markets, including the Nordic countries, France, Spain and Australia. The German market was also stronger. VME recorded net income of $31.6 million in the second quarter of 1994 compared to a net income of $3.7 in the same period of 1993, a change of $27.9 million. VME's net income of $58.4 million in the first half of 1994 compares to a net income of $6.0 million in the same period of 1993. The improvement in operating results is mainly due to the following: - Higher production and sales volumes - Improved price realization - Reduced overhead expenses in both distribution and manufacturing In the first quarter of 1993, VME adopted FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and FAS No. 109, "Accounting for Income Taxes". -19- VME elected to recognize its estimated obligations under FAS No. 106 on a transitional basis over 20 years. A net charge of $1.4 million was included in the first half of 1994 and 1993. The impact in 1993 of the change of principle relating to accounting for income taxes, FAS 109, was $12.3 million. Total assets of VME were $875.7 million at the end of June 1994, an increase of $37.4 million from $838.3 million in June 1993. The increase is mainly from higher receivables resulting from higher sales volumes and increased goodwill related to the purchase of remaining shares in Zettelmeyer Baumaschinen GmbH as of January 1, 1994. -20- EXHIBITS LIST AND INDEX Filed Herewith Unless Exhibit Description Otherwise Indicated (2)(a) Underwriting Agreement Incorporated by reference to dated May 6, 1994 among Exhibit (2)(a) to Registrant's Automotive Products Company, Form 8-K filed on May 27, 1994 Clark Automotive Products with respect to Registrant's Corporation, and Clark disposition of Clark Automotive Equipment Company and CS Products Corporation First Boston Corporation and Merrill, Lynch, Pierce, Fenner & Smith Incorporated as representatives of the Underwriters (2)(b) Subscription Agreement dated Incorporated by reference to May 6, 1994 among Automotive Exhibit (2)(b) to Registrant's Products Company, Clark Form 8-K filed on May 27, 1994 Automotive Products Corpora- with respect to Registrant's tion, Clark Equipment disposition of Clark Automotive Company, CS First Boston Products Corporation Limited, Merrill Lynch International Limited, ABN AMRO Bank N.V., Banque Bruxelles Lambert S.A., Cazenove & Co., Dresdner Bank Aktiengesellschaft and UBS Limited (2)(c) Agreement of Purchase and Incorporated by reference to Sale dated April 20, 1994 Exhibit (2) to Registrant's between Clark Equipment Form 8-K filed on May 27, 1994 Company and White Consoli- with respect to Registrant's dated Industries Inc. acquisition of Blaw-Knox Construction Equipment Corporation (99) Computation of Ratio of Page 22 Earnings to Fixed Charges for the six months ended June 30, 1994 (10)(a) Stock Purchase Program Page 23 -21- EXHIBIT (99) CLARK EQUIPMENT COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS) Six Months 1994 Earnings Before Tax: Clark - From Continuing Consolidated Operations $40.6 Clark's 50 Percent Share of VME (Net of Clark Goodwill Amortization and Other VME Related Expenses) 41.7 Total Pre-Tax Earnings (1) $82.3 Fixed Charges: Clark: Interest Expense $10.2 Interest Portion of Rent Expense 0.9 Clark's Share of VME: Interest Expense 4.5 Interest Portion of Rent Expense 1.4 Total Fixed Charges (2) $17.0 Earnings from Continuing Operations before Taxes and Fixed Charges (1 Plus 2) $99.3 Ratio of Earnings to Fixed Charges 5.84 ===== Note: Earnings to fixed charges have been determined based on continuing operations and have been computed by dividing earnings before income taxes and fixed charges by fixed charges. Earnings before income tax include the pre-tax income from Clark's consolidated continuing operations and Clark's 50 percent share of VME's pre-tax income, net of Clark goodwill amortization related to its VME investment, and other expenses directly related to VME. Fixed charges include interest expense relating to Clark's consolidated continuing operations and Clark's 50 percent share of VME's interest. Fixed charges also include one-third of Clark rentals for consolidated continuing operations and Clark's 50 percent share of one- third of the VME rentals. The Company believes that one-third of such rentals constitutes a representative interest factor. Capitalized interest has been excluded from fixed charges as it is immaterial. -22- CLARK EQUIPMENT COMPANY STOCK PURCHASE PROGRAM Adopted the 10th day of May, 1994, by action of the Human Effectiveness Committee of the Board of Directors of Clark Equipment Company, pursuant to the authority delegated to such Committee under Section 6 of the Clark Equipment Company 1994 Long-Term Incentive Plan (the "1994 LTIP"). 1. Purpose. The purpose of this Stock Purchase Program (the "Program") of Clark Equipment Company ("Clark"), is to secure for Clark and its stockholders the benefits of the incentive which an interest in the ownership of common stock of Clark will provide to those officers and other employees who will be responsible for Clark's future growth and continued success. This Program is established pursuant to Section 6 of the 1994 LTIP and shall be subject to the terms and conditions of the 1994 LTIP. Unless the context clearly implies or indicates to the contrary, a word, term or phase used or defined in the 1994 LTIP is similarly used or defined for purposes of the Program. 2. Participation. All officers of Clark shall be eligible to participate in the Program. The Committee (as defined in the 1994 LTIP) may, from time to time, designate other employees of Clark as eligible to participate in the Program. For purposes of this Program, the term "officer" shall mean the Chairman, President and Chief Executive Officer, and all Vice Presidents. An eligible person may become a participant in the Program (a "Participant") or may thereafter increase, decrease or discontinue contributions to the Program by delivering to the Secretary of Clark the prescribed election form. The Committee may impose such advance election requirements as it determines to be appropriate. 3. Contributions by Participants. All contributions by Participants shall be by pay deduction. The amount of such pay deduction shall be fixed in the election form delivered by the Participant, but shall not exceed fifteen percent (15%) of Eligible Compensation. To the extent that a Participant elects to suspend participation to conform to requirements of SEC Rule 16b-3, make-up contributions shall be made by the Participant (and make-up contributions shall be made by Clark under paragraph 4) by doubling the amount of Participant contributions for each month, beginning with the month following the month in which the suspension period ends, until such time as the missed contributions have been made up. "Eligible Compensation" shall mean base salary, unreduced by amounts deferred pursuant to any qualified or non-qualified deferred compensation plans maintained by Clark, and incentive compensation awards. 4. Contributions by Clark. Clark shall contribute into the Program with respect to each Participant an amount equal to sixty-six and two- thirds percent (66-2/3%) of the Participant's monthly contribution including the month in which a contribution from incentive compensation is made. The contribution of each Participant, together with Clark's corresponding contribution, will be applied to the purchase of shares of Clark common stock as hereinafter described. -23- 5. Purchase of Shares. Shares of common stock of Clark (the "Shares") acquired by Participants pursuant to the Program shall be shares currently authorized but unissued or currently held or subsequently acquired by Clark as treasury shares, including shares purchased in the open market or in private transactions. In all cases, the price to the Participant of the Shares shall be the Fair Market Value (as defined in the 1994 LTIP) per Share, determined as if such Shares are purchased on the first business day of the month after the month for which the Participant's contribution is deducted from his or her pay. Shares purchased with funds contributed by the Participant shall be registered in the name of the Participant or in such other or additional name or names as the Participant may have designated in the prescribed election form. Shares purchased with funds contributed by Clark shall be held by Clark or deposited in a bank or other location for safekeeping with appropriate credit made to the account of the Participant in records kept for such purpose. 6. Interest of the Participant in Shares. An account will be maintained for each Participant showing the number of Shares purchased from funds contributed by the Participant and from funds contributed by Clark for the benefit of the Participant. A Participant shall at all times have a vested interest in the Shares in his or her account purchased with his or her contributions. A Participant's interest in Shares purchased with the contributions of Clark shall not be immediately vested but shall vest in five equal annual installments, beginning 2 January of the second calendar year following the year of purchase of such Shares. The foregoing vesting schedule is subject to the provisions of paragraph 8 hereof regarding termination of participation in the Program. Notwithstanding any other provision of the Program to the contrary, upon the occurrence of a Change in Control of Clark (as defined in the 1994 LTIP), each Participant shall have a fully vested right to all Shares purchased with the contributions of Clark and credited to his or her account and a stock certificate for such Shares, registered in the name of the Participant or his or her designee as provided herein, along with cash for the value of any fractional Share, shall then be distributed to each Participant. 7. Issuance of Shares Certificates and Distribution of Dividends. After the end of each calendar month there shall be distributed to each Participant a stock certificate registered in the name of the Participant, or in such other name or names as he or she may have designated in the prescribed election form, representing the number of whole Shares purchased during the preceding calendar month from funds contributed by the Participant. After 2 January of each year, there shall be distributed to each Participant a stock certificate registered in the name of the Participant, or in such other name or names as he or she may have designated in the prescribed election form, representing the number of whole Shares purchased from funds contributed by Clark in which the Participant's interest shall have vested. Concurrently, there shall be furnished to each Participant an annual statement which shall reflect the amount of his or her contributions to date, the corresponding contributions by Clark to date, the aggregate cost of the Shares represented by the certificate distributed to the Participant, the fractional share, if any, to which the Participant may be entitled, and the number of Shares in the Participant's account in which his or her interest shall not have vested. A similar statement will be furnished on termination of participation in the Program. Dividends on all Shares, whether or not such Shares have vested, will be distributed currently. -24- 8. Termination of Participation. If a Participant ceases, because of death or disability, to be an eligible person, his or her participation in the Program shall automatically terminate as of the end of the calendar month of his or her death or disability. Upon such termination, the Participant's interest in all Shares in his or her account purchased with contributions by Clark shall immediately vest and there shall be delivered to the Participant, or to the estate of a deceased Participant (a) a stock certificate registered in the name of the Participant, or such other name or names as he or she may have designated in the prescribed election form, representing any whole Shares in the Participant's account purchased from funds contributed by the Participant which have not been previously distributed to him or her, (b) a stock certificate registered in the name of the Participant, or such other name or names as he or she may have designated, representing the whole Shares in the Participant's account purchased from funds contributed by Clark, and (c) cash representing the value of any fractional Share to which the Participant is entitled as of the effective date of termination of his or her participation in the Program. Disability as used above shall mean having a physical or mental condition which, in the reasonable judgment of a majority of the Committee, will permanently preclude further active employment. If a Participant ceases because of Retirement (as defined in the 1994 LTIP) either before or after age 60 to be an eligible person, his or her participation in the Program shall automatically terminate as of the end of the calendar month of such Retirement. Upon such termination, the Participant's interest in all Shares in his or her account purchased with contributions by Clark shall continue to vest in the same manner and pursuant to the same vesting schedule as if such Retirement had not occurred; provided, however, that the Committee may, in its sole discretion immediately vest all such unvested Shares if the Participant was at least age 60 upon such Retirement, or upon the Participant's attainment of age 60 and, in such event, there shall then be delivered to the Participant (a) a stock certificate registered in the name of the Participant, or such other name or names as he or she may have designated in the prescribed election form representing any whole Shares in the Participant's account purchased from funds contributed by the Participant which have not been previously distributed to him or her, (b) a stock certificate registered in the name of the Participant, or such other name or names as he or she may have designated, representing the whole Shares in the Participant's account purchased from funds contributed by Clark, and (c) cash representing the value of any fractional share to which the Participant is entitled as of the effective date of termination of his or her participation in the Program. If a Participant ceases to be an eligible person before his or her death, disability or Retirement, his or her participation in the Program shall automatically terminate as of the end of the month that he or she ceased to be an eligible person. There shall then be delivered to the Participant stock certificates, in the manner and registered as described in the preceding paragraph, representing the whole Shares in the Participant's account that are then vested to his or her interest, and cash representing any fractional Share to which he or she is then entitled. The Committee shall have the sole discretion to determine whether the Shares in this account in which his or her interest is not then vested shall continue to vest (and if so, in what manner), and then be distributed, or whether all of his interest in such Shares shall then terminate. Subject to the terms and conditions of the 1994 LTIP, the Shares in the Participant's account which have not vested and in which his or her interest terminates will thereafter be available to reduce the number of Shares otherwise required to be purchased with contributions by Clark under the Program. -25- 9. Expenses. In addition to contributions, Clark will pay all fees and expenses incurred in connection with the Program, except that brokerage fees or commissions incurred in the purchase of Shares shall be considered part of the cost of the Shares and shall be paid from contributions under the Program. No charge or deduction for any expenses will be made to a Participant upon the termination of his or her participation under the Program or upon the distribution of certificates representing Shares purchased with his or her contributions or the contributions of Clark. 10. Administration. The Program shall be administered by the Committee. Subject to the express provisions of the Program, the Committee shall have authority to interpret the Program, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations deemed necessary or advisable in administering the Program. The Committee may, at its sole discretion and without advance notice, suspend contributions to the Program from month to month with respect to any or all Participants. The determinations of the Committee on the matters referred to in this Paragraph shall be conclusive. 11. Amendment and Termination. The Committee may terminate the Program at any time and may amend the Program from time to time in any respect; provided, however, that upon any termination of the Program, all assets vested under the Program shall be distributed to the Participants, and provided further, that no amendment to the Program shall adversely affect the right of a Participant to receive his interest in the assets in his account which have vested under the Program. 12. Government and Other Regulations. The obligation of Clark to make contributions under the Program, and the obligation of Clark to purchase Shares under the Program, shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies as may be required. 13. Non-Alienation. No Participant shall be permitted to anticipate, assign, alienate, sell, transfer, pledge, or otherwise encumber his interest under the Program prior to the distribution of stock certificates to him. Any attempt to anticipate, assign, alienate, sell, transfer, pledge, or otherwise encumber a Participant's interest under the Program prior to distribution of stock certificates to him shall be void and of no effect. 14. No Right to Continue. The Program does not constitute a contract of employment, and selection as a Participant will not give any employee the right to be retained in the employ of Clark or any subsidiary, nor any right or claim to any benefit under the Program, unless such right or claim has specifically accrued under the terms of the Program. 15. Accounting and Administration. The Committee, or its delegate, shall be responsible for accepting and accounting for the amounts contributed by Participants and by Clark, the purchase, custody and distribution of the Shares, and the distribution of any dividends paid on Shares held by Clark or deposited in a bank account or other location. Until such time as the Committee determines otherwise, the Committee's responsibilities under this paragraph 15 shall be delegated to the officers and employees of Clark who regularly perform such functions. 16. Non-Compete. Notwithstanding any other provision of this Program to the contrary, no Shares purchased with Clark contributions, or any dividends paid thereon, will vest or be distributable pursuant to this -26- Program to any Participant or former Participant who violates the Competition Restrictions or Confidentiality Restrictions set forth in the 1994 LTIP. If any Participant or former Participant violates such Competition Restrictions or Confidentiality Restrictions, his or her interest in all Shares which have not vested will terminate. 17. Effective Date. The Program is effective May 11, 1994 (the "Effective Date"). As of the Effective Date, no further purchases may be made under the Clark Equipment Company Stock Purchase Plan (the "Stock Purchase Plan") and such Stock Purchase Plan shall have no further effect, except with respect to purchases made under such Stock Purchase Plan prior to the Effective Date. The Program is intended to be a successor to the Stock Purchase Plan and in no event shall a Participant be entitled to an accelerated vesting or distribution of his shares under the Stock Purchase Plan by reason of this paragraph 17 or the adoption of this Program. 05.06.94 -27- -----END PRIVACY-ENHANCED MESSAGE-----