-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QzVI70Qzm9JpUwIbRacEDF1ic3CBd04FbKIkNHTwTWOQzhxk0r6fCluevbIGx/WA vR1qhyDuJM0zq+sK5a5lUQ== 0000097216-97-000020.txt : 19970329 0000097216-97-000020.hdr.sgml : 19970329 ACCESSION NUMBER: 0000097216-97-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEREX CORP CENTRAL INDEX KEY: 0000097216 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL TRUCKS TRACTORS TRAILERS & STACKERS [3537] IRS NUMBER: 341531521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10702 FILM NUMBER: 97567454 BUSINESS ADDRESS: STREET 1: 500 POST ROAD EAST CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2032227170 MAIL ADDRESS: STREET 1: 500 POST ROAD EAST CITY: WESTPORT STATE: CT ZIP: 06880 FORMER COMPANY: FORMER CONFORMED NAME: BLACK MAMMOTH CONSOLIDATED MINING CO DATE OF NAME CHANGE: 19671002 10-K 1 TEREX 10-K FOR YEAR ENDED 12/31/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) |X| OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended December 31, 1996 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) |_| OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from __________ to __________. Commission File Number 1-10702 TEREX CORPORATION (Exact Name of Registrant as Specified in Charter) Delaware 34-1531521 (State of incorporation) (I.R.S. Employer Identification No.) 500 Post Road East, Suite 320, Westport, Connecticut 06880 (203) 222-7170 (Address of principal executive offices) (Telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.01 par value (Title of Class) New York Stock Exchange (Name of Exchange on which Registered) Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $85.4 million based on the last sale price on February 28, 1997. The number of shares of the Registrant's Common Stock outstanding was 13,294,502 as of February 28, 1997. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the 1997 Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the year covered by this Form 10-K with respect to the 1997 Annual Meeting of Stockholders are incorporated by reference into Part III . TEREX CORPORATION AND SUBSIDIARIES Index to Annual Report on Form 10-K For the Year Ended December 31, 1996 Page PART I Item 1 Business......................................................... 3 Item 2 Properties....................................................... 8 Item 3 Legal Proceedings................................................ 8 Item 4 Submission of Matters to a Vote of Security Holders.............. 8 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters.................................... 9 Item 6 Selected Financial Data.......................................... 10 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 11 Item 8 Financial Statements and Supplementary Data...................... 19 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosures........................ 19 PART III Item 10 Directors and Executive Officers of the Registrant............... * Item 11 Executive Compensation........................................... * Item 12 Security Ownership of Certain Beneficial Owners and Management... * Item 13 Certain Relationships and Related Transactions................... * PART IV Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K... 20 * Incorporated by reference from Terex Corporation Proxy Statement. Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as "Terex," the "Registrant," or the "Company." Dollar amounts except per share are in millions unless otherwise designated. PART I ITEM 1. BUSINESS General Terex is a global provider of capital goods and equipment used in the manufacturing, mining, construction and infrastructure industries. 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 corporation. As a result of the completion of a significant acquisition in 1995 (see "Terex Cranes" below), the Company's operations were divided into three principal segments: Material Handling and Heavy Equipment and Mobile Cranes. As a result of the disposition of its Material Handling segment in November 1996 (see "Discontinued Operations" below), the Company currently operates in two business segments: Terex Cranes and Terex Trucks. For 1996, consolidated revenues for continuing operations of the Company amounted to approximately $678.5. Terex Cranes (formerly known as the Company's Mobile Cranes Segment) designs, manufactures and markets mobile cranes, aerial platforms and lifts, container stackers and scrap handlers and related components and replacements parts. These products are primarily used by construction and industrial customers. Mobile cranes and container stackers are sold under the TEREX, PPM, BENDINI, LORAIN, KOEHRING and P&H (a licensed trademark of Harnischfeger Corporation) brand names. Aerial lifts are sold under the MARKLIFT brand name. Terex Cranes is headquartered in Conway, South Carolina. Terex Trucks (formerly known as the Company's Heavy Equipment Segment) designs, manufactures and markets heavy-duty, off-highway rigid and articulated trucks and scrapers and related components and replacement parts. These products are used primarily by construction, mining, logging, industrial and government customers in building roads, dams and commercial and residential buildings, and in supplying coal, minerals, sand and gravel. Terex Trucks is headquartered in Motherwell, Scotland. For financial information about the Company's industry and geographic segments, see Note O --- "Business Segment Information" in the Notes to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's long term strategy has been, and continues to be, to seek out acquisitions in the capital goods industry where aggressive management can achieve substantial improvements in profitability and cash flow. Recent Developments On November 27, 1996, the Company and certain of its subsidiaries completed the sale of the Company's worldwide material handling business ("CMHC") for $139.5 in cash (subject to certain adjustments) to CLARK Material Handling Company (formerly known as CMHC Acquisition Corporation), a company formed by Citicorp Venture Capital Ltd. and certain members of CMHC's management. CMHC is a leading North American and European designer, manufacturer and marketer of a complete line of lift trucks, electric walkies and related components and replacement parts under the Clark trademark. CMHC is headquartered in Lexington, Kentucky and its manufacturing facilities are located in Lexington, Kentucky and Mulheim-Ruhr, Germany. Following the sale of CMHC, the Company offered to repurchase (the "Offer") $100 principal amount of its 13.25% Senior Secured Notes due 2002 (the "Senior Secured Notes"), in accordance with the terms of the Senior Secured Note Indenture. The Offer expired on December 27, 1996, but no Senior Secured Notes were tendered for repurchase. As a result, the $100 of sale proceeds were available for other corporate purposes. The Company's Series A Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred Stock") had a 13% dividend rate, which was to increase to 18% at the end of 1998. In light of the foregoing, and to improve the Company's capital structure, on December 30, 1996, Terex called its Series A Preferred Stock for redemption on January 29, 1997. The aggregate redemption price for the 1,200,000 shares, comprising the entire issue of the Series A Preferred Stock, was approximately $45.4. On February 24, 1997, the Company executed an Agreement of Purchase and Sale with Simon Engineering plc and certain subsidiaries (collectively, "Simon Engineering") pursuant to which the Company has agreed to acquire the industrial businesses of Simon Access division ("Simon Access Division") from Simon Engineering for the sum of $90. The Simon Access Division to be acquired consists principally of several business units in the United States and Europe which are engaged in the manufacture and sale of access equipment designed to position people and materials to work at heights. The Simon Access Division products include truck mounted aerial devices, aerial work platforms and truck mounted cranes (boom trucks) which are sold to customers in the industrial and construction markets and utility companies. Specifically, Terex has agreed to acquire 100% of the outstanding common stock of (i) Simon-Telelect Inc., a Delaware corporation, (ii) Simon Aerials, Inc., a Wisconsin corporation and parent company of Simon RO, (iii) Sim-Tech Management Limited, a private limited company incorporated under the laws of Hong Kong, (iv) Simon Cella, S.r.l., a company incorporated under the laws of Italy, and (v) Simon 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. Not included in the businesses to be acquired are the Simon Access Division's fire fighting equipment businesses. The consummation of the acquisition is expected to take place in April 1997 and is subject principally to the approval of the transactions by the shareholders of Simon Engineering plc. Upon consummation of the acquisition, the purchased business units will become a part of the Terex Cranes segment. In conjunction with the acquisition of Simon Access Division, the Company has received a commitment for financing from a financial institution. The commitment is for a three year period for a $125.0 credit facility (the "New Credit Facility") to be secured by the Company's domestic receivables and inventories. The New Credit Facility will replace the Company's $100 current revolving credit facility that matures in May 1998. Terex Cranes Terex Cranes was established as a separate business segment as a result of an acquisition (the "PPM Acquisition") in May 1995 of substantially all of the shares of PPM S.A. and certain of its subsidiaries, including PPM 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 of PPM Cranes, Inc., ("PPM North America" and PPM Europe and PPM North America 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. The former division now operates as Koehring Cranes, Inc. ("Koehring"), a wholly owned subsidiary of Terex Cranes, Inc. Koehring and PPM comprise the Company's Terex Cranes segment. Terex Cranes has four significant manufacturing operations: (i) PPM S.A. located in Montceau Les Mines, France, at which mobile cranes and container stackers under the brand name PPM are manufactured, (ii) PPM SpA, located in Crespellano, Italy, at which mobile cranes are manufactured under the BENDINI and PPM brand names, (iii) Terex Cranes, located in Conway, South Carolina, at which mobile cranes are manufactured under the P&H (a licensed trademark of Harnischfeger Corporation) and TEREX brand names, and (iv) Terex Cranes - Waverly Operations (sometimes referred to as "Koehring") located in Waverly, Iowa, at which rough terrain hydraulic telescoping mobile cranes, truck cranes and material handlers are manufactured under the brand names TEREX, KOEHRING and LORAIN, and aerial lift equipment is manufactured under the brand name MARKLIFT. Throughout the world market, mobile cranes are principally sold to rental companies and dealers with rental fleets. Terex Cranes' mobile crane market share varies dramatically by geographical area; however, the Company believes it is the leading manufacturer of mobile cranes in France and Italy and is the second largest manufacturer in North America. Terex Cranes' principal worldwide mobile crane competitors are Grove Manufacturing, Liebherr Werk Ehingen, Link Belt (Sumitomo), and Tadano; Terex Cranes competes with several smaller specialty companies in North America and with Grove Cranes Ltd. (including the recently acquired Krupp Mobilkran), Liebherr Werk Ehingen and DeMag in Europe. Terex Cranes maintains a meaningful niche market share in the large scrap handler industry, in which the Company's principal customers are master dealers and the largest competitor is Libherr Werk Ehingen. Terex Cranes' major competitors in the container stacker market are Kalmar, Valmet Belloti and Taylor. Terex Cranes is currently not a dominant competitor in the aerial lift industry; however, when the purchase of the Simon Access division is consummated, the Company believes it will become a more meaningful competitor in the aerial lift industry. Currently, the leading competitor in the aerial lift industry is JLG Industries, followed by Grove Manufacturing, Skyjack, Snorkel, Genie and Upright. Terex Trucks Terex Trucks has two manufacturing operations: (i) Terex Equipment Limited ("TEL"), located at Motherwell, Scotland, which manufactures off-highway rigid haulers and articulated haulers and scrapers, each sold under the TEREX brand name and to other truck manufacturers on a private label basis; and (ii) the Unit Rig Division of Terex Trucks, located in Tulsa, Oklahoma, which manufactures electric rear and bottom dump haulers principally sold to the copper, gold and coal mining industry customers in North and South America, Asia, Africa and Australia. Unit Rig's products are sold under the Company's TEREX, UNIT RIG, and LECTRA HAUL trademarks. TEL's North, Central and South American sales and distribution are managed by Terex Americas, a division of the Company, located in Tulsa, Oklahoma. A "hauler" is an off-road dump truck with a capacity in excess of 25 tons. Haulers produced by TEL have capacities ranging from 25 to 100 tons. The "scrapers" manufactured by TEL are off-road vehicles, commonly referred to as "earth movers," that load, move and unload large quantities of soil for site preparations, including roadbeds. The Unit Rig hauler is 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 hauler trucks with payload capacities ranging from 100 to 260 tons, and bottom dump haulers with capacities ranging from 180 to 270 tons. In addition to its two wholly owned manufacturing operations, Terex Trucks has an interest in North Hauler Limited Liability Company, a corporation incorporated under the laws of China. In 1987, TEL entered into a joint venture agreement with Second Inner Mongolia Machinery Company for the production of haulers in China. The joint venture company, North Hauler Limited Liability Company, manufactures heavy trucks, principally used in mining, at a facility in Baotou, Inner Mongolia, People's Republic of China. Terex Trucks is recognized as a significant competitor in the market for large capacity off highway haulers and scrapers. However, the Company is not a dominant manufacturer in the heavy equipment industry, which is dominated in most segments by large, diversified firms, such as Caterpillar, Volvo Group and Komatsu with respect to the TEL products and Caterpillar, Komatsu, Liebherr Werk Ehingen and Euclid with respect to Unit Rig products. Discontinued Operations On November 27, 1996, the Company sold substantially all the assets and liabilities of its worldwide material handling business ("CMHC") for an aggregate cash purchase price, subject to adjustments, of $139.5. Prior to the disposition on November 27, 1996, CMHC consisted of Clark Material Handling Company and certain affiliated companies which were acquired by the Company in July 1992 from Clark Equipment Company. CMHC 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. Environmental Considerations The Company generates hazardous and nonhazardous wastes in the normal course of its operations. As a result, the Company is subject to a wide range of federal, state, local and foreign environmental laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act, 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. Research and Development The Company maintains engineering staffs at several of its locations which design new products and improvements in existing product lines. Such costs incurred in the development of new products or significant improvements to existing products of continuing operations amounted to $6.1, $5.0 and $2.1 in 1996, 1995 and 1994, respectively. 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. Working Capital Items The Company, in the normal course of business, does not provide right of return on merchandise sold, nor does it provide extended payment terms to customers. Seasonal Factors The Company markets a large portion of its products in North America and Europe, and its sales of heavy equipment 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 heavy equipment to the mining industry are generally less affected by such seasonal factors. Distribution Terex Cranes distributes its products primarily through a global network of over 300 independent dealers organized by product line. With respect to mobile cranes, in North America, Terex Cranes maintains extensive dealer networks. The geographic strength of Terex Cranes' mobile cranes marketed under the LORAIN brand name, centers in the midwest and mid-Atlantic regions of the U.S. and the geographic strength of mobile cranes marketed under the P&H (a licensed trademark of Harnischfeger Corporation) brand, centers in the southern and western regions of the U.S. Terex Cranes 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. TEL markets original equipment and repair parts primarily through worldwide dealership networks. Terex Americas manages the sales activity and distribution of TEL products in North, Central and South America. TEL's heavy equipment 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. The Company employs sales representatives who service these dealers from offices located throughout the world. Unit Rig distributes its products and services directly to customers primarily through its own distribution system. Backlog The Company's backlog as of December 31, 1996 and 1995 was as follows:
December 31, --------------------------- 1996 1995 ------------- ------------- Terex Trucks....................... $ 53.4 $ 88.8 Terex Cranes....................... 67.2 85.3 ------------- ------------- Total......................... $ 120.6 $ 174.1 ============= =============
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 equipment orders. Parts orders are generally filled on an as-ordered basis. The backlog for the Terex Trucks' segment was unusually high at year end in 1995 as a result of a large order for Unit Rig equipment which was placed late in 1995. Average backlog at Terex Trucks for 1996 was $68.1 as compared to $57.0 for 1995. Accordingly, average backlog in the Terex Trucks segment remained constant. Backlog in Terex Cranes decreased in 1996 primarily due to the sale of a business unit in 1996. Excluding the backlog at the sold unit, the decrease in backlog at Terex Cranes was $10.2, primarily in Europe. Patents, Licenses and Trademarks Several of the trademarks and trade names of the Company, in particular the TEREX, KOEHRING, LORAIN, UNIT RIG, MARKLIFT, P&H (licensed from Harnischfeger Corporation), PPM and BENDINI 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. Employees As of December 31, 1996, the Company had approximately 2,270 employees. The Company considers its relations with its personnel to be good. Approximately 44% 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 at Southaven 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. The National Labors Relations Board has filed an unfair labor practice charge against the Company's Terex Cranes' operation in Conway, South Carolina. The Company does not anticipate that the outcome of such charge will have a material impact on the Company. Financial Information about Industry and Geographic Segments, Export Sales and Major Customers Information regarding foreign and domestic operations, export sales, segment information and major customers is included in Note O -- "Business Segment Information" in the Notes to the Consolidated Financial Statements. ITEM 2. PROPERTIES The following table outlines the principal manufacturing, warehouse and office facilities owned or leased by the Company and its subsidiaries: Entity Facility Location Type and Size of Facility Terex (Corporate Offices).....Westport, Connecticut (1) Office 14,898 sq. ft. Terex (Distribution Center)..Southaven, Mississippi (1) Warehouse and light manufacturing 505,000 sq. ft. (2) Terex Trucks Unit Rig.................Tulsa, Oklahoma Manufacturing, warehouse and office 375,587 sq. ft. TEL......................Motherwell, Scotland Manufacturing, warehouse and office 473,000 sq. ft. Terex Cranes Terex Cranes - Waverly Operations......Waverly, Iowa (3) Office, manufacturing and warehouse 383,000 sq. ft. Terex Cranes ............Conway, South Carolina (1) Office, manufacturing and warehouse 257,040 sq. ft. PPM S.A. ................Montceau les Mines, France Office, manufacturing and warehouse 419,764 sq. ft. PPM 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. - ------------------------------ (1) These facilities are either leased or subleased by the indicated entity. (2) Includes 239,400 sq. ft. of warehouse space currently leased to others. (3) The Company also owns a 66,000 sq. ft. facility in Waterloo, Iowa which is currently leased to others. 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 abroad. The properties listed above are suitable and adequate for the Company's use. The Company has determined that certain of its properties exceed its requirements. Such properties may be sold, leased or utilized in another manner and have been excluded from the above list. ITEM 3. LEGAL PROCEEDINGS As described in Note M -- "Litigation and Contingencies" in the Notes to the Consolidated Financial Statements, the Company is involved in various legal proceedings, including product liability and workers' compensation liability matters, which have arisen in the normal course of its operations and to which the Company is self-insured for up to $2.0. Management believes that the final outcome of such matters will not have a material adverse effect on the Company's consolidated financial position. For information concerning other contingencies and uncertainties, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Contingencies and Uncertainties." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is listed on the NYSE under the symbol "TEX." Quarterly Market Prices
1996 1995 --------------------------------------- --------------------------------------- Fourth Third Second First Fourth Third Second First --------- --------- --------- --------- --------- --------- --------- --------- High... $ 10.13 $ 9.38 $ 9.25 $ 7.13 $ 5.50 $ 5.75 $ 6.75 $ 7.13 Low.... 6.63 6.50 6.38 4.13 4.00 3.13 4.50 5.88
No dividends were declared or paid in 1995 or in 1996. Certain of the Company's debt agreements contain restrictions as to the payment of cash dividends. Under the most restrictive of these agreements, $3.0 was available for dividends at December 31, 1996. In addition, the Company's debt agreements generally limit payment of cash dividends by the Company in excess of $3.0 to 40% of the Company's net income, if any. The terms of the Company's outstanding Series B Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred Stock") also restrict the Company's ability to pay cash dividends on the Common Stock. The Company intends generally to retain earnings, if any, to fund the development and growth of its business. The Company does not plan on paying dividends on the Common Stock in the foreseeable future. Any future payments of cash dividends will depend upon the financial condition, capital requirements and earnings of the Company, as well as other factors that the Board of Directors may deem relevant. As of February 28, 1997, there were 763 stockholders of record of the Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA (in millions except per share amounts and employees) As of or for the Year Ended December 31, ------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ------------ ------------ ----------- Summary of Operations Net sales....................................................$ 678.5 $ 501.4 $ 314.1 $ 274.7 $ 282.4 Operating income (loss) from continuing operations........... 5.1 12.8 10.4 (8.2) (6.7) Income (loss) from continuing operations before extraordinary items........................................ (54.3) (32.1) 4.9 (40.7) 0.7 Income (loss) from discontinued operations................... 102.0 4.4 (3.7) (24.3) 2.2 Income (loss) before extraordinary items..................... 47.7 (27.7) 1.2 (65.0) 2.9 Net income (loss)............................................ 47.7 (35.2) 0.5 (66.5) 2.9 Income (loss) applicable to common stock..................... 24.8 (42.5) (5.5) (66.7) 2.9 Per Common and Common Equivalent Share: Income (loss) from continuing operations................... (5.81) (3.79) (0.10) (4.11) 0.07 Income (loss) from discontinued operations................. 7.67 0.42 (0.36) (2.44) 0.22 Income (loss) before extraordinary items................... 1.86 (3.37) (0.46) (6.55) 0.29 Net income (loss).......................................... 1.86 (4.09) (0.53) (6.70) 0.29 Working Capital Current assets...............................................$ 390.2 $ 312.0 $ 278.1 $ 257.3 $ 319.2 Current liabilities.......................................... 195.0 196.3 221.6 187.8 222.0 Working capital.............................................. 195.2 115.7 56.5 69.5 97.2 Property, Plant and Equipment Net property, plant and equipment............................$ 31.7 $ 40.1 $ 86.2 $ 97.5 $ 116.3 Capital expenditures......................................... 8.1 5.2 12.7 11.5 5.4 Depreciation................................................. 7.0 7.4 13.7 12.1 7.1 Total Assets...................................................$ 471.2 $ 478.9 $ 401.6 $ 390.7 $ 477.3 Capitalization Long-term debt and notes payable, including current maturities.................................................$ 281.3 $ 329.9 $ 190.9 $ 218.0 $ 217.6 Minority interest, including redeemable preferred stock of a subsidiary................................................ 10.0 9.4 --- --- --- Redeemable convertible preferred stock....................... 46.2 24.6 17.3 10.5 --- Stockholders' deficit........................................ (71.7) (96.9) (55.7) (62.3) (9.1) Dividends per share of Common Stock..........................$ --- $ --- $ --- $ --- $ --- Shares of Common Stock outstanding at year end............... 13.2 10.6 10.3 10.3 9.9 Employees Continuing operations........................................ 2,270 2,614 1,549 1,520 1,436 Discontinued operations (Material Handling).................. --- 986 1,302 1,410 1,620 Total...................................................... 2,270 3,600 2,851 2,930 3,056 The Selected Financial Data include the results of operations of PPM from May 9, 1995, the date of its acquisition. See Note C -- "Acquisitions" in the Notes to the Consolidated Financial Statements for further information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company currently operates in two industry segments: Terex Cranes and Terex Trucks. The Company previously operated a third industry segment, the Material Handling segment, the results of which are now accounted for as Income (Loss) from Discontinued Operations. The Terex Cranes segment results for periods prior to May 1995 consist solely of Terex Cranes - Waverly Operations. Subsequent to that date, Terex Cranes' results include the results of the PPM business acquired in May of 1995. Terex Trucks consists of TEL and Unit Rig. 1996 Compared with 1995 The table below is a comparison of net sales, gross profit, engineering, selling and administrative expenses, income (loss) from operations, and income (loss) from discontinued operations, by segment, for 1996 and 1995. The 1996 amounts include $30.0 in special charges comprised of $18.4 at Terex Cranes ($16.8 gross profit; $1.6 engineering, selling and administrative expenses), $10.4 at Terex Trucks (gross profit), and $1.2 General/Corporate (engineering, selling and administrative expenses).
Year Ended December 31, ------------------------- Increase 1996 1995 (Decrease) ----------- ------------ ------------ (in millions of dollars) NET SALES Terex Cranes..................... $ 363.9 $ 252.3 $ 111.6 Terex Trucks..................... 314.9 250.3 64.6 Eliminations..................... (0.3) (1.2) 0.9 ----------- ------------ ------------ Total......................... $ 678.5 $ 501.4 $ 177.1 =========== ============ ============ GROSS PROFIT Terex Cranes..................... $ 38.1 $ 35.2 $ 2.9 Terex Trucks..................... 31.3 35.9 (4.6) Eliminations..................... (0.2) (0.7) 0.5 ----------- ------------ ------------ Total......................... $ 69.2 $ 70.4 $ (1.2) =========== ============ ============ ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES Terex Cranes..................... $ 33.3 $ 28.0 $ 5.3 Terex Trucks..................... 25.7 22.9 2.8 General/Corporate................ 5.1 6.7 (1.6) ----------- ------------ ------------ Total......................... $ 64.1 $ 57.6 $ 6.5 =========== ============ ============ INCOME (LOSS) FROM OPERATIONS Terex Cranes..................... $ 4.8 $ 7.2 $ (2.4) Terex Trucks..................... 5.6 13.0 (7.4) General/Corporate................ (5.3) (7.4) 2.1 ----------- ------------ ------------ Total......................... $ 5.1 $ 12.8 $ (7.7) =========== ============ ============ INCOME (LOSS) FROM DISCONTINUED OPERATIONS........... $ 102.0 $ 4.4 $ 97.6 =========== ============ ============
Net Sales Sales increased $177.1, or approximately 35.3%, to $678.5 from $501.4 in 1995, reflecting the acquisition of PPM in the second quarter of 1995. Terex Cranes sales were $363.9 for 1996, an increase of $111.6, or 44.2%, from $252.3 in 1995 which did not include the PPM business prior to its acquisition in May 1995. Machine sales increased $94.9 to $291.8 in 1996. Part sales increased $11.4 to $64.3 in 1996. The increase in sales was due to the addition of the PPM business, growth in sales at the PPM business, and continued strong performance by Terex Cranes - Waverly Operations. Terex Cranes bookings were $356.1 for 1996, compared to $236.7 for 1995 an increase of $119.4. Terex Trucks sales increased $64.6 in 1996 to $314.9. Machines sales increased 36.2% primarily due to increased presence in the Asia market and the U.S. rental market, and parts sales increased 8.5% in 1996. The sales mix was approximately 29% parts in 1996 compared to 34.6% parts in 1995. Terex Trucks bookings for 1996 were $277.9, a decrease of $3.0, or 1.1%, from 1995. Backlog decreased to $53.4 at December 31, 1996 from $88.8 in 1995 as a result of a large order which was placed late in 1995. However, the average backlog increased slightly to $68.1 for 1996 as compared to $57.0 for 1995. Gross Profit Gross profit for 1996 decreased $1.2 to $69.2. The decline in the gross profit was primarily due to the $16.8 write down of goodwill and other long lived assets at Terex Cranes and $10.4 of special charges recorded at Terex Trucks in the fourth quarter of 1996. These charges substantially offset the increased gross profit from increased net sales during 1996 as compared to 1995. Gross profit as a percentage of net sales for 1996 decreased to 10% as compared to 14% for 1995 as a result of the special charges. However, excluding these $27.2 charges in 1996, gross profit as a percentage of sales remained at 14% and increased from $70.4 to $96.4. Terex Cranes gross profit increased $2.9 to $38.1 for 1996, compared to $35.2 for 1995, reflecting the PPM Acquisition, the effect of cost reduction actions put in place at PPM, and improved performance at Terex Cranes - Waverly Operations. These improvements were substantially offset by an impairment charge which resulted from a detailed analysis of future cash flows from operations primarly at Terex Cranes' Conway, South Carolina, facility. (See Note D -- "Impairment of Long Lived Assets" in the Notes to the Consolidated Financial Statements for further information.) Excluding the impairment charge, Terex Cranes gross profit in 1996 increased $19.7 as compared to 1995 and the gross profit percentage increased to 15.1% as compared to 14.0% in 1995. Terex Trucks gross profit decreased $4.6 to $31.3 in 1996 compared to $35.9 for 1995. Excluding the $10.4 special charges noted above, Terex Trucks gross profit increased $5.8 in 1996 as compared to 1995. The $10.4 special charges are comprised mainly of $7.9 at Unit Rig for the reduction in value of the Unit Rig Tulsa facility, due to changes in production methods and $1.9 of goodwill associated with TEL's acquisition of its UK distributor, IMACO, which was written off and recorded as an impairment charge in 1996. Exclusive of these special charges, the gross profit percentage in 1996 decreased to 13.1% from 14.3% in 1995 due to an increase in the proportion of unit sales versus part sales. Part sales have higher margins than unit sales. Engineering, Selling and Administrative Expenses Engineering, selling and administrative expenses increased to $64.1 in 1996 from $57.6 for 1995, reflecting the effects of the PPM Acquisition in May 1995. However, engineering, selling and administrative expenses as a percentage of net sales decreased to 9.4% for 1996 from 11.5% for 1995. Terex Trucks engineering, selling and administrative expenses increased to $25.7 for 1996 from $22.9 for 1995 primarily due to costs associated with a new parts sales office and a new U.K. dealership. Terex Cranes engineering, selling and administrative expenses increased to $33.3 for 1996 from $28.0 for 1995, reflecting the PPM Acquisition in May 1995 and special charges of $1.6. Income (Loss) from Operations Terex Cranes' income from operations of $4.8 for 1996 decreased by $2.4 over 1995, primarily due to the impairment charges at the Terex Cranes' Conway, South Carolina, facility, which were offset somewhat by the increased net sales and the effect of cost control initiatives implemented at all PPM operations since they were acquired by the Company, and continued strong performance by Terex Cranes - Waverly Operations. Terex Trucks income from operations decreased by $7.4 to $5.6 for 1996 from $13.0 in 1995, primarily due to the special charges mentioned above under "Gross Profit." Excluding these charges, income from operations increased to $16.0. On a consolidated basis, the Company had operating income of $5.1 for 1996, compared to operating income of $12.8 for 1995, for the reasons mentioned above. Other Income (Expense) Net interest expense increased to $43.6 for 1996 from $38.0 in 1995 as a result of incremental borrowings associated with the PPM acquisition in May 1995. The Company realized gains in 1996 of $3.3 from the sale of excess property principally in Scotland and Italy. During 1996 the Company recorded a provision for income taxes of $12.1; in 1995, the Company recorded no provision for income taxes. The 1996 provision for income taxes primarily relates to $11.3 tax expense recognized at PPM in Europe in connection with its recapitalization which required the Company to utilize a net operating loss carryforward. The additional $0.8 provision relates to taxes due on the sale of property in Europe. In 1995, the Company had a gain of $1.0 from the sale of stock of a former subsidiary and recorded a charge of $0.5 to recognize the impairment in value of certain properties held for sale. Income (Loss) from Discontinued Operations Income from discontinued operations in the Company's Material Handling Segment increased $97.6 to $102.0 for 1996 as compared to $4.4 in 1995. The increased income was primarily due to the gain realized on the sale of the Material Handling Segment of $84.5. Gross profit for 1996 (through November 27, 1996, the date of the sale of the Material Handling Segment) increased $1.4 to $46.0 as compared to 1995 even though net sales decreased $45.9 or 17%. Additionally, in 1995 the Material Handling Segment recorded charges of $6.0 related to charges for severance costs, exit costs and the impairment in value of certain properties held for sale. Extraordinary Items The Company recorded a charge of $7.5 in 1995 to recognize a loss on the early extinguishment of debt in connection with its debt refinancing in May 1995. 1995 Compared with 1994 The table below is a comparison of net sales, gross profit, engineering, selling and administrative expenses, income (loss) from operations and income (loss) from discontinued operations, by segment, for 1995 and 1994.
Year Ended December 31, ------------------------- Increase 1995 1994 (Decrease) ----------- ------------ ------------- (in millions of dollars) NET SALES Terex Cranes.......................$ 252.3 $ 90.4 $ 161.9 Terex Trucks....................... 250.3 226.8 23.5 Eliminations....................... (1.2) (3.1) 1.9 ----------- ------------ ------------- Total...........................$ 501.4 $ 314.1 $ 187.3 =========== ============ ============= GROSS PROFIT Terex Cranes ......................$ 35.2 $ 14.2 $ 21.0 Terex Trucks....................... 35.9 33.9 2.0 Eliminations....................... (0.7) --- (0.7) ----------- ------------ ------------- Total...........................$ 70.4 $ 48.1 $ 22.3 =========== ============ ============= ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES Terex Cranes.......................$ 28.0 $ 6.3 $ 21.7 Terex Trucks....................... 22.9 22.7 0.2 General/Corporate.................. 6.7 8.7 (2.0) ----------- ------------ ------------- Total...........................$ 57.6 $ 37.7 $ 19.9 =========== ============ ============= INCOME (LOSS) FROM OPERATIONS Terex Cranes.......................$ 7.2 $ 7.9 $ (0.7) Terex Trucks....................... 13.0 11.2 1.8 General/Corporate.................. (7.4) (8.7) 1.3 ----------- ------------ ------------- Total...........................$ 12.8 $ 10.4 $ 2.4 =========== ============ ============= INCOME (LOSS) FROM DISCONTINUED OPERATIONS Material Handling....................$ 4.4 $ (3.7) $ 8.1 ----------- ------------ ------------- Total...........................$ 4.4 $ (3.7) $ 8.1 =========== ============ =============
Net Sales Sales increased $187.3 to $501.4, or approximately 60%, for 1995 versus 1994. Terex Cranes sales were $252.3 for 1995, an increase of $161.9 from $90.4 in 1994 due primarily to the PPM Acquisition in May 1995. Terex Cranes backlog was $85.3 at December 31, 1995, reflecting the additional PPM backlog, compared to $11.7 at December 31, 1994. Terex Trucks sales increased $23.5 for 1995 over 1994. Machines sales increased 8%, and parts sales increased 7%. The sales mix was approximately 35% parts for 1995 compared to 36% parts for 1994. Terex Trucks parts sales were adversely affected by the strike at the Company's parts distribution center. Terex Trucks bookings for 1995 were $271.3, an increase of $39.1, or 17%, from 1994. Terex Trucks backlog was $88.8 at December 31, 1995 compared to $67.8 at December 31, 1994. Gross Profit Gross profit of $70.4 for 1995 was $22.3, or 46%, higher than gross profit of $48.1 for 1994. Terex Cranes gross profit increased $21.0 to $35.2 for 1995, compared to $14.2 for 1994, primarily reflecting the addition of the May through December 1995 results of the PPM businesses. The gross profit percentage for Terex Cranes was 14% for 1995 and 16% for 1994. The gross profit percentage decrease was primarily due to costs related to integrating the PPM Acquisition into Terex Cranes. Terex Trucks gross profit increased $2.0 to $35.9 for 1995 compared to $33.9 for 1994. The gross profit percentage in the Terex Trucks was 14% for 1995 and 15% for 1994. Engineering, Selling and Administrative Expenses Engineering, selling and administrative expenses increased to $57.6 for 1995 from $37.7 for 1994. Terex Cranes engineering, selling and administrative expenses increased to $28.0 for 1995 from $6.3 for 1994 reflecting the PPM Acquisition in May 1995. Terex Trucks engineering, selling and administrative expenses increased to $22.9 for 1995 from $22.7 for 1994 as a result of costs associated with the start-up of a new parts service business, which substantially offset the cost savings at other operations. Corporate administrative expenses in 1994 included a charge of $2.2 in connection with the termination of a management contract with KCS Industries, L.P. ("KCS"), a Connecticut limited partnership principally owned by certain present and former officers of the Company, offset by allocations to operating segments. Income (Loss) from Operations Terex Cranes income from operations of $7.2 for 1995 decreased by $0.7 versus 1994, primarily due to losses at the PPM businesses acquired in May 1995. As a result of cost reductions, improvements in inventory management and consolidation of model offerings, PPM Cranes - Waverly Operations was profitable in 1994 and 1995 after several years of losses. Terex Trucks income from operations improved by $1.8 to $13.0 for 1995 from $11.2 in 1994, primarily as a result of reduced costs, offset by costs associated with the start up of a new parts service business. On a consolidated basis, the Company realized operating income of $12.8 for 1995, compared to $10.4 for 1994. Other Income (Expense) Net interest expense increased to $38.0 for 1995 from $27.8 in 1994 as a result of incremental borrowings associated with the PPM Acquisition in May 1995. The Company realized gains of $1.0 and $26.0 from sales of common stock of a former subsidiary during 1995 and 1994, respectively. The Company recorded a charge of $0.5 in 1995 to recognize the impairment in value of certain properties held for sale. The Company also incurred net foreign exchange losses of $1.9, trademark-related expenses of $1.3, and $0.6 of group retiree expenses during 1995. The Company recorded a charge of $2.5 in 1995 for payments related to the retirement of its former Chairman of the Board in August 1995, and future payments related to the consulting obligations under the retirement agreement of the former Chairman. During 1995 and 1994, the Company recorded no provision for income taxes. Extraordinary Items The Company recorded a charge of $7.5 in 1995 to recognize a loss on the early extinguishment of debt in connection with the May 1995 refinancing. During 1994, the Company recognized extraordinary losses totaling $0.7 to write-off unamortized discount and debt issuance costs when it repurchased $27.3 of its old senior secured debt. Income (Loss) from Discontinued Operations Income from discontinued operations in the Company's Material Handling Segment increased $8.1 to $4.4 for 1995 as compared to a loss of $3.7 for 1994. The increased income was primarily due to increased sales and to the success of the cost reduction programs put in place in the latter half of 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's businesses are working capital intensive and require funding for purchases of production and replacement parts inventories, capital expenditures for repair, replacement and upgrading of existing facilities as well as financing of receivables from customers and dealers. The Company has significant debt service requirements including semi-annual interest payments on senior debt and upon completion of its acquisition of Simon Access Division (see "Recent Developments" for further discussion) will have monthly interest payments on the New Credit Facility which will replace the existing credit facility, which also has monthly interest payments. Debt reduction and an improved capital structure are major focal points for the Company. In this regard, the Company regularly reviews its alternatives to improve its capital structure and to reduce debt service through debt refinancings, issuance of equity, assets sales, including the sale of business units, or any combination thereof. As part of its strategy to strengthen its capital structure and reduce debt, the Company sold its worldwide Material Handling business on November 27, 1996 for an aggregate cash purchase price, subject to adjustments, of $139.5. Upon closing, the Company immediately paid down its outstanding credit facility. In accordance with the Indenture governing the Company's 13.25% Senior Secured Notes, the Company offered to repurchase (the "Offer") $100 principal amount of the Senior Secured Notes. The Offer expired on December 27, 1996, but no Senior Secured Notes were tendered for repurchase. The Company's Series A Cumulative Redeemable Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred Stock") had a 13% dividend rate, which was to increase to 18% at the end of 1998. Consistent with its strategy to strengthen its capital structure, on December 30, 1996, the Company called its Series A Preferred Stock for redemption on January 29, 1997 (the "Redemption Date"). All 1,200,000 shares of the Series A Preferred Stock outstanding on the Redemption Date were redeemed at a redemption price of $37.80 per share, or approximately $45.4 in aggregate. Net cash of $17.6 was used in operating activities during 1996 primarily due to an increase in working capital at year end for the expansion of the business. Net cash provided by investing activities was $135.7 during 1996 principally due to the sale of the Company's worldwide Material Handling business for $139.5, subject to certain adjustments. Net cash used by financing activities during 1996 was principally due to the repayment of the Credit Facility ($70.0) with the proceeds from the sale of the Company's Material Handling business, offset partially by the use of the lending facilities in the U.K. Cash and cash equivalents totaled $72.0 at December 31, 1996. As of December 31, 1996, the Company did not have any balance outstanding under the Credit Facility, letters of credit issued under the Credit Facility totaled $7.8, and the additional amount the Company could have borrowed was $45.3 as of that date. TEL entered into a new bank working capital facility in 1995, and PPM Europe received an initial credit facility of $3.0 in 1996. Management intends to seek additional working capital financing facilities for the Company's international operations to provide additional liquidity worldwide. Factors affecting future liquidity The Company currently has $250 of the Senior Secured Notes outstanding. The Indenture for the Senior Secured Notes places certain limits on the Company's ability to incur additional indebtedness; permit the existence of liens; issue, pay dividends on or redeem equity securities; utilize the proceeds of assets sales; consolidate, merge or transfer assets to another entity; and enter into transactions with affiliates. In connection with the PPM Acquisition, the Company issued redeemable preferred stock of Terex Cranes, Inc., a wholly owned subsidiary of the Company established to complete the PPM Acquisition, having an aggregate liquidation preference of approximately $21.4, subject to adjustment. The purchase price is subject to adjustment calculated by reference to Western European crane demand in 1996 and 1997. The preferred stock does not bear a dividend and, accordingly, the Company has valued this stock at approximately $8.8 (discounted at 15%) and will reflect dividend accretion. The Company's Credit Facility provides the Company with the ability to borrow (in the form of revolving loans and up to $15 in outstanding letters of credit) up to $100. The Credit Facility is secured by substantially all of the Company's domestic receivables and inventory. The amount of borrowings is limited to the sum of the following: (i) 75% of the net amount of eligible receivables, as defined, of the Company's U.S. businesses, plus (ii) the lesser of 45% of the value of eligible inventory, as defined, or 80% of the appraised orderly liquidation value of eligible inventory less (iii) any availability reserves established by the lenders. The Credit Facility expires May 9, 1998 unless extended by the lenders for one additional year. At the option of the Company, revolving loans may be in the form of prime rate loans initially bearing interest at the rate of 1.75% per annum in excess of the prime rate or Eurodollar rate loans initially bearing interest at the rate of 3.75% per annum in excess of the adjusted Eurodollar rate. On February 24, 1997 the Company agreed to buy the Simon Access Division. (See Note Q -- "Subsequent Events" in the Notes to the Consolidated Financial Statements for further information.) In connection with the acquisition, the Company has received a commitment for financing from a financial institution. The commitment for the New Credit Facility is for a three year period for $125.0. The New Credit Facility will replace the Company's $100.0 Credit Facility and will bear interest at the Company's option of 2.5% per annum above the LIBOR rate or 1% per annum above the prime rate. The Company expects to complete the Simon acquisition by using $70.0 of the New Credit Facility and to have approximately $30 million in availability after the Simon acquisition The Company's debt service obligations for 1997 include approximately $16.6 on May 15 and November 15, 1997 on the Senior Secured Notes and variable monthly payments on the credit facilities, as applicable. Management believes that cash generated from operations, together with the New Credit Facility, the Company has adequate liquidity to meet the Company's operating and debt service requirements. Foreign Currencies and Interest Rate Risk 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 does business are the German Mark, the Pound Sterling, and the French Franc. The Company may, from time to time, hedge specifically identified committed cash flows in foreign currencies using forward currency sale or purchase contracts. [Such foreign currency contracts have not historically been material in amount.] The Company's borrowings are at both fixed and floating rates of interest. For the floating rate portion of the borrowings, the Company is at risk for fluctuations in interest rates. The Company does not currently hedge any interest rate risk. CONTINGENCIES AND UNCERTAINTIES The Internal Revenue Service 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 based on this examination. The examination report raises 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 ("NOL's") and the availability of such NOL's to offset future taxable income. If the IRS were to prevail on all the issues raised, the amount of the tax assessment would be approximately $56 plus interest and penalties. If the Company were required to pay a significant portion of the assessment, it could have a material adverse impact on the Company and could exceed the Company's resources. The Company filed its administrative appeal to the examination report in April of 1995. As a result of a meeting with the Manhattan division of the IRS in July 1995, in June 1996 the Company was advised that the matter was being referred back to the Milwaukee audit division of the IRS. The Milwaukee audit division of the IRS is currently reviewing information provided by the Company over the past 18 months. Although management believes 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 NOL's, the ultimate outcome of this matter is subject to the resolution of significant legal and factual issues. If the Company's positions prevail on the most significant issues, management believes that the amounts due would not exceed amounts previously paid or provided; however, even under such circumstances, it is possible that the Company's NOL's could be reduced to some extent. 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 plus interest and penalties and the ultimate outcome cannot presently be determined or estimated. A change in control of the Company for tax purposes could possibly result in a significant reduction in the amount of NOL's available to the Company to offset future taxable income. The Securities and Exchange Commission (the "Commission") in March of 1994 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 have taken place. The Company is cooperating with the Commission in its investigation and it is not possible at this time to determine the outcome of the Commission's investigation. During 1996 the Company incurred $0.3 of legal fees and expenses on behalf of the Company, directors and executives of the Company and KCS. In general, under the Company's by-laws, the Company is obligated to indemnify officer and directors, for all liabilities arising in the course of their duties on behalf of the Company. To date, no officer or director has had legal representation separate from the Company's legal representation, and no allocation of the legal fees for such representation has been made. The Company received a letter from the Department of Labor (the "DOL") in May of 1995, alleging that the Company's former Chairman of the Board, at the time a fiduciary for the Company's retirement plans, violated certain provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") in making certain investments which may have been imprudent and by possibly engaging in prohibited transactions under ERISA. On January 31, 1997, the DOL and the Company's former chairman entered into a settlement agreement, which, among other things, obligated the Company's former chairman to pay certain amounts to the Terex Corporation Master Retirement Plan Trust and to the DOL. In connection with the DOL investigation and settlement, the Company has incurred expenses (including legal fees) of $0.2. The Company is subject to a number of contingencies and uncertainties including product liability claims, self-insurance obligations, tax examinations and guarantees. Many of the exposures are unasserted or proceedings are at a preliminary stage, and it is not presently possible to estimate the amount or timing of any cost to the Company. However, management does not believe that these contingencies and uncertainties will, in the aggregate, have a material effect on the Company. When it is probable that a loss has been incurred and possible to make reasonable estimates of the Company's liability with respect to such matters, a provision is recorded for the amount of such estimate or for the minimum amount of a range of estimates when it is not possible to estimate the amount within the range that is most likely to occur. The Company generates hazardous and nonhazardous wastes in the normal course of its operations. As a result, the Company is subject to a wide range of federal, state, local and foreign environmental laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act, 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. FORWARD LOOKING INFORMATION Certain information in this Annual Report includes forward looking statements regarding future events or the future financial performance of the Company that involve certain contingencies and uncertainties, including those discussed above in the section entitled Contingencies and Uncertainties. In addition, the Company's expectations are predominantly based on what it considers key economic assumptions. Construction and mining activity are sensitive to interest rates, government spending and general economic conditions. Some of the other significant factors for the Company include foreign currency movements, political uncertainty in various areas of the world, pricing, product initiatives and other actions taken by competitors, disruptions in production capacity, excess inventory levels, the effects of changes in laws and regulations, employee relations and other factors. Actual events or the actual future results of the Company may differ materially from any forward looking statement due to such risks, uncertainties and significant factors. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Unaudited Quarterly Financial Data Summarized quarterly financial data for 1996 and 1995 are as follows (in millions, except per share amounts):
1996 1995 ---------------------------------------------------------------------------- Fourth Third Second First Fourth Third Second First ---------------------------------------------------------------------------- Net sales ................................... $ 156.8 $ 165.7 $ 182.8 $ 173.2 $ 139.1 $ 148.8 $ 133.3 $ 80.2 Gross profit ................................ (4.9) 23.7 27.0 23.4 20.9 19.9 17.6 12.0 Income (loss) from continuing operations before extraordinary items ................ (46.5) (3.4) (1.7) (2.7) (7.3) (12.3) (9.4) (3.1) Income (loss) from discontinued operations .. 87.8 4.8 6.2 3.2 5.5 4.5 (6.8) 1.2 Income (loss) before extraordinary items ... 41.3 1.4 4.5 0.5 (1.8) (7.8) (16.2) (1.9) Net income (loss) ........................... 41.3 1.4 4.5 0.5 (1.8) (7.8) (23.7) (1.9) Income (loss) applicable to common stock .... 24.4 (0.9) 2.6 (1.4) (3.9) (9.6) (25.5) (3.5) Per share: Primary Income (loss) before extraordinary items $ 1.71 $ (0.06) $ 0.18 $ (0.13) $ (0.35) $ (0.93) $ (1.76) $ (0.35) Net income (loss) ....................... 1.71 (0.06) 0.18 (0.13) (0.35) (0.93) (2.48) (0.35) Fully diluted Income (loss) before extraordinary items $ 1.71 $ (0.06) $ 0.18 $ (0.13) $ (0.35) $ (0.93) $ (1.76) $ (0.35) Net income (loss) ....................... 1.71 (0.06) 0.18 (0.13) (0.35) (0.93) (2.48) (0.35)
The accompanying unaudited quarterly financial data of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with Item 302 of Regulation S-K. In the opinion of management, all adjustments considered necessary for a fair presentation have been made and were of a normal recurring nature except for those discussed below. Certain 1995 amounts have been reclassified to conform with the 1996 presentation. The results of the Material Handling business have been accounted for as discontinued operations for all periods presented. See Item 1. - Business. In 1996, the Company recognized a gain of $2.4 in the first quarter from the sale of excess property in Scotland. In 1996 Income (loss) from discontinued operations includes the gain, net of income taxes, of $84.5 on the sale of the Material Handling business in the fourth quarter. In the fourth quarter of 1996 the Company recorded special charges of $45.1, including impairment charges of $18.7 (see Note D -- "Impairment of Long Lived Assets"), a reduction in the value of certain assets of $8.6, $2.0 related to pre-purchase tax contingencies at PPM, $3.0 of other one-time accruals, and income tax expense of $12.1 (see Note I -- "Income Taxes"). Net income (loss) has been reduced by Preferred Stock accretion for purposes of calculating earnings per share amounts. See Note J -- "Preferred Stock" in the Notes to the Company's Consolidated Financial Statements. In the fourth quarter of 1996 preferred stock accretion was $16.9, which included $14.5 of additional accretion due to the redemption of the Series A Preferred Stock on January 29, 1997. In 1995, the Company recognized a gain of $1.0 in the first quarter as a result of the sale of 486.6 thousand shares of common stock of a former subsidiary, recorded severance and exit costs of $3.5 and an extraordinary loss of $7.5 on the retirement of debt in the second quarter. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Items 10 through 13 is incorporated by reference to the definitive Terex Corporation Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Financial Statement Schedules. See "Index to Consolidated Financial Statements and Financial Statement Schedule" on Page F-1. (3) Exhibits See "Index to Exhibits" on Page E-1. (b) Reports on Form 8-K A report on Form 8-K dated November 27, 1996 was filed December 11, 1996 reporting the sale of the Company's worldwide material handling business. A report on Form 8-K dated December 30, 1996 was filed January 10, 1997 reporting the Company's calling for redemption its Series A Preferred Stock on January 29, 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEREX CORPORATION By: /s/ Ronald M. DeFeo March 28, 1997 Ronald M. DeFeo, President, Chief Executive Officer and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ Ronald M. DeFeo President, Chief Executive March 28, 1997 Ronald M. DeFeo Officer, Director and Chief Operating Officer (Principal Executive Officer) /s/ David J. Langevin Executive Vice President March 28, 1997 David J. Langevin (Acting Principal Financial Officer) /s/ Marvin B. Rosenberg Senior Vice President, March 28, 1997 Marvin B. Rosenberg General Counsel, Secretary and Director /s/ Joseph F. Apuzzo Vice President Finance March 28, 1997 Joseph F. Apuzzo and Controller (Principal Accounting Officer) /s/ G. Chris Andersen * Director March 28, 1997 G. Chris Andersen /s/ William H. Fike * Director March 28, 1997 William H. Fike /s/ Bruce I. Raben * Director March 28, 1997 Bruce I. Raben /s/ David A. Sachs * Director March 28, 1997 David A. Sachs /s/ Adam E. Wolf * Director March 28, 1997 Adam E. Wolf * By: /s/ Marvin B. Rosenberg Marvin B. Rosenberg Attorney-in-fact THIS PAGE IS INTENTIONALLY BLANK NEXT PAGE IS NUMBERED "F-1" TEREX CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedules Page TEREX CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996 Report of independent accountants.........................................F - 2 Consolidated statement of operations .....................................F - 3 Consolidated balance sheet................................................F - 4 Consolidated statement of changes in stockholders' deficit................F - 5 Consolidated statement of cash flows......................................F - 6 Notes to consolidated financial statements................................F - 7 PPM CRANES, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1995 Report of independent accountants........................................F - 33 Consolidated statement of operations ....................................F - 34 Consolidated balance sheet...............................................F - 35 Consolidated statement of shareholders' deficit..........................F - 36 Consolidated statement of cash flows.....................................F - 37 Notes to consolidated financial statements...............................F - 38 PPM CRANES, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1994 Report of independent auditors............................................F - 45 Consolidated statement of operations .....................................F - 46 Consolidated statement of changes in shareholders' equity.................F - 47 Consolidated statement of cash flows......................................F - 48 Notes to consolidated financial statements................................F - 49 PPM CRANES, INC. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MAY 9, 1995 AND FOR THE PERIOD FROM JANUARY 1 THROUGH MAY 9, 1995 Unaudited condensed consolidated statement of operations .................F - 55 Unaudited condensed consolidated balance sheet............................F - 56 Unaudited condensed consolidated statement of cash flows..................F - 57 Notes to unaudited condensed consolidated financial statements............F - 58 FINANCIAL STATEMENT SCHEDULES Schedule II -- Valuation and Qualifying Accounts and Reserves.............F - 60 Schedule IV -- Indebtedness of and to Related Parties -- Not Current......F - 61 All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Terex Corporation In our opinion, the Terex Corporation consolidated financial statements listed in the accompanying index on page F-1 present fairly, in all material respects, the financial position of Terex Corporation and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Stamford, Connecticut March 6, 1997
TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in millions except per share amounts) Year Ended December 31, --------------------------- 1996 1995 1994 ------- ------- ------- NET SALES ....................................... $ 678.5 $ 501.4 $ 314.1 COST OF GOODS SOLD .............................. 609.3 431.0 266.0 ------- ------- ------- Gross Profit ................................. 69.2 70.4 48.1 ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES 64.1 57.6 37.7 ------- ------- ------- Income from operations ....................... 5.1 12.8 10.4 OTHER INCOME (EXPENSE) Interest income .............................. 1.2 0.7 0.5 Interest expense ............................. (44.8) (38.7) (28.3) Amortization of debt issuance costs .......... (2.6) (2.3) (2.3) Gain on sale of stock of former subsidiary ... -- 1.0 26.0 Other income (expense) - net ................. (1.1) (5.6) (1.4) ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS ....... (42.2) (32.1) 4.9 PROVISION FOR INCOME TAXES ...................... (12.1) -- -- ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEMS .......................... (54.3) (32.1) 4.9 INCOME (LOSS) FROM DISCONTINUED OPERATIONS (net of tax expense of $2.6, $0.0 and $0.8, in 1996, 1995 and 1994, respectively) ...... 102.0 4.4 (3.7) ------- ------- ------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS ...... 47.7 (27.7) 1.2 EXTRAORDINARY LOSS ON RETIREMENT OF DEBT ........ -- (7.5) (0.7) ------- ------- ------- NET INCOME (LOSS) ............................ 47.7 (35.2) 0.5 LESS PREFERRED STOCK ACCRETION .................. (22.9) (7.3) (6.0) ------- ------- ------- INCOME (LOSS) APPLICABLE TO COMMON STOCK ..... $ 24.8 $ (42.5) $ (5.5) ======= ======= ======= PER COMMON AND COMMON EQUIVALENT SHARE: Income (loss) from continuing operations ..... $ (5.81) $ (3.79) $ (0.10) Income (loss) from discontinued operations ... 7.67 0.42 (0.36) ------- ------- ------- Loss before extraordinary items ........... 1.86 (3.37) (0.46) Extraordinary loss on retirement of debt ..... -- (0.72) (0.07) ------- ------- ------- Net income (loss) ............................ $ 1.86 $ (4.09) $ (0.53) ======= ======= ======= AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING IN PER SHARE CALCULATION ....... 13.3 10.4 10.3 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions) December 31, -------------------- 1996 1995 --------- ---------- CURRENT ASSETS Cash and cash equivalents......................$ 72.0 $ 7.0 Cash securing letters of credit................ 3.4 6.9 Trade receivables (less allowance of $7.0 in 1996 and $7.4 in 1995)............... 110.3 87.7 Customer deposit............................... --- 19.1 Net inventories................................ 190.6 180.8 Other current assets........................... 13.9 10.5 --------- ---------- Total Current Assets........ 390.2 312.0 LONG-TERM ASSETS Property, plant and equipment - net............ 31.7 40.1 Goodwill - net................................. 32.4 61.3 Debt issuance costs - net...................... 12.7 14.5 Net assets of discontinued operations.......... --- 41.8 Other assets................................... 4.2 9.2 --------- ---------- TOTAL ASSETS......................................$ 471.2 $ 478.9 ========= ========== CURRENT LIABILITIES Notes payable and current portion of long-term debt...............................$ 19.2 $ 5.7 Trade accounts payable......................... 104.4 99.5 Accrued compensation and benefits.............. 15.8 12.2 Accrued warranties and product liability....... 19.4 19.6 Customer deposit............................... --- 19.1 Other current liabilities...................... 36.2 40.2 --------- ---------- Total Current Liabilities.... 195.0 196.3 NON CURRENT LIABILITIES Long-term debt, less current portion........... 262.1 324.2 Other.......................................... 29.6 21.3 MINORITY INTEREST, INCLUDING REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY Liquidation preference $21.4 in 1996 and $26.1 in 1995, subject to adjustment......... 10.0 9.4 REDEEMABLE CONVERTIBLE PREFERRED STOCK Liquidation preference $46.2 in 1996 and $41.2 in 1995............................ 46.2 24.6 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT Warrants to purchase common stock.............. 3.2 17.2 Common Stock, $0.01 par value-- authorized 30.0 shares; issued and outstanding 13.2 in 1996 and 10.6 in 1995... 0.1 0.1 Additional paid-in capital..................... 55.8 40.5 Accumulated deficit............................ (126.1) (150.9) Pension liability adjustment................... (2.0) (2.7) Unrealized holding gain on equity securities... --- 1.0 Cumulative translation adjustment.............. (2.7) (2.1) --------- ---------- Total Stockholders' Deficit.... (71.7) (96.9) --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.......$ 471.2 $ 478.9 ========= ==========
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (in millions) Additional Pension Unrealized Cumulative Common Paid-in Accumulated Liability Holding Translation Warrants Stock Capital Deficit Adjustment Gain Adjustment Total ----------- ----------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1993....................$ 16.9 $ 0.1 $ 40.1 $ (102.9) $ (4.2) $ --- $ (12.2) $ (62.2) Issuance of Warrants..... 0.7 --- --- --- --- --- --- 0.7 Net income............... --- --- --- 0.5 --- --- --- 0.5 Accretion of carrying value of redeemable preferred stock to redemption value........ --- --- --- (6.0) --- --- --- (6.0) Pension liability adjustment.............. --- --- --- --- 2.4 --- --- 2.4 Unrealized holding gain on equity securities.... --- --- --- --- --- 1.8 --- 1.8 Translation adjustment... --- --- --- --- --- --- 7.1 7.1 ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1994.................... 17.6 0.1 40.1 (108.4) (1.8) 1.8 (5.1) (55.7) Conversion of Warrants... (0.4) --- 0.4 --- --- --- --- --- Net loss................. --- --- --- (35.2) --- --- --- (35.2) Accretion of carrying value of redeemable preferred stock to redemption value........ --- --- --- (7.3) --- --- --- (7.3) Pension liability adjustment.............. --- --- --- --- (0.9) --- --- (0.9) Unrealized holding gain on equity securities.... --- --- --- --- --- (0.8) --- (0.8) Translation adjustment... --- --- --- --- --- --- 3.0 3.0 ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1995.................... 17.2 0.1 40.5 (150.9) (2.7) 1.0 (2.1) (96.9) Conversion of Warrants... (14.0) --- 14.0 --- --- --- --- --- Issuance of Common Stock. --- --- 1.3 --- --- --- --- 1.3 Net income............... --- --- --- 47.7 --- --- --- 47.7 Accretion of carrying value of redeemable preferred stock to redemption value........ --- --- --- (22.9) --- --- --- (22.9) Pension liability adjustment.............. --- --- --- --- 0.7 --- --- 0.7 Unrealized holding loss on equity securities.... --- --- --- --- --- (1.0) --- (1.0) Translation adjustment... --- --- --- --- --- --- (0.6) (0.6) ----------- ----------- ----------- ------------ ---------- ----------- ----------- ----------- BALANCE AT DECEMBER 31, 1996....................$ 3.2 $ 0.1 $ 55.8 $ (126.1) $ (2.0) $ --- $ (2.7) $ (71.7) =========== =========== =========== ============ ========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) Year Ended December 31, ------------------------- 1996 1995 1994 -------- -------- ------- OPERATING ACTIVITIES Net Income (Loss)....................................$ 47.7 $ (35.2) $ 0.5 Adjustments to reconcile net income (loss) to cash used in operating activities: Depreciation ..................................... 7.0 7.4 13.7 Amortization ..................................... 6.7 5.5 3.4 Extraordinary loss on retirement of debt.......... --- 7.5 0.7 Gain on sale of discontinued operations........... (84.5) --- --- Gain on sale of stock of former subsidiary........ --- (1.0) (26.0) Impairment charges and asset writedowns........... 33.8 --- --- Deferred taxes ................................... 11.3 --- --- Other............................................. (2.9) 0.1 (5.8) Changes in operating assets and liabilities (net of effects of acquisitions): Restricted cash............................... 3.5 (0.5) (0.4) Trade receivables............................. (23.7) 7.0 (17.6) Net inventories............................... (12.7) (7.9) 0.1 Net assets of discontinued operations......... (5.4) 2.0 --- Trade accounts payable........................ 4.9 (2.3) 24.4 Accrued compensation and benefits............. 3.3 5.6 3.3 Other, net.................................... (6.6) (16.8) (5.6) -------- -------- ------- Net cash used in operating activities....... (17.6) (28.6) (9.3) -------- -------- ------- INVESTING ACTIVITIES Net proceeds from sale of discontinued operations 137.2 --- --- Acquisition of businesses, net of cash acquired... --- (92.4) --- Capital expenditures.............................. (8.1) (5.2) (12.7) Proceeds from sale of excess assets............... 6.5 0.6 3.3 Proceeds from sale of stock of former subsidiary.. --- 2.7 24.9 Proceeds from sale of Drexel business............. --- --- 10.3 Proceeds from sale-leaseback of Saarn property.... --- --- 10.0 Other............................................. 0.1 0.2 1.0 -------- -------- ------- Net cash provided by (used in) investing activities.............. ........ 135.7 (94.1) 36.8 -------- -------- ------- FINANCING ACTIVITIES Net borrowings (repayments) under revolving line of credit agreements.. ..................... (55.0) 35.9 13.0 Principal repayments of long-term debt............ (1.0) (153.9) (41.5) Proceeds from issuance of long-term debt, net of issuance costs........ ................... --- 239.8 --- Other............................................. 5.6 --- 0.2 -------- -------- ------- Net cash provided by (used in) financing activities.............. ........ (50.4) 121.8 (28.3) -------- -------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.............. ............ (2.7) (0.3) 1.3 -------- -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. 65.0 (1.2) 0.5 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 7.0 8.2 9.2 -------- -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD...........$ 72.0 $ 7.0 $ 9.7 ======== ======== =======
The accompanying notes are an integral part of these financial statements. TEREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 (dollar amounts in millions, unless otherwise noted, except per share amounts) NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation. As set forth in Note B below, the Company sold its Material Handling business on November 27, 1996. The sale resulted in a gain of $84.5. The Material Handling business is accounted for as a discontinued operation in the December 31, 1995 consolidated balance sheet, and in the consolidated statement of operations for the years ended December 31, 1996, 1995 and 1994. Generally accepted accounting principles permit, but do not require, the allocation of interest expense between continuing and discontinued operations. Because the methods allowed under generally accepted accounting principles for calculating interest expense to be allocated to discontinued operations are not necessarily indicative of the use of proceeds from the sale of the Material Handling business by the Company, and the effect on interest expense of the continuing operations of the Company, the Company has elected not to allocate interest expense to discontinued operations. The results of this election is that 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. The assets and liabilities of the Material Handling business as of December 31, 1995 have been segregated in the consolidated balance sheet and are shown under "Net assets of discontinued operations." Principles of Consolidation. The Consolidated Financial Statements include the accounts of Terex Corporation and its majority owned subsidiaries ("Terex" or the "Company"). All material intercompany balances, transactions and profits have been eliminated. The equity method is used to account for investments in affiliates in which the Company has an ownership interest between 20% and 50%. Investments in entities in which the Company has an ownership interest of less than 20% are accounted for on the cost method or at fair value in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities." Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents. Cash equivalents consist of highly liquid investments with original maturities of three months or less. The carrying amount of cash and cash equivalents approximates their fair value. Cash Securing Letters of Credit. The Company has certain cash and cash equivalents that are not available for use in its operations. Certain international operations collateralize letters of credit and performance bonds with cash deposits. Customer Deposits. The customer deposit asset and liability in 1995 represent a deposit made by an Australian customer on a large order placed with Unit Rig. Inventories. Inventories are stated at the lower of cost or market value. Cost is determined by the last-in, first-out ("LIFO") method for certain domestic inventories and by the first-in, first-out ("FIFO") method for inventories of international subsidiaries and certain domestic inventories. Approximately 5% and 19% of consolidated inventories at December 31, 1996 and 1995, respectively, are accounted for under the LIFO method. Debt Issuance Costs. Debt issuance costs incurred in securing the Company's financing arrangements are capitalized and amortized over the term of the associated debt. Capitalized debt issuance costs related to debt that is retired early are charged to expense at the time of retirement. Debt issuance costs before amortization totaled $16.9 and $16.1 at December 31, 1996 and 1995, respectively. During 1996, 1995 and 1994, the Company amortized $2.6, $2.3 and $2.3, respectively, of capitalized debt issuance costs; in addition, $7.5 and $0.7 of such costs were charged to extraordinary loss on retirement of debt in 1995 and 1994, respectively. Intangible Assets. Intangible assets include purchased patents and trademarks. Costs allocated to patents, trademarks and other specifically identifiable assets arising from business combinations are amortized on a straight-line basis over the respective estimated useful lives not exceeding seven years. Goodwill. Goodwill, representing the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition, is being amortized on a straight-line basis over between fifteen and forty years. Accumulated amortization is $5.6 and $3.2 at December 31, 1996 and 1995, respectively. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Expenditures for major renewals and improvements are capitalized while expenditures for maintenance and repairs not expected to extend the life of an asset beyond its normal useful life are charged to expense when incurred. Plant and equipment are depreciated over the estimated useful lives of the assets under the straight-line method of depreciation for financial reporting purposes and both straight-line and other methods for tax purposes. Impairment of Long Lived Assets. The Company's policy is to assess the realizability of its long lived assets and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if the estimated future undiscounted cash flows is less than its carrying value. The amount of any impairment then recognized would be calculated as the difference between estimated future discounted cash flows and the carrying value of the asset. (See Note D -- "Impairment of Long Lived Assets.") Revenue Recognition. Revenue and costs are generally recorded when products are shipped and invoiced to either independently owned and operated dealers or to customers. Certain new units may be invoiced prior to the time customers take physical possession. Revenue is recognized in such cases only when the customer has a fixed commitment to purchase the units, the units have been completed, tested and made available to the customer for pickup or delivery, and the customer has requested that the Company hold the units for pickup or delivery at a time specified by the customer in the sales documents. In such cases, the units are invoiced under the Company's customary billing terms, title to the units and risks of ownership pass to the customer upon invoicing, the units are segregated from the Company's inventory and identified as belonging to the customer and the Company has no further obligations under the order. Accrued Warranties and Product Liability. The Company records accruals for potential warranty and product liability claims based on the Company's claim experience. Warranty costs are accrued at the time revenue is recognized. The Company provides self-insurance accruals for estimated product liability experience on known claims and for claims anticipated to have been incurred which have not yet been reported. The Company's product liability accruals are presented on a gross settlement basis. Non Pension Postretirement Benefits. The Company provides postretirement benefits to certain former salaried and hourly employees and certain hourly employees covered by bargaining unit contracts that provide such benefits and has elected the delayed recognition method of adoption of the new standard related to the benefits. (See Note L -- "Retirement Plans.") Foreign Currency Translation. Assets and liabilities of the Company's international operations are translated at year-end exchange rates. Income and expenses are translated at average exchange rates prevailing during the year. For operations whose functional currency is the local currency, translation adjustments are accumulated in the Cumulative Translation Adjustment component of Stockholders' Deficit. Gains or losses resulting from foreign currency transactions are included in Other income (expense) -- net. Foreign Exchange Contracts. The Company uses foreign exchange contracts to hedge recorded balance sheet amounts related to certain international operations and firm commitments that create currency exposures. The Company does not enter into speculative contracts. Gains and losses on hedges of assets and liabilities are recognized in income as offsets to the gains and losses from the underlying hedged amounts. Gains and losses on hedges of firm commitments are recorded on the basis of the underlying transaction. At December 31, 1996 and 1995 the Company had foreign exchange contracts, which were hedges of firm commitments, totaling $29.4 and $21.8, respectively whose fair value approximates its carrying value. In 1995, these contracts related primarily to the customer deposit discussed above. Environmental Policies. Environmental expenditures that relate to current operations are either expensed or capitalized depending on the nature of the expenditure. Expenditures relating to conditions caused by past operations that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial actions are probable, and the costs can be reasonably estimated. Such amounts were not material at December 31, 1996 and 1995. Research and Development Costs. Research and development costs are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products are included in Engineering, Selling and Administrative Expenses. Income Taxes. The Company records deferred tax assets and liabilities based upon the difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The Company records a valuation allowance for deferred tax assets if realization of such assets is dependent on future taxable income. (See Note I -- "Income Taxes.") Net Income (Loss) Per Share. Net income (loss) per share is based on the weighted average number of common and common equivalent shares outstanding during the year. The dilutive effect of common stock equivalents (if applicable) is calculated using the treasury stock method. Reclassifications. Certain amounts shown for 1994 and 1995 have been reclassified to conform to the 1996 presentation. NOTE B -- DISCONTINUED OPERATIONS The Company sold its worldwide Material Handling business ("CMHC") on November 27, 1996 for $139.5 in cash, subject to certain adjustments. The sale resulted in a $84.5 gain net of $2.6 of income taxes. CMHC comprised the Company's Material Handling Segment. The accompanying Consolidated Statement of Operations for the years ended December 31, 1996, 1995 and 1994 include the results of CMHC in "Income (Loss) from Discontinued Operations." Net assets of the discontinued operations at December 31, 1995 have been segregated in the Consolidated Balance Sheet. Please refer to Note A - Basis of Presentation for a discussion of allocation of interest expense. Summary operating results of discontinued operations are as follows:
Year Ended December 31, --------------------------------- 1996 1995 1994 --------- --------- --------- Net Sales ................................. $ 404.6 $ 528.8 $ 472.7 Income (loss) before income taxes ......... 17.5 4.4 (2.9) Provision for income taxes ................ -- -- (0.8) Income (loss) from operations of discontinued operations ............... $ 17.5 $ 4.4 $ (3.7) Gain on sale of discontinued operations.... 84.5 -- -- --------- --------- --------- Income (loss) from discontinued operations. $ 102.0 $ 4.4 $ (3.7) ========= ========= =========
Net assets of the discontinued operations at December 31, 1995 were as follows: Assets: Current assets...................... $ 114.1 Non-current assets.................. 75.6 ----------- Total assets...................... 189.7 ----------- Liabilities: Current liabilities................. 98.3 Non-current liabilities............. 51.5 ----------- Total liabilities................. 149.8 ----------- Cumulative translation adjustment...... (1.9) ----------- Net assets........................ $ 41.8 =========== NOTE C -- ACQUISITIONS PPM, Inc. - On May 9, 1995, the Company, through Terex Cranes, Inc., a wholly owned subsidiary of the Company ("Terex Cranes, Inc."), completed the acquisition (the "PPM Acquisition") of substantially all of the shares of PPM S.A. ("PPM Europe"), from Potain S.A., and all of the capital stock of Legris Industries, Inc., which owns 92.4% of the capital stock of PPM Cranes, Inc. ("PPM North America;" and PPM North America together with PPM Europe collectively referred to as "PPM") from Legris Industries S.A. PPM designs, manufactures and markets mobile cranes and container stackers primarily in North America and Western Europe under the brand names of PPM, P&H (trademark of Harnischfeger Corporation) and BENDINI. Concurrently with the completion of the PPM Acquisition, the Company contributed the assets (subject to liabilities) of its Koehring Cranes and Excavators and Marklift division to Terex Cranes. The former division now operates as Koehring Cranes, Inc., a wholly owned subsidiary of Terex Cranes Inc. ("Koehring"). Koehring manufactures mobile cranes under the LORAIN brand name and aerial lift equipment under the MARKLIFT brand name. PPM and Koehring comprise the Company's Terex Cranes segment. The purchase price of PPM, including acquisition costs, was approximately $104.5. Approximately $92.6 of the purchase price was paid in cash, including the repayment of certain indebtedness of PPM required to be repaid in connection with the acquisition. The remainder of the purchase price consisted of the issuance of redeemable preferred stock of Terex Cranes having an aggregate liquidation preference of approximately $21.4, subject to adjustment. The purchase price is subject to adjustment calculated by reference to Western European crane demand in 1996 and 1997. The preferred stock does not bear a dividend and, accordingly, the Company has valued this stock at approximately $10.0 (discounted at 15%). The PPM Acquisition was accounted for as a purchase, with the purchase price allocated to the assets acquired and liabilities assumed based upon their respective estimated fair values at the date of acquisition. The excess of purchase price over the net assets acquired is being amortized on a straight-line basis over 15 years. The estimated fair values of assets and liabilities acquired in the PPM Acquisition are summarized as follows: Cash............................................... $ 1.0 Accounts receivable................................ 33.8 Inventories........................................ 69.1 Other current assets............................... 11.9 Property, plant and equipment...................... 20.5 Other assets....................................... 0.3 Goodwill........................................... 68.0 Accounts payable and other current liabilities..... (86.6) Other liabilities.................................. (13.5) ------------ $ 104.5 ============ The operating results of PPM are included in the Company's consolidated results of operations since May 9, 1995. The following pro forma summary presents the consolidated results of operations as though the Company completed the PPM Acquisition on January 1, 1994, after giving effect to certain adjustments, including amortization of goodwill, interest expense and amortization of debt issuance costs on the debt issued in the Refinancing:
Unaudited Pro Forma for the Year Ended December 31, --------------------------- 1995 1994 ------------ ------------- Net sales........................................ $ 566.3 $ 493.8 Income (loss) from operations.................... (3.7) (5.9) Loss before extraordinary items.................. (53.0) (19.3) Loss before extraordinary items, per share....... $ (5.89) $ (2.45)
The pro forma information is not necessarily indicative of what the actual results of operations of the Company would have been for the periods indicated, nor does it purport to represent the results of operations for future periods. NOTE D -- IMPAIRMENT OF LONG LIVED ASSETS AND OTHER SPECIAL CHARGES The Company adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" in 1996. This statement establishes accounting standards for determining impairment of long-lived assets and long-lived assets to be disposed of. The Company assesses the realizability of its long-lived assets and evaluates such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable. For assets in use or under development, impairment is determined to exist if the estimated future cash flow associated with the asset, undiscounted and without interest charges, is less than the carrying amount of the asset. When the estimated future cash flow indicates that the carrying amount of the asset will not be recovered, the asset is written down to its fair value. As required by generally accepted accounting principles, goodwill was allocated in the PPM Acquisition to various operating units. After eighteen months of continuous rationalization, estimated future undiscounted cash flows for certain operations would not be sufficient to recover the goodwill and fixed assets recorded for these operations. Thus, in the fourth quarter of 1996 the Company recorded an impairment charge of $16.8 ($13.3 related to goodwill and $3.5 related to fixed assets). Similarly, in the fourth quarter of 1996 the Company wrote off $1.9 of goodwill related to its IMACO unit in the United Kingdom. These 1996 impairment charges totaling $18.7 are included in "Cost of Goods Sold." In addition to the impairment charges described above, the Company recorded special charges of $8.6 to reduce the value of assets at Unit Rig, $2.0 related to 1993 tax matters at PPM Europe, and $3.0 of other one-time charges during the fourth quarter of 1996. NOTE E -- INVENTORIES Inventories consist of the following:
December 31, ----------------------- 1996 1995 ----------- ----------- Finished equipment......................... $ 49.3 $ 43.7 Replacement parts.......................... 68.0 71.5 Work-in-process............................ 19.8 22.6 Raw materials and supplies................. 56.3 45.7 ----------- ----------- 193.4 183.5 Less: Excess of FIFO inventory value over LIFO cost............................ (2.8) (2.7) ----------- ----------- Net inventories.......................... $ 190.6 $ 180.8 =========== ===========
In 1994, certain inventory quantities were reduced, resulting in the liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years. The effects of such liquidations were to decrease cost of goods sold by $0.5 in 1994. NOTE F -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
December 31, --------------------- 1996 1995 ---------- ---------- Property...................................... $ 0.2 $ 2.5 Plant......................................... 14.0 20.6 Equipment..................................... 51.2 42.6 ---------- ---------- 65.4 65.7 Less: Accumulated depreciation............... (33.7) (25.6) ---------- ---------- Net property, plant and equipment........... $ 31.7 $ 40.1 ========== ==========
NOTE G -- LONG-TERM OBLIGATIONS Long-term debt is summarized as follows:
December 31, ----------------------- 1996 1995 ----------- ----------- 13.25% Senior Secured Notes due May 15, 2002 ("Senior Secured Notes")...... $ 247.3 $ 247.0 Credit Facility maturing May 9, 1998............ --- 66.8 Note payable.................................... 5.0 5.5 Capital lease obligations....................... 14.7 8.3 Other........................................... 14.3 2.3 ----------- ----------- Total long-term debt.......................... 281.3 329.9 Current portion of long-term debt............. 19.2 5.7 ----------- ----------- Long-term debt, less current portion.......... $ 262.1 $ 324.2 =========== ===========
The Senior Secured Notes On May 9, 1995, the Company issued $250 of Senior Secured Notes due May 15, 2002. The Senior Secured Notes were issued in conjunction with the PPM Acquisition and a refinancing of 13.0% Senior Secured Notes due August 1, 1996 ("Old Senior Secured Notes"), and 13.5% Secured Senior Subordinated Notes due July 1, 1997 ("Subordinated Notes"). Except in the event of certain asset sales, there are no principal repayment or sinking fund requirements prior to maturity. Interest on the Notes is payable semi-annually on May 15 and November 15 of each year to holders of record on the immediately preceding May 1 and November 1, respectively. The Notes bear interest at 13 1/4% per annum. Prior to the consummation of an exchange offer on November 5, 1996, the interest rate on the Notes was 13 3/4% per annum. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. The Senior Secured Notes are senior obligations of the Company, pari passu in right of payment with all existing and future senior indebtedness and senior to all subordinated indebtedness. Repayment of the Senior Secured Notes are guaranteed by certain domestic subsidiaries of the Company (the "Guarantors"). The Senior Secured Notes are secured by a first priority security interest on substantially all of the assets of the Company and the Guarantors, other than cash and cash equivalents, except that as to accounts receivable and inventory and proceeds thereof, and certain related rights, such security shall be subordinated to liens securing obligations outstanding under any working capital or revolving credit facility secured by such accounts receivable and inventory, including the Credit Facility. The Senior Secured Notes are also secured by a lien on certain assets of the Company's foreign subsidiaries. The indenture for the Senior Secured Notes (the "Indenture") places certain limits on the Company's ability to incur additional indebtedness; permit the existence of liens; issue, pay dividends on or redeem equity securities; sell assets; consolidate, merge or transfer assets to another entity; and enter into transactions with affiliates. As required by the Indenture, the Company, following the sale of CMHC, offered to repurchase (the "Offer") $100 principal amount of its 13.25% Senior Secured Notes. The Offer expired on December 27, 1996, but with Senior Secured Notes being tendered for repurchase. As a result, the $100 of sale proceeds was available for other corporate purposes. In connection with the issuance of the Senior Secured Notes, the Company issued one million stock appreciation rights ("1995 SARs") entitling the holders to receive cash or Terex Corporation common stock, at the option of the Company, in an amount equal to the average closing sale price of the common stock for 60 trading days prior to the date of exercise less $7.288 for each SAR. For 1996 and 1995 no expense was recorded for the 1995 SARs as the redemption value of the 1995 SARs never exceeded the $3.2 obligation recorded when the 1995 SARs were issued. The Credit Facility The Company currently has a secured revolving credit facility (the "Credit Facility") with certain institutional lenders (the "Lenders"). Under the terms of such facility, the Company and its domestic subsidiaries (collectively, the "Borrowers") will have availability, subject to the borrowing base limitations set forth below, in an aggregate amount of up to $100. Subject to the terms and conditions set forth in the Credit Facility, the Borrowers may borrow (in the form of revolving loans and up to $15 in outstanding letters of credit) an amount at any time outstanding initially equaling the sum of the following: (i) 75% of the net amount of eligible receivables (as defined in the Credit Facility) of the Borrowers plus (ii) the lesser of (a) 45% of the value of eligible inventory (as defined in the Credit Facility) of the Borrowers or (b) 80% of the appraised orderly liquidation value of eligible inventory. Each Borrower guarantees, on a joint and several basis, all of the obligations of the other Borrowers under the Credit Facility, which obligations will generally be secured by a first priority security interest in favor of the Lenders in all of the receivables and inventory and certain related rights of the Borrowers. The Company has the option to base the interest rate on prime or the Eurodollar rate. The outstanding principal amount of prime rate loans initially bears interest at the rate of 1.75% per annum in excess of the prime rate. The outstanding principal amount of Eurodollar rate loans initially bears interest at the rate of 3.75% per annum in excess of the adjusted Eurodollar rate. The Company must pay a fee of 0.25% per annum on the unused portion of the Credit Facility. The Credit Facility contains covenants limiting the Borrowers' activities, including, without limitation, limitations on the incurrence of indebtedness, liens, asset sales, dividends and other payments, investments, mergers and related party transactions. The Credit Facility matures on May 9, 1998. The Lenders, at their option, may extend the facility for one additional year. In the event that for any reason the facility is terminated prior to the maturity date, the Borrowers must pay to the Lenders a termination fee of $2.0 if terminated prior to May 9, 1997 and $1.0 thereafter. Old Senior Secured Notes and Subordinated Notes The Old Senior Secured Notes and Subordinated Notes were retired on May 9, 1995 in conjunction with the PPM Acquisition and the issuance of the Senior Secured Notes. The Company realized an extraordinary loss of $5.7 and $1.6 on the early extinguishment of the Old Senior Secured Notes and the Subordinated Notes, respectively. The indenture for the Old Senior Secured Notes required that proceeds from the sale of collateral be used to make an offer to repurchase, at par, an equivalent amount of Old Senior Secured Notes. During 1994, as a result of sales of shares of a former subsidiary's common stock during 1994 and in the last quarter of 1993, the Company repurchased $27.3 principal amount of the Old Senior Secured Notes. The Company realized an extraordinary loss of $0.7 on the repurchases in conjunction with the accelerated write off of related discount and debt issuance costs. Lending Facility The Lending Facility was terminated in May 1995 in conjunction with the PPM Acquisition and entering into the Credit Facility. The Company realized an extraordinary loss of $0.2 to write-off the unamortized debt issuance cost at termination. Interest on Lending Facility borrowings was payable monthly at variable rates generally equal to 2.75% above the prime rate. TEL Facility In 1995, the Company's subsidiary, Terex Equipment Limited ("TEL") located in Motherwell, Scotland, entered into a bank facility (the "TEL Facility") which provides up to British pounds sterling 47.0 ($80.5) including up to British pounds sterling 10.0 ($17.1) non-recourse discounting of accounts receivable which meet certain credit criteria, plus additional facilities for tender and performance bonds, letters of credit discounting and foreign exchange contracts. Interest rates vary between 1.0% - 1.5% above the financial institution's Published Base Rate or LIBOR. The TEL Facility is collateralized primarily by the related accounts receivable. The TEL Facility requires no performance covenants. Proceeds from the TEL Facility are primarily used for working capital purposes. Amounts discounted under this and the prior facility were $6.9 and $11.7 at December 31, 1996 and 1995, respectively. Schedule of Debt Maturities Scheduled annual maturities of long-term debt outstanding at December 31, 1996 in the successive five-year period are summarized below. Amounts shown are exclusive of minimum lease payments disclosed in Note H -- "Lease Commitments": 1997................................... $ 13.3 1998................................... 1.2 1999................................... 0.6 2000................................... 0.5 2001................................... 0.5 Thereafter............................. 250.5 ------------- Total.............................. $ 266.6 ============= Based on quoted market values, the Company believes that the fair value of the Senior Secured Notes was approximately $268.8 as of December 31, 1996. The Company believes that, based on quoted market values, the carrying value of its other borrowings approximates fair market value, based on discounting future cash flows using rates currently available for debt of similar terms and remaining maturities. The Company paid $45.3, $43.0 and $30.0 of interest in 1996, 1995 and 1994, respectively. The weighted average interest rate on short term borrowings outstanding was 10.0% at December 31, 1996 and 10.0% at December 31, 1995. NOTE H -- LEASE COMMITMENTS The Company leases certain facilities, machinery and equipment, and vehicles with varying terms. Under most leasing arrangements, the Company pays the property taxes, insurance, maintenance and expenses related to the leased property. Certain of the equipment leases are classified as capital leases and the related assets have been included in Property, Plant and Equipment. Net assets under capital leases were $8.2 and $12.3 at December 31, 1996 and 1995, respectively, net of accumulated amortization of $9.6 and $3.5 at December 31, 1996 and 1995, respectively. Future minimum capital and noncancelable operating lease payments and the related present value of capital lease payments at December 31, 1996 are as follows:
Capital Operating Leases Leases ------------- ------------- 1997............................................ $ 6.3 $ 4.7 1998............................................ 3.0 2.8 1999............................................ 2.0 2.1 2000............................................ 1.6 1.8 2001............................................ 2.1 1.7 Thereafter...................................... 0.2 3.1 ------------- ------------- Total minimum obligations .................. 15.2 $ 16.2 ============= Less amount representing interest............... 0.5 ------------- Present value of net minimum obligations.... 14.7 Less current portion............................ 6.0 ------------- Long-term obligations....................... $ 8.7 =============
Most of the Company's operating leases provide the Company with the option to renew the leases for varying periods after the initial lease terms. These renewal options enable the Company to renew the leases based upon the fair rental values at the date of expiration of the initial lease. Total rental expense under operating leases was $4.7, $3.9 and $3.0 in 1996, 1995, and 1994, respectively. NOTE I -- INCOME TAXES The components of Income (Loss) From Continuing Operations Before Income Taxes and Extraordinary Items are as follows:
Year ended December 31, ---------------------------------------- 1996 1995 1994 ------------- ------------- ------------ United States...........................$ (40.6) $ (36.1) $ (2.4) Foreign................................. (1.6) 4.0 7.1 ------------- ------------- ------------ Income (loss) from continuing operations before income taxes and extraordinary items................$ (42.2) $ (32.1) $ 4.9 ============= ============= ============
The major components of the Company's provision for income taxes are summarized below:
Year ended December 31, -------------------------------- 1996 1995 1994 ---------- ---------- ---------- Current: Federal................................... $ --- $ --- $ --- State..................................... --- --- --- Foreign................................... 12.1 3.8 1.8 Utilization of foreign net operating loss ("NOL") carryforward................ (11.3) (3.8) (1.8) ---------- ---------- ---------- Current income tax provision.......... 0.8 --- --- Deferred: Deferred foreign income tax............... 11.3 --- --- ---------- ---------- ---------- Total provision for income taxes...... $ 12.1 --- --- ========== ========== ==========
As a result of the recapitalization of PPM Europe, certain NOL benefit carryforwards which were fully provided for at the acquisition were utilized resulting in a deferred tax charge of $11.3 in the fourth quarter of 1996. Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. A valuation allowance has been recognized for the full amount of the deferred tax assets as it is not more likely than not that they will be fully utilized. The tax effects of the basis differences and net operating loss carryforward as of December 31, 1996 and 1995 are summarized below for major balance sheet captions:
1996 1995 ------------- ------------- Net inventories............................ $ --- $ --- Fixed assets............................... --- (0.9) Other...................................... (0.8) (1.1) ------------- ------------- Total deferred tax liabilities........ (0.8) (2.0) ------------- ------------- Receivables................................ 0.6 1.0 Net inventories............................ 4.6 3.4 Fixed assets............................... 2.4 --- Warranties and product liability........... 5.8 5.8 Net assets of discontinued operations...... --- 16.9 All other items............................ 6.2 2.8 Benefit of net operating loss carryforward. 96.2 121.7 ------------- ------------- Total deferred tax assets............. 115.8 151.6 ------------- ------------- Deferred tax assets valuation allowance.... (115.0) (149.6) ------------- ------------- Net deferred tax liabilities.......... $ --- $ --- ============= =============
The valuation allowance for deferred tax assets as of January 1, 1995 was $138.6. The net change in the total valuation allowance for the years ended December 31, 1995 and 1996 were an increase of $11.0 and a decrease of $34.6, respectively. The Company's Provision for Income Taxes is different from the amount which would be provided by applying the statutory federal income tax rate to the Company's Income (Loss) From Continuing Operations Before Income Taxes and Extraordinary Items. The reasons for the difference are summarized below:
Year ended December 31, -------------------------------- 1996 1995 1994 ---------- ---------- ---------- Statutory federal income tax rate...... $ (14.8) $ (11.2) $ 1.7 Recognition of fully reserved preacquisition deferred tax asset.... 11.3 --- --- NOL with no current benefit............ 7.8 11.4 0.7 Foreign tax differential on income/losses of foreign subsidiaries. 1.4 (1.4) (2.5) Goodwill............................... 6.3 1.1 --- Other.................................. 0.1 0.1 0.1 ---------- ---------- ---------- Total provision for income taxes.. $ 12.1 $ --- $ --- ========== ========== ==========
The effective tax rate for discontinued operations differs from the statutory rate due primarily to utilization of NOL's and foreign tax differential on the income of foreign subsidiaries. The Company has not provided for U.S. federal and foreign withholding taxes on $24.1 of foreign subsidiaries' undistributed earnings as of December 31, 1996, because such earnings are intended to be reinvested indefinitely. Any income tax liability that would result had such earnings actually been repatriated would likely be offset by utilization of NOL's. On repatriation, certain foreign countries impose withholding taxes. The amount of withholding tax that would be payable on remittance of the entire amount of undistributed earnings would approximate $4.3. At December 31, 1996, the Company had domestic federal net operating loss carryforwards of $188.6. Approximately $75.5 of the remaining net operating loss carryforwards are subject to special limitations under the Internal Revenue Code, and the NOL's may be affected by the current IRS examination discussed below. The tax basis net operating loss carryforwards expire as follows:
Tax Basis Net Operating Loss Carryforwards ---------------- 1997................................. $ 8.7 1998................................. 12.0 1999................................. 4.6 2000................................. 0.1 2001................................. 0.3 2002................................. 0.5 2003................................. 0.9 2004................................. 22.4 2005................................. 0.8 2006................................. 5.8 2007................................. 15.1 2008................................. 42.9 2009................................. 34.2 2010................................. 40.3 ---------------- Total............................ $ 188.6 ================
The Company also has various state net operating loss and tax credit carryforwards expiring at various dates through 2010 available to reduce future state taxable income and income taxes. In addition, the Company's foreign subsidiaries have approximately $64.5 of loss carryforwards, $48.7 in U.K., $8.2 in France and $7.6 in other countries, which are available to offset future foreign taxable income. Tax loss carryforwards in France generally expire in 2000. The loss carryforwards in the U.K. and other countries are available without expiration. The Internal Revenue Service 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 based on this examination. The examination report raises a variety of issues, including the Company's substantiation for certain deductions taken during this period, the Company's utilization of certain NOL's and the availability of such NOL's to offset future taxable income. If the IRS were to prevail on all the issues raised, the amount of the tax assessment would be approximately $56 plus interest and penalties. If the Company were required to pay a significant portion of the assessment, it could have a material adverse impact on the Company and could exceed the Company's resources. The Company filed its administrative appeal to the examination report in April 1995. As a result of a meeting with the Manhattan division of the IRS in July 1995, in June 1996 the Company was advised that the matter was being referred back to the Milwaukee audit division of the IRS. The Milwaukee audit division of the IRS is currently reviewing information provided by the Company over the past 18 months. Although management believes 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 NOL's, the ultimate outcome of this matter is subject to the resolution of significant legal and factual issues. If the Company's positions prevail on the most significant issues, management believes that the amounts due would not exceed amounts previously paid or provided; however, even under such circumstances, it is possible that the Company's NOL's could be reduced to some extent. 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 plus interest and penalties and the ultimate outcome cannot presently be determined or estimated. The Company made no income tax payments in 1996, 1995 and 1994. NOTE J -- PREFERRED STOCK The Company's certificate of incorporation was amended in October 1993 to authorize 10.0 million shares of preferred stock, $.01 par value per share. As of December 31, 1996, a total of 1.2 million shares of preferred stock are issued and outstanding as described below. Series A Cumulative Redeemable Convertible Preferred Stock As of December 31, 1996, the Company had 1.2 million issued and outstanding shares of Series A Cumulative Redeemable Convertible Preferred Stock (the "Series A Preferred Stock"). The Liquidation Preference totaled $45.4 at December 31, 1996. On December 30, 1996, the Company called all of its Series A Preferred Stock for redemption and subsequently redeemed the stock in January 1997 at an aggregate redemption price of $45.4. The aggregate net proceeds to the Company for the Series A Preferred Stock and the Series A Warrants issued on December 20, 1993 were $27.2. The Company allocated $10.3 and $16.9 of this amount to the Series A Preferred Stock and the Series A Warrants, respectively, based on management's estimate of the relative fair values of these securities at the time of their issuance, using information provided by the Company's investment bankers. The difference between the initially recorded amount and the redemption amount was accreted to the carrying value of the Series A Preferred Stock using the interest method over the period from issuance to the mandatory redemption date, December 31, 2000. As a result of calling all of the stock for redemption on December 30, 1996, the carrying value of the Series A Preferred Stock was further adjusted for increases in the Liquidation Preference. The total accretion recorded in 1996 and 1995 was $22.9 and $7.3, respectively. Series B Cumulative Redeemable Convertible Preferred Stock As of December 31, 1996, the Company had 38.8 thousand issued and outstanding shares of Series B Cumulative Redeemable Convertible Preferred Stock (the "Series B Preferred Stock"). These shares constitute the remaining balance outstanding of the Series B Preferred Stock issued to certain individuals on December 9, 1994 in consideration for the early termination of a contract between the Company and KCS Industries, L.P., a Connecticut limited partnership ("KCS"), a related party. NOTE K -- STOCKHOLDERS' DEFICIT Common Stock. The Company's certificate of incorporation was amended in October 1993 to increase the number of authorized shares of common stock, par value $.01 (the "Common Stock"), to 30.0 million. As of December 31, 1996, there were 13.2 million shares issued and outstanding. Of the 16.8 million unissued shares at that date, 1.8 million shares were reserved for issuance for conversion of Series B Preferred Stock (Note J) and the exercise of stock options and Series A Warrants. Series A Warrants. In connection with the private placement of the Series A Preferred Stock (see Note J -- "Series A Preferred Stock"), the Company issued 1.3 million Series A Warrants of which 243.2 thousand warrants were outstanding at December 31, 1996. Each Series A Warrant may be exercised, in whole or in part, at the option of the holder at any time before the expiration date on December 31, 2000 and is redeemable by the Company under certain circumstances. As of December 31, 1996, upon the exercise or redemption of a Warrant, the holder thereof was entitled to receive 2.41 shares of Common Stock. The exercise price for the Warrants is $.01 for each share of Common Stock. The number of shares of Common Stock issuable upon exercise or redemption of the Warrants is subject to adjustment in certain circumstances. Series B Warrants. In connection with the issuance of the Series B Preferred Stock (see Note J -- "Series B Preferred Stock"), the Company issued 107.0 thousand Series B Warrants. At December 31, 1996, all warrants have been exercised. The exercise price for the Warrants was $.01 for each share of Common Stock. Stock Options. The Company maintains a qualified incentive stock option ("ISO") plan covering certain officers and key employees. The exercise price of the ISO is the fair market value of the shares at the date of grant. The ISO allows the holder to purchase shares of common stock, commencing one year after grant. ISO expire after ten years. At December 31, 1996, 1.1 thousand stock options were available for grant under the ISO. Long-term Incentive Plans. In May 1996, the shareholders approved, the 1996 Terex Corporation Long-Term Incentive Plan (the "1996 Plan"). The 1996 Plan authorizes the granting of (i) options ("Stock Option Awards") to purchase shares of Common Stock, including Restricted Stock, (ii) shares of Common Stock, including Restricted Stock ("Stock Awards"), and (iii) cash bonus awards based upon a participant's job performance ("Performance Awards"). Subject to adjustment as described below under "Adjustments," the aggregate number of shares of Common Stock (including Restricted Stock, if any) optioned or granted under the 1996 Plan shall not exceed 300 thousand shares. At December 31, 1996 57.5 thousand shares were available for grant under the 1996 Plan. The Company has proposed that the aggregate number of shares available under the 1996 Plan be increased to 800 thousand shares, this proposal is subject to approval by the Company's shareholders. The 1996 Plan provides that a committee (the "Committee") of the Board of Directors consisting of two or more members thereof who are non-employee directors, shall administer the 1996 Plan and has provided the Committee with the flexibility to respond to changes in the competitive and legal environments, thereby protecting and enhancing the Company's current and future ability to attract and retain directors and officers and other key employees and consultants. The 1996 Plan also provides for automatic grants of Stock Option Awards to non-employee directors. In 1994, the shareholders approved a Long-Term Incentive Plan (the "Plan") covering certain managerial, administrative and professional employees and outside directors. The Plan provides for awards to employees, from time to time and as determined by a committee of outside directors, of cash bonuses, stock options, stock and/or restricted stock. The total number of shares of the Company's common stock available to be awarded under the Plan is 750 thousand, subject to certain adjustments. At December 31, 1994 38.3 thousand shares were available for grant under the Plan. The following table is a summary of stock options under all three of the Company's plans.
Weighted Number of Average Exercise Options Price per Share ------------- ------------------ Outstanding at December 31, 1993............ 75,916 $ 11.89 Granted.................................. 352,500 5.54 Exercised................................ --- --- Canceled or expired...................... (4,450) 13.34 ------------- ------------------ Outstanding at December 31, 1994............ 423,966 $ 6.60 Granted.................................. 448,300 4.85 Exercised................................ --- --- Canceled or expired...................... (74,166) 6.21 ------------- ------------------ Outstanding at December 31, 1995............ 798,100 $ 5.65 Granted.................................. 108,500 6.57 Exercised................................ (18,075) 5.70 Canceled or expired...................... (45,100) 6.32 ------------- ------------------ Outstanding at December 31, 1996............ 843,425 $ 5.73 ============= ================== Exercisable at December 31, 1996............ 479,364 $ 6.08 ============= ================== Exercisable at December 31, 1995............ 269,893 $ 6.31 ============= ================== Exercisable at December 31, 1994............ 54,251 $ 12.15 ============= ==================
The following table summarizes information about stock options outstanding at December 31, 1996:
Weighted Weighted Average Average Exercise Range of Number of Life Price per Exercise Prices Options (in years) Share - ---------------------------- ------------- ----------- --------------- $ 3.50 - $ 6.00 576,050 6.7 $ 4.80 $ 6.01 - $ 10.00 220,625 6.9 $ 6.71 $ 10.01 - $ 14.80 46,750 4.6 $ 12.66 ------------- 843,425 6.6 $ 5.73 =============
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation." In accordance with the provisions of SFAS 123, the Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans other than for restricted stock. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed by SFAS No. 123, the Company's net income would have been reduced by $0.6 ($0.04 per share) and $0.6 ($0.06 per share) in 1996 and 1995, respectively. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: dividend yields of 0% and 0%; expected volatility of 58.72% and 63.76%; risk-free interest rates of 6.42% and 5.57%; and expected life of 6.6 years and 8.6 years. The weighted average fair value of options granted during 1996 and 1995 for which the exercise price equals the market price on the grant date was $0.4 and $1.6, respectively. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Stock Appreciation Rights. In connection with the May 1995 issuance of the Senior Secured Notes, the Company issued 1.0 million stock appreciation rights (the "1995 SARs") entitling the holders to receive cash or Common Stock, at the option of the Company, in an amount equal to the average closing sale price of the common stock for 60 trading days prior to the date of exercise less $7.288 for each 1995 SAR. The 1995 SARs expire on May 15, 2002. At December 31, the average closing sale price of the common stock for 60 trading days prior to December 31, 1996 was $8.163 per share. The Company did not record a charge for the 1995 SARs in 1996 or 1995 since the cost to the Company is less than the $3.2 obligation recorded when the 1995 SARs were issued. NOTE L -- RETIREMENT PLANS Pension Plans US Plans The Company maintains four defined benefit pension plans covering certain domestic employees. The benefits for the plans covering the salaried employees are based primarily on years of service and employees' qualifying compensation during the final years of employment. Participation in the plan for salaried employees was frozen as of May 7, 1993, and no participants will be credited with service following such date except that participants not fully vested will be credited with service for purposes of determining vesting only. The benefits for the plans covering the hourly employees are based primarily on years of service and a flat dollar amount per year of service. It is the Company's policy generally to fund these plans based on the minimum requirements of the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets consist primarily of common stocks, bonds, and short-term cash equivalent funds. Pension expense includes the following components for 1996, 1995 and 1994:
Year ended December 31, -------------------------- 1996 1995 1994 -------- -------- -------- Service cost for benefits earned during period..$ 0.2 $ 0.1 $ 0.2 Interest cost on projected benefit obligation... 2.3 2.2 2.2 Actual (return) loss on plan assets............. (5.0) (3.8) (0.4) Net amortization and deferral................... 3.4 2.0 (1.2) -------- -------- -------- Net pension expense........................$ 0.9 $ 0.5 $ 0.8 ======== ======== ========
The following table sets forth the US plans' funded status and the amounts recognized in the Company's financial statements at December 31:
1996 1995 1994 ----------------------------------------------------------- ---------------------------- Overfunded Underfunded Overfunded Underfunded Overfunded Underfunded Plans Plans Plans Plans Plans Plans ------------- ----------------------------- --------------- ------------- --------------- Actuarial present value of: Vested benefits....................$ 9.8 $ 21.8 $ 9.4 $ 20.9 $ 8.0 $ 19.0 ============= ============== ============== =============== ============= =============== Accumulated benefits...............$ 10.2 $ 21.8 $ 9.9 $ 20.9 $ 8.1 $ 19.1 ============= ============== ============== =============== ============= =============== Projected benefits.................$ 10.2 $ 21.8 $ 9.9 $ 20.9 $ 8.1 $ 19.1 Fair value of plan assets............. 11.5 18.6 10.2 16.5 9.2 14.7 ------------- -------------- -------------- --------------- ------------- --------------- Projected benefit obligation (in excess of) less than plan assets......................... 1.3 (3.2) 0.4 (4.4) 1.1 (4.4) Unrecognized net loss from past experience different than assumed... 1.4 2.0 2.6 2.7 2.5 1.8 Unrecognized prior service cost....... 0.8 --- 0.9 --- 0.5 --- Adjustment to recognize minimum liability........................... --- (2.0) --- (2.7) --- (1.8) ------------- -------------- -------------- --------------- ------------- --------------- Pension asset (liability) recognized in the balance sheet...$ 3.5 $ (3.2) $ 3.9 $ (4.4) $ 4.1 $ (4.4) ============= ============== ============== =============== ============= ===============
The expected long-term rate of return on plan assets was 9% for the periods presented. The discount rate assumption was 7.5% for 1996, 7.5% for 1995 and 8.5% for 1994. In accordance with the provisions of the SFAS No. 87, "Employers' Accounting for Pensions," the Company has recorded an adjustment of $2.0 and $2.7 to recognize a minimum pension liability at December 31, 1996 and 1995, respectively. This liability is offset by a direct reduction of stockholders' deficit. In December 1993, Terex contributed 350.0 thousand shares of Terex Common Stock to the Master Trust for the benefit of two of the Terex plans, which were valued by the Company at $2.3 based upon 96.5% of the market value of Terex Common Stock as quoted on the New York Stock Exchange on the day of contribution. The market value of this investment was $3.5 at December 31, 1996. International Plans TEL maintains a government-required defined benefit plan (which includes certain defined contribution elements) covering substantially all of its management employees. This plan is fully funded. Pension expense relating to this plan was approximately $0.4, $0.3 and $0.3 for the years ended December 31, 1996, 1995 and 1994, respectively. Saving Plans The Company sponsors various tax deferred savings plans into which eligible employees may elect to contribute a portion of their compensation. The Company can, but is not obligated to, contribute to certain of these plans. Other Postemployment Benefits The Company provides postemployment health and life insurance benefits to certain former salaried and hourly employees of Terex Cranes - Waverly Operations. The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," on January 1, 1993. This statement requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides service. Terex adopted the provisions of SFAS No. 106 using the delayed recognition method, whereby the amount of the unrecognized transition obligation at January 1, 1993 is recognized prospectively as a component of future years' net periodic postretirement benefit expense. The unrecognized transition obligation at January 1, 1993 was $4.5. Terex is amortizing this transition obligation over 12 years, the average remaining life expectancy of the participants. The liability of the Company, as of December 31, was as follows:
1996 1995 ---------- ---------- Actuarial present value of accumulated postretirement benefit obligation of: Retirees.............................................. $ 2.8 $ 4.4 Active participants................................... --- --- ---------- ---------- Total accumulated postretirement benefit obligation... 2.8 4.4 Unamortized transition obligation........................ (3.0) (3.4) ---------- ---------- Liability (asset) recognized in the balance sheet..... $ (0.2) $ 1.0 ========== ==========
Health care trend rates used in the actuarial assumptions range from 11.5% to 12.0% These rates decrease to 5.5% over a period of 7 to 9 years. The effect of a one percentage-point change in the health care cost trend rates would change the accumulated postretirement benefit obligation approximately 5%. The discount rate used in determining the accumulated postretirement benefit obligation was 7.5% for the years ended December 31, 1996 and 1995. Net periodic postretirement benefit expense includes the following components for 1996 and 1995:
Year ended December 31, ---------------------------- 1996 1995 ------------- -------------- Service cost..................... $ --- $ --- Interest cost.................... 0.2 0.3 Net amortization................. 0.2 0.4 ------------- -------------- Total....................... $ 0.4 $ 0.7 ============= ==============
The Company's postretirement benefit obligations are not funded. Net periodic postretirement benefit expense for the years ended December 31, 1996, 1995 and 1994 was approximately $0.3, $0.6 and $0.5 greater on the accrual basis than it would have been on the cash basis. NOTE M -- LITIGATION AND CONTINGENCIES In December 1992, a Class Action complaint was filed against a former subsidiary of the Company, the Company, certain of the former subsidiary's then officers and directors and certain of the underwriters of the initial public offering of the former subsidiary, in the United States District Court for the Eastern District of Michigan, Southern Division, alleging, among other things, violations of certain provisions of the federal securities laws, and seeking unspecified compensatory and punitive damages. The Company settled this litigation, with court approval, and recorded a provision of $0.3 million in the quarter ended March 31, 1995. In the Company's lines of business numerous suits have been filed alleging damages for accidents that have arisen in the normal course of operations involving the Company's products. The Company is self-insured, up to certain limits, for these product liability exposures, as well as for certain exposures related to general, workers' compensation and automobile liability. Insurance coverage is obtained for catastrophic losses as well as those risks required to be insured by law or contract. The Company has recorded and maintains an estimated liability in the amount of management's estimate of the Company's aggregate exposure for such self-insured risks. The Company is involved in various other legal proceedings which have arisen in the normal course of its operations. The Company has recorded provisions for estimated losses in circumstances where a loss is probable and the amount or range of possible amounts of the loss is estimable. The Company's outstanding letters of credit totaled $7.8. The letters of credit generally serve as collateral for certain liabilities included in the Consolidated Balance Sheet. Certain of the letters of credit serve as collateral guaranteeing the Company's performance under contracts. As described in Note I -- "Income Taxes," the Internal Revenue Service is currently examining the Company's federal tax returns for the years 1987 through 1989. The Company has agreed to indemnify certain outside parties for losses related to a former subsidiary's worker compensation obligations. Some of the claims for which Terex is contingently obligated are also covered by bonds issued by an insurance company. The Company recorded liabilities for these contingent obligations representing management's estimate of the potential losses which the Company might incur. NOTE N -- RELATED PARTY TRANSACTIONS On August 28, 1995, the Company announced that its Chairman had retired from his position with the Company and its Board of Directors. In connection with his retirement, the Company (upon the recommendation of a committee comprised of its independent Directors and represented by independent counsel) and the former chairman have executed a retirement agreement providing certain benefits to the former chairman and the Company. The agreement provides, among other things, for a five-year consulting engagement requiring the former chairman to make himself available to the Company to provide consulting services for certain portions of his time. The former chairman, or his designee, received a fee for consulting services which included payments in an amount, and a rate, equal to his 1995 base salary until December 31, 1996. The agreement also provides for the granting of a five-year $1.8 million loan bearing interest at 6.56% per annum which is subject to being forgiven in increments over the five-year term of the agreement upon certain conditions and equity grants having a maximum potential of 200.0 thousand shares of Terex common stock conditioned upon the Company achieving certain financial performance objectives in the future. In contemplation of the execution of this retirement agreement, the Company advanced to the former chairman the principal amount of the forgivable loan. During 1996, the Company forgave $0.4 of principal on the loan along with the current interest. The former chairman has also agreed not to compete with the Company, to vote his Terex shares in the manner recommended by the Company's Board of Directors and not to acquire any additional shares of the Company's common stock. The Company received a letter from the Department of Labor (the "DOL") in May of 1995, alleging that the Company's former Chairman of the Board, at the time a fiduciary for the Company's retirement plans, violated certain provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") in making certain investments which may have been imprudent and by possibly engaging in prohibited transactions under ERISA. On January 31, 1997, the DOL and the Company's former chairman entered into a settlement agreement, which, among other things, obligated the Company's former chairman to pay certain amounts to the Terex Corporation Master Retirement Plan Trust and to the DOL. In connection with the DOL investigation and settlement, the Company has incurred expenses (including legal fees) of $0.2. The Company, certain directors and executives of the Company, and KCS have been named parties in various legal proceedings. During 1996, 1995 and 1994, the Company incurred $0.3, $0.3 and $0.3, respectively, of legal fees and expenses on behalf of the Company, directors and executives of the Company, and KCS named in the lawsuits. In 1995, the Company retained Jefferies & Company, Inc., of which a director of the Company was then Executive Vice President, in connection with the offering of the Company's $250 Senior Secured Notes and acquisition of PPM which was completed in May 1995. Jefferies & Company, Inc. was paid $9.2 as an underwriting discount and for services rendered. The Company requires that all transactions with affiliates be on terms no less favorable to the Company than could be obtained in comparable transactions with an unrelated person. The Board is advised in advance of any such proposed transaction or agreement and utilizes such procedures in evaluating their terms and provisions as are appropriate in light of the Board's fiduciary duties under Delaware law. In addition, the Company has an Audit Committee consisting solely of outside directors. One of the responsibilities of the Audit Committee is to review related party transactions. NOTE O-- BUSINESS SEGMENT INFORMATION The Company operates in two industry segments: Terex Cranes and Terex Trucks. Prior to November 27, 1996 the Company operated in a third industry segment, the Material Handling Segment, which is treated as a discontinued operation. Terex Cranes designs, manufactures and markets mobile cranes, aerial platforms, container stackers and scrap handlers and related components and replacement parts. These products are used primarily for construction, repair and maintenance of infrastructure, buildings and manufacturing facilities, for material handling applications in the distribution and transportation industries as well as in the scrap, refuse and lumber industries. Terex Cranes has four significant manufacturing operations: (i) PPM S.A. located in Montceau Les Mines, France, at which mobile cranes and container stackers under the brand name PPM are manufactured, (ii) PPM SpA, located in Crespellano, Italy, at which mobile cranes are manufactured under the BENDINI and PPM brand names, (iii) Terex Cranes, located in Conway, South Carolina, at which mobile cranes are manufactured under the P&H (a licensed trademark of Harnischfeger Corporation) and TEREX brand names, and (iv) Terex Cranes - Waverly Operations located in Waverly, Iowa, at which rough terrain hydraulic telescoping mobile cranes, truck cranes and material handlers are manufactured under the brand names TEREX, KOEHRING and LORAIN, and aerial lift equipment is manufactured under the brand name MARKLIFT. Terex Trucks designs, manufactures and markets heavy-duty, off-highway earthmoving and construction equipment and related components and replacement parts. These products are used primarily by construction, mining, logging, industrial and government customers in building roads, dams and commercial and residential buildings; supplying coal, minerals, sand and gravel. Terex Trucks has two manufacturing operations: (i) Terex Equipment Limited ("TEL"), located at Motherwell, Scotland, which manufactures off-highway rigid haulers and articulated haulers and scrapers, each sold under the TEREX brand name and to other truck manufacturers on a private label basis; and (ii) the Unit Rig Division of Terex Trucks, located in Tulsa, Oklahoma, which manufactures electric rear and bottom dump haulers principally sold to the copper, gold and coal mining industry customers in North and South America, Asia, Africa and Australia. Unit Rig's products are sold under the Company's TEREX, UNIT RIG, and LECTRA HAUL trademarks. TEL's North, Central and South American sales and distribution are managed by Terex Americas, a division of the Company, located in Tulsa, Oklahoma. Industry segment information is presented below:
1996 1995 1994 ------------- ------------- -------------- Sales Terex Trucks................. $ 314.9 $ 250.3 $ 226.8 Terex Cranes................. 363.9 252.3 90.4 Eliminations................. (0.3) (1.2) (3.1) ------------- ------------- -------------- Total...................... $ 678.5 $ 501.4 $ 314.1 ============= ============= ============== Income (Loss) from Operations Terex Trucks................. $ 5.6 $ 13.0 $ 11.2 Terex Cranes................. 4.8 7.2 7.9 General/Corporate............ (5.3) (7.4) (8.7) ------------- ------------- -------------- Total...................... $ 5.1 $ 12.8 $ 10.4 ============= ============= ============== Depreciation and Amortization Terex Trucks................. $ 1.8 $ 2.3 $ 2.2 Terex Cranes................. 8.6 7.6 1.0 General/Corporate............ 3.3 3.0 2.9 Discontinued Operations...... --- 14.8 11.0 ------------- ------------- -------------- Total...................... $ 13.7 $ 27.7 $ 17.1 ============= ============= ============== Capital Expenditures Terex Trucks................. $ 5.1 $ 2.7 $ 4.2 Terex Cranes................. 2.9 2.4 0.4 General/Corporate............ 0.1 0.1 0.3 Discontinued Operations...... --- 5.3 7.8 ------------- ------------- -------------- Total...................... $ 8.1 $ 10.5 $ 12.7 ============= ============= ============== Identifiable Assets Terex Trucks................. $ 189.2 $ 169.4 $ 147.4 Terex Cranes................. 210.5 239.9 40.3 General/Corporate............ 71.5 27.8 18.9 Discontinued Operations...... --- 41.8 195.0 ------------- ------------- -------------- Total...................... $ 471.2 $ 478.9 $ 401.6 ============= ============= ==============
Geographic segment information is presented below:
1996 1995 1994 ------------- ------------- -------------- Sales North America....................$ 379.2 $ 292.3 $ 206.5 Europe........................... 348.6 223.0 103.2 All other........................ 27.2 12.9 7.2 Eliminations..................... (76.5) (26.8) (2.8) ------------- ------------- -------------- Total..........................$ 678.5 $ 501.4 $ 314.1 ============= ============= ============== Income (Loss) from Operations North America....................$ 1.7 $ 8.6 $ 9.4 Europe........................... 8.3 12.0 (0.5) All other........................ (1.7) (4.2) 0.7 Eliminations..................... (3.2) (3.6) 0.8 ------------- ------------- -------------- Total..........................$ 5.1 $ 12.8 $ 10.4 ============= ============= ============== Identifiable Assets North America....................$ 237.0 $ 170.2 $ 250.6 Europe........................... 271.1 247.7 167.5 All other........................ 7.2 23.1 8.8 Eliminations..................... (44.1) 37.9 (25.3) ------------- ------------- -------------- Total..........................$ 471.2 $ 478.9 $ 401.6 ============= ============= ==============
Sales between segments and geographic areas are generally priced to recover costs plus a reasonable markup for profit. Operating income equals net sales less direct and allocated operating expenses, excluding interest and other nonoperating items. Corporate assets are principally cash, marketable securities and administration facilities. The Company is not dependent upon any single customer. Export sales from U.S. continuing operations were as follows:
Year ended December 31, ------------------------------------------ 1996 1995 1994 ------------- ------------- -------------- North and South America............. $ 31.6 $ 20.1 $ 17.3 Europe, Africa and Middle East...... 49.7 21.5 13.1 Asia and Australia.................. 37.5 33.5 33.6 ------------- ------------- -------------- $ 118.8 $ 75.1 $ 64.0 ============= ============= ==============
NOTE P -- CONSOLIDATING FINANCIAL STATEMENTS On May 9, 1995, the Company completed the refinancing of substantially all of its outstanding debt (the "Refinancing") and, through Terex Cranes, Inc. ("Terex Cranes, Inc."), a wholly-owned subsidiary, completed the acquisition of substantially all of the outstanding stock of PPM. S.A. and Legris Industries, Inc. See Note C for information related to the acquisition. Terex Cranes, Inc., Koehring Cranes, Inc., (the "Wholly-owned Guarantors"), and PPM Cranes, Inc. (collectively, the "Guarantors"), all subsidiaries of Terex, provide a joint and several, unconditional guarantee of the obligations under the Senior Secured Notes and will provide the same guarantee for the obligations of any registered notes exchanged for the Senior Secured Notes. With the exception of PPM Cranes, Inc., each of the Guarantors is a corporation organized and existing under the laws of the state of Delaware and is a wholly-owned subsidiary of the Company. PPM Cranes, Inc. is a corporation organized and existing under the laws of the state of Delaware and is 92.4% owned by Terex. The following summarized condensed consolidating financial information for the Company segregates the financial information of Terex Corporation, the Wholly-owned Guarantors, PPM Cranes, Inc. and the Non-guarantor Subsidiaries. Separate financial statements of the Wholly-owned Guarantors are not presented because management has determined that they would not be material to investors. Separate audited financial statements of PPM Cranes, Inc. have been provided pursuant to Rule 3-10 of Regulation S-X. Terex Corporation consists of parent company operations. Subsidiaries of the parent company are reported on the equity basis. Wholly-owned Guarantors combine the operations of the Wholly-owned Guarantor Subsidiaries (Terex Cranes, Inc. and Koehring Cranes, Inc.). Non-guarantor subsidiaries of Wholly-owned Guarantors are reported on the equity basis. PPM Cranes, Inc. presents the operations of PPM Cranes, Inc. and its subsidiaries (PPM Pty Ltd and PPM Far East Ltd) are reported on an equity basis. Non-Guarantor Subsidiaries combine the operations of subsidiaries which have not provided a guarantee of the obligations of Terex Corporation under the Senior Secured Notes. These subsidiaries include Terex Equipment Limited, Unit Rig Australia (Pty) Ltd., Unit Rig South Africa (Pty) Ltd., Unit Rig (Canada) Ltd., PPM S.A., Bendini S.P.A., Brimont Agraire, PPM Kranes, Baulift, PPM Pty Ltd., and PPM Far East Ltd. Debt and Goodwill allocated to subsidiaries is presented on an accounting "push-down" basis.
TEREX CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1996 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- ASSETS Current Assets Cash and cash equivalents.......... $ 53.5 $ --- $ --- $ 18.5 $ --- $ 72.0 Cash securing letters of credit.... 0.9 --- --- 2.5 --- 3.4 Trade receivables - net............ 21.8 10.1 12.8 65.6 --- 110.3 Intercompany receivables........... 4.7 2.8 8.6 26.6 (42.7) --- Inventories - net.................. 44.9 25.3 27.9 93.8 (1.3) 190.6 Other current assets............... 2.0 --- 0.1 11.8 --- 13.9 ------------- ------------- ------------- ------------- ------------- ------------- Total current assets............. 127.8 38.2 49.4 218.8 (44.0) 390.2 Property, plant & equipment - net.... 3.5 4.5 --- 23.7 --- 31.7 Investment in and advances to (from) subsidiaries.............. 27.9 (70.2) (5.4) (89.7) 137.4 --- Goodwill - net....................... --- --- 15.5 16.9 --- 32.4 Debt issuance costs and intangible assets - net........................ 6.4 0.9 2.3 3.1 --- 12.7 Other assets......................... 3.0 --- 0.1 1.1 --- 4.2 ------------- ------------- ------------- ------------- ------------- ------------- TOTAL ASSETS............................ $ 168.6 $ (26.6) $ 61.9 $ 173.9 $ 93.4 $ 471.2 ============= ============= ============= ============= ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Notes payable and current portion of long-term debt................ $ --- $ --- $ 0.8 $ 18.4 $ --- $ 19.2 Trade accounts payable............. 13.3 11.7 5.0 74.4 --- 104.4 Intercompany payables.............. 10.8 7.6 10.7 13.6 (42.7) --- Accruals and other current liabilities...................... 35.2 3.6 10.1 22.5 --- 71.4 ------------- ------------- ------------- ------------- ------------- ------------- Total current liabilities........ 59.3 22.9 26.6 128.9 (42.7) 195.0 Long-term debt less current portion.. 119.1 17.8 51.7 73.5 --- 262.1 Other long-term liabilities.......... 14.3 1.8 1.2 12.3 --- 29.6 Minority interest and redeemable preferred stock.................... --- 9.4 0.6 --- --- 10.0 Redeemable convertible preferred stock 46.2 --- --- --- --- 46.2 Stockholders' deficit................ (70.3) (78.5) (18.2) (40.8) 136.1 (71.7) ------------- ------------- ------------- ------------- ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.............................. $ 168.6 $ (26.6) $ 61.9 $ 173.9 $ 93.4 $ 471.2 ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- NET SALES............................... $ 175.3 $ 134.7 $ 88.0 $ 356.5 $ (76.0) $ 678.5 Cost of goods sold.................... 163.1 112.8 89.3 318.8 (74.7) 609.3 ------------- ------------- ------------- ------------- ------------- ------------- GROSS PROFIT............................ 12.2 21.9 (1.3) 37.7 (1.3) 69.2 Engineering, selling & administrative expenses............................. 18.3 8.7 5.2 31.9 --- 64.1 ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM OPERATIONS........... (6.1) 13.2 (6.5) 5.8 (1.3) 5.1 Interest income....................... 0.4 --- --- 0.8 --- 1.2 Interest expense...................... (23.6) (2.5) (7.0) (11.7) --- (44.8) Income (loss) from equity investees... (20.6) (35.4) (1.2) --- 57.2 --- Other income (expense) - net.......... (3.7) (0.7) (0.3) 1.0 --- (3.7) ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS................................. (53.6) (25.4) (15.0) (4.1) 55.9 (42.2) Provision for income taxes............ --- --- --- (12.1) --- (12.1) ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEMS............ (53.6) (25.4) (15.0) (16.2) 55.9 (54.3) Income (loss) from discontinued operations, net of tax expense....... 102.1 17.6 --- 3.0 (20.7) 102.0 ------------- ------------- ------------- ------------- ------------- ------------- NET INCOME (LOSS)....................... 48.5 (7.8) (15.0) (13.2) 35.2 47.7 Less preferred stock accretion........ (22.3) (0.6) --- --- --- (22.9) ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 26.2 $ (8.4) $ (15.0) $ (13.2) $ 35.2 $ 24.8 ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................. $ (18.7) $ --- $ (0.5) $ 1.6 $ --- $ (17.6) ------------- ------------- ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures.................. (0.5) (0.1) (0.3) (7.2) --- (8.1) Net proceeds from sale of discontinued operations........................... 137.2 --- --- --- --- 137.2 Proceeds from sale of excess assets... 0.3 0.2 1.0 5.0 --- 6.5 Other - net........................... --- --- --- 0.1 --- 0.1 ------------- ------------- ------------- ------------- ------------- ------------- Net cash used in investing activities. 137.0 0.1 0.7 (2.1) --- 135.7 ------------- ------------- ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) under revolving line of credit agreements.. (66.8) --- 0.4 11.4 --- (55.0) Principal repayments of long-term debt --- --- (1.0) --- --- (1.0) Other................................. (0.8) --- 0.1 6.3 --- 5.6 ------------- ------------- ------------- ------------- ------------- ------------- Net cash provided by financing activities........................... (67.6) --- (0.5) 17.7 --- (50.4) ------------- ------------- ------------- ------------- ------------- ------------- Effect of exchange rates on cash and cash equivalents..................... (0.4) --- --- (2.3) --- (2.7) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents..................... 50.3 0.1 (0.3) 14.9 --- 65.0 Cash and cash equivalents, beginning of period............................ 3.1 --- 0.3 3.6 --- 7.0 ------------- ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents, end of period............................... $ 53.4 $ 0.1 $ --- $ 18.5 $ --- $ 72.0 ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 1995 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- ASSETS Current Assets Cash and cash equivalents.......... $ 3.1 $ --- $ 0.3 $ 3.6 $ --- $ 7.0 Cash securing letters of credit.... 2.1 0.2 --- 4.6 --- 6.9 Trade receivables - net............ 19.6 9.7 10.7 47.7 --- 87.7 Intercompany receivables........... 0.3 0.8 1.5 15.9 (18.5) --- Customer deposit................... --- --- --- 19.1 --- 19.1 Inventories - net.................. 46.1 24.6 23.5 86.9 (0.3) 180.8 Other current assets............... 1.1 --- 0.2 9.2 --- 10.5 ------------- ------------- ------------- ------------- ------------- ------------- Total current assets............. 72.3 35.3 36.2 187.0 (18.8) 312.0 Property, plant & equipment - net.... 11.1 4.9 3.6 20.5 --- 40.1 Investment in and advances to (from) subsidiaries.............. 93.8 (56.4) (0.5) (137.7) 100.8 --- Goodwill - net....................... --- --- 29.4 31.9 --- 61.3 Debt issuance costs and intangible assets - net....................... 7.1 1.1 2.8 3.5 --- 14.5 Other assets......................... 3.7 2.5 --- 3.0 --- 9.2 Net assets of discontinued operations --- (13.6) --- 55.4 --- 41.8 ------------- ------------- ------------- ------------- ------------- ------------- TOTAL ASSETS............................ $ 188.0 $ (26.2) $ 71.5 $ 163.6 $ 82.0 $ 478.9 ============= ============= ============= ============= ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities Notes payable and current portion of long-term debt................ $ --- $ --- $ 0.9 $ 4.8 $ --- $ 5.7 Trade accounts payable............. 14.5 10.1 5.4 69.5 --- 99.5 Intercompany payables.............. 12.3 --- 3.9 2.3 (18.5) --- Customer deposit................... --- --- --- 19.1 --- 19.1 Accruals and other current liabilities...................... 25.9 4.9 12.0 29.2 --- 72.0 ------------- ------------- ------------- ------------- ------------- ------------- Total current liabilities........ 52.7 15.0 22.2 124.9 (18.5) 196.3 Long-term debt less current portion.. 194.7 17.9 51.5 60.1 --- 324.2 Other long-term liabilities.......... 12.5 1.6 1.0 6.2 --- 21.3 Minority interest and redeemable preferred stock..................... --- 9.4 --- --- --- 9.4 Redeemable convertible preferred stock 24.6 --- --- --- --- 24.6 Stockholders' deficit................ (96.5) (70.1) (3.2) (27.6) 100.5 (96.9) ------------- ------------- ------------- ------------- ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.............................. $ 188.0 $ (26.2) $ 71.5 $ 163.6 $ 82.0 $ 478.9 ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- NET SALES............................... $ 146.7 $ 99.2 $ 54.5 $ 237.6 $ (36.6) $ 501.4 Cost of goods sold.................... 129.4 83.4 48.1 206.4 (36.3) 431.0 ------------- ------------- ------------- ------------- ------------- ------------- GROSS PROFIT............................ 17.3 15.8 6.4 31.2 (0.3) 70.4 Engineering, selling & administrative expenses............................. 21.3 6.3 4.2 25.8 --- 57.6 ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM OPERATIONS........... (4.0) 9.5 2.2 5.4 (0.3) 12.8 Interest income....................... 0.7 --- --- --- --- 0.7 Interest expense...................... (20.5) (1.7) (4.7) (11.8) --- (38.7) Income (loss) from equity investees... 0.1 (13.9) (0.5) --- 14.3 --- Other income (expense) - net.......... (5.0) (0.1) (0.2) (1.6) --- (6.9) ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS................................. (28.7) (6.2) (3.2) (8.0) 14.0 (32.1) Provision for income taxes............ --- --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEMS............ (28.7) (6.2) (3.2) (8.0) 14.0 (32.1) Income (loss) from discontinued operations, net of tax expense....... --- 4.4 --- 4.5 (4.5) 4.4 Extraordinary loss on retirement of debt................................. (6.2) (0.8) --- (0.5) --- (7.5) ------------- ------------- ------------- ------------- ------------- ------------- NET INCOME (LOSS)....................... (34.9) (2.6) (3.2) (4.0) 9.5 (35.2) Less preferred stock accretion........ (7.3) --- --- --- --- (7.3) ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (42.2) $ (2.6) $ (3.2) $ (4.0) $ 9.5 $ (42.5) ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................. $ 59.2 $ 1.9 $ (46.7) $ (43.0) $ --- $ (28.6) ------------- ------------- ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of business, net of cash acquired............................. (92.4) --- --- --- --- (92.4) Capital expenditures.................. (0.9) (2.2) (0.2) (1.9) --- (5.2) Proceeds from sale of excess assets... --- 0.3 0.1 0.2 --- 0.6 Proceeds from sale of stock of former subsidiary........................... 2.7 --- --- --- --- 2.7 Other - net........................... 0.1 --- --- 0.1 --- 0.2 ------------- ------------- ------------- ------------- ------------- ------------- Net cash used in investing activities. (90.5) (1.9) (0.1) (1.6) --- (94.1) ------------- ------------- ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) under revolving line of credit agreements.. 35.9 --- --- --- --- 35.9 Principal repayments of long-term debt (116.9) (18.0) --- (19.0) --- (153.9) Proceeds from issuance of long-term debt, net of issuance costs.......... 112.0 18.0 47.1 62.7 --- 239.8 Other................................. --- --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- ------------- Net cash provided by financing activities........................... 31.0 --- 47.1 43.7 --- 121.8 ------------- ------------- ------------- ------------- ------------- ------------- Effect of exchange rates on cash and cash equivalents..................... (0.3) --- --- --- --- (0.3) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents..................... (0.6) --- 0.3 (0.9) --- (1.2) Cash and cash equivalents, beginning of period............................ 3.7 --- --- 4.5 --- 8.2 ------------- ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents, end of period............................... $ 3.1 $ --- $ 0.3 $ 3.6 $ --- $ 7.0 ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1994 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- NET SALES............................... $ 139.7 $ 87.4 $ --- $ 117.5 $ (30.5) $ 314.1 Cost of goods sold.................... 120.2 73.1 --- 102.9 (30.2) 266.0 ------------- ------------- ------------- ------------- ------------- ------------- GROSS PROFIT............................ 19.5 14.3 --- 14.6 (0.3) 48.1 Engineering, selling & administrative expenses............................. 22.4 6.4 --- 8.9 --- 37.7 ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM OPERATIONS........... (2.9) 7.9 --- 5.7 (0.3) 10.4 Interest income....................... 0.1 --- --- 0.4 --- 0.5 Interest expense...................... (27.3) --- --- (1.0) --- (28.3) Income (loss) from equity investees... 7.3 --- --- --- (7.3) --- Other income (expense) - net.......... 24.1 (0.8) --- (1.0) --- 22.3 ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS................................. 1.3 7.1 --- 4.1 (7.6) 4.9 Provision for income taxes............ --- --- --- --- --- --- ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEMS............ 1.3 7.1 --- 4.1 (7.6) 4.9 Income (loss) from discontinued operations, net of tax expense....... --- (3.7) --- (4.9) 4.9 (3.7) Extraordinary loss on retirement of debt................................. (0.5) (0.1) --- (0.1) --- (0.7) ------------- ------------- ------------- ------------- ------------- ------------- NET INCOME (LOSS)....................... 0.8 3.3 --- (0.9) (2.7) 0.5 Less preferred stock accretion........ (6.0) --- --- --- --- (6.0) ------------- ------------- ------------- ------------- ------------- ------------- INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (5.2) $ 3.3 $ --- $ (0.9) $ (2.7) $ (5.5) ============= ============= ============= ============= ============= =============
TEREX CORPORATION CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1994 (in millions) Wholly- Non- Terex owned PPM guarantor Intercompany Corporation Guarantors Cranes, Inc. Subsidiaries Eliminations Consolidated ------------- ------------- ------------- ------------- ------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.................. $ (5.6) $ (1.5) $ --- $ (2.2) $ --- $ (9.3) ------------- ------------- ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures.................. (3.9) (5.5) --- (3.3) --- (12.7) Proceeds from sale of excess assets... --- 3.0 --- 0.3 --- 3.3 Proceeds from sale of stock of former subsidiary........................... 24.9 --- --- -- --- 24.9 Proceeds from sale of Drexel business. --- 10.3 --- --- --- 10.3 Proceeds from sale-leaseback of Saarn property............................. --- --- --- 10.0 --- 10.0 Other - net........................... 1.0 --- --- --- --- 1.0 ------------- ------------- ------------- ------------- ------------- ------------- Net cash provided by (used in) investing activities ................ 22.0 7.8 --- 7.0 --- 36.8 ------------- ------------- ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) under revolving line of credit agreements.. 13.0 --- --- --- --- 13.0 Principal repayments of long-term debt (27.0) (6.5) --- (8.0) --- (41.5) Other................................. 0.2 --- --- --- --- 0.2 ------------- ------------- ------------- ------------- ------------- ------------- Net cash provided by financing activities........................... (13.8) (6.5) --- (8.0) --- (28.3) ------------- ------------- ------------- ------------- ------------- ------------- Effect of exchange rates on cash and cash equivalents..................... --- --- --- 1.3 --- 1.3 ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents..................... 2.6 (0.2) --- (1.9) --- 0.5 Cash and cash equivalents, beginning of period............................ 1.1 0.2 --- 7.9 --- 9.2 ------------- ------------- ------------- ------------- ------------- ------------- Cash and cash equivalents, end of period............................... $ 3.7 $ --- $ --- $ 6.0 $ --- $ 9.7 ============= ============= ============= ============= ============= =============
NOTE Q -- SUBSEQUENT EVENTS On February 24, 1997, the Company executed an Agreement of Purchase and Sale (the "Purchase Agreement") with Simon Engineering plc and certain subsidiaries (collectively, "Simon Engineering") pursuant to which the Company has agreed to acquire the industrial businesses of Simon Access division ("Simon Access Division") from Simon Engineering for approximately $90. The Simon Access Division to be acquired consists principally of several business units in the United States and Europe which are engaged in the manufacture and sale of access equipment designed to position people and materials to work at heights. The Simon Access Division products include truck mounted aerial devices, aerial work platforms and truck mounted cranes (boom trucks) which are sold to utility companies as well as to customers in the industrial and construction markets. Specifically, Terex has agreed to acquire 100% of the outstanding common stock of (i) Simon-Telelect Inc., a Delaware corporation, (ii) Simon Aerials, Inc., a Wisconsin corporation and parent company of Simon RO, (iii) Sim-Tech Management Limited, a private limited company incorporated under the laws of Hong Kong, (iv) Simon Cella, S.r.l., a company incorporated under the laws of Italy, and (v) Simon 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. Not included in the businesses to be acquired are the Simon Access Division's fire fighting equipment businesses. The consummation of the acquisition is expected to take place in April 1997 and is subject principally to the approval of the transactions the shareholders of Simon Engineering plc. Upon consummation of the acquisition, the purchased business units will become a part of the Terex Cranes segment. In conjunction with the acquisition of Simon Access Division, the Company has received a commitment for financing from a financial institution. The commitment is for a three year period for a $125.0 credit facility (the "New Credit Facility") to be secured by the Company's domestic receivables and inventories. The New Credit Facility will replace the Company's $100.0 Credit Facility that matures in May 1998. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of PPM Cranes, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and shareholders' deficit and of cash flows present fairly, in all material respects, the financial position of PPM Cranes, Inc. and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for the year and the eight-month period, respectively, then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Stamford, Connecticut March 6, 1997
PPM Cranes, Inc. Consolidated Statement of Operations (in millions) Eight Months Year Ended Ended December 31, December 31, 1996 1995 ------------- ------------- Net sales......................................... $ 95.9 $ 57.1 Cost of goods sold................................ 98.4 49.4 ------------- ------------- Gross profit................................. (2.5) 7.7 Engineering, selling and administrative expenses.. 6.6 5.8 ------------- ------------- Income from operations....................... (9.1) 1.9 Interest expense.................................. 7.5 4.8 Amortization of debt issuance costs............... 0.5 0.3 ------------- ------------- Loss before income taxes..................... (17.1) (3.2) Provision for income taxes........................ --- --- ------------- ------------- Net loss..................................... $ (17.1) $ (3.2) ============= =============
The accompanying notes are an integral part of these financial statements.
PPM Cranes, Inc. Consolidated Balance Sheet (in millions, except share amounts) December 31, --------------------------- 1996 1995 ------------- ------------- Assets Current assets: Cash...........................................$ 0.4 $ 0.5 Trade accounts receivable, less allowance of $0.9 and $0.5 at December 31, 1996 and 1995, respectively...... 14.4 11.9 Net inventories................................ 29.2 25.0 Due from affiliates............................ 10.2 1.0 Prepaid expenses and other current assets...... 0.1 0.6 ------------- ------------- Total current assets............................. 54.3 39.0 Property, plant and equipment, net............... 0.1 3.9 Intangible assets: Goodwill - net................................. 17.0 30.9 Other identified intangible assets - net....... 2.4 2.8 ------------- ------------- Total assets.....................................$ 73.8 $ 76.6 ============= ============= Liabilities and shareholders' deficit Current liabilities: Trade accounts payable.........................$ 5.0 $ 5.5 Accrued warranties and product liability....... 7.5 8.2 Accrued expenses............................... 2.9 4.1 Due to affiliates.............................. 12.3 3.9 Due to Terex Corporation....................... 8.9 2.1 Current portion of long-term debt.............. 1.3 0.9 ------------- ------------- Total current liabilities........................ 37.9 24.7 ------------- ------------- Non-current liabilities: Long-term debt, less current portion........... 54.2 54.0 Other non-current liabilities.................. 1.9 1.0 ------------- ------------- Total non-current liabilities.................... 56.1 55.0 ------------- ------------- Commitments and contingencies Shareholders' deficit: Common stock, Class A, $.01 par value -- authorized 8,000 shares; issued and outstanding 5,000 shares........... --- --- Common stock, Class B, $.01 par value -- authorized 2,000 shares; issued and outstanding 413 shares............. --- --- Accumulated deficit............................ (20.3) (3.2) Foreign currency translation adjustments....... 0.1 0.1 ------------- ------------- Total shareholders' deficit...................... (20.2) (3.1) ------------- ------------- Total liabilities and shareholders' deficit......$ 73.8 $ 76.6 ============= =============
The accompanying notes are an integral part of these financial statements.
PPM Cranes, Inc. Consolidated Statement of Shareholders' Deficit (in millions) Foreign Currency Common Accumulated Translation Stock Deficit Adjustments Total ----------- ---------------- -------------- -------------- Balance at May 9, 1995................ $ --- $ --- $ --- $ --- Net loss.......................... --- (3.2) --- (3.2) Translation adjustment............ --- --- 0.1 0.1 ----------- ---------------- -------------- -------------- Balance at December 31, 1995.......... $ --- $ (3.2) $ 0.1 $ (3.1) Net loss.......................... --- (17.1) --- (17.1) Translation adjustment............ --- --- ----------- ---------------- -------------- -------------- Balance at December 31, 1996.......... $ --- $ (20.3) $ 0.1 $ (20.2) =========== ================ ============== ==============
The accompanying notes are an integral part of these financial statements.
PPM Cranes, Inc. Consolidated Statement of Cash Flows (in millions) Eight Months Year Ended Ended December 31, December 31, 1996 1995 ------------ ------------ Operating activities Net loss.............................................. $ (17.1) $ (3.2) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................... 3.2 2.1 Impairment charge................................. 13.5 --- Other............................................. 1.4 --- Changes in operating assets and liabilities: Accounts receivable.......................... (2.5) (3.3) Net inventories.............................. (4.2) 2.7 Prepaid expenses and other current assets.... 0.1 0.4 Accounts payable............................. (0.5) (1.2) Net amounts due to affiliates................ 6.0 3.2 Accrued warranties and product liability..... (0.7) (1.0) Accrued expenses............................. (1.2) 0.3 Other (net).................................. 1.3 0.3 ------------ ------------ Net cash provided by (used in) operating activities... (0.7) 0.3 ------------ ------------ Investing activities Purchases of property, plant and equipment............ (0.4) (0.2) Proceeds from sale of excess assets................... 1.1 --- ------------ ------------ Net cash provided by (used in) investing activities... 0.7 (0.2) ------------ ------------ Financing activities Net borrowings under revolving line of credit agreements................................. 0.8 --- Principal repayments of long-term debt................ (1.0) --- Other................................................. 0.1 --- ------------ ------------ Net cash used by financing activities................. (0.1) --- ------------ ------------ Effect of exchange rate changes on cash............... --- 0.1 ------------ ------------ Net increase (decrease) in cash and cash equivalents.. (0.1) 0.2 Cash at beginning of period........................... 0.5 0.3 ------------ ------------ Cash at end of period................................. $ 0.4 $ 0.5 ============ ============ Supplemental disclosure of cash flow information Cash paid for interest................................ $ --- $ --- ============ ============ Cash paid for income taxes............................ $ --- $ --- ============ ============
The accompanying notes are an integral part of these financial statements. PPM Cranes, Inc. Notes to Consolidated Financial Statements December 31, 1996 (In millions of dollars) NOTE A -- DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION PPM Cranes, Inc. (the "Company" or "PPM") is engaged in the design, manufacture, marketing and worldwide distribution and support of construction equipment, primarily hydraulic and lattice boom cranes and related spare parts. On May 9, 1995 (the "date of acquisition"), Terex Corporation, through its wholly-owned subsidiary Terex Cranes, Inc., completed the acquisition of all of the capital stock of Legris Industries, Inc., a Delaware Corporation which owns 92.4% of the capital stock of PPM Cranes, Inc. Terex Corporation and Terex Cranes, Inc., are both Delaware corporations. Prior to the acquisition of Legris Industries, Inc. by Terex Cranes, Inc. on May 9, 1995, Legris Industries, Inc. was a holding company, with no assets, liabilities, or operations other than its investment in PPM. The financial statements reflect Terex Corporation's basis in the assets and liabilities of the Company which was accounted for as a purchase transaction. As a result, the debt and goodwill associated with the acquisition have been "pushed down" to the Company's financial statements. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries; PPM of Australia Pty. Ltd., and PPM Far East Private Ltd., a Singapore company. All material intercompany transactions and profits have been eliminated. During 1995, management closed the operations of PPM Far East Private Ltd. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories. Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Property, Plant and Equipment. Additions and major replacements or improvements to property, plant and equipment are recorded at cost. Maintenance, repairs and minor replacements are charged to expense when incurred. Assets of the Company are depreciated using the straight-line method over their estimated useful lives, which range from three to twenty years. Goodwill. Goodwill, representing the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition, is amortized on a straight-line basis over fifteen years. Accumulated amortization is $2.2 and $1.4 at December 31, 1996 and 1995, respectively. Debt Issuance Costs. Debt issuance costs incurred by Terex Corporation in securing the financing related to acquiring the Company have been capitalized and are reflected in the financial statements. Capitalized debt issuance costs are amortized over the term of the related debt. Accumulated amortization is $0.8 and $0.3 at December 31, 1996 and 1995, respectively. Impairment of Long Lived Assets. The Company's policy is to assess the realizability of its long lived assets and to evaluate such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable. Impairment is determined to exist if the estimated future undiscounted cash flows is less than its carrying value. The amount of any impairment then recognized would be calculated as the difference between estimated future discounted cash flows and the carrying value of the asset. Product Liability and Warranty. The Company records accruals for potential warranty and product liability claims based on the Company's claim experience. Warranty costs are accrued at the time revenue is recognized. The Company provides self-insurance accruals for estimated product liability experience on claims and for claims anticipated to have been incurred which have not yet been reported. Prior to August 1, 1995, the Company maintained product liability insurance; therefore, the product liability accrual was equal to the estimated product liability less expected recoveries under insurance policies. Product liability payments, including expenses, are estimated to be approximately $2.0 per year. Income Taxes. Income taxes are provided using the liability method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." The Company is a part of a group that files a consolidated income tax return. The method used to allocate income taxes to members of the group is one in which current and deferred income taxes are calculated on a separate return basis as if the Company had not been included in a consolidated income tax return with its parent. The tax benefit associated with the acquisition debt has been taken into account in the Company's tax provision. Revenue Recognition. Revenue and costs are generally recorded when products are shipped and invoiced to either independently owned and operated dealers or to customers. Certain new units may be invoiced prior to the time customers take physical possession. Revenue is recognized in such cases only when the customer has a fixed commitment to purchase the units, the units have been completed, tested and made available to the customer for pickup or delivery, and the customer has requested that the Company hold the units for pickup or delivery at a time specified by the customer in the sales documents. In such cases, the units are invoiced under the Company's customary billing terms, title to the units and risks of ownership pass to the customer upon invoicing, the units are segregated from the Company's inventory and identified as belonging to the customer and the Company has no further obligations under the order. Foreign Currency Translation. Assets and liabilities of the Company's international operations are translated at year-end exchange rates. Income and expenses are translated at average exchange rates prevailing during the year. For operations whose functional currency is the local currency, translation adjustments are accumulated in the Cumulative Translation Adjustment component of Stockholders' Deficit. Gains or losses resulting from foreign currency transactions were not material in 1996 and 1995. Foreign Exchange Contracts. The Company uses foreign exchange contracts to hedge recorded balance sheet amounts related to certain international operations and firm commitments that create currency exposures. The Company does not enter into speculative contracts. Gains and losses on hedges of assets and liabilities are recognized in income as offsets to the gains and losses from the underlying hedged amounts. Gains and losses on hedges of firm commitments are recorded on the basis of the underlying transaction. At December 31, 1996 the Company had no material outstanding foreign exchange contracts. Environmental Policies. Environmental expenditures that relate to current operations are either expensed or capitalized depending on the nature of the expenditure. Expenditures relating to conditions caused by past operations that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental assessments and/or remedial actions are probable, and the costs can be reasonably estimated. Such amounts were not material at December 31, 1996 and 1995. Research and Development Costs. Research and development costs are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products are included in Engineering, Selling and Administrative Expenses and amounted to $0.1 and $0.1 in 1996 and 1995, respectively. NOTE C -- IMPAIRMENT OF LONG LIVED ASSETS The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," in 1996. This statement establishes accounting standards for determining impairment of long-lived assets and long-lived assets to be disposed of. The Company assesses the realizability of its long-lived assets and evaluates such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets (or group of assets) may not be recoverable. For assets in use or under development, impairment is determined to exist if the estimated future cash flow associated with the asset, undiscounted and without interest charges, is less than the carrying amount of the asset. When the estimated future cash flow indicates that the carrying amount of the asset will not be recovered, the asset is written down to its fair value. As required by generally accepted accounting principles, goodwill was allocated in the PPM Acquisition to various operating units. After eighteen months of continuous rationalization, estimated future undiscounted cash flows for certain U.S. operations would not be sufficient to recover the goodwill and fixed assets recorded for these operations. Thus, in the fourth quarter of 1996 the Company recorded an impairment charge of $13.5. These 1996 impairment charges totaling $13.5 are included in "Cost of Goods Sold." NOTE D -- INVENTORIES Inventories at December 31, 1996 and 1995 consist of the following:
1996 19955 --------- --------- Raw materials and supplies....................... $ 13.4 $ 9.4 Work in process.................................. 3.0 2.5 Replacement parts................................ 7.9 8.6 Finished goods equipment......................... 4.9 4.5 --------- --------- $ 29.2 $ 25.0 ========= =========
NOTE E -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1996 and 1995 consists of the following:
1996 1995 ---------- ---------- Property.......................................... $ 0.1 $ 0.1 Plant............................................. --- 1.6 Machinery and equipment........................... --- 2.6 ---------- ---------- 0.1 4.3 Less accumulated depreciation..................... --- 0.4 ---------- ---------- $ 0.1 $ 3.9 ========== ==========
Depreciation expense for 1996 and 1995 was $0.6 and $0.4, respectively. NOTE F -- LONG TERM DEBT Long-term debt at December 31, 1996 and 1995 is summarized as follows:
1996 1995 -------------- ------------- 13.25% Senior Secured Notes due May 15, 2002..... $ 49.5 $ 49.4 Note payable..................................... 5.0 5.5 Other............................................ 1.0 --- -------------- ------------- Total long-term debt........................ 55.5 54.9 Current portion long-term debt................... 1.3 0.9 -------------- ------------- Long-term debt less current portion......... $ 54.2 $ 54.0 ============== =============
The Senior Secured Notes On May 9, 1995, Terex Corporation issued $250 of Senior Secured Notes due May 15, 2002. The Senior Secured Notes were issued in conjunction with Terex Corporation's acquisition of substantially all of the capital stock of PPM Cranes, Inc. and P.P.M. S.A. and the refinancing of Terex Corporation's debt. Of the total amount $50 relates to the acquisition of substantially all of the capital stock of PPM Cranes, Inc. and has been included in the Company's balance sheet. Except in the event of certain asset sales, there are no principal repayment or sinking fund requirements prior to maturity. The notes bear interest at 13 1/4% per annum. Prior to the consummation of an exchange offer on November 4, 1996, the interest rate on the notes was 13 3/4% per annum. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Repayments of the Senior Secured Notes are guaranteed by certain domestic subsidiaries of Terex Corporation (the "Guarantors"), including PPM Cranes, Inc. The Senior Secured Notes are secured by a first priority security interest on substantially all of the assets of Terex Corporation and the Guarantors, other than cash and cash equivalents, except that as to accounts receivable and inventory and proceeds thereof, and certain related rights, such security shall be subordinated to liens securing obligations outstanding under any working capital or revolving credit facility secured by such accounts receivable and inventory. The indenture for the Senior Secured Notes places certain limits on Terex Corporation's ability to incur additional indebtedness; permit the existence of liens; issue, pay dividends on or redeem equity securities; sell assets; consolidate, merge or transfer assets to another entity; and enter into transactions with affiliates. Note payable - Harnischfeger Corporation The note payable to Harnischfeger Corporation is not interest bearing. Schedule of Debt Maturities Scheduled annual maturities of long-term debt outstanding at December 31, 1996 in the successive five-year period are summarized as follows:
Note Payable - Harnischfeger Other Total ---------------- ------------- ------------- 1997...........................$ 0.8 $ 0.4 $ 1.2 1998........................... 0.8 --- 0.8 1999........................... 0.8 --- 0.8 2000........................... 0.8 0.1 0.9 2001........................... 0.8 0.1 0.9 Thereafter..................... 5.0 49.7 54.7 ---------------- ------------- ------------- 9.0 50.3 59.3 Imputed Interest............... (4.0) --- (4.0) ---------------- ------------- ------------- $ 5.0 $ 50.3 $ 55.3 ================ ============= =============
Based on quoted market values, the Company believes that the fair value of the Senior Secured Notes was approximately $53.8 as of December 31, 1996. The Company believes that, based on quoted market values, the carrying value of its other borrowings approximates fair market value, based on discounting future cash flows using rates currently available for debt of similar terms and remaining maturities. NOTE G -- EMPLOYEE BENEFIT PLAN The Company participates in a defined contribution plan which is sponsored by Terex Corporation. The plan covers U.S. employees. Under the plan, the Company matches a portion of an employee's contribution to the plan. The related expense to the Company was $0.1 and $0.1 for 1996 and 1995, respectively. NOTE H -- INCOME TAXES The components of income (loss) before income taxes consisted of the following:
Eight Months Year Ended Ended December December 31, 31, 1995 1996 ---------------- ---------------- Domestic.................................... $ (16.3) $ (3.6) Foreign..................................... (0.8) 0.4 ---------------- ---------------- $ (17.1) $ (3.2) ================ ================
The Company has no provision for federal, foreign and state income taxes (benefit). The Company has not provided deferred taxes on $0.9 of cumulative undistributed earnings of foreign subsidiaries as of December 31, 1996 as these earnings will be either permanently re-invested or remitted substantially free of additional income tax. Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statements purposes. In accordance with SFAS No. 109, "Accounting for income taxes," a valuation allowance fully offsetting the net deferred tax asset, has been recognized. The tax effects of the basis differences and Net Operating Loss ("NOL") carryforward as of December 31, 1996 and 1995 are summarized below:
Eight Months Year Ended Ended December December 31, 31, 1995 1996 ----------------- ---------------- Total deferred tax liabilities............ $ --- $ (0.2) ----------------- ---------------- Receivables............................... 0.2 0.2 Inventory................................. 2.6 2.4 Fixed Assets.............................. 0.9 --- Product liability......................... 2.0 2.2 Warranty.................................. 0.6 0.6 Other..................................... 0.3 0.1 NOL carryforwards......................... 18.0 18.1 ----------------- ---------------- Total deferred tax assets................. 24.6 23.6 Deferred tax asset valuation allowance.... (24.6) (23.4) ----------------- ---------------- Net deferred taxes........................ $ --- $ --- ================= ================
The valuation allowance for deferred tax assets at acquisition date, May 9, 1995, was $22.7. Any future reduction of this valuation allowance attributable to the pre-acquisition period will reduce goodwill. The net change in the valuation allowance for 1996 and for the eight months ending December 31, 1995 was an increase of $1.2 and $0.7, respectively. At December 31, 1996, the Company has loss carryforwards for federal income tax purposes of approximately $51.5 available to offset future taxable income. The expiration of the Company's loss carryforwards are as follows: Year Expiring Amount - ------------ ------------- 2004 ................. $ 21.7 2005 ................. 0.8 2006 ................. 5.8 2007 ................. 15.1 2008 ................. 4.3 2009 ................. 2.4 2011 ................. 1.4 ------------- Total ................. $ 51.5 ============= The utilization of approximately $50.1 of loss carryforwards is limited annually, as a result of an "ownership change" (as defined by Section 382 of the Internal Revenue code), which occurred in 1995. Further, the use of these pre-acquisition losses is limited to future taxable income of PPM Cranes, Inc. The Company's provision for income taxes is different from the amount which would be provided by applying the statutory federal income tax rate to the Company's loss before income taxes. The reasons for the difference are summarized below:
Eight Months Year Ended Ended December 31, December 31, 1996 1995 ----------------- ----------------- Statutory federal income tax rate....... $ (6.0) $ (1.1) Utilization of foreign NOLs............. --- (0.1) Goodwill................................ 3.9 0.5 NOL and basis differences with no current benefit................ 2.1 0.7 ----------------- ----------------- Total provision for income taxes........ $ --- $ --- ================= =================
There were no income taxes paid during 1996 and 1995. NOTE I -- COMMITMENTS AND CONTINGENCIES The Company has various lease agreements, primarily related to office space, production facilities, and office equipment, which are accounted for as operating leases. Certain leases have renewal options and provisions requiring the Company to pay maintenance, property taxes and insurance. Rent expense for 1996 and 1995 was $0.7 and $0.6, respectively. Future minimum payments under noncancelable operating leases at December 31, 1996 are as follows: 1997...................................... $ 0.6 1998...................................... 0.5 1999...................................... 0.3 2000...................................... --- Thereafter................................. --- -------------- $ 1.4 ============== The Company is involved in product liability and other lawsuits incident to the operation of its business. Insurance with third parties is maintained for certain of these items. It is management's opinion that none of these lawsuits will have a materially adverse effect on the Company's financial position. NOTE J -- FOREIGN OPERATIONS Summarized financial data relating to the foreign subsidiaries included in the accompanying consolidated financial statements at December 31, 1996 and 1995 are as follows:
1996 1995 --------- ----------- Assets............................................ $ 3.8 $ 4.8 Liabilities....................................... $ 3.2 $ 2.5 Net income (loss)................................. $ (0.8) $ 0.5
Assets and liabilities of the Company's foreign subsidiaries are translated into United States dollars at year-end exchange rates. Adjustments resulting from the translation of financial statements of the foreign subsidiaries and translation gains or losses related to long-term intercompany investments are included in the foreign currency translation adjustments account in shareholders' deficit. NOTE K -- RELATED PARTY TRANSACTIONS During the twelve months and eight months ended December 31, 1996 and 1995, respectively, the Company had transactions with various unconsolidated affiliates as follows:
1996 1995 --------- --------- Product sales and service revenues................ $ 2.1 $ 1.2 Management fee expense............................ $ 1.1 $ 0.7 Interest expense.................................. $ 7.5 $ 4.8
Included in management fee expense are expenses paid by Terex Corporation on behalf of the Company (e.g. Legal, Treasury and Tax Expense). Report of Independent Auditors The Board of Directors and Shareholders PPM Cranes, Inc. We have audited the accompanying consolidated statements of operations, shareholders' equity, and cash flows of PPM Cranes, Inc. for the year ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of PPM of Australia Pty. Ltd., a wholly-owned subsidiary, which statements reflect total revenues of 5.3% for the year ended December 31, 1994. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for PPM of Australia Pty. Ltd. is based solely on the report of the other auditors. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of PPM Cranes, Inc for the year ended December 31, 1994 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Greenville, South Carolina August 22, 1995
PPM Cranes, Inc. Consolidated Statement of Operations For the Year Ended December 31, 1994 (In Thousands of Dollars) Net sales........................................... $ 74,814 Cost of products sold .............................. 65,470 Selling, general, and administrative expenses....... 12,990 Amortization of intangible assets................... 2,376 ------------- Loss from operations................................ (6,022) Other (income) expense: Interest expense.................................. 2,509 Interest income................................... (48) ------------- Loss before income taxes............................ (8,483) Income tax provision................................ -- ------------- Net loss............................................ $ (8,483) =============
See accompanying notes.
PPM Cranes, Inc. Consolidated Statement of Shareholders' Equity Foreign Common Stock Additional Currency --------------------------- Paid-In Accumulated Translation Shares Amount Capital Deficit Adjustments Total ------------- ------------- ------------- --------------- -------------- ----------- (In thousands of dollars, except share amounts) Balance at December 31, 1993........... 5,413 $ -- $ 52,782 $ (18,791) $ (391) $ 33,600 Net loss............................. -- -- -- (8,483) -- (8,483) Translation adjustment............... -- -- -- -- 360 360 ------------- ------------- ------------- --------------- -------------- ----------- Balance at December 31, 1994........... 5,413 $ -- $ 52,782 $ (27,274) $ (31) $ 25,477 ============= ============= ============= =============== ============== ===========
See accompanying notes.
PPM Cranes, Inc. Consolidated Statement of Cash Flows For the Year Ended December 31, 1994 (In Thousands of Dollars) Operating activities Net loss................................................... $ (8,483) Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization.......................... 3,144 Changes in operating assets and liabilities: Accounts receivable................................. (4,466) Inventories......................................... (2,077) Prepaid expenses and other.......................... 14 Accounts payable.................................... (137) Net amounts due to affiliates....................... 2,601 Product liability reserve........................... 418 Product warranty reserve............................ 317 Accrued expenses.................................... 1,129 ------------- Net cash used in operating activities........................ (7,540) ------------- Investing activities Purchases of property, plant, and equipment................ (712) ------------- Net cash used in investing activities........................ (712) ------------- Financing activities Proceeds from revolving credit with banks.................. 237 Principal payments on revolving credit with banks.......... (179) Proceeds from notes payable to parent company.............. 20,408 Principal payments on notes payable to parent company...... (11,300) ------------- Net cash provided by financing activities.................... 9,166 ------------- Effect of exchange rate changes on cash...................... 360 ------------- Net increase in cash and cash equivalents................... 1,274 Cash and cash equivalents at beginning of period............. 850 ------------- Cash and cash equivalents at end of period................... $ 2,124 ============= Supplemental disclosure of cash flow information Cash paid for interest..................................... $ 2,203 ============= Cash paid for income taxes................................. $ -- =============
See accompanying notes. PPM Cranes, Inc. Notes to Consolidated Financial Statements December 31, 1994 (In thousands of dollars) 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS Basis of Presentation. As more fully described in Note 8 (unaudited), Terex Corporation ("Terex"), through its wholly owned subsidiary Terex Cranes, Inc. ("Terex Cranes"), completed the acquisition of substantially all of the common stock of Legris Industries, Inc. ("Legris"), a Delaware corporation on May 9,1995. Prior to the acquisition, PPM Cranes, Inc. ("the Company"), a Delaware corporation, was owned 92.4% by Legris, which in turn was wholly owned by Legris Industries S.A., a French corporation. The remaining 7.6% of the Company is owned by Harnischfeger Corporation from whom the business was purchased in 1991. The Company has two classes of capital stock issued and outstanding - common Class A and common Class B. These are equal in all respects except that Class B (to be issued exclusively to Harnischfeger Corporation) is entitled to elect one director and Class A is entitled to elect the remaining directors. The accompanying consolidated financial statements were prepared on the basis of generally accepted accounting principles and include the consolidated results of operations and cash flows of the Company and its wholly owned subsidiaries, PPM of Australia Pty. Ltd. and PPM Far East Pte. Ltd. All significant intercompany balances have been eliminated. Description of Business. The Company operates in one business segment - the design, manufacture, marketing and worldwide distribution and support of construction equipment, primarily hydraulic and lattice boom cranes and related spare parts. Cash and Cash Equivalents. For the purpose of reporting cash flows, cash and cash equivalents include cash on hand and overnight investments. Included in cash and cash equivalents is $512 at December 31, 1994 invested under repurchase agreements collateralized by U. S. Treasury Notes. Securities pledged as collateral for repurchase agreements are held by the Company's custodian bank until maturity of the repurchase agreements. Provisions of the agreements ensure that the market value of this collateral is sufficient in the event of default; however, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounts Receivable. The Company provides credit in the normal course of business and performs ongoing credit evaluation on certain of its customers' financial condition, but generally does not require collateral to support such receivable. Accounts receivable potentially exposes the Company to concentration of credit risk, because the Company's customers operate primarily in the construction industry. The Company also establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Inventories. Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for domestic inventories and by the first-in, first-out (FIFO) method for inventories of foreign subsidiaries. LIFO values are approximately equivalent to the corresponding FIFO values at December 31, 1994. Property, Plant and Equipment. Additions and major replacements or improvements to property, plant and equipment are recorded at cost. Maintenance, repairs and minor replacements are charged to expense when incurred. Assets of the Company are depreciated using the straight-line method over their estimated useful lives. Depreciation expense for 1994 was $76.8. Intangible Assets. The excess of cost over fair value of net assets of businesses acquired ("goodwill") is amortized on the straight-line method over a period of twenty years. Other identified intangibles are primarily organizational costs which are amortized over five years. The lives established for these assets are a composite of many factors; accordingly, the Company evaluates the continued appropriateness of these lives based upon the latest available economic factors and circumstances. The carrying value of goodwill is reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value of the goodwill is reduced by the estimated shortfall of cash flows. Product Warranty. The Company warrants that each finished machine is merchantable and free of defects in workmanship and material for a period of up to one year or a specified period of use. Warranty reserves have been established for estimated normal warranty costs and for specific problems known to exist on products in use. Product Liability. Reserves for product liability have been established based upon historical loss experience for the estimated liability on incidents which have occurred but have not yet been reported and for the estimated liability for reported incidents. Income Taxes. Income taxes are provided using the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred tax assets and liabilities are determined based on temporary differences between the basis of certain assets and liabilities for income tax and financial reporting purposes. The Company is a part of a group that files a consolidated income tax return. The method used to allocate income taxes to members of the group is one in which current and deferred income taxes are allocated on a separate return basis as if the Company had not been included in a consolidated income tax return with its parent. Revenue Recognition. Sales are recorded upon shipment or designation of specific goods for later shipment at customers' request with related risk of ownership passing to such customers. Research and Development Costs. Company sponsored research and development costs related to both present and future products are expensed currently. Total expenditures for research and development for 1994 were $1,576. Translation of Foreign Currencies. The local currencies of the Company's foreign operations have been determined to be the functional currencies in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation". Transactions in foreign currencies are translated into United States dollars at average rates of exchange prevailing during the period. Assets and liabilities denominated in foreign currencies are translated at the year end exchange rates. Gains and losses on foreign currency transactions are recognized in earnings. Adjustments resulting from the translation of financial statements of the foreign subsidiaries and translation gains or losses related to long-term intercompany investments are included in the foreign currency translation adjustments account in shareholders' equity. 3. EMPLOYEE BENEFIT PLAN The Company has a defined contribution plan covering its U. S. employees. Under this plan, the Company matches a portion of an employee's contribution to the plan. The related expense to the Company was $119 for 1994. 4. INCOME TAXES Effective January 1, 1992, the Company adopted the provisions of Statement of FAS 109. There was no cumulative effect of this change in accounting for income taxes on the consolidated financial statements. (Loss) income before income taxes consisted of the following: 1994 ------------- Domestic................................ $ (8,703) Foreign................................. 220 ------------- $ (8,483) ============= Federal, foreign, and state income taxes (benefit) consisted of the following: 1994 ------------- Federal................................. $ -- Foreign................................. -- State................................... -- ------------- $ -- ============= The Company has not provided U.S. income taxes for undistributed earnings of foreign subsidiaries which are considered to be retained indefinitely for reinvestment. The distribution of these earnings would result in additional foreign withholding taxes and additional U.S. Federal income taxes to the extent they are not offset by foreign tax credits, but it is not practicable to estimate the total tax liability that would be incurred upon such a distribution. The income tax (benefit) provision at the effective rate differed from the benefit at the statutory rate as follows: 1994 ------------- Computed tax (benefit) at expected statutory rate....................... $ (2,884) State taxes............................. (364) Change in state tax rate................ 165 Increase in valuation allowance......... 426 Nondeductible goodwill.................. 837 Adjustment of prior years' estimated deferred tax accruals................ 1,548 Foreign taxes........................... -- Meals and entertainment................. 20 Other................................... 252 ------------- Income tax provision.................... $ -- ============= At December 31, 1994, the Company has net operating loss carryforwards for Federal income tax purposes of approximately $50,532 available to offset future taxable income, which included net operating losses of approximately $2,000 that existed at the date the business was acquired. The differences between the loss carryforwards for financial reporting and income tax purposes result principally from differences between the income tax basis and the financial reporting basis allocated to the net assets acquired and differences in the methods of depreciating property, plant, and equipment. For financial reporting purposes, a valuation allowance equal to the entire benefit of the cumulative temporary differences and net operating loss carryforwards has been recognized to offset the net deferred tax assets. Components of the Company's deferred taxes at December 31, 1994 are as follows: 1994 ------------- Total deferred tax liabilities.......... $ (2,253) Total deferred tax assets, principally net operating loss carryforwards..... 25,663 Total valuation allowance............... (23,410) ------------- Net deferred taxes...................... $ -- ============= The expiration of the Company's net operating loss carryforwards are as follows: Year Expiring Amount - ---------- ------------- 2003 ............................... $ 493 2004 ............................... 667 2005 ............................... 22,421 2006 ............................... 835 2007 ............................... 5,837 2008 ............................... 15,125 2009 ............................... 5,154 ------------- $ 50,532 ============= 5. COMMITMENTS AND CONTINGENCIES The Company has various lease agreements, primarily related to office space, production facilities, and office equipment, which are accounted for as operating leases. Certain leases have renewal options and provisions requiring the Company to pay maintenance, property taxes and insurance. Rent expense for 1994 was $1,148. Future minimum payments under noncancelable operating leases at December 31, 1994 are as follows: 1995 ..............................$ 904 1996 ............................... 620 1997 ............................... 537 1998 ............................... 508 1999 ............................... 303 Thereafter ............................... 75 ------------ $ 2,947 ============ The Company is involved in product liability and other lawsuits incident to the operation of its business. Insurance coverages and accruals are maintained for claims and lawsuits of this nature. At December 31, 1994 the Company had a reserve of $4,850 related to product liability matters, including $200 related to unasserted claims. Actual costs to be incurred in the future may vary from the estimates, given the inherent uncertainties in evaluating the outcome of claims and lawsuits of this nature. Although it is difficult to estimate the liability of the Company related to these matters, it is management's opinion that none of these lawsuits will have a materially adverse effect on the Company's financial position. The Company is contingently liable up to $1,027 with respect to financing arrangements and performance guarantees entered into with banks and between certain banks and certain dealers or customers of the Company. 6. FOREIGN OPERATIONS Summarized financial data relating to the foreign subsidiaries included in the accompanying consolidated financial statements at December 31, 1994 are as follows: Net income (loss)....................... $ 220 7. RELATED PARTY TRANSACTIONS The Company had transactions with various unconsolidated affiliates as follows: Product sales and service revenues...... $ 2,405 Purchases of inventory.................. 14,876 Management fee expense.................. 1,500 Interest expense........................ 2,470 8. SUBSEQUENT EVENTS - ACQUISITION BY TEREX AND FINANCING ARRANGEMENTS (UNAUDITED) On May 9, 1995, Terex, through its wholly-owned subsidiary Terex Cranes, completed the acquisition of 99.18% of the shares of PPM S.A., a societe anonyme, from Potain S.A., a societe anonyme, and 100% of the capital stock of Legris, which owns 92.4% of the capital stock of PPM Cranes, Inc., from Legris Industries S.A., a societe anonyme. PPM Cranes, Inc. together with PPM S.A. collectively are referred to as "PPM". PPM designs, manufactures and markets mobile cranes and container stackers primarily in North America and Western Europe under the brand names of PPM, P&H (trademark of Harnischfeger Corporation) and BENDINI. The purchase price, together with amounts needed to repay indebtedness of PPM required to be repaid in connection with the Acquisition, consisted of (i) approximately $92.6 million in cash and (ii) shares of Series A Redeemable Exchangeable Preferred Stock of Terex Cranes having an aggregate liquidation preference of approximately $25.9 million, subject to adjustment (the "Seller Preferred Stock"). The Seller Preferred Stock bears no dividend and is mandatorily redeemable in seven years and three months from the date of issuance. The Seller Preferred Stock may be redeemed at any time for cash (to the extent permitted pursuant to the provisions of the Indenture for Terex's 13 1/4% Senior Secured Notes due 2002) or, under certain circumstances for shares of common stock, par value $.01 per share (the "Cranes Common Stock"), of Terex Cranes. The purchase price is subject to adjustment calculated by reference to the consolidated net asset value of PPM as determined by an audit to be conducted following the consummation of the Acquisition. Terex Cranes has not yet reached agreement with the sellers about the amount of purchase price adjustment but, based on work performed, Terex Cranes believes that the amount of the Seller Preferred Stock could ultimately be reduced. In addition, the liquidation preference and the redemption price of the Seller Preferred Stock may be adjusted based upon the unit shipments of the mobile crane industry in Western Europe during the second and third years following the consummation of the Acquisition. The funds for the cash portion of the purchase price and the repayment of debt of the acquired businesses were obtained from the private placement on May 9, 1995 to institutional investors of units consisting of Terex's 13 1/4% Senior Secured Notes due 2002 and common stock appreciation rights. The Senior Secured Notes are secured by substantially all of the assets of Terex and its domestic subsidiaries, including PPM Cranes, Inc., subject to security interests granted under the Credit Facility as described below and by liens on certain of Terex's foreign subsidiaries, including PPM S.A. Simultaneously with the acquisition, Terex, PPM Cranes, Inc. and certain other domestic subsidiaries of Terex entered into a Credit Facility which provides that the companies will be able to borrow (in the form of revolving loans and up to $15 million in outstanding letters of credit) up to $100 million, subject to borrowing base limitations and subject to participation commitments to be obtained from additional lenders. The Credit Facility is secured by substantially all of the companies domestic receivables and inventory (including PPM Cranes, Inc.). The amount of borrowings is limited to the sum of the following: (i) 75% of the net amount of eligible receivables, as defined, of Terex's U.S. businesses other than Clark Material Handling Company ("CMHC") plus (ii) 70% of the net amount of CMHC eligible receivables, plus (iii) the lesser of 45% of the value of eligible inventory, as defined, or 80% of the appraised orderly liquidation value of eligible inventory, less (iv) any availability reserves established by the lenders. The Credit Facility expires May 9, 1998 unless extended by the lenders for one additional year. At the option of Terex, revolving loans may be in the form of prime rate loans bearing interest at the rate of 1.75% per annum in excess of the prime rate and Eurodollar rate loans bearing interest at the rate of 3.75% per annum in excess of the adjusted Eurodollar rate.
PPM CRANES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in millions) January 1 through May 9, 1995 -------------- Net sales.............................................. $ 27.0 Cost of goods sold..................................... 22.8 -------------- Gross profit....................................... 4.2 Engineering, selling and administrative expenses....... 4.1 -------------- Income from operations............................. 0.1 Other income (expense): Interest expense................................... (0.7) Other income (expense), net........................ (4.5) -------------- Loss before income taxes............................... (5.1) Provision for income taxes............................. --- -------------- NET LOSS............................................... $ (5.1) ==============
The accompanying notes are an integral part of these financial statements.
PPM CRANES, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET (in millions, except share amounts) May 9, 1995 ------------- ASSETS Current assets: Cash and cash equivalents............................$ 0.7 Trade accounts receivables (less allowance of $0.2).. 8.4 Inventories - net.................................... 28.0 Due from affiliates.................................. 0.8 Prepaid expenses and other current assets............ 0.7 ------------- Total current assets............................ 38.6 Property, plant and equipment - net...................... 4.2 Cost in excess of net assets acquired, less accumulated amortization of $9.5................... 36.2 Other identified intangible assets, less accumulated amortization of $0.8................... 0.3 ------------- Total assets.............................................$ 79.3 ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable...............................$ 7.5 Accrued warranties and product liability............. 7.2 Accrued expenses..................................... 2.7 Due to affiliates.................................... 2.6 Other current liabilities............................ 0.5 Current portion of long-term debt.................... 32.4 ------------- Total current liabilities....................... 52.9 ------------- Non-current liabilities: Long-term debt, less current portion................. 5.9 ------------- Commitments and contingencies Shareholders' equity: Common stock, Class A, $.01 par value - authorized 8,000 shares; issued and outstanding 5,000 shares............. --- Common stock, Class B, $.01 par value - authorized 2,000 shares; issued and outstanding 413 shares............... --- Additional paid-in capital........................... 52.8 Accumulated deficit.................................. (32.3) Foreign currency translation adjustment.............. --- ------------- Total shareholders' equity...................... 20.5 ------------- Total liabilities and shareholders' equity...............$ 79.3 =============
The accompanying notes are an integral part of these financial statements.
PPM CRANES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) January 1 through May 9, 1995 ------------- NET CASH USED IN OPERATING ACTIVITIES......................... $ (1.5) INVESTING ACTIVITIES Purchases of property, plant and equipment................ (0.1) FINANCING ACTIVITIES Proceeds from revolving credit with banks and from notes payable to an affiliated company, net..... 0.2 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.. --- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS..................... (1.4) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 2.1 ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................... $ 0.7 =============
The accompanying notes are an integral part of these financial statements. PPM Cranes, Inc. Notes to Unaudited Condensed Consolidated Financial Statements January 1 through May 9, 1995 (In millions unless otherwise denoted) NOTE A -- DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION PPM Cranes, Inc. (the "Company" or "PPM") is engaged in the design, manufacture, marketing and worldwide distribution and support of construction equipment, primarily hydraulic and lattice boom cranes and related spare parts. On May 9, 1995 (the "date of acquisition"), Terex Corporation, through its wholly-owned subsidiary Terex Cranes, Inc., completed the acquisition of all of the capital stock of Legris Industries, Inc., a Delaware Corporation which owns 92.4% of the capital stock of PPM Cranes, Inc. Terex Corporation and Terex Cranes, Inc., are both Delaware corporations. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries; PPM of Australia Pty. Ltd., and PPM Far East Private Ltd., a Singapore company. All material intercompany transactions and profits have been eliminated. During 1995, management closed the operations in PPM Far East Private Ltd. Inventories. Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for domestic inventories and by the first-in, first-out (FIFO) method for inventories of foreign subsidiaries. Property, Plant and Equipment. Additions and major replacements or improvements to property, plant and equipment are recorded at cost. Maintenance, repairs and minor replacements are charged to expense when incurred. Assets of the Company are depreciated using the straight-line method over their estimated useful lives. Product Warranty. The Company warrants that each finished machine is merchantable and free of defects in workmanship and material for a period of up to one year or a specified period of use. Warranty reserves have been established for estimated normal warranty costs and for specific problems known to exist on products in use. Product Liability. Reserves for product liability have been established based upon historical loss experience for the estimated liability on incidents which have occurred but have not yet been reported and for the estimated liability on reported incidents. Income Taxes. Income taxes are provided using the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The Company is a part of a group that files a consolidated income tax return. The method used to allocate income taxes to members of the group is one in which current and deferred income taxes are calculated on a separate return basis as if the Company had not been included in a consolidated income tax return with its parent. Revenue Recognition. Revenue and costs are generally recorded when products are shipped and invoiced to either independently owned and operated dealers or to customers. Foreign Currency Translation. Assets and liabilities of the Company's international operations are translated at period-end exchange rates. Income and expenses are translated at average exchange rates prevailing during the period. For operations whose functional currency is the local currency, translation adjustments are accumulated in the Cumulative Translation Adjustment component of Shareholders' Equity. Research and Development Costs. Research and development costs are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products are included in Engineering, Selling and Administrative Expenses. NOTE C -- INVENTORIES Inventories at May 9, 1995 consist of the following: Raw materials and parts................. $ 19.3 Work in process......................... 6.2 Finished goods and sub assemblies....... 2.5 ------------- $ 28.0 ============= The LIFO value is approximately equivalent to the corresponding FIFO value at May 9, 1995. NOTE D -- PROPERTY, PLANT AND EQUIPMENT Net property, plant and equipment at May 9, 1995 consists of the following: Property, plant and equipment........... $ 7.5 Less accumulated depreciation........... (3.3) ------------- $ 4.2 ============= NOTE E -- CONTINGENCIES The Company is involved in product liability and other lawsuits incident to the operation of its business. Insurance with third parties is maintained for certain of these items. It is management's opinion that none of these lawsuits will have a materially adverse effect on the Company's financial position.
TEREX CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Amounts in millions) Additions --------------------------- Balance Beginning Charges to Balance End of Year Earnings Other Deductions (1) of Year ------------- ------------- ------------- ----------------- ------------- Year ended December 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts............. $ 7.4 $ 2.4 $ --- $ (2.8) $ 7.0 Reserve for excess and obsolete inventory... 15.9 9.1 --- (6.3) 18.7 ------------- ------------- ------------- ----------------- ------------- Totals..................................... $ 23.3 $ 11.5 $ --- $ (9.1) $ 25.7 ============= ============= ============= ================= ============= Year ended December 31, 1995: Deducted from asset accounts: Allowance for doubtful accounts............. $ 6.1 $ 6.3 $ (3.1) $ (1.9) $ 7.4 Reserve for excess and obsolete inventory... 21.1 8.7 (6.2)(2) (5.3) 15.9 ------------- ------------- ------------- ----------------- ------------- Totals..................................... $ 27.2 $ 15.0 $ (9.3) $ (7.2) $ 23.3 ============= ============= ============= ================= ============= Year ended December 31, 1994: Deducted from asset accounts: Allowance for doubtful accounts............. $ 7.5 $ 1.0 $ --- $ (2.4) $ 6.1 Reserve for excess and obsolete inventory... 20.7 7.6 --- (7.2) 21.1 ------------- ------------- ------------- ----------------- ------------- Totals..................................... $ 28.2 $ 8.6 $ --- $ (9.6) $ 27.2 ============= ============= ============= ================= ============= (1) Utilization of established reserves, net of recoveries. (2) Added with the acquisition of businesses and the restatement to Net Assets of Discontinued Operations.
TEREX CORPORATION AND SUBSIDIARIES SCHEDULE IV - INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT Indebtedness of --------------------------------------------------------------- Balance at Balance at End Beginning of of Name of Person Period Additions Deductions Period - ------------------------------------------------------ --------------- --------------- -------------- ---------------- Year ended December 31, 1996: Randolph W. Lenz Promissory note, interest at 6.56% due November 2, 2000............................... $ 1,800,000 $ --- $ (360,000) $ 1,440,000 Payable for shipping charges..................... 33,450 --- (33,450) --- --------------- --------------- -------------- ---------------- Total.......................................... $ 1,833,450 $ --- $ (393,450) $ 1,440,000 =============== =============== ============== ================ Year ended December 31, 1995: Randolph W. Lenz Promissory note, interest at 6.56% due November 2, 2000............................... $ --- $ 1,800,000 $ --- $ 1,800,000 Payable for shipping charges..................... --- 33,450 --- 33,450 --------------- --------------- -------------- ---------------- Total.......................................... $ --- $ 1,833,450 $ --- $ 1,833,450 =============== =============== ============== ================ Year ended December 31, 1994: $ --- $ --- $ --- $ --- =============== =============== ============== ================
INDEX TO EXHIBITS 3.1 Restated Certificate of Incorporation of Terex Corporation (incorporated by reference to Exhibit 3.1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52297). 3.2 Restated Bylaws of Terex Corporation (incorporated by reference to Exhibit 3.2 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52297). 3.3 Certificate of Designation of Preferences and Rights of Series B Cumulative Redeemable Convertible Preferred Stock ("Series B Preferred Stock") of Terex Corporation (incorporated by reference to Exhibit 3.3 to the Form 10-K for the year ended December 31, 1994 of Terex Corporation, Commission File No. 1-10702). 4.1 Warrant Agreement dated as of December 20, 1993 between Terex Corporation and Mellon Securities Trust Company, as Warrant Agent (incorporated by reference to Exhibit 4.40 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52297). 4.2 Form of Series A Warrant (incorporated by reference to Exhibit 4.41 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52297). 4.3 Form of Series A Preferred Stock certificate (incorporated by reference to Exhibit 4.42 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 4.4 Form of Series B Warrant (incorporated by reference to Exhibit 4.43 to the Form 10-K for the year ended December 31, 1994 of Terex Corporation, Commission File No. 1-10702). 4.5 Form of Series B Preferred Stock Certificate (incorporated by reference to Exhibit 4.44 to the Form 10-K for the year ended December 31, 1994 of Terex Corporation, Commission File No. 1-10702). 4.6 Certificate of Elimination with respect to the Series A Preferred Stock. 4.7 Form of 13-1/4% Senior Secured Notes Due 2002 of Terex Corporation (incorporated by reference to Exhibit 4.6 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 4.8 Indenture dated as of May 9, 1995 among the Company, the Guarantors referred to therein and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit 4.7 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.1 Terex Corporation Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 4.1 to the Form S-8 Registration Statement of Terex Corporation, Registration No. 33-21483). 10.2 1994 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended December 31, 1994 of Terex Corporation, Commission File No. 1-10702). 10.3 Terex Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 to the Form 10-K for the year ended December 31, 1994 of Terex Corporation, Commission File No. 1-10702). 10.4 1996 Terex Corporation Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Form S-8 Registration Statement of Terex Corporation, Registration No. 333-03983). 10.5 Common Stock Appreciation Rights Agreement dated as of July 31, 1992 between Terex Corporation and United States Trust Company of New York, as SAR Agent (incorporated by reference to Exhibit 10.36 to the Form 10-K for the year ended December 31, 1992 of Terex Corporation, Commission file No. 1-10702). 10.6 SAR Registration Rights Agreement dated as of July 31, 1992 between Terex Corporation and the purchasers who are signatories thereto (incorporated by reference to Exhibit 10.37 to the Form 10-K for the year ended December 31, 1992 of Terex Corporation, Commission file No. 1-10702). 10.7 Series B Preferred Stock and Warrants Registration Rights Agreement (incorporated by reference to Exhibit 10.27 to the Form 10-K for the year ended December 31, 1994 of Terex Corporation, Commission File No. 1-10702). 10.8 Credit Facility, dated December 23, 1993, among Terex Equipment Limited, Terex Corporation and Standard Chartered Bank (incorporated by reference to Exhibit 10.28 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52297). 10.9 Share Purchase Agreement, as amended, between Terex Cranes, Inc. and Legris Industries, S.A. and Potain, S.A. (incorporated by reference to Exhibit 10.1 to the From 8-K for May 9, 1995, Commission File No. 1-10702). 10.10 Certificate of Designation of Terex Cranes, Inc. with respect to its Series A Redeemable Exchangeable Preferred Stock (incorporated by reference to Exhibit 10.2 to the From 8-K for May 9, 1995, Commission File No. 1-10702). 10.11 Stockholders Agreement dated as of May 9, 1995 by and among Terex Corporation, Legris Industries S.A., Potain S.A. and Terex Cranes, Inc. (incorporated by reference to Exhibit 10.3 to the From 8-K for May 9, 1995, Commission File No. 1-10702). 10.12 Purchase Agreement, dated as of April 27, 1995, among Terex Corporation (the "Company"), certain of its subsidiaries and Jefferies & Company, Inc. ("Jefferies") and Dillon, Read & Co. Inc. (together with Jefferies, the "Purchasers") (incorporated by reference to Exhibit 10.28 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.13 Common Stock Appreciation Rights Agreement dated as of May 9, 1995 between the Company and United States Trust Company of New York, as Rights Agents (incorporated by reference to Exhibit 10.29 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.14 Debt Registration Rights Agreement dated as of May 9, 1995 among the Company and the Purchasers (incorporated by reference to Exhibit 10.30 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.15 SAR Registration Rights Agreement dated as of May 9, 1995 among the Company and the Purchasers (incorporated by reference to Exhibit 10.31 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.16 Security and Pledge Agreement dated as of May 9, 1995 between the Company and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 10.32 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.17 Subsidiary Security and Pledge Agreement dated as of May 9, 1995 between certain subsidiaries of the Company and United States Trust Company of New York, as Collateral Agent (incorporated by reference to Exhibit 10.33 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.18 Loan and Security Agreement dated as of May 9, 1995 among Terex Corporation, Clark Material Handling Company, Koehring Cranes, Inc. and PPM Cranes, Inc. and Congress Financial Corporation and Foothill Capital Corporation, for itself and as agent (incorporated by reference to Exhibit 10.34 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.19 Guarantee dated as of May 9, 1995 from Terex Corporation, Clark Material Handling Company, PPM Cranes, Inc. and CMH Acquisition Corp. and Legris Industries, Inc. (incorporated by reference to Exhibit 10.36 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.20 Guarantee dated as of May 9, 1995 from Terex Corporation, Clark Material Handling Company, Koehring Cranes, Inc. and CMH Acquisition Corp. and Legris Industries, Inc. (incorporated by reference to Exhibit 10.37 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.21 Guarantee dated as of May 9, 1995 from Clark Material Handling Company, Koehring Cranes, Inc., PPM Cranes, Inc. and CMH Acquisition Corp. and Legris Industries, Inc. (incorporated by reference to Exhibit 10.38 of the Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 10.22 Agreement dated as of November 2, 1995 between Terex Corporation, a Delaware corporation, and Randolph W. Lenz (incorporated by reference to Exhibit 10 to the Form 10-Q for the quarter ended September 30, 1995, Commission File No. 1-10702). 10.23 Stock and Asset Purchase and Sales Agreement, dated as of November 9, 1996, among Terex Corporation, CMH Acquisition Corp., CMH Acquisition International Corp., Clark Material Handling International, Inc. and Clark Material Handling Company, as Sellers, and CMHC Acquisition Corporation (now known as CLARK Material Handling Company), as Buyer (incorporated by reference to Exhibit 10.1 of the Form 8-K Current Report, Commission File No. 1-10702, dated and filed with the Commission on December 11, 1996). 10.24 Service Agreement, dated as of November 27, 1996, between Terex Corporation and CLARK Material Handling Company (incorporated by reference to Exhibit 10.2 of the Form 8-K Current Report, Commission File No. 1-10702, dated and filed with the Commission on December 11, 1996). 10.25 Agreement of Purchase and Sale, dated as of February 24, 1997, among Simon United States Holdings, Inc. and Simon Overseas Holdings Limited, as Sellers, Simon Engineering plc, as Parent, and Terex Corporation, as Buyer. 11.1 Computation of per share earnings. 21.1 Subsidiaries of Terex Corporation. 23.1 Independent Accountants' Consent of Price Waterhouse LLP, Stamford, Connecticut. 23.2 Consent of Ernst & Young LLP, Independent Auditors. 23.3 Independent Accountants' Consents of Price Waterhouse, Melbourne, Australia and the Independent Audit Report referred to therein. 24.1 Power of Attorney. EX-4 2 EXHIBIT 4.6 EXHIBIT 4.6 CERTIFICATE OF ELIMINATION WITH RESPECT TO THE SERIES A CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK OF TEREX CORPORATION PURSUANT TO SECTION 151(g) In accordance with Section 151(g) of the General Corporation Law of the State of Delaware, Terex Corporation, a Delaware corporation (the "Company"), does hereby certify that the following resolutions respecting its Series A Cumulative Redeemable Convertible Preferred Stock (the "Series A Preferred Stock") were duly adopted by the Company's Board of Directors: RESOLVED, that the Company has redeemed all of its issued and outstanding Series and Preferred Stock and that no shares of the Company's Series A Preferred Stock are outstanding and that no shares of the Series A Preferred Stock will be issued subject to the certificate of designations previously filed with respect to the Series A Preferred Stock. RESOLVED, that the officers of the Company are directed to file with the Secretary of State of the State of Delaware a certificate pursuant to Section 151(g) of the General Corporation Law of the State of Delaware setting forth these resolutions in order to eliminate from the Company's certif- icate of incorporation all matters set forth in the certificate of designations with respect to the Series A Preferred Stock. IN WITNESS WHEREOF, Terex Corporation has caused this certificate to be signed by its President this _____ day of February, 1997. TEREX CORPORATION By:___________________________ Ronald M. DeFeo, President EX-10 3 EXHIBIT 10.25 EXHIBIT 10.25 AGREEMENT OF PURCHASE AND SALE Dated as of February 24, 1997 Among SIMON UNITED STATES HOLDINGS INC. and SIMON OVERSEAS HOLDINGS LIMITED, as Sellers, SIMON ENGINEERING plc, as Parent, and TEREX CORPORATION, as Buyer TABLE OF CONTENTS ARTICLE I TERMS OF PURCHASE AND SALE . . . . . . . . . . . . . . . . . .1 1.01. Sale of the Shares . . . . . . . . . . . . . . . . . . .1 1.02. The Closing. . . . . . . . . . . . . . . . . . . . . . .2 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND PARENT. . . .. . . . . . . . . . . . . . . . . . . . .5 2.01. Corporate Power and Authority; Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . .5 2.02. Capitalization; the Shares . . . . . . . . . . . . . . .5 2.03. Subsidiaries . . . . . . . . . . . . . . . . . . . . . .6 2.04. Organization of the Companies and the Subsidiaries. . . . . . . . . . . . . . . . . . . . . .6 2.05. Financial Statements; Undisclosed Liabilities. . . . . .6 2.06. Absence of Certain Changes or Events . . . . . . . . . .8 2.07. Title to Assets. . . . . . . . . . . . . . . . . . . . .8 2.08. Commitments. . . . . . . . . . . . . . . . . . . . . . .9 2.09. Insurance. . . . . . . . . . . . . . . . . . . . . . . 10 2.10. Litigation . . . . . . . . . . . . . . . . . . . . . . 10 2.11. Compliance with Law; Licenses, Permits . . . . . . . . 11 2.12. Employee Benefit Plans . . . . . . . . . . . . . . . . 11 2.13. Consents . . . . . . . . . . . . . . . . . . . . . . . 12 2.14. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 13 2.15. Fees . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.16. Environmental Matters. . . . . . . . . . . . . . . . . 13 2.17. Labor Matters. . . . . . . . . . . . . . . . . . . . . 15 2.18. Affiliates' Relationships to the Companies . . . . . . 15 2.19. Patents and Trademarks . . . . . . . . . . . . . . . . 15 2.20. Conflicts of Interest. . . . . . . . . . . . . . . . . 16 2.21. Accounts Receivable; Inventory . . . . . . . . . . . . 16 2.22. Misleading Statements. . . . . . . . . . . . . . . . . 17 2.23. Products Liability . . . . . . . . . . . . . . . . . . 17 2.24. Disclaimer . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . 17 3.01. Organization . . . . . . . . . . . . . . . . . . . . . 17 3.02. Corporate Power and Authority; Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . 17 3.03. Consents . . . . . . . . . . . . . . . . . . . . . . . 18 3.04. Availability of Funds. . . . . . . . . . . . . . . . . 18 3.05. Litigation . . . . . . . . . . . . . . . . . . . . . . 18 3.06. Purchase for Investment. . . . . . . . . . . . . . . . 18 3.07. Disclaimer . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE IV COVENANTS OF THE SELLERS AND PARENT. . . . . . . . . . 18 4.01. Cooperation by the Sellers . . . . . . . . . . . . . . 18 4.02. Conduct of Business. . . . . . . . . . . . . . . . . . 18 4.03. Access . . . . . . . . . . . . . . . . . . . . . . . . 19 4.04. Further Assurances . . . . . . . . . . . . . . . . . . 20 4.05. Covenant Not to Compete. . . . . . . . . . . . . . . . 20 4.06. Stockholders' Meetings . . . . . . . . . . . . . . . . 21 4.07. No Solicitation. . . . . . . . . . . . . . . . . . . . 21 ARTICLE V COVENANTS OF BUYER . . . . . . . . . . . . . . . . . . . . . 22 5.01. Cooperation by Buyer . . . . . . . . . . . . . . . . . 22 5.02. Books and Records; Personnel . . . . . . . . . . . . . 22 5.03. Further Assurances . . . . . . . . . . . . . . . . . . 23 5.04. Release of Guaranties. . . . . . . . . . . . . . . . . 23 ARTICLE VI ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . 23 6.01. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 23 6.02. Corporate Name . . . . . . . . . . . . . . . . . . . . 27 6.03. Cella Name . . . . . . . . . . . . . . . . . . . . . . 28 6.04. Simon LTI, Simon Duplex and Simon (UK) . . . . . . . . 28 6.05. Cash Management. . . . . . . . . . . . . . . . . . . . 29 6.06. Changes to Representations and Warranties. . . . . . . 29 ARTICLE VII CONDITIONS TO BUYER'S OBLIGATIONS. . . . . . . . . . . 30 7.01. Representations, Warranties and Covenants of the Sellers . . . . . . . . . . . . . . . . . . . . . . . 30 7.02. No Prohibition . . . . . . . . . . . . . . . . . . . . 30 7.03. Governmental Consents. . . . . . . . . . . . . . . . . 30 7.04. Intercompany Accounts. . . . . . . . . . . . . . . . . 30 7.05. FIRPTA . . . . . . . . . . . . . . . . . . . . . . . . 31 7.06. Consents . . . . . . . . . . . . . . . . . . . . . . . 31 7.07. Release of Encumbrances. . . . . . . . . . . . . . . . 31 7.08. Resignation of Officers and Directors. . . . . . . . . 31 7.09. Books and Records. . . . . . . . . . . . . . . . . . . 31 ARTICLE VIII CONDITIONS TO PARENT'S AND THE SELLERS' OBLIGATIONS. . . . . . . . . . . . . . . . . 31 8.01. Representations, Warranties and Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . . 31 8.02. No Prohibition . . . . . . . . . . . . . . . . . . . . 32 8.03. Governmental Consents. . . . . . . . . . . . . . . . . 32 8.04. Shareholder Approval . . . . . . . . . . . . . . . . . 32 8.05. Lender Consent and Releases. . . . . . . . . . . . . . 32 8.06. Books and Records. . . . . . . . . . . . . . . . . . . 32 ARTICLE IX EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS. . . . . 32 9.01. Definitions. . . . . . . . . . . . . . . . . . . . . . 32 9.02. Employment . . . . . . . . . . . . . . . . . . . . . . 33 9.03. Simon U.S. Retirement Plan . . . . . . . . . . . . . . 33 9.05. Severance. . . . . . . . . . . . . . . . . . . . . . . 35 9.06. Indemnity. . . . . . . . . . . . . . . . . . . . . . . 35 ARTICLE X TERMINATION PRIOR TO CLOSING . . . . . . . . . . . . . . . . 35 10.01. Termination. . . . . . . . . . . . . . . . . . . . . . 35 10.02. Effect on Obligations. . . . . . . . . . . . . . . . . 36 ARTICLE I. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . 36 11.01. Survival . . . . . . . . . . . . . . . . . . . . . . . 36 11.02. Indemnification. . . . . . . . . . . . . . . . . . . . 37 11.03. Interpretive Provisions. . . . . . . . . . . . . . . . 40 11.04. Entire Agreement . . . . . . . . . . . . . . . . . . . 40 11.05. Successors and Assigns . . . . . . . . . . . . . . . . 40 11.06. Headings . . . . . . . . . . . . . . . . . . . . . . . 41 11.07. Modification and Waiver. . . . . . . . . . . . . . . . 41 11.08. Expenses . . . . . . . . . . . . . . . . . . . . . . . 41 11.09. Notices. . . . . . . . . . . . . . . . . . . . . . . . 41 11.10. Governing Law. . . . . . . . . . . . . . . . . . . . . 42 11.11. Public Announcements . . . . . . . . . . . . . . . . . 43 11.12. Counterparts . . . . . . . . . . . . . . . . . . . . . 43 11.13. Currency Conversion. . . . . . . . . . . . . . . . . . 43 11.14. Exhibits and Disclosure Schedule . . . . . . . . . . . 43 DEFINED TERMS Term Section 9.01(e) Employees ........................................ 9.01(e) Ancillary Document ....................................... 11.01 Agreed Accounting Principles ............................. 2.05(c) Arbitrator ............................................... 1.03(b)(iii) Audited Financial Statements ............................. 2.05(b) Benefit Arrangements ..................................... 9.01(d) Books and Records ........................................ 5.02(a) Book Value ............................................... 1.03(a) Business ................................................. 9.01(a) Buyer .................................................... Preamble Buyer's Certificate ...................................... 8.01 Buyer's Health Plan ...................................... 9.04(b) Buyer's Retirement Plan .................................. 9.03(a) Buyer's Taxes ............................................ 6.01(e) CAA ...................................................... 2.16(d)(i) CERCLA ................................................... 2.16(d)(i) CERCLIS .................................................. 2.16(a) Closing .................................................. 1.02 Closing Date ............................................. 1.02 Closing Date Balance Sheets .............................. 1.03(b)(i) COBRA .................................................... 2.12(g) Code ..................................................... 2.12(b) Commitments .............................................. 2.08 Company .................................................. Preamble Companies ................................................ Preamble Company Benefit Plans .................................... 9.01(c) Confidentiality Agreement ................................ 4.03 CWA ...................................................... 2.16(d)(i) Deductible ............................................... 11.02(a) Disbursements ............................................ 6.05(a) Disclosure Schedule ...................................... 2.02 Employee ................................................. 9.01(b) Employees ................................................ 9.01(b) Encumbrances ............................................. 2.02(b) Environmental Breach ..................................... 11.01 Environmental Laws ....................................... 2.16(d)(i) Environmental Losses ..................................... 2.16(d)(vi) Environmental Permit ..................................... 2.16(d)(iv) ERISA .................................................... 2.12(b) Existing Guarantees ...................................... 5.04 Facilities ............................................... 2.16(d)(v) HMTA ..................................................... 2.16(d)(i) Hazardous Substances ..................................... 2.16(d)(ii) HSR Act .................................................. 2.13 Indemnitee ............................................... 11.02(c)(i) Indemnitor ............................................... 11.02(c)(i) Intellectual Property Rights ............................. 2.19 Interim Combining Balance Sheet .......................... 2.05(a) Interim Financial Statements ............................. 2.05(a) Irish GAAP ............................................... 2.05(a) IRS ...................................................... 2.12(b) Italian GAAP ............................................. 2.05(c) Litigation ............................................... 2.10 Lockbox Accounts ......................................... 6.05(b) Logos .................................................... 6.02(a) Logo Window Period ....................................... 6.02(b) Losses ................................................... 11.02 Material Adverse Effect .................................. 2.04 Names .................................................... 6.02(a) Name Window Period ....................................... 6.02(b) Notice ................................................... 11.02(c)(i) Notice of Disagreement ................................... 1.03(b)(iii) NPL ...................................................... 2.16(a) Parent ................................................... Preamble Patent Rights ............................................ 2.19 Pre-Closing Cash ......................................... 6.05(b) Pre-Closing Taxes ........................................ 6.01(b) Purchase Price ........................................... 1.03(a) RCRA ..................................................... 2.16(d)(i) Real Property ............................................ 2.07(c) Reference Amount ......................................... 1.03(a) Release .................................................. 2.16(d)(iii) Restricted Business ...................................... 4.05(a) Retirement Plan Transferees .............................. 9.03(a) Section 338 Forms ........................................ 6.01(h)(2)(a) Section 338(h)(10) Elections ............................. 6.01(h) Sellers .................................................. Preamble Sellers' Certificates .................................... 7.01 Sellers' Refunds ......................................... 6.01(c) Shares ................................................... Preamble Sim-Tech Management ...................................... Preamble Simon Aerials ............................................ Preamble Simon Duplex ............................................. 4.05(a) Simon Health Plan ........................................ 9.04(b) Simon Ireland ............................................ Preamble Simon LTI ................................................ 4.05(a) Simon Overseas ........................................... Preamble Simon Retirement Plan .................................... 9.03 Simon-Cella .............................................. Preamble Simon-Tomen .............................................. Preamble Simon UK ................................................. 4.05(a) Straddle Period .......................................... 6.01(b) Straddle Returns ......................................... 6.01(a)(3) Subsidiary ............................................... 2.03(a) Subsidiaries ............................................. 2.03(a) SUSHI .................................................... Preamble Tax Matter ............................................... 6.01(f) Telelect ................................................. Preamble TSCA ..................................................... 2.16(d)(i) US Corporations .......................................... 6.05(a) US GAAP .................................................. 2.05(c) Valuation Date ........................................... 9.03(c) WARN ..................................................... 9.06(a) Window Period ............................................ 6.02(b) AGREEMENT OF PURCHASE AND SALE This Agreement, made and entered into this 24th day of February, 1997, by and among Simon United States Holdings Inc., a Delaware corporation ("SUSHI"), and Simon Overseas Holdings Limited, a company incorporated under the laws of England with registered number 786848 ("Simon Overseas" and, together with SUSHI, collectively referred to as the "Sellers"), Simon Engineering plc, a public limited company incorporated under the laws of England with registered number 52665 ("Parent"), and Terex Corporation, a Delaware corporation ("Buyer"). W I T N E S S E T H : WHEREAS, SUSHI owns all the issued and outstanding shares of capital stock of Simon-Telelect Inc., a Delaware corporation ("Telelect"), and of Simon Aerials Inc., a Wisconsin corporation ("Simon Aerials"); and Simon Overseas owns all the issued and outstanding shares of capital stock of Sim-Tech Management Limited, a private limited company incorporated under the laws of Hong Kong with registered number 152080 ("Sim-Tech Management"), of Simon-Cella, S.r.l., a company incorporated under the laws of Italy ("Simon-Cella"), and of Simon Aerials Limited, a company incorporated under the laws of Ireland ("Simon Ireland"), and 60% of the issued and outstanding shares of capital stock of Simon- Tomen Engineering Company Limited, a limited liability stock company (kabushiki kaisha) organized under the laws of Japan ("Simon-Tomen" and, together with Telelect, Simon Aerials, Sim- Tech Management, Simon-Cella and Simon Ireland, collectively referred to as the "Companies" or singularly as a "Company"); WHEREAS, Parent is, directly or indirectly, the owner all the issued and outstanding capital stock of each Seller; WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, Parent and the Sellers desire to sell to Buyer, and Buyer desires to buy from the Sellers, all of the aforesaid shares of capital stock of the Companies (the "Shares") owned by the Sellers; NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements, and upon the terms and subject to the conditions, hereinafter set forth, the parties do hereby agree as follows: ARTICLE I TERMS OF PURCHASE AND SALE 1.01. Sale of the Shares. (a) Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date (as defined in Section 1.02), and subject to Section 1.01(c) the Sellers shall sell the Shares to Buyer, and Buyer shall purchase the Shares from the Sellers for the Purchase Price specified in Section 1.03. The Closing shall be effective as of the opening of business on the Closing Date. (b) At the Closing (as defined in Section 1.02), the Sellers shall deliver to Buyer, against payment of the Purchase Price, certificates representing the Shares (other than the Shares in Simon-Cella), duly endorsed in blank for transfer or accompanied by duly executed stock powers, stock transfer forms or other instruments of transfer assigning such Shares in blank, and shall take all actions necessary to cause the Shares in Simon-Cella to be registered in Buyer's name in the register of shareholders of Simon-Cella in each case free and clear of all Encumbrances (as defined in Section 2.02(b)). The aggregate cost of any documentary, stamp, sales, excise, transfer or other taxes payable (other than income taxes payable by the Sellers) in respect of the sale of the Shares shall be borne 50% by Buyer and 50% by the Sellers. (c) If Tomen Corporation exercises its right of first refusal to purchase the Shares of Simon-Tomen pursuant to this Agreement, then such Shares shall not be sold pursuant hereto, and there shall be no adjustment to the Purchase Price as a result thereof, except as set forth in Section 1.03. In such event, all references to the Companies in this Agreement shall be deemed not to include Simon-Tomen and any representations with respect to Simon-Tomen shall be deemed to have been deleted. 1.02. The Closing. The closing of the purchase and sale of the Shares (the "Closing") shall take place at the New York offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York, commencing at 10:00 a.m. on April 7, 1997 or if the conditions to the Closing set forth in Articles VII and VIII have not been satisfied by such date, as soon as practicable after such conditions have been satisfied (the "Closing Date"). 1.03. Purchase Price; Purchase Price Adjustment; and Payment. (a) The aggregate purchase price to be paid by Buyer for the Shares and to repay the portion of intercompany balances owned by Simon Ireland, Simon Cella, Sim-Tech Management and Simon-Tomen to Simon Overseas (collectively the "Offshore Intercompany Accounts") not contributed to the capital of such Company shall be $90 million (the "Purchase Price"). The Purchase Price shall be allocated among the Companies as set forth on Section 1.03 of the Disclosure Schedule, and neither Buyer nor Parent or any Seller (nor any of their respective affiliates) shall take any position on any tax return or with any taxing authority that is inconsistent with the allocation of the Purchase Price set forth on Section 1.03 of the Disclosure Schedule; provided, however, that the Purchase Price allocable to Simon Ireland, Simon-Cella, Sim-Tech Management and Simon-Tomen shall, in all cases, be at least equal to the sum of (x) the Offshore Intercompany Account balance for such Company as of the close of business on the day preceding the Closing Date and (y) an amount sufficient to return any aggregate cash overdraft balance for all accounts of such Company as of the Closing Date to zero. The Purchase Price allocable to each of Simon Ireland, Simon Cella, Sim-Tech Management and Simon Tomen shall be applied first to repay the portion of the Offshore Intercompany Account balance for such Company not contributed to the capital of such Company and second to the purchase price for the Shares of such Company. To the extent specified in the following sentence, the Purchase Price shall be adjusted pursuant to this Section 1.03(a) in the event and to the extent that the Closing Date Balance Sheet (as defined in Section 1.03(b)) reveals that the aggregate Book Value (as defined below) for all Companies and Subsidiaries, rounded to the nearest $1,000, as of the close of business on the day before the Closing Date is not equal to $63,996,000 (which amount is subject to adjustment to include the capitalization of the net intercompany account balances after reconciliation thereof) (the "Reference Amount"). If the Closing Date Balance Sheet reveals that aggregate Book Value for all Companies and Subsidiaries is less than the Reference Amount by more than $1 million, Parent or the Seller shall, and if the Closing Date Balance Sheet reveals that aggregate Book Value is greater than the Reference Amount by more than $1 million, Buyer shall, pay an amount equal to the amount by which such shortfall or excess exceeds the Reference Amount. Payment of such Purchase Price adjustment shall be made prior to the close of business on the second business day following the date that the Closing Date Balance Sheet shall become final and binding pursuant to Section 1.03(b)(iii) in U.S. dollars by wire transfer of immediately available funds to the account of Buyer or the Sellers, as the case may be, specified thereby, together with interest on such Purchase Price adjustment at a rate equal to the rate of interest from time to time announced publicly by Citibank, N.A., as its base rate plus 2%, calculated based on the number of days elapsed over 365, from the Closing Date to the date of payment. If the consent of Tomen Corporation to the transfer of the Shares in Simon-Tomen is not obtained prior to the Closing Date, the Reference Amount shall be reduced by an amount equal to the Book Value attributable to Simon-Tomen as shown on the Interim Combining Balance Sheet and the Closing Date Balance Sheet and Book Value as of the close of business the day before the Closing Data shall be calculated without regard to Simon-Tomen. The term "Book Value" shall mean the amount derived by deducting the total liabilities of all Companies and Subsidiaries, after eliminating any intercompany account balance from the total assets of all Companies and Subsidiaries, in each case as reflected on the Interim Combining Balance Sheet (as defined in Section 2.05(a)) and the Closing Date Balance Sheet. Any adjustment to the Purchase Price pursuant to this Section 1.03 shall be allocated to the Purchase Price for the Company or Companies to which the item or items giving rise to such adjustment are attributable based on the ratio of the amount of claims attributable to such Company versus the total amount of all claims. For all purposes of this Agreement, references to the intercompany accounts of any Company or Subsidiary refer to the intercompany accounts of that Company or Subsidiary with Parent or any subsidiary of Parent. All references herein to "dollars" or "$" shall be to U.S. dollars (U.S. $) unless otherwise specified. (b) (i) On or before the 90th day following the Closing Date, the Sellers shall prepare and deliver to Buyer, in accordance with subsection (iii) below a combining balance sheet of all Companies and Subsidiaries as of the close of business on the day before the Closing Date, which balance sheet shall be reported on by the Seller's independent public accountants to have been properly prepared in accordance with the terms of this Agreement (a report in a form reasonably satisfactory to Parent, the Sellers and Buyer) and shall satisfy the following requirements (such balance sheet referred to as the "Closing Date Balance Sheet"): (A) The Closing Date Balance Sheet shall be prepared as if the Companies were not a part of, but were separate and independent from, any consolidated group of companies (other than those reported on in the Closing Date Balance Sheet) and all intercompany account balances shall be contributed to the capital of the Companies or, at the option of the Sellers with respect to Simon Ireland, Simon Cella, Sim-Tech Management and/or Simon-Tomen, all or a portion thereof shall be repaid with a portion of the Purchase Price allocable to such Company; (B) Except for the treatment of intercompany account balances as specified in clause (A) above, the Closing Date Balance Sheet shall be prepared on a basis consistent with the Audited Financial Statements, the Interim Combining Balance Sheet and the Interim Financial Statements and the past custom and practice of the Companies and the Subsidiaries to the extent consistent therewith. Without limiting the generality of the foregoing, the parties hereto acknowledge and agree that the computation of Book Value will be done in a manner consistent with the methods used in the preparation of the Interim Financial Statements and that if disagreements should arise with respect to individual items of inclusion and/or exclusion, the governing principle will be that the adjustment contemplated by this Section 1.03 is intended to analyze the economic effects of a change in Book Value from the date of the Interim Financial Statements to the Closing Date. (ii) The Book Value for all Companies and Subsidiaries shall be determined by the Sellers and reported on by their independent accountants to have been properly prepared in accordance with the terms of this Agreement (a report in a form reasonably satisfactory to Parent, the Sellers and Buyer) and as set forth in a statement in the form of Appendix B. (iii) Buyer shall cause the Companies and their respective employees to assist the Sellers in preparing, and the Sellers' independent accountants in reporting on, the Closing Date Balance Sheet and shall provide the Sellers and their independent accountants access at all reasonable times to the personnel, properties, books and records of the Companies for such purpose. Buyer acknowledges that the Sellers and Sellers' independent accountants shall have responsibility and authority for preparing and reporting on, respectively, the Closing Date Balance Sheet in accordance with the terms of this Agreement. At Buyer's option and expense, a physical inventory shall be conducted by the Companies and the Subsidiaries on a date to be agreed by the Sellers and Buyer shortly before or promptly following the Closing Date for the purpose of preparing the Closing Date Balance Sheet, and the Sellers, Buyer and their respective independent accountants shall each have the right to observe the taking of such physical inventory. Any expense incurred by the Companies and the Subsidiaries in connection with such taking of physical inventory shall be for the account of Buyer and shall not be reflected in the Closing Date Balance Sheet or in determining aggregate Book Value as of the Closing Date. During the 45-day period following Buyer's receipt of the Closing Date Balance Sheet, Buyer and its independent accountants will be permitted, each upon delivery of an executed release agreements substantially in the form of Appendix C, to review the working papers of the Sellers' independent accountants relating to the Closing Date Balance Sheet. The Closing Date Balance Sheet shall become final and binding upon the parties on the forty-fifth day following receipt thereof by Buyer unless Buyer gives written notice of its disagreement ("Notice of Disagreement") to the Sellers prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of, and reasons for, any disagreement so asserted, which must equal or exceed $25,000 on an individual item by Company or Subsidiary basis. Any individual disagreement of less than $25,000 shall be disregarded in preparing the Notice of Disagreement. If a Notice of Disagreement is received by the Sellers in a timely manner, then the Closing Date Balance Sheet (as revised in accordance with clause (x) or (y) below) shall become final and binding upon the parties on the earlier of (x) the date the parties hereto resolve in writing any differences they have with respect to any matter specified in the Notice of Disagreement or (y) the date any disputed matters are finally resolved in writing by the Arbitrator (as defined below). During the 45-day period following the delivery of a Notice of Disagreement, Parent, the Sellers and Buyer shall seek in good faith to resolve in writing any differences which they may have with respect to any matter specified in the Notice of Disagreement. At the end of such 45- day period, Parent, the Sellers and Buyer shall submit to an arbitrator (the "Arbitrator") for review and resolution any and all matters which remain in dispute. The Arbitrator shall be Coopers & Lybrand LLP, or if such firm is unable or unwilling to act, such other nationally recognized independent public accounting firm as shall be appointed by the President of the American Arbitration Association. The Arbitrator shall render a decision resolving the matters submitted to the Arbitrator within 30 days of receipt of such submission. The cost of any arbitration (including the fees of the Arbitrator) pursuant to this clause shall be borne 50% by Buyer and 50% by the Sellers. The fees and disbursements of Sellers' independent accountants, counsel and other costs incurred in connection with their certification of the Closing Date Balance Sheet shall be borne by the Sellers, and the fees and disbursements of Buyer's independent accountants, counsel and other costs incurred in connection with their review of the Closing Date Balance Sheet shall be borne by Buyer. (c) Payment of the Purchase Price shall be in U.S. dollars, and shall be made no later than 12:00 noon on the Closing Date by wire transfer of immediately available funds to the account or accounts of the Sellers at the bank or banks specified by the Sellers in writing at least two days prior to the Closing Date. ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND PARENT The Sellers and Parent, jointly and severally, represent and warrant to Buyer, both as of the date hereof and as of the Closing Date, except as to any representation and warranty which indicates that it is being made as of a specified date, as follows: 2.01. Corporate Power and Authority; Effect of Agreement. Parent and each Seller are corporations duly organized or incorporated, validly existing and in good standing under the laws of their respective jurisdiction of incorporation or organization and have all requisite corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Parent and each Seller of this Agreement and the consummation by Parent and each Seller of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent and each Seller. This Agreement has been duly and validly executed and delivered by Parent and each Seller and constitutes the valid and binding obligation of Parent and each Seller, enforceable against Parent and each Seller in accordance with its terms. The execution, delivery and performance by Parent and each Seller of this Agreement and the consummation by Parent and each Seller of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, conflict with or violate (x) any provision of law, rule or regulation to which Parent, any Seller, any Company or any Subsidiary (as defined in Section 2.03) are subject, (y) any order, judgment or decree applicable to Parent, any Seller, any Company or any Subsidiary or binding upon the assets or properties of any Seller, any Company or any Subsidiary, or (z) any provision of the organizational documents or the by-laws or articles of association of Parent, any Seller, any Company or any Subsidiary. 2.02. Capitalization; the Shares. (a) The authorized capital stock of each Company is as set forth in Section 2.02 of the disclosure schedule delivered by Parent and the Sellers to Buyer in connection herewith (the "Disclosure Schedule") and, except as set forth on Section 2.02 of the Disclosure Schedule, all of such shares of the Companies are duly authorized, issued and outstanding and are owned of record and beneficially by the Sellers. All of the shares comprising the Shares are validly issued, fully paid and non-assessable. There are outstanding no securities convertible into, exchangeable for, or carrying the right to acquire, equity securities of any Company, or subscriptions, warrants, options, calls, rights or other arrangements or commitments obligating any Company to issue or dispose of any of its equity securities or any ownership interest therein. (b) The Sellers have good and valid title to the Shares, free and clear of all liens, security interests, pledges, mortgages, rights of first refusal, options, proxies, voting trusts or other encumbrances ("Encumbrances"), except, as of the date of this Agreement, as set forth in Section 2.02 of the Disclosure Schedule. At the Closing, the sale and delivery of the Shares to Buyer pursuant to Article I hereof will vest in Buyer good and valid title to the Shares, free and clear of all Encumbrances (other than Encumbrances created or suffered by Buyer). 2.03. Subsidiaries. (a) Section 2.03 of the Disclosure Schedule sets forth a list, as of the date hereof, of all direct or indirect subsidiaries of the Companies (collectively, the "Subsidiaries" or, each individually, a "Subsidiary"). Except as set forth in Section 2.03 of the Disclosure Schedule, all of such shares of the Subsidiaries are duly authorized, have been duly issued and are fully paid and nonassessable, and the Companies own, either directly or indirectly, beneficially and of record, all of the capital stock of the Subsidiaries free and clear of any Encumbrances. Except as set forth in Section 2.03 of the Disclosure Schedule, there are outstanding no securities convertible into, exchangeable for, or carrying the right to acquire, equity securities of any Subsidiary, or subscriptions, warrants, options, rights or other arrangements or commitments obligating any Subsidiary to issue or dispose of any of its equity securities or any ownership interest therein. (b) Each of Sim-Tech Management, Simon-Tomen, Simon-Cella, and Simon Ireland is or will be at the Closing adequately capitalized under the laws of the jurisdiction in which such company is incorporated or organized and the laws of such jurisdiction do not and will not require any such company to be recapitalized as of the date hereof or as of the Closing Date or merely as a result of the passage of time. 2.04. Organization of the Companies and the Subsidiaries. Each Company and each Subsidiary is a corporation duly organized or incorporated, validly existing and, in such jurisdictions where such concept is relevant, in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite corporate power and authority to carry on its business as it is now being conducted. Each Company and each Subsidiary is duly qualified to do business and is in good standing as a foreign corporation in the jurisdictions listed on Section 2.04 of the Disclosure Schedule, which constitute all jurisdictions where the nature of the property owned or leased by it, or the nature of the business conducted by it, makes such qualification necessary and the absence of such qualification would not have a material adverse effect on the business, assets, financial condition or results of operations of the Companies and the Subsidiaries taken as a whole (a "Material Adverse Effect"). True and complete copies of the organizational documents and by-laws of each Company and each Subsidiary have previously been delivered or made available to Buyer. 2.05. Financial Statements; Undisclosed Liabilities. (a) Parent and the Sellers have delivered to Buyer (i) an unaudited combined balance sheet of Telelect and its Subsidiaries as of November 22, 1996 and the related statement of operations for the 11-month period then ended, (ii) an unaudited consolidated balance sheet of Simon Aerials and its Subsidiaries as of November 22, 1996 and the related statements of operations for the 11-month period then ended, (iii) an unaudited balance sheet of Simon Ireland as of November 22, 1996 and the related statement of operations for the 11-month period then ended, (iv) the unaudited balance sheet of Simon-Cella as of November 22, 1996 and the related statement of operations for the 11-month period then ended, (v) the unaudited balance sheet of Sim-Tech Management as of December 31, 1996 and the related statement of operations for the 12-month period then ended, and (vi) the unaudited balance sheet of Simon-Tomen as of December 31, 1996 and the related statement of operations for the 12-month period then ended (collectively, the "Interim Financial Statements"). Parent and the Sellers have also delivered to Buyer a combining balance sheet which combines the interim balance sheets for all Companies and Subsidiaries and eliminates all material transactions among the Companies and Subsidiaries (the "Interim Combining Balance Sheet"). (b) Parent and the Sellers have delivered to Buyer (i) the audited combined balance sheets of Telelect and its Subsidiaries as of December 31, 1995 and 1994, and the related combined statements of operations and retained deficit, and cash flows for the years then ended, including the footnotes thereto, (ii) the audited consolidated balance sheets of Simon Aerials and its Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations and accumulated deficit, and cash flows for the years then ended, including the footnotes thereto, (iii) the audited balance sheet of Simon Ireland as of December 31, 1995 and 1994 and the related statements of operations and retained deficit, and cash flows for the years then ended, including the footnotes thereto, and (iv) the audited balance sheet of Simon-Cella as of December 31, 1995 and 1994 and the related statements of operations and retained deficit, and cash flows for the years then ended, including the footnotes thereto (collectively, the "Audited Financial Statements"). (c) The financial books and records of each Company and each Subsidiary have been maintained consistent with the individual Company's standard accounting policies, practices and principles as set forth in Appendix A (the "Agreed Accounting Principles"). The Audited Financial Statements of Telelect and Simon Aerials contain such material adjustments to the books and records of Telelect and Simon Aerials as are necessary for such statements to have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP"). The Interim Financial Statements of Telelect and Simon Aerials have been prepared on a basis consistent with the Audited Financial Statements of such Companies, except that such Interim Financial Statements do not contain a statement of cash flows or footnotes. The Audited Financial Statements of Simon Ireland contain such material adjustments to the books and records of Simon Ireland as are necessary for such statements to have been prepared in accordance with generally accepted accounting principles in Ireland ("Irish GAAP"). The Interim Financial Statements of Simon Ireland have been prepared on a basis consistent with the Audited Financial Statements of such Company, except that the Interim Financial Statements do not contain a statement of cash flows or footnotes. The Audited Financial Statements of Simon-Cella contain such material adjustments to the books and records of Simon-Cella as are necessary for such statements to have been prepared in accordance with generally accepted accounting principles in Italy ("Italian GAAP"). The Interim Financial Statements of Simon-Cella have been prepared on a basis consistent with the Audited Financial Statements of such Company, except that the Interim Financial Statements do not contain a statement of cash flows or footnotes. On the basis of the foregoing, the Interim Financial Statements, the Interim Combining Balance Sheet and the Audited Financial Statements fairly present in all material respects the financial position and the results of operations of the specified Companies and Subsidiaries as of and for the periods indicated. (d) Except as disclosed, reflected or reserved against in the Interim Financial Statements, the Interim Combining Balance Sheet, the Audited Financial Statements and Sections 2.05, 2.06, 2.10, 2.12, 2.14, 2.16 and 2.23 of the Disclosure Schedule (other than any cross-references in such Sections to Section 2.08 of the Disclosure Schedule), the Companies and the Subsidiaries do not have any material liabilities, commitments or obligations (secured or unsecured and whether accrued, absolute, contingent or otherwise and whether due or to become due) of a nature required by US GAAP, in the case of Telelect and Simon Aerials, by Irish GAAP, in the case of Simon Ireland, or by Italian GAAP, in the case of Simon-Cella, to be reflected on a balance sheet or in notes thereto, other than any liabilities, commitments or obligations incurred after the date of the Interim Financial Statements in the ordinary course of business. 2.06. Absence of Certain Changes or Events. Except as set forth in Section 2.06 of the Disclosure Schedule or as permitted or contemplated by this Agreement, since the date of the Interim Financial Statements, the Companies and the Subsidiaries have not (a) suffered any damage, destruction or casualty loss to their physical properties in excess of $200,000; (b) incurred or discharged any obligation or liability or entered into any other transaction except in the ordinary course of business; (c) suffered any material adverse change in the business or financial condition of the Companies and the Subsidiaries taken as a whole; or (d) increased the rate or terms of compensation payable or to become payable by the Companies and the Subsidiaries to their directors, officers or key employees or increased the rate or terms of any bonus, pension or other employee benefit plan covering any of its directors, officers or key employees, except in each case increases occurring in the ordinary course of business in accordance with its customary practices (including normal periodic performance reviews and related compensation and benefit increases) or as required by any pre-existing Commitment (as defined in Section 2.08) identified in the Disclosure Schedule; (e) experienced any labor dispute or disturbance; (f) entered into any commitment or transaction (including, without limitation, any borrowing or capital expenditure) other than in the ordinary course of business; (g) consummated, or agreed to consummate, any sale, lease or other transfer or disposition of any properties or assets except for the sale of inventory items in the ordinary course of business and except for the sale of any tangible personal property that, in the reasonable judgment of the Companies, has become uneconomic, obsolete or worn out; (h) incurred, assumed or guaranteed any indebtedness for borrowed money; (i) granted any Encumbrance on any of its properties or assets; (j) entered into, amended or terminated any contract, or waived any material rights thereunder except in the ordinary course of business; (k) made any grant of credit to any customer or distributor on terms or in amounts materially more favorable than those that have been extended to such customer or distributor in the past; (l) amended the articles or certificates of incorporation or by-laws of any Company or any Subsidiary; (m) entered into any intercompany transactions except in the ordinary course of business consistent with past practice; or (n) entered into any agreement or commitment to do any of the foregoing. Buyer acknowledges that any termination of any distributorship agreements by any distributors who indicate that such termination results from the identity of Buyer as the purchaser of the Companies and the Subsidiaries shall not constitute a material adverse change in the business of the Companies and the Subsidiaries or a Material Adverse Effect, and that such loss in distributors will not constitute a breach of this Section 2.06. 2.07. Title to Assets. (a) The Companies and the Subsidiaries have good (and, in the case of real property, marketable) title to all of the assets and properties which they purport to own (including those reflected on the Interim Financial Statements, except for assets and properties sold, consumed or otherwise disposed of in the ordinary course of business since the date of the Interim Financial Statements) and which are material to the business or financial condition of the Companies, free and clear of all Encumbrances, except (i) as set forth in Section 2.07(a) of the Disclosure Schedule, (ii) liens for taxes not yet due and payable or due but not delinquent or being contested in good faith by appropriate proceedings and for which reserves have been provided in accordance with the individual Company's Agreed Accounting Principles, and (iii) mechanics', materialmans', and other inchoate liens occurring in the ordinary course of business. (b) All material property and assets owned or utilized by the Companies or the Subsidiaries are in good operating condition and repair (except for ordinary wear and tear), free from any defects (except such minor defects as do not interfere with the use thereof in the conduct of the normal operations), have been maintained consistent with the standards generally followed in the industry and are sufficient to carry on the business of the Companies and the Subsidiaries as presently conducted. All buildings, plants and other structures owned or otherwise utilized by the Companies or the Subsidiaries are in good condition and repair (except for ordinary wear and tear). (c) Section 2.07(c) of the Disclosure Schedule sets forth all real property owned, used or occupied by the Companies or any of their Subsidiaries as of the date hereof (the "Real Property"). No public improvements have been commenced and to the Sellers' knowledge none are planned which in either case may result in special assessments against or otherwise materially adversely affect any Real Property. The Sellers have no notice or knowledge of any (i) planned or proposed increase in assessed valuations of any Real Property, (ii) order requiring repair, alteration or correction of any existing condition affecting any Real Property or the systems or improvements thereat or (iii) condition or defect which could give rise to an order of the sort referred to in clause (ii) above. 2.08. Commitments. Section 2.08 of the Disclosure Schedule sets forth, as of the date hereof, a list of each of the following types of contracts or agreements, whether written or oral (including any and all amendments thereto), to which any Company or any Subsidiary is a party or by which any Company or any Subsidiary is bound (collectively, the "Commitments"): (i) leases of real property involving payments by any Company or any Subsidiary of aggregate consideration or other expenditure in excess of $100,000; (ii) leases of personal property involving payments by any Company or any Subsidiary of aggregate consideration or other expenditure in excess of $100,000; (iii) purchase commitments for inventory items or supplies that, together with amounts on hand, constitute in excess of six months normal usage; (iv) sales contracts, purchase orders or commitments to customers or distributors which aggregate in excess of $500,000 to any one customer or distributor; (v) agreement, understanding, contract or commitment (written or oral) with any affiliate or any employee, agent, consultant, distributor, dealer or franchisee other than those involving in the aggregate consideration or other expenditure of less than $150,000; (vi) any collective bargaining agreements with any unions, guilds, shop committees or other collective bargaining groups; (vii) loan agreement, promissory note, letter of credit or other evidence of indebtedness as a signatory, guarantor or otherwise; (viii) guarantee of the payment or performance of any person, firm or corporation, agreement to indemnify any person or act as a surety, or other agreement to be contingently or secondarily liable for the obligations of any person other than (x) the endorsement of checks in the ordinary course of business and (y) guarantees or agreements which in the aggregate do not exceed $50,000; (ix) contract with any governmental body; and (x) agreement requiring any Company or any Subsidiary to assign any interest in any trade secret or proprietary information, license agreement or agreement prohibiting or restricting any Company or any Subsidiary from competing in any business or geographical area or soliciting customers or otherwise restricting it from carrying on its business anywhere in the world. Neither any Company nor any Subsidiary is in material breach of or default under any of the Commitments, nor has any event or omission occurred on the part of any Company or any Subsidiary which through the passage of time or the giving of notice, or both, would constitute a material breach of or default thereunder or cause the acceleration of or give rise to the right to accelerate any Company's or any Subsidiary's obligations thereunder or result in the creation of any Encumbrance on any of the assets owned, used or occupied by such Company or such Subsidiary thereunder. To the knowledge of the Sellers, no third party is in material breach of or default under any Commitment, nor to the knowledge of the Sellers has any event or omission occurred which, through the passage of time or the giving of notice, or both, would constitute a material breach of or default thereunder or give rise to an automatic termination, or the right of discretionary termination, thereof. Except as set forth in Section 2.08 of the Disclosure Schedule, the execution, delivery and performance of this Agreement by Parent and each Seller will not conflict with, or result in the breach of, termination of, give rise to any lien or constitute a default under, or require the consent of any other party to, any Commitments to which Parent, a Seller, a Company, or a Subsidiary is a party or by which Parent, a Seller, a Company, or a Subsidiary or any of their assets is bound. Parent and the Sellers have delivered or made available to Buyer true and correct copies of each of the Commitments, each as amended to date. 2.09. Insurance. Section 2.09 of the Disclosure Schedule sets forth a complete and accurate list of all policies of fire, liability, product liability, workers compensation, health and other forms of insurance currently in effect with respect to the business and properties of the Companies and the Subsidiaries taken as a whole. All such insurance is in full force and effect, and no notice of cancellation or termination, or reduction of coverage or intention to cancel, terminate or reduce coverage, has been received with respect to any policy for such insurance. Except as set forth in Section 2.09 of the Disclosure Schedule, the insurance coverage provided by such policies or insurance will not terminate or lapse by reason of the transactions contemplated by this Agreement and, following the Closing, the Companies and the Subsidiaries will continue to be covered under such policies for events occurring prior to the Closing Date. Except as set forth in Section 2.09 of the Disclosure Schedule, no such policy provides for or is subject to any currently enforceable retroactive rate or premium adjustment, loss sharing arrangement or other actual or contingent liability arising wholly or partially out of events arising prior to the date hereof. Parent and the Sellers have delivered or made available to Buyer true and correct copies of all the insurance policies set forth in Section 2.09 of the Disclosure Schedule. 2.10. Litigation. Section 2.10 of the Disclosure Schedule sets forth a list of all lawsuits, actions or proceedings in any court or before any governmental authority ("Litigation") pending or, to the knowledge of the Sellers, threatened in writing against any Seller, the Companies and the Subsidiaries which (i) relate to the business, properties, assets, liabilities, employees, agents, consultants, distributors, dealers or franchisees of any Company or any Subsidiary and which are seeking damages of more than $200,000 or damages are unspecified, (ii) seek any injunctive relief, (iii) relate to this Agreement or the transactions contemplated hereby or (iv) litigation or dispute settled by any Seller, any Company, or any Subsidiary since January 1, 1992 under which any Seller, any Company or any Subsidiary continues to have ongoing obligations. Except as set forth in Section 2.10 of the Disclosure Schedule, the Companies or the Subsidiaries are not subject to any outstanding orders, rulings, judgments or decrees of any court or governmental authority. 2.11. Compliance with Law; Licenses, Permits. Except as set forth in Section 2.11 of the Disclosure Schedule, to the knowledge of the Sellers, the Companies and the Subsidiaries are in compliance in all material respects with all applicable laws, rules and regulations currently in effect. The Companies and the Subsidiaries have all material governmental permits, licenses and authorizations necessary for the conduct of their businesses as presently conducted. 2.12. Employee Benefit Plans. (a) Section 2.12 of the Disclosure Schedule lists all material Company Benefit Plans and Benefit Arrangements (as defined in Sections 9.01(c) and (d), respectively). True and complete copies thereof, and of all material agreements relating to their administration have been delivered or made available to Buyer; the terms of oral agreements have been accurately recorded in a writing delivered or made available to Buyer. (b) With respect to each of the Company Benefit Plans intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), except as set forth in Section 2.12 of the Disclosure Schedule, (i) a favorable determination letter has been issued by the Internal Revenue Service (the "IRS") with respect to the qualification of such Plan as of the date set forth on Section 2.12 of the Disclosure Schedule, and either the remedial amendment period under Section 401(b) of the Code and the regulations thereunder has not yet expired with respect to amendments to the Plan necessary to maintain the Plan's qualification under Section 401(a) of the Code or the Sellers and the Companies have taken timely action prior to the expiration of the remedial amendment period to maintain that qualification, (ii) there have been no prohibited transactions (within the meaning of Section 406 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code) for which no exemption exists under Section 408 of ERISA or Section 4975 of the Code and for which there is any material liability or civil penalty assessed pursuant to Section 502(i) of ERISA or material taxes imposed by Section 4975 of the Code, and (iii) none of the Company Benefit Plans (other than the Simon Aerials Limited Pension Life and Assurance Scheme and the Simon Aerials Executive Benefits Plan), is a "defined benefit plan" within the meaning of Section 3(35) of ERISA or is subject to the "minimum funding standards" of Section 412 of the Code or the provisions of Title IV of ERISA. For the avoidance of doubt, the Simon Ireland Pension and Life Assurance Scheme, the Simon Ireland Executive Benefits Plan or the Simon Ireland Disability Plan are not required to qualify under Section 401(a) of the Code. (c) Except as set forth in Section 2.12 of the Disclosure Schedule, the Companies' Benefit Plans and the Benefit Arrangements have been maintained in accordance in all material respects with their terms and all provisions of applicable law. (d) Neither the Companies nor the Subsidiaries have any obligation to contribute to a "multiemployer plan" as defined in Section 3(37) of ERISA with respect to any Employee (as defined in Section 9.01(b)). For the avoidance of doubt, the Simon Ireland Employee Benefit Plans are not subject to Section 3(37) of ERISA. (e) Except as set forth on Section 2.12 of the Disclosure Schedule, the Sellers, the Companies and the Subsidiaries have paid all amounts required, if any, under applicable law or any Company Benefit Plans and Benefit Arrangements or any agreement relating to a Company Benefit Plan or Benefit Arrangement to which it is a party, to be paid as contributions to or benefits under any Company Benefit Plan or Benefit Arrangement as of the date hereof (except for benefits payable on claims under Company Benefit Plans or Benefit Arrangements that are subject to review in the ordinary course of administration thereof). (f) The Sellers and the Companies have delivered or made available to Buyer or given Buyer access to true, correct and complete copies of (A) the latest plan documents, amendments thereto and Summary Plan Description and any modifications thereto for each Company Benefit Plan and Benefit Arrangement requiring same under ERISA; and (B) the most recent Form 5500 and/or Form 990 series filing (including required schedules and financial statements) for each Company Benefit Plan and Benefit Arrangement required to file such form. None of Sellers, the Companies and the Subsidiaries nor any officer, employee representative or agent thereof, has been authorized to make any written or oral representations or statements to any current or former employees, dependents, participants or beneficiaries or other persons which are inconsistent in any material manner with the provisions of these documents. (g) With respect to any of the Company Benefit Plans and Benefit Arrangements which are "group health plans" under Section 4980B of the Code and Section 607(l) of ERISA and related regulations (relating to the benefit continuation rights imposed by the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"), as amended), there has been timely compliance in all material respects with all requirements imposed by COBRA, as and when applicable to such plans, so that Sellers, the Companies and the Subsidiaries have no (or will not incur any) material loss, assessment, penalty, loss of federal income tax deduction or other sanction arising out of or in respect of any failure to comply with any COBRA benefit continuation requirement, which is capable of being assessed or asserted directly or indirectly against Sellers, the Companies and the Subsidiaries or other member of their corporate control group, with respect to any such plan. For the avoidance of doubt, the Simon Ireland Employee Benefit Plans are not required to be administered, and have not been administered, in accordance with COBRA. (h) Except for the Simon Retirement Plan (as defined below) and other defined benefit plans described in section 2.12(b)(iii) or as set forth in Section 2.12 of the Disclosure Schedule or as required by law, the Company Benefit Plans and Benefit Arrangements do not provide for any benefits to or on behalf of persons who have retired or may in the future retire from employment with the Business, or their dependents and beneficiaries. (i) No liabilities of the Companies or the Subsidiaries will result with respect to the Company Benefit Plans or Benefit Arrangements solely as a result of the transactions contemplated in this Agreement. 2.13. Consents. Except as set forth in Section 2.13 of the Disclosure Schedule, no consent, approval or authorization of, or exemption by, or filing with, any governmental authority (other than under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act")) or any third party is required to be obtained or made by any Seller in connection with the execution, delivery and performance by the Sellers of this Agreement or the taking by any Seller of any other action contemplated hereby. 2.14. Taxes. (a) Except as set forth in Section 2.14 of the Disclosure Schedule, (i) all federal, state, local and material foreign income and other material tax returns required to be filed with respect to the Companies and the Subsidiaries with respect to the jurisdictions set forth in Section 2.14(a)(i) of the Disclosure Schedule have been filed in a timely manner (taking into account all extensions of due dates) and all taxes shown as due thereon have been paid, (ii) there are no Encumbrances for unpaid taxes (other than taxes not yet due and payable) upon the assets of any of the Companies or the Subsidiaries, (iii) no claims or deficiencies for income or franchise taxes have been asserted or assessed in writing against any of the Companies or the Subsidiaries which remain unpaid, (iv) no waivers of statues of limitation are in effect in respect of federal income taxes of any of the Companies or the Subsidiaries, (v) each Company and Subsidiary has withheld and paid all taxes required to have been withheld and paid by it in connection with payments or distributions to its employees or other recipients and (vi) none of the Companies has, with respect to any assets or property held, acquired or to be acquired by it, filed a consent to the application of Section 341(f) of the Code, as in effect during the relevant period. (b) Section 2.14 of the Disclosure Schedule lists all federal, state, local and foreign income tax returns filed with respect to the Companies and the Subsidiaries for open taxable periods and indicates those returns that are currently the subject of an audit. 2.15. Fees. Except for the fees payable to Gleacher NatWest Inc. by Parent and the Sellers, neither the Parent, any Seller, any Company nor any Subsidiary has paid or become obligated to pay any fee or commission to any broker, finder or intermediary in connection with the transactions contemplated hereby. Buyer, the Companies and the Subsidiaries shall not have any liability for any fees or commission described in, or of the type described in, the preceding sentence in connection with transactions contemplated hereby. 2.16. Environmental Matters. (a) Except as disclosed in Section 2.16 of the Disclosure Schedule, to the knowledge of the Sellers, (i) the Real Property, whether owned or leased, whether used for manufacturing, sales or otherwise, are in compliance in all material respects with all applicable Environmental Laws (as hereinafter defined), (ii) each Seller, Company and Subsidiary has obtained, and is in compliance in all material respects with, all Environmental Permits (as hereinafter defined) required for the conduct of its business as of the date hereof under applicable Environmental Laws, (iii) there is no condition with respect to any of the Facilities which would reasonably be expected to subject the Buyer, the Companies or the Subsidiaries to fines, penalties or enforcement actions due to violations of Environmental Laws or Environmental Permits or which would reasonably be expected to result in any liability to Buyer under any requirements of Environmental Laws or Environmental Permits, (iv) there are no lawsuits, orders, consent decrees, administrative enforcement actions, environmental cleanup proceedings or notices of violation pending or, to the knowledge of the Sellers, threatened, with respect to compliance or in connection with Environmental Laws affecting the business of any Company or any Subsidiary, (v) none of the Real Property has been placed on or is proposed to be placed on the National Priorities List ("NPL"), the Comprehensive Environmental Response Compensation and Liability System ("CERCLIS") or state or foreign equivalents of such lists, including laws which establish registers of historically contaminated sites and (vi) none of the Real Property has above or underground storage tanks which are in violation of any Environmental Laws, nor has there been a Release of Hazardous Substances (each as hereinafter defined) from any such tanks which would reasonably be expected to result in any liability to Buyer. (b) Except as disclosed in Section 2.16 of the Disclosure Schedule, to the knowledge of the Sellers, there are no facts or circumstances that would prevent the execution, delivery and performance of this Agreement under any Environmental Laws or Environmental Permits. (c) The Sellers and Buyer agree that the only representations and warranties made herein with respect to any environmental, health or safety matters (including, without limitation, any arising under Environmental Laws) are those contained in this Section 2.16, and that no other representation or warranty contained in this Agreement shall apply to any such environmental, health or safety matters. (d) For purposes of this Agreement, the following definitions shall apply: (i) "Environmental Laws'" shall mean all applicable laws, foreign and domestic statutes, ordinances, rules, regulations, orders, and consent decrees, of any governmental authority, pertaining to health, protection of the environment, natural resources, wildlife, waste management, and regulation of activities involving Hazardous Substances, as that term is defined in this Agreement, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601, et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et seq., the Federal Water Pollution Control Act as amended by the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq.; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., the Toxic Substances Control Act ("TSCA"), 15 U.S.C. 2601 et seq., the Hazardous Materials Transportation Act ("HMTA"), 49 U.S.C. 5101 et seq., and the Occupational Safety and Health Act, 29 U.S.C., 651 et seq., and the regulations promulgated thereunder, in each case as amended as of the date hereof. (ii) "Hazardous Substances" shall mean solid or hazardous waste, toxic substance, hazardous chemical, pollutant, contaminant, radioactive substance, or other material of whatever kind that is regulated by Environmental Laws. (iii) "Release" shall mean any spilling, emitting, leaking, pumping, injecting, depositing, disposing, discharging, dispersing, leaching or migrating into the environment of any Hazardous Substance whether through the air, soil, surface water, groundwater or other medium. (iv) "Environmental Permit" shall mean any approval, license, order, permission, contract or similar authorization of, with or by any governmental authority required for the ownership and operation of any of the Facilities under Environmental Laws. (v) "Facilities" shall mean the properties and assets to be acquired, by Buyer pursuant to this Agreement, including, without limitation, properties owned by the Companies and the Subsidiaries, foreign and domestic real or personal property, whether owned, leased, or operated by Sellers, the Companies and the Subsidiaries, in each case as of the Closing Date. (vi) "Environmental Losses" shall mean any and all costs associated with any actions, claims, lawsuits, orders, consent decrees, enforcement actions, damages (excluding consequential damages), defenses, demands, disbursements, expenses, fines, judgments, liabilities, liens, obligations, penalties or proceedings, including reasonable attorneys' and consultants' fees in connection with any actions required under any Environmental Law, in each case as calculated net of insurance proceeds and indemnification and other third-party payments. In connection with any CERCLA proceedings or response actions, costs shall include reasonable fees for attorneys, consultants, engineers, contractors and experts, in connection with the investigation, cleanup or monitoring of any site, but only to the extent that such costs are consistent with the National Contingency Plan, 40 C.F.R. 300 et seq., as amended. In no event shall Environmental Losses include any costs or liabilities arising from, in respect of, incurred as a consequence of or in connection with the transport or disposal of Hazardous Substances, after the Closing Date, to or at any offsite location by or on behalf of the Buyer, the Companies or the Subsidiaries. 2.17. Labor Matters. Except as set forth in Section 2.17 of the Disclosure Schedule, since January 1, 1994, neither any Company nor any Subsidiary has experienced any work stoppage due to labor disagreements, any material labor dispute, or, to the knowledge of the Sellers, any union organization attempt in connection with its business. Except as set forth in Section 2.17 of the Disclosure Schedule, (a) there is no labor strike, written request for representation, slowdown or stoppage actually pending or, to the knowledge of the Sellers, threatened against any Company or any Subsidiary; and (b) there are no administrative charges or court complaints against any Company or any Subsidiary concerning alleged employment discrimination or other employment related matters pending or, to the knowledge of the Sellers, threatened before the U.S. Equal Employment Opportunity Commission or any government entity. Except as set forth on Section 2.17 of the Disclosure Schedule, there is not pending as of the date hereof any complaint against any Company or any Subsidiary issued by or pending before the National Labor Relations Board or any comparable foreign governmental body. 2.18. Affiliates' Relationships to the Companies. Except as set forth in the Interim Financial Statements, the Audited Financial Statements or Section 2.18 of the Disclosure Schedule, the Companies and the Subsidiaries do not have any outstanding contract, agreement or other arrangement with Parent or any Seller or any of their affiliates, which will continue after the Closing. 2.19. Patents and Trademarks. The Companies and the Subsidiaries have, or have valid, legal rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and rights (collectively, the "Intellectual Property Rights") which are necessary to their respective businesses. Section 2.19 of the Disclosure Schedule sets forth a list of all inventions which are the subject of issued letters patent or an application therefor and all trade and service marks which have been registered or for which an application for registration is pending, in each case which are owned and used or held for use exclusively by the Companies and the Subsidiaries (the "Patent Rights"), specifying as to each, as applicable: (i) the patent number or description of trade or service mark; (ii) the jurisdictions by or in which such Patent Right has been issued or registered or in which an application for such issuance or registration has been filed, including the respective registration or application numbers; and (iii) material licenses, sublicenses and other agreements to which any Company or any Subsidiary is a party and pursuant to which any person is authorized to use such Patent Right. Except as set forth on Section 2.19 of the Disclosure Schedule, neither the Companies nor the Subsidiaries (i) is a defendant in any claim, suit, action or proceeding relating to their respective businesses which involves a claim of infringement of any patents, trademarks or service marks, (ii) has any knowledge of any existing infringement by another person of any of the Patent Rights belonging to such Companies or such Subsidiaries or (iii) has received written notice of the infringement by any Company or any Subsidiary of any infringement of the patent, trademark, copyright or other intellectual property rights of a third party, except such existing infringements, or claims, suits, actions or proceedings the adverse determination of which would not alter in any material respect the manner in which any Company or any Subsidiary currently conducts its business or manufactures its products. Except as disclosed on Section 2.19 of the Disclosure Schedule, no Patent Right is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Companies or the Subsidiaries or restricting the licensing thereof by the Companies or the Subsidiaries to any person. 2.20 Conflicts of Interest. (a) To the knowledge of the Sellers, no officer or director of Parent, any Seller, any Company or any Subsidiary has or claims to have (i) any interest in the property, real or personal, tangible or intangible, including, without limitation, intangibles, licenses, inventions, technology, processes, designs, computer programs, know-how and formulae used in the business of any Company or any Subsidiary (ii) any contract, commitment, arrangement or understanding with any Seller, any Company or any Subsidiary, except (A) to the extent applicable, as a shareholder of Parent, any Seller, any Company or any Subsidiary, (B) as set forth in Sections 2.08(v) or 2.20 of the Disclosure Schedule or (C) for interests which employees may have in technology, processes, designs and know-how under applicable law except to the extent such interests may be modified by binding agreements existing as of the date of this Agreement. (b) Except as set forth on Section 2.20 of the Disclosure Schedule, to the knowledge of the Sellers, no officer or director of Parent, any Seller, any Company or any Subsidiary has any ownership or stock interest in any other enterprise, firm, corporation, trust or any other entity which is engaged in any line or lines of business which are the same as, or competitive with, the line or lines of business of any Company or any Subsidiary. For purposes of this representation, ownership of not more than 10% of the voting stock of any publicly held company whose stock is listed on any recognized securities exchange or traded over the counter shall be disregarded. 2.21. Accounts Receivable; Inventory. (a) All accounts receivable of each Company and each Subsidiary are bona fide accounts receivable and represent sales actually made in the ordinary course of business. There has not been any material adverse change in the collectability of accounts receivable of each Company and each Subsidiary since the date of the Interim Financial Statements. (b) Except as set forth in Section 2.21(b) of the Disclosure Schedule the inventory of the Companies and the Subsidiaries is of a quality usable in the ordinary course of business, and in amounts usable consistent with past practices, of the Companies and the Subsidiaries in all material respects, except for obsolete, damaged, defective or otherwise unsalable items as to which a provision, determined in a manner consistent with the US GAAP, Irish GAAP or Italian GAAP, as applicable, as amplified by the Agreed Accounting Principles, has been made on the books of the Companies and/or the Subsidiaries, as the case may be. The value of all inventory items, including finished goods, work-in-process and raw materials, has been recorded on the books of the Companies and the Subsidiaries in the manner set forth in the US GAAP, Irish GAAP or Italian GAAP, as applicable, as amplified by the Agreed Accounting Principles. 2.22. Misleading Statements. To the knowledge of the Sellers, no representation or warranty by Parent, any Seller or any Company contained in this Agreement, and no statement contained in the Disclosure Schedule (including any supplement or amendment thereto) contains any untrue statement of a material fact. 2.23. Products Liability. (a) The Sellers and Parent are not aware of any facts that indicate that the reserves for product liability claims of the Companies and the Subsidiaries in the aggregate reflected in the Audited Financial Statements or the Interim Financial Statements are understated based upon the Companies' and the Subsidiaries' historical method of establishing such reserves. (b) To the knowledge of the Sellers, Section 2.23 of the Disclosure Schedule contains, in all material respects, a list, as of February 11, 1997, of all the Companies or the Subsidiaries pending and threatened product liability litigation and written product liability claims, except for immaterial claims as to which such parties maintain no records. 2.24. Disclaimer. EXCEPT AS SET FORTH IN THIS ARTICLE II, THE SELLERS MAKE NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED (INCLUDING THOSE REFERRED TO IN SECTION 2-312 OF THE NEW YORK STATE UNIFORM COMMERCIAL CODE OR IN ANY STATUTE APPLICABLE TO REAL PROPERTY). ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to the Parent and the Sellers as of the date hereof and as of the Closing Date, except as to any representation and warranty that indicates it is being made as of a specified date, as follows: 3.01. Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has all requisite corporate power and authority to carry on its business as it is now being conducted, and to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. 3.02. Corporate Power and Authority; Effect of Agreement. The execution, delivery and performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Buyer. This Agreement has been duly and validly executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms. The execution, delivery and performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, rule or regulation to which Buyer is subject, (ii) violate any order, judgment or decree applicable to Buyer or (iii) violate any provision of the Certificate of Incorporation or the By-laws of Buyer; except, in each case, for violations which in the aggregate would not materially hinder or impair the consummation of the transactions contemplated hereby. 3.03. Consents. Except under the HSR Act, no consent, approval or authorization of, or exemption by, or filing with, any governmental authority or any third party is required to be obtained or made by Buyer in connection with the execution, delivery and performance by Buyer of this Agreement, or the taking by Buyer of any other action contemplated hereby. 3.04. Availability of Funds. Buyer has available and will have available on the Closing Date sufficient funds to enable it to consummate the transactions contemplated by this Agreement. 3.05. Litigation. There is no Litigation pending or, to Buyer's knowledge, threatened (i) against Buyer or any of its affiliates with respect to which there is a reasonable likelihood of a determination which would have a material adverse effect on the ability of Buyer to perform its obligations under this Agreement, or (ii) which seeks to enjoin or obtain damages in respect of the consummation of the transactions contemplated hereby. Neither Buyer nor any of its affiliates is subject to any outstanding orders, rulings, judgments or decrees which would have a material adverse effect on the ability of Buyer to perform its obligations under this Agreement. 3.06. Purchase for Investment. Buyer is purchasing the Shares for investment and not with a view to any public resale or other distribution thereof and has no present intention or plan of distributing or selling to others any such interest or granting any participation therein. Buyer acknowledges that (i) the Shares have not been registered under the Securities Act or under any state or foreign securities laws and (ii) it has received, or has had access to, all information which it considers necessary or advisable to enable it to make a decision concerning its purchase of the Shares. 3.07. Disclaimer. EXCEPT AS SET FORTH IN THIS ARTICLE III, BUYER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED (INCLUDING THOSE REFERRED TO IN SECTION 2-312 OF THE NEW YORK STATE UNIFORM COMMERCIAL CODE OR IN ANY STATUTE APPLICABLE TO REAL PROPERTY). ARTICLE IV COVENANTS OF THE SELLERS AND PARENT The Sellers and Parent, jointly and severally, hereby covenant and agree with Buyer as follows: 4.01. Cooperation by the Sellers. From the date hereof and prior to the Closing, the Sellers and Parent will use their reasonable efforts, and will cooperate with Buyer, to: (i) secure all necessary consents, approvals, authorizations, exemptions and waivers from, and make or cause to be made all necessary filings with, third parties (including pursuant to the HSR Act) as shall be required in order to enable the Sellers and Parent to effect the transactions contemplated hereby; (ii) defend any lawsuits or other legal proceedings (whether judicial or administrative) challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other governmental authority vacated or reversed; (iii) fulfill or obtain the fulfillment of all other conditions to Closing; and (iv) otherwise cause the consummation of such transactions in accordance with the terms and conditions hereof. 4.02. Conduct of Business. (a) Except as may be otherwise expressly contemplated by this Agreement or required by any of the documents listed in the Disclosure Schedule or except as Buyer may otherwise consent to in writing (which consent shall not be unreasonably withheld), from the date hereof and prior to the Closing, Parent and the Sellers will cause the Companies and the Subsidiaries to (i) operate their businesses only in the ordinary course consistent with past practice; (ii) use their reasonable efforts to preserve intact their business organizations; (iii) use their reasonable efforts to maintain their properties, machinery and equipment in sufficient operating condition and repair to enable them to operate their businesses in all material respects in the manner in which the businesses are currently operated, except for substantial maintenance required by reason of fire, flood, earthquake or other acts of God; (iv) use their reasonable efforts to continue all material existing insurance policies (or comparable insurance) of or relating to the Companies and the Subsidiaries in full force and effect; (v) use their reasonable efforts to keep available until the Closing the services of their present officers, employees and agents (as a group); (vi) subject to Section 2.06, use their reasonable efforts to preserve their relationship with their material suppliers, customers, licensors and licensees and others having material business dealings with the Companies such that their businesses will not be materially impaired; (vii) not amend the organizational documents or by-laws of any Company or any Subsidiary, except as required by law; (viii) not sell, assign, voluntarily encumber, grant a security interest in or license with respect to, or dispose of, any of their respective assets or properties, tangible or intangible, having a fair market value of at least $50,000 individually or $200,000 in the aggregate, or incur any material liabilities (including, without limitation, liabilities with respect to capital leases or guarantees thereof not exceeding $200,000 in the aggregate), except for sales and dispositions made or liabilities incurred, including the creation of purchase money security interests, in the ordinary course of business; (ix) not declare, set aside or pay any dividends or other distributions in respect of its capital stock or redeem, purchase or otherwise acquire any of its capital stock, provided, however, the foregoing shall not be deemed to prohibit the cash management practices, including the payment of intercompany account balances, of the Sellers, the Companies and the Subsidiaries conducted in accordance with past practices in the ordinary course of business, including, for the avoidance of doubt, the offset of cash book balances in the Disbursement Accounts (as defined in Section 6.05(a)) carried on the books and records of the Companies and Subsidiaries against the intercompany loan account with that Company or Subsidiary and (x) not discount or factor receivables at levels in excess of historical levels or auction or sell assets below cost other than in the ordinary course of business consistent with past practice. 4.03. Access. From the date hereof and prior to the Closing, Parent and the Sellers shall provide Buyer with such information as Buyer may from time to time reasonably request with respect to the Companies and the Subsidiaries and shall provide Buyer and its representatives reasonable access during regular business hours and upon reasonable notice to the management, properties, books and records of the Companies and the Subsidiaries as Buyer may from time to time reasonably request; provided that Parent and Sellers shall not be obligated to provide Buyer with any information relating to trade secrets or which would violate any law, rule or regulation or term of any Commitment. If the provision of such access would adversely affect the ability of the Sellers or any of their affiliates (including the Companies and the Subsidiaries) to assert attorney-client, attorney work product or other similar privilege, Parent and the Sellers will cooperate in good faith with Buyer to provide Buyer with as much access as possible without adversely affecting the attorney-client, attorney work product or other similar privilege and will provide Buyer with access to the attorneys handling such matter for the Companies and the Subsidiaries who will be instructed by Parent and the Sellers to cooperate fully with Buyer. Any disclosure whatsoever during such investigation by Buyer shall not constitute an enlargement of or additional representations or warranties of Parent and the Sellers beyond those specifically set forth in this Agreement. All such information and access, any information included in the Disclosure Schedule and any information and access relating to the Parent provided to Buyer, shall be subject to the terms and conditions of the letter agreement dated October 11, 1996 (the "Confidentiality Agreement"). 4.04. Further Assurances. At any time or from time to time after the Closing, Parent and the Sellers shall, at the request of Buyer and at Buyer's expense, (i) execute and deliver any further instruments or documents and take all such further action as Buyer may reasonably request in order to effectuate the consummation of the transactions contemplated hereby and (ii) cooperate with Buyer in order to afford Buyer the benefit of all insurance policies covering the Companies and the Subsidiaries for periods prior to the Closing Date. 4.05. Covenant Not to Compete. (a) For a period of eight years from and after the Closing Date, Parent and the Sellers will not, and will cause their subsidiaries and affiliates, not to, (i) directly or indirectly, engage in any business, activity or operation competitive with the current business of the Companies and the Subsidiaries, (ii) manufacture, market or sell anywhere in the world any products currently being manufactured, marketed or sold by the Companies or the Subsidiaries or any product presently under development by the Companies or the Subsidiaries (together with (i), the "Restricted Business") or (iii) directly or indirectly, induce, solicit, aid or assist any other person to induce or solicit, employees, salespersons, agents, consultants, distributors, representatives, advisors, customers or suppliers of such business to terminate, curtail or otherwise limit their employment or business relationships with the business of the Companies or the Subsidiaries; provided, however, that the restriction set forth in this sentence shall not apply to and the definition of Restricted Business shall not include (x) the ownership by Parent and the Sellers of up to 8% of the outstanding equity interests of any publicly traded company; provided that Parent and the Sellers (A) do not actively participate in the operation or management of such publicly traded company and (B) shall not (1) transfer to such company any proprietary information exclusive to the Restricted Business of the Companies and the Subsidiaries or (2) transfer to such company the right to operate under the name "Simon", or (y) the business and operations of Simon Ladder Towers, Inc., a Pennsylvania corporation ("Simon LTI"), Simon Duplex, Inc., an Ohio corporation ("Simon Duplex"), or Simon (UK) 1995 Limited, a corporation incorporated under the laws of England and operating through Simon Access (UK) Limited ("Simon UK"), as conducted as of the Closing Date. A general description of the businesses conducted by Simon LTI, Simon Duplex and Simon (UK) are set forth in Section 4.05(a) of the Disclosure Schedule. (b) Notwithstanding the foregoing, Parent and/or the Sellers shall be permitted to acquire, and thereafter to own and operate, any business that includes the Restricted Business, provided, in each such case, that for the last full fiscal year and any partial fiscal year of such acquired business preceding such acquisition, and at all times during Parent's or any Seller's ownership thereof, such acquired business derives not more than 10% of its revenues from the Restricted Business; provided, further, however, that Parent and the Sellers shall not (i) transfer to such acquired Restricted Business any proprietary information exclusive to the Restricted Business of the Companies and the Subsidiaries or (ii) operate the acquired Restricted Business with or under the Name "Simon". (c) The provisions of this Section 4.05 shall not bind or apply to any subsidiary of Parent or any Seller that is sold to any person other than an affiliate of Parent or any Seller, nor shall they bind or apply to any non-affiliate acquiror of any such subsidiary or of any assets of Parent and/or any Seller or of any of their subsidiaries; provided, however, that Parent and the Sellers shall not (i) transfer to such non-affiliate acquirer any proprietary information exclusive to the Restricted Business of the Companies and the Subsidiaries or (ii) permit such non-affiliate acquirer to operate the Restricted Business of the acquired subsidiary, other than in the case of Simon LTI, Simon Duplex and Simon (UK) with respect to their businesses as conducted on the Closing Date, with or under the Name "Simon." 4.06. Stockholders' Meetings. Parent shall call, give notice of and convene and hold a meeting of its stockholders to be held as promptly as practicable after receipt of approval or termination of the waiting period under the HSR Act for the purpose of voting upon this Agreement and the transactions contemplated hereby. Parent will, through its Boards of Directors, recommend to its stockholders approval of this Agreement and the transactions contemplated hereby and will use all reasonable efforts to solicit from its stockholders proxies in favor of this Agreement and the transactions contemplated hereby, subject to the determination by the Board of Directors of Parent, taking into account the written advice of its counsel, that recommending approval of such matters would not be inconsistent with the fiduciary obligations of the Board of Directors; provided, however, that if the Board of Directors of Parent does not recommend, or withdraws its recommendation of, approval of this Agreement and the transactions contemplated hereby to the stockholders of Parent other than as a result of a breach by Buyer of any of its obligations hereunder, and Parent's stockholders do not approve the Agreement and the transactions contemplated hereby, Buyer shall be entitled to reimbursement from Parent and the Sellers of Buyer's reasonable out-of-pocket costs and expenses, including, without limitation, attorney's fees and disbursements, accountant's fees and disbursements, financing commitment fees and expenses and out-of-pocket costs and expenses incurred by it in connection with this Agreement and the transactions contemplated hereby, including, without limitation, any financing by Buyer related thereto. 4.07. No Solicitation. (a) Parent and the Sellers shall not, nor shall they permit any of their subsidiaries, including, without limitation, the Companies and the Subsidiaries, to, and shall not authorize or permit any officer, director or employee of, or any investment banker, attorney or other advisor or representative of, Parent or the Sellers or any of their subsidiaries to, (i) solicit, initiate, or encourage the submission of any proposal to acquire all or any of the Shares or a material portion of the assets of any Company or Subsidiary (an "Acquisition Proposal") or (ii) participate, directly or indirectly, in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal; provided, however, that prior to the Closing, to the extent required by the fiduciary obligations of the Board of Directors, determined taking into account the written advice of its counsel, Parent or any Seller may, in response to an unsolicited, bona fide written Acquisition Proposal, participate in discussions or negotiations with, or furnish information with respect to the Companies and the Subsidiaries pursuant to a customary confidentiality agreement (as determined by Parent's counsel and reasonably acceptable to Buyer) to, any person. Parent and the Seller shall (i) promptly inform Buyer of their receipt of any written Acquisition Proposal and the identity of the person making such proposal, (ii) provide Buyer with a copy of such Acquisition Proposal, unless, based on the written advice of its counsel, the Board determines it would be a breach of its fiduciary obligations to provide a copy thereof to Buyer, and (iii) keep Buyer fully informed of the status of any such Acquisition Proposal. ARTICLE V COVENANTS OF BUYER Buyer hereby covenants and agrees with Parent and the Sellers as follows: 5.01. Cooperation by Buyer. From the date hereof and prior to the Closing, Buyer will use its reasonable efforts, and will cooperate with Parent and the Sellers, to: (i) secure all necessary consents, approvals, authorizations, exemptions and waivers from, and make or cause to be made all necessary filings with, third parties (including pursuant to the HSR Act) as shall be required in order to enable Buyer to effect the transactions contemplated hereby; (ii) defend any lawsuits or other legal proceedings (whether judicial or administrative) challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other governmental authority vacated or reversed; (iii) fulfill or obtain the fulfillment of all other conditions to Closing; and (iv) otherwise cause the consummation of such transactions in accordance with the terms and conditions hereof. 5.02. Books and Records; Personnel. For a period of seven years from the Closing Date: (a) Buyer shall not, and shall cause the Companies and the Subsidiaries not to, dispose of or destroy any of the books and records of the Companies or the Subsidiaries relating to periods prior to the Closing ("Books and Records") without first offering to turn over possession thereof to Parent and the Sellers by written notice to Parent and the Sellers at least 30 days prior to the proposed date of such disposition or destruction. (b) Buyer shall, and shall cause the Companies and the Subsidiaries to, allow Parent and the Sellers and their agents access to all Books and Records during normal working hours at Buyer's principal place of business or at any location where any Books and Records are stored, and Parent and the Sellers shall have the right, at their own expense, to make copies of any Books and Records; provided, however, that any such access or copying shall be had or done in such a manner so as not to interfere with the normal conduct of business of Buyer, any Company or any Subsidiary. (c) Buyer shall, and shall cause the Companies and the Subsidiaries to, make available to Parent and the Sellers upon reasonable written request (i) copies of any Books and Records, (ii) personnel of Buyer, any Company or any Subsidiary to assist Parent and the Sellers in locating and obtaining any Books and Records at such times as Buyer shall reasonably determine, and (iii) any personnel of Buyer, any Company or any Subsidiary whose assistance or participation is reasonably required by Parent and the Sellers or any of their affiliates in anticipation of, or preparation for, existing or future Litigation or other such matters in which Parent and the Sellers or any of their affiliates are involved at such times as Buyer shall reasonably determine. Parent and the Sellers shall reimburse Buyer or the Companies for the reasonable out-of-pocket expenses incurred by any of them in performing the covenants contained in this Section 5.02(c). (d) The foregoing provisions of this Section 5.02 shall be in addition to the obligations of Buyer under Sections 6.01(g) and 11.02(c)(ii). 5.03. Further Assurances. At any time or from time to time after the Closing, Buyer shall, at the request of Parent and the Sellers and at the Parent's and Sellers' expense, execute and deliver any further instruments or documents and take all such further action as Parent and the Sellers may reasonably request in order to effectuate the consummation of the transactions contemplated hereby. 5.04. Release of Guaranties. Buyer shall use reasonable efforts to have Parent and the Sellers released from any liability under obligations of Parent or any Seller in favor of any Company or any Subsidiary or the guarantees by or from Parent or any Seller of the obligations of any Company or any Subsidiary (collectively, the "Existing Guaranties") and to have the Existing Guaranties terminated as promptly as practicable following the Closing, but in no event later than 90 days after the Closing Date. Buyer agrees to indemnify, defend and hold harmless Parent and the Sellers from any loss, including as a result of any payments made by Parent or any Seller under the Existing Guaranties that may be suffered or incurred by Parent or any Seller pursuant to the Existing Guaranties following the Closing. Section 5.04 of the Disclosure Schedule sets forth a list of the Existing Guarantees. ARTICLE VI ADDITIONAL COVENANTS 6.01. Taxes. (a) Returns. (1) Consolidated Returns. Buyer shall cause each Company and each Subsidiary to consent to join, for all taxable periods of the Companies and the Subsidiaries ending on or before the Closing Date for which each of the Companies and the Subsidiaries are eligible to do so, in any consolidated, combined or unitary federal, state, local and foreign income and franchise tax returns which Parent or Seller shall request them to join. Parent and the Sellers shall cause to be prepared and filed all such consolidated, combined or unitary returns. Buyer agrees to cooperate with Parent and the Sellers and their affiliates in the preparation of the portions of such returns pertaining to the Companies and the Subsidiaries, and hereby agrees to take no position inconsistent with the Companies and the Subsidiaries being members of such groups. Parent and the Sellers shall cause to be timely paid all taxes to which such returns relate for all periods covered by such returns. (2) Other Pre-Closing Returns. Parent and the Sellers shall cause to be prepared and Buyer shall cause to be timely filed all required state, local and foreign income and franchise tax returns of the Companies and the Subsidiaries (other than those to be filed by Parent and the Sellers pursuant to Section 6.01(a)(1)) for any period which ends on or before the Closing Date, for which returns have not been filed as of such date. Buyer and its affiliates, including the Companies and the Subsidiaries after the Closing Date, shall cooperate with Parent and the Sellers and their affiliates in the preparation of such returns. Parent and the Sellers shall provide such returns to Buyer not less than five days before the due date (including extensions) for filing such returns. (3) Straddle Returns. Buyer shall cause to be prepared and timely filed all required state and local income and franchise tax returns and foreign income tax returns of each of the Companies and the Subsidiaries for taxable periods beginning before and ending after the Closing Date ("Straddle Returns"). At least 15 days prior to the filing of any Straddle Returns required to be caused to be filed by Buyer pursuant to the preceding sentence, Buyer shall submit for its approval copies of such returns to Parent and the Seller (directly or indirectly) of the Company or the Subsidiary to which such Straddle Return relates, which approval shall not be unreasonably withheld. In the event of a dispute with respect to any Straddle Returns, Buyer shall determine the final form of such returns without prejudice to Parent's and such Seller's right to dispute the amount of "Pre-Closing Taxes" (as defined in Section 6.01(b)). All such returns shall be made, to the extent permitted by law, in a manner consistent with prior practice with respect to each of the Companies and the Subsidiaries. (b) Payments. Buyer shall timely cause to be paid all taxes with respect to the returns to be caused to be filed by Buyer pursuant to Section 6.01(a)(2) and Section 6.01(a)(3). Such taxes to be caused to be paid by Buyer, to the extent attributable to any period or portion of a period ending on or before the Closing Date, shall be referred to herein as "Pre- Closing Taxes". Parent and the Seller (directly or indirectly) of the Company or the Subsidiary to which such return relates shall pay to Buyer an amount equal to the Pre-Closing Taxes due with respect to any such returns caused to be filed by Buyer (after taking into account any estimated taxes previously paid and net of any tax benefits to Buyer or any of its affiliates, including each of the Companies and the Subsidiaries) in excess of the amount reflected as a liability for income and franchise taxes on the relevant Closing Date Balance Sheet. Where the Pre- Closing Taxes involve a period which begins before and ends after the Closing Date (a "Straddle Period"), such Pre-Closing Taxes shall be calculated as though the taxable year of each Company and each Subsidiary terminated at the close of business on the Closing Date; provided, however, that, in the case of a franchise tax not based on income, receipts, proceeds, profits or similar items, Pre-Closing Taxes shall be equal to the amount of franchise tax for the taxable year, multiplied by a fraction, the numerator of which shall be the number of days from the beginning of the taxable year through the Closing Date and the denominator of which shall be the number of days in the taxable year. Subject to Parent's and a Seller's right to dispute the amounts of any Pre-Closing Taxes, any amounts owed by Parent and a Seller to Buyer pursuant to this paragraph (b) shall be paid by such Seller within the later of ten days of Buyer's request therefor or ten days prior to the date on which Buyer is required to cause to be paid the related tax liability. Parent and the Sellers, on the one hand, and Buyer, on the other hand, shall seek in good faith to resolve any dispute with respect to the amount of Pre-Closing Taxes. If Parent and the Sellers and Buyer are unable to resolve any such dispute, the amount of Pre-Closing Taxes shall be determined by the Arbitrator, selected in the manner provided in Section 1.03(b)(iii) hereof, whose decision shall, in the absence of manifest error, be binding on the parties hereto. The party in any arbitration whose position is closest to the final decision of the Arbitrator (based on the final positions of the parties submitted to the Arbitrator) shall be entitled to an award of the cost of such arbitration (including the fees of an arbitrator); provided, however, that if the Arbitrator finds the circumstances so warrant, he may divide the cost of such arbitration (including the fees of the Arbitrator) between the parties thereto in a manner he sees fit . (c) Refunds. Any refunds or credits of federal, state, local or foreign income and franchise taxes (including any interest thereon) received by or credited to any Company or any Subsidiary attributable to periods ending on or prior to the Closing Date or to Straddle Periods (in the case of Straddle Periods, which were not borne by Buyer) (collectively, "Sellers' Refunds"), other than any such refunds or credits reflected on the Closing Date Balance Sheet, shall be for the benefit of Parent and the Sellers, and Buyer shall use its reasonable efforts to obtain any Sellers' Refunds and shall cause the Companies and the Subsidiaries to pay over to Parent and the Sellers any Sellers' Refunds, net of any tax costs to Buyer or any of its affiliates, including each of the Companies and the Subsidiaries, immediately upon receipt thereof. In addition, if the Pre-Closing Taxes with respect to a Straddle Period of any Company or any Subsidiary are less than the payments previously made by or credited to such Company or Subsidiary with respect to such Straddle Period, Buyer shall cause such Company or Subsidiary to pay to Parent and the Sellers the excess of such previous payments over such Pre-Closing Taxes immediately upon such Company or Subsidiary receiving the benefit of such excess payments through a reduction in any tax payment required to be made by such Company or Subsidiary after the Closing. (d) Parent's and Sellers' Indemnification of Buyer. Subject to Section 6.01(e), if the Closing shall occur, and subject to Buyer fulfilling its obligations under Section 6.01(f), Parent and the Sellers will indemnify and hold harmless Buyer and each of the Companies and the Subsidiaries against any and all liability (including, without limitation, interest, additions to tax and penalties, but net of any tax benefits to Buyer or any of its affiliates, including any Company or any Subsidiary) for (i) federal, state, local and foreign income and franchise taxes and all wage, income, foreign and other withholding taxes assessed against any Company or any Subsidiary with respect to all taxable periods of any of the Companies or the Subsidiaries ending on or prior to the Closing Date, (ii) Pre-Closing Taxes that relate to a Straddle Period, and (iii) federal, state, local and foreign income and franchise taxes of any member (other than any Company or any Subsidiary) of any affiliated group of which a Seller is a member assessed against any Company or any Subsidiary for any taxable period ending on or prior to the Closing Date by reason of any Company or any Subsidiary being severally liable for the entire tax of such affiliated group pursuant to treasury regulations 1.1502-6 or any analogous state or local tax provision to the extent the aggregate amount of any tax described in clauses (i), (ii) and (iii) exceeds the amount reserved or accrued for income and franchise taxes on the relevant Closing Date Balance Sheet. (e) Buyer's Indemnification of Parent and the Sellers. It is understood by the parties hereto that Parent and the Sellers shall not indemnify Buyer or any of its affiliates and instead that Buyer shall, if the Closing shall occur, pay, or cause to be paid, and Buyer, the Companies and the Subsidiaries shall jointly and severally indemnify Parent and the Sellers and their affiliates against and hold them harmless from any liability for taxes, additions to tax, interest, penalties or other tax detriment (which, if Section 338(h)(10) Elections are not made with respect to a Company and its Subsidiaries as described below, shall include, but not be limited to, the utilization of any net operating loss or capital loss or the utilization of any tax credits or other tax attributes by such Company and its Subsidiaries) arising from (i) any action by Buyer or any affiliate of Buyer (including any Company and any Subsidiary) on the Closing Date, including without limitation, any sale or other disposition of assets by any Company or any Subsidiary on the Closing Date ("Buyer's Taxes"), (ii) if Section 338(h)(10) Elections are not made with respect to a Company and its Subsidiaries as described below, (a) any election or deemed election under Section 338(g) of the Code with respect to such Company and its Subsidiaries and (b) all other tax liabilities of such Company and its Subsidiaries in connection with the operations of such Company and its Subsidiaries on the Closing Date and (iii) failure of Simon Ireland to make timely payments of PAYE/PRSI taxes for taxable periods beginning on or after the Closing Date. (f) Audits. Buyer shall promptly notify Parent and the Sellers in writing upon receipt by Buyer or any affiliate of Buyer (including any Company or any Subsidiary after the Closing Date) of notice of any pending or threatened federal, state, local or foreign tax audits or assessments which may affect the tax liabilities of the Companies or the Subsidiaries and for which Parent and the Sellers would be liable under Section 6.01(d). Parent and the Sellers shall have the sole right to represent the interests of each Company and each Subsidiary in any federal, state, local or foreign tax matter, including any audit or administrative or judicial proceeding or the filing of any amended return, which involves a refund to which Parent and the Sellers would be entitled under Section 6.01(c) or a tax liability or potential tax liability for which Parent and the Sellers would be liable under Section 6.01(d) (a "Tax Matter"), and to employ counsel of their choice at their expense. With respect to any Company or Subsidiary for which a Section 338(h)(10) election is not made, Parent and the Sellers shall not, without the prior written consent of Buyer (which consent shall not be unreasonably withheld), settle any Tax Matter or take any other action in connection with a Tax Matter that would adversely affect such Company or Subsidiary. Buyer agrees that it will cooperate fully with Parent and the Sellers and their counsel in the defense or compromise of any Tax Matter. In no case shall Buyer or any Company or any Subsidiary settle or otherwise compromise any Tax Matter without the prior written consent of Parent and the Sellers. (g) Cooperation. After the Closing Date, Buyer, Parent and each Seller shall make available to the other, as reasonably requested, all information, records or documents relating to tax liabilities or potential tax liabilities of each of the Companies and the Subsidiaries for all periods prior to or including the Closing Date and shall preserve all such information, records and documents until the expiration of any applicable statute of limitations or extensions thereof. Buyer shall prepare and provide to Parent and a Seller such federal, state, local and foreign tax information packages as Parent and such Seller shall request for the use of Parent and such Seller in preparing any tax return that relates to any Company or any Subsidiary. Such tax information packages shall be completed by Buyer and provided to Parent and a Seller within 45 days after a request of Parent and such Seller therefor. Notwithstanding any other provisions hereof, each party shall bear its own expenses in complying with the foregoing provisions. (h) Section 338 Elections and Forms. (1) If Buyer requests within 90 days following the Closing, Parent and a Seller shall join with Buyer in making elections under Section 338(h)(10) of the Code, and the regulations promulgated thereunder, and any applicable analogous provision of state or local law, with respect to the sale and acquisition of the stock of any one or more of the Companies and their Subsidiaries hereunder (the "Section 338(h)(10) Elections"). (2) In the case of any Section 338(h)(10) Elections that are made in accordance with Section 6.01(h)(1) hereof, (a) Buyer shall be responsible for the preparation and timely filing of all returns (other than income and franchise tax returns the responsibility for the preparation and filing of which is governed by Section 6.01(a)), documents, statements and other forms required to be filed with any federal, state or local taxing authority in connection with the Section 338(h)(10) Elections (the "Section 338 Forms"); provided, however, that Parent and the relevant Seller shall be solely responsible for calculating the gain or loss resulting from making the Section 338(h)(10) Elections; (b) Parent and the relevant Seller shall cooperate with Buyer to enable Buyer to prepare and file all Section 338 Forms and shall execute and deliver to Buyer such documents or forms as are required by the Code or the regulations promulgated thereunder (and any applicable analogous provision of state or local law) to properly complete the Section 338 Forms, provided that such material is completed and delivered by Buyer to Parent and such Seller for execution at least 60 days prior to the date Buyer wishes to file such material; and, (c) The Purchase Price, liabilities of the relevant Company and its Subsidiaries, and other relevant items, shall be allocated in accordance with the rules of Section 338 of the Code and the regulations promulgated thereunder. Such allocation shall be set forth on a schedule which shall be prepared jointly by Buyer, Parent, and the relevant Seller within 120 days following the Closing Date. All allocations contained in such schedule shall be used by each party and their affiliates in preparing the Section 338 Forms and all relevant income and franchise tax returns. (d) Tax Sharing. Other than pursuant to this Section 6.01, as of the Closing Date, none of the Companies or the Subsidiaries shall have any further rights or obligations under any tax-sharing agreement amongst any of them and Parent, any Seller and/or any of their affiliates. 6.02. Corporate Name. (a) Buyer acknowledges that Parent and the Sellers have the absolute and exclusive proprietary right to all names, marks, trade names, trademarks, service names and service marks (collectively, "Names") incorporating "Simon" or any similar Name and to all corporate symbols or logos (collectively, "Logos") incorporating "Simon" or any similar Name, all right of Parent, the Sellers and their respective affiliates to which and the goodwill represented thereby and pertaining thereto are being retained by Parent and the Sellers. Buyer agrees that it will not, and will cause the Companies and the Subsidiaries not to, use the Name "Simon" or any similar Name or any Logo incorporating such Name or any similar Name in any manner including in connection with the sale of any products or services or otherwise in the conduct of its business, except as expressly permitted by paragraph (b) of this Section 6.02. Within five business days following the Closing, Buyer shall cause the Companies and the Subsidiaries to amend their respective charter to eliminate the word "Simon" from their corporate Name. Parent and the Sellers acknowledge that the Companies and the Subsidiaries have a proprietary right as between Parent and the Sellers, on the one hand, and the Companies and Subsidiaries, on the other hand, to the 'S' shaped Logo as set forth in Section 6.02(a) of the Disclosure Schedule. (b) For a period of 18 months from the Closing Date (the "Logo Window Period"), in the case of the "Simon" Logo set forth in Section 6.02(b) of the Disclosure Schedule (the "Simon Logo"), and three years, in the case of the "Simon" Name, from the Closing Date (the "Name Window Period"), Parent shall and hereby irrevocably grants the Companies and the Subsidiaries the right to use the Simon Logo and the "Simon" Name in connection with the operation of the businesses of the Companies and the Subsidiaries as currently conducted including, during the Logo Window Period and the Name Window Period, respectively, to (i) use any molds or castings included in the equipment or machinery owned by the Companies and the Subsidiaries despite the appearance thereon and on the products manufactured therewith of the Name "Simon" or the Simon Logo, (ii) sell all such products produced by the Companies or the Subsidiaries and (iii) use any other assets on hand at the Companies and the Subsidiaries, including, without limitation, any catalogs, invoices, packaging material or stationery, bearing the Simon Name or the Simon Logo. Immediately upon the expiration of the Logo Window Period and the Name Window Period, as the case may be, Buyer shall, and shall cause the Companies and the Subsidiaries to, cease to use in any manner the Name "Simon" or the Simon Logo incorporating such Name and remove or obliterate such Name or the Simon Logo from any molds, castings, products or other assets and clearly and prominently mark the new name of the Companies and the Subsidiaries thereon. At all times following the Closing, Buyer shall indicate that neither Buyer nor the Companies and the Subsidiaries are affiliated with Parent, the Sellers or any of their affiliates. Parent hereby grants to Buyer and the Companies and the Subsidiaries an irrevocable non-exclusive, royalty-free license to use the Name "Simon" during the Name Window Period and to the Simon Logo during the Logo Window Period for the purposes specified in the first sentence of this Section 6.01(b). (c) Buyer shall ensure that any products bearing the Simon Logo, the Name "Simon" or any similar Name or any Logo incorporating such Name or any similar name sold by the Companies pursuant to paragraph (b) of this Section 6.02 shall meet the quality standards of the Sellers as such standards exist on the date hereof, and the Sellers shall have access to the premises of Buyer and the Companies and the Subsidiaries at reasonable times and upon reasonable notice to satisfy themselves as to such quality. (d) Buyer shall, and shall cause the Companies and the Subsidiaries to, indemnify Parent, the Sellers and their affiliates and hold them harmless against any and all Losses incurred or suffered by any of them arising out of or resulting from the use of the Name "Simon" or any similar Name or any Logo incorporating such Name or any similar Name by Buyer or any Company or any Subsidiary after the Closing, whether or not such use is authorized under paragraph (b) of this Section 6.02. 6.03. Cella Name. Buyer acknowledges that, after the Closing, Parent, the Sellers, Buyer, Simon-Cella and their respective affiliates will not have any right or license to, and will not be entitled to use, the name "Cella" or any Name or Logo incorporating Cella. Within five business days following the Closing, Buyer shall cause Simon-Cella to amend its charter to eliminate the word "Cella" from its corporate Name. After the Closing, Buyer agrees that it will not, and it will cause the Companies and the Subsidiaries not to, use the Name "Cella" or any similar Name or any Logo incorporating such Name or any similar Name in any manner, including in connection with the sale of any of Simon-Cella's products or services or otherwise in the conduct of its business. Buyer shall, and shall cause the Companies and the Subsidiaries to, jointly and severally indemnify the Parent, the Sellers and their affiliates and hold them harmless against any losses incurred by them arising out of or resulting from the use by Buyer, any Company or any Subsidiary of the Name "Cella" after the Closing. 6.04. Simon LTI, Simon Duplex and Simon (UK). Prior to the three year anniversary of the Closing Date, Buyer shall not, and shall cause the Companies and the Subsidiaries not to, solicit the employment of or enter into any discussions with respect to the employment of any officer or employee of Simon LTI, Simon Duplex or Simon (UK) or encourage any officer or employee of Simon LTI, Simon Duplex or Simon (UK) or their successors and assigns to resign or quit, without the written consent of Parent or SUSHI or their successors and assigns (which consent may be withheld in their absolute discretion). From and after the Closing Date, Buyer shall not, and shall cause the Companies and the Subsidiaries not to, disclose to any person or entity, without the written consent of Parent or SUSHI (which consent may be withheld in their absolute discretion), any confidential information of whatever nature regarding the business or operations of Simon LTI, Simon Duplex or Simon (UK) or their successors and assigns in the possession of the Buyer or any Company or any Subsidiary on the Closing Date; unless such information is now or shall hereafter have specifically entered into the public domain (otherwise than as a consequence of unauthorized disclosure by Buyer, any Company or any Subsidiary or any of their employees or representatives) or such disclosure is required by law or in response to a valid order of any court or governmental agency of competent jurisdiction; provided that Simon LTI, Simon Duplex or Simon (UK) or their successors and assigns shall have been given notice and the disclosing party shall limit the confidential information disclosed only to that information which counsel advises the disclosing party is legally required and uses its best efforts to limit the use of such information for the purposes for which the order was issued and to otherwise preserve the confidentiality of such information. 6.05. Cash Management. (a) As part of the cash management program of Telelect, Simon Aerials, their subsidiaries (collectively, the "U.S. Corporations") and SUSHI, the U.S. Corporations maintain separate controlled disbursement checking accounts at The Fifth Third Bank (collectively, the "Disbursement Accounts") on which checks and drafts in respect of the U.S. Corporations are drawn and which are funded by SUSHI. At the Closing, the Disbursement Accounts, and all cash contained therein, shall be assigned by the Companies and the Subsidiaries to SUSHI. Any Disbursement Account in the name of a party other than the Companies or the Subsidiaries shall not be assigned to the Companies, Subsidiaries or Buyer. From and after the Closing, Buyer shall not write any checks drawn on the Disbursement Account, and SUSHI shall be responsible to fund the Disbursement Accounts in amounts sufficient to pay all checks and drafts in respect of the U.S. Corporations that are written but not presented for payment prior to the close of business on the day immediately preceding the Closing Date. (b) Also as part of the cash management program of SUSHI and the U.S. Corporations, SUSHI maintains separate lockbox collection accounts in respect of each U.S. Corporation (collectively, the "Lockbox Accounts") from which the available cash balances are transferred daily to a central account maintained by SUSHI. SUSHI shall be entitled, prior to the Closing, to collect and retain the proceeds of all items received in the Lockbox Accounts or otherwise in respect of the U.S. Corporations (including the amount of any checks received by the U.S. Corporations), and all other cash on hand (including any cash held in any bank accounts of the U.S. Corporations), through the close of business on the day immediately preceding the Closing Date (the "Pre-Closing Cash"); provided, however, that SUSHI may at its option not collect but leave in the Lockbox Accounts or other locations of the U.S. Corporations all or any portion of the Pre-Closing Cash, and the aggregate amount of such uncollected Pre-Closing Cash shall be paid to SUSHI together with and in the same manner as the Purchase Price; provided, further, however, that SUSHI shall leave in each bank account of the Companies and the Subsidiaries (other than the Disbursement Accounts) cash in an amount sufficient to cover all checks written on that account but not presented for payment as of the close of business on the day preceding the Closing Date. If after the Closing it is determined that the amount of Pre-Closing Cash is greater or less than the sum of the amount, if any, that was collected by SUSHI and the amount, if any, that was uncollected and paid together with the Purchase Price, Buyer shall pay SUSHI or SUSHI shall pay Buyer, as applicable, the difference between the two amounts promptly after such determination. Any cash received in the Lockbox Accounts on or after the Closing Date in respect of a receivable reflected in the Closing Date Balance Sheet shall be paid by SUSHI to the Company or Subsidiary to which such cash is attributable promptly following receipt thereof. Parent and the Sellers shall use reasonable efforts to transfer the Lockbox Accounts to the Companies and the Subsidiaries as soon as practicable following the Closing, free and clear of any Encumbrances. (c) Parent and Simon Overseas shall ensure that any cash aggregate overdraft balance for Simon Ireland or Simon Cella as of the Closing Date shall be not less than zero. 6.06. Changes to Representations and Warranties. Parent and the Sellers, on the one hand, and Buyer, on the other hand, each hereby agree that they shall promptly notify the other party if, prior to the Closing, they have actual knowledge that any representation or warranty in this Agreement is or has become untrue in any material respect or that the information in the Disclosure Schedule is or has become inaccurate in any material respect. For the purpose of this Section 6.06, the actual knowledge of Parent and the Sellers means the actual knowledge of Dr. Maurice Dixson, Timothy J. Redburn, Richard J. Catt, Gary Gottshalk, Edward Duffy or David Goelzer, and the actual knowledge of Buyer means the actual knowledge of Ronald M. DeFeo, David L. Langevin, Joseph Apuzzo, Cecelia Neumann or Marvin B. Rosenberg. ARTICLE VII CONDITIONS TO BUYER'S OBLIGATIONS The obligation of Buyer to purchase and pay for the Shares shall be subject to the satisfaction (or waiver) on or prior to the Closing Date of all of the conditions set forth in this Article VII. It is agreed that Buyer's obligation to consummate the transactions contemplated by this Agreement is not subject to receipt of any financing. 7.01. Representations, Warranties and Covenants of the Sellers. The Sellers shall have performed or complied in all material respects with their agreements and covenants contained herein required to be performed or complied with on or prior to the time of Closing, and the representations and warranties of the Sellers contained herein shall be true on and as of the Closing Date with the same effect as though made on and as of the Closing Date, except to the extent that any such representations and warranties were made as of a specified date and as to such representations and warranties the same shall continue on the Closing Date to have been true as of the specified date, provided, further that for purposes of this Section 7.01, a representation and warranty shall not be deemed to be untrue to the extent that such failure to be untrue does not have a Material Adverse Effect. Notwithstanding anything to the contrary herein, Buyer shall not be relieved of its obligation to purchase and pay for the Shares by reason of the Sellers' breach of any of their representations and warranties or covenants unless such breach has a Material Adverse Effect. Buyer shall have received a certificate of each Seller, dated the Closing Date and signed by an authorized officer of such Seller, certifying as to the performance of all agreements and covenants and the accuracy of the representations and warranties of the Sellers contained herein as of the Closing Date, as amended or modified by any amendments or modifications to the Disclosure Schedule or as set forth in such certificate, with respect to such Seller (the "Sellers' Certificates"). Buyer's acceptance of the Sellers' Certificates shall not constitute a waiver by Buyer of any of its rights under this Agreement or under applicable securities laws. 7.02. No Prohibition. No statute, rule or regulation or injunction or order of any court or administrative agency of competent jurisdiction shall be in effect as of the Closing which prohibits Buyer from consummating the transactions contemplated hereby. 7.03. Governmental Consents. The applicable waiting period under the HSR Act shall have expired or been terminated and all other consents, approvals, authorizations, exemptions and waivers from governmental agencies that shall be required in order to enable Buyer to purchase the Shares shall have been obtained 7.04. Intercompany Accounts. The Sellers shall have contributed any intercompany account balances (as described in Section 1.03(b)(i)(A)) owed to them by any Company or any Subsidiary to the capital of such Company or Subsidiary, or, at the options of the Sellers with respect to Simon Ireland, Simon Cella, Sim-Tech Management and/or Simon-Tomen, deemed any intercompany account repaid with the portion of the Purchase Price allocable to such Company, and shall have repaid any intercompany account balances owed by them to any Company or any Subsidiary. 7.05. FIRPTA. SUSHI shall have delivered to Buyer a valid certification of non-foreign status pursuant to Section 1445(b)(2) of the Code and Treasury Regulation Section 1.1445- 2(b)(2). Such certification shall conform to the model certification provided in Treasury Regulation Section 1.1445- 2(b)(2)(iii)(B), or shall be in form and substance otherwise satisfactory to Buyer. 7.06. Consents. The Sellers shall have obtained all written consents, assignments, waivers (including, without limitation, waivers of any rights of first refusal) or authorizations set forth in Section 7.06 of the Disclosure Schedule. 7.07. Release of Encumbrances. The Companies and the Subsidiaries shall have been released from the Encumbrances set forth in Section 7.07 of the Disclosure Schedule. 7.08. Resignation of Officers and Directors. Buyer shall have received the resignations, effective as of the Closing, of (i) as a director, each director of the Companies and the Subsidiaries and (ii) as an officer, those officers of the Companies and the Subsidiaries that are set forth in a written notice provided by Buyer to the Sellers and Parent at least two weeks before the Closing Date. 7.09. Books and Records. The Sellers shall have delivered to Buyer the books and records of the Companies and the Subsidiaries. ARTICLE VIII CONDITIONS TO PARENT'S AND THE SELLERS' OBLIGATIONS The obligation of the Sellers to sell the Shares shall be subject to the satisfaction (or waiver) on or prior to the Closing Date of all of the following conditions: 8.01. Representations, Warranties and Covenants of Buyer. Buyer shall have performed or complied in all material respects with its agreements and covenants contained herein to be performed or complied with on or prior to the time of Closing, and the representations and warranties of Buyer contained herein shall be true in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date, except to the extent that any such representations and warranties were made as of a specified date and as to such representations and warranties the same shall continue on the Closing Date to have been true in all material respects as of the specified date. Parent and the Sellers shall have received a certificate of Buyer, dated the Closing Date and signed by an authorized officer of Buyer, certifying as to the fulfillment of the condition set forth in this Section 8.0l (the "Buyer's Certificate"). Parent's and the Sellers' acceptance of the Buyer's Certificate shall not constitute a waiver of any of their rights under this Agreement or under applicable securities laws. 8.02. No Prohibition. No statute, rule or regulation or injunction or order of any court or administrative agency of competent jurisdiction shall be in effect as of the Closing which prohibits Parent or the Sellers from consummating the transactions contemplated hereby. 8.03. Governmental Consents. The applicable waiting period under the HSR Act shall have expired or been terminated and all other consents, approvals, authorizations, exemptions and waivers from governmental agencies that shall be required in order to enable the Sellers to sell the Shares to Buyer shall have been obtained (except for such consents, approvals, authorizations, exemptions and waivers, the absence of which would not prohibit such sale or render such sale illegal). 8.04. Shareholder Approval. The shareholders of Parent shall have approved the transactions contemplated by this Agreement by the requisite vote in accordance with applicable law. 8.05. Lender Consent and Releases. On or prior to the Closing Date, Parent's and SUSHI's lenders shall have released the Companies and the Subsidiaries from any guarantees executed by them in favor of such lenders. 8.06. Books and Records. Buyer shall have delivered to the Sellers and Parent the books and records of Parent, the Sellers and any subsidiary of the Sellers, including, without limitation, Simon LTI and Simon Duplex, not purchased by Buyer. ARTICLE IX EMPLOYMENT AND EMPLOYEE BENEFITS ARRANGEMENTS 9.01. Definitions. (a) The term "Business" shall mean individually and collectively (i) the Companies and the Subsidiaries and (ii) Sellers and their affiliates and any predecessor to any of the foregoing but only with respect to the Companies and the Subsidiaries. (b) The term "Employees" shall mean all current employees (including those on layoff, disability or leave of absence, whether paid or unpaid), former employees and retired employees of the Business and the term "Employee" shall mean any of the Employees. (c) The term "Company Benefit Plans" shall mean each and all "employee benefit plans" as defined in Section 3(3) of ERISA, maintained or contributed to by the Business or in which the Business participates or participated and which provides benefits to Employees or their spouses or covered dependents, including (i) any such plans that are "employee welfare benefit plans" as defined in Section 3(1) of ERISA and (ii) any such plans that are "employee pension benefit plans" as defined in Section 3(2) of ERISA. (d) The term "Benefit Arrangements" shall mean each and all pension, supplemental pension, basic and supplemental accidental death and dismemberment, basic and supplemental life and health insurance and benefits (including medical, dental and hospitalization), savings, bonus, deferred compensation, incentive compensation, business travel and accident, holiday, vacation, severance pay, salary continuation, sick pay, sick leave, short and long term disability, tuition refund, service award, company car, scholarship, relocation, patent award, fringe benefit and other employee benefit arrangements, plans, contracts (other than individual employment, consulting or severance contracts), policies or practices of the Business providing employee or executive compensation or benefits to Employees, other than the Company Benefit Plans. (e) The term "9.01(e) Employees" shall mean the individuals set forth in Section 9.01(e) of the Disclosure Schedule. 9.02. Employment. Nothing contained herein shall confer any third-party beneficiary right (actual or implied) upon any Employee of the Companies or the Subsidiaries or obligate Buyer to continue any Employee in its employ or the employ of the Companies or the Subsidiaries for any specified period of time or at any specified salary, wages or benefits after the Closing Date. As of the Closing Date, Buyer shall cause the Companies and the Subsidiaries to assume all obligations of SUSHI or Simon Access Limited under the employment agreements with the Section 9.01(e) Employees, except that the Companies and the Subsidiaries shall not assume any obligation in respect of any retention bonus or stay-pay arrangement payable to any Employee or 9.01(e) Employee upon consummation of the transactions contemplated hereby. 9.03. Simon U.S. Retirement Plan. (a) Effective as of the Closing Date, all Employees and 9.01(e) Employees, except for former employees and retired employees of the Business, who were immediately prior to the Closing Date participants in the Simon United States Holdings Inc. 401(k) Retirement Plan (formerly known as the Simon U.S. Retirement Plan) (the "Simon Retirement Plan") (the "Retirement Plan Transferees") shall become participants in the Terex Corporation and Affiliates 401(k) Retirement Plan (the "Buyer's Retirement Plan") and shall cease to be participants in the Simon Retirement Plan. The Retirement Plan Transferees shall receive credit under the Buyer's Retirement Plan for all service credited under the Simon Retirement Plan for purposes of eligibility to participate, eligibility for benefits and vesting under Buyer's Retirement Plan. SUSHI shall take all action necessary to cause the accounts of the Retirement Plan Transferees who, as of the Closing Date, are current Employees and 9.01(e) Employees, to become fully vested under the Simon Retirement Plan. (b) Within 60 days after the Closing Date, Buyer shall deliver to SUSHI the most recent favorable determination letter issued by the IRS that the Buyer's Retirement Plan satisfied the requirements for qualification under Section 401(a) and 401(k) of the Code and a certification in a form reasonably satisfactory to Seller, that either (i) the remedial amendment period under Section 401(b) of the Code and the regulations thereunder has not yet expired with respect to amendment(s) to the Plan, if any, necessary to maintain the Plan's qualification under Section 401(a) and 401(k) of the Code, or (ii) the Buyer has taken timely action prior to the expiration of the remedial amendment period to maintain that qualification. (c) Effective as of the Closing Date or as soon as practicable after the receipt by SUSHI of the determination letter and the certification described in Section 9.03(b), SUSHI shall cause the trustee of the Simon Retirement Plan to transfer to the Buyer's Retirement Plan cash or assets in kind as mutually agreed upon by SUSHI and the Buyer, in an amount equal to the account balances of the Simon Retirement Plan which relate to the Retirement Plan Transferees as of a valuation date (the "Valuation Date") not more than 60 days preceding the date of transfer, and reduced by any benefits paid during the period following such Valuation Date of transfer. Upon the transfer of assets contemplated in this Section 9.03(c), the Simon Retirement Plan shall be relieved of and the Buyer's Retirement Plan shall assume, all liabilities and obligations with respect to the payment of the transferred account balances. 9.04. Other Benefit Plans. (a) Subject to the specific provisions of Sections 9.03 and the remaining paragraphs of Section 9.04, as of the Closing Date all Employees and all 9.01(e) Employees, except for former employees and retired employees of the Business, shall cease to be covered by the Company Benefit Plans and Benefit Arrangements and shall become covered by and eligible for such employee benefit plans and fringe benefit arrangements, if any, provided by Buyer to similarly situated employees of Buyer and its affiliates. Such Employees and all 9.01(e) Employees shall receive credit for all service with the Parent and the Sellers and their affiliates (including the Companies and the Subsidiaries) and their respective predecessors prior to the Closing Date for all purposes for which such service is recognized under the Buyer's employee benefit plans, provided that, in the event Buyer shall establish a new employee benefit plan, Employees shall not receive credit under such plan for service for periods prior to the earliest date such service is recognized for similarly situated employees of Buyer and its affiliates. (b) As of the Closing Date, all Employees and all 9.01(e) Employees and their eligible dependents who were immediately prior to the Closing Date covered as participants or beneficiaries under the Simon United States Holdings Inc. Health and Welfare Benefits Plan (the "Simon Health Plan") (including such Employees and all 9.01(e) Employees and dependents covered under the Simon Health Plan pursuant to COBRA) shall cease to be covered under the Simon Health Plan. Seller shall take, or cause to be taken, all such action as may be necessary to effect such cessation or participation, and the Companies and the Seller shall cease to be participating employers under the Simon Health Plan as of the Closing Date. Effective as of the Closing Date, said Employees and their eligible dependents shall become participants and beneficiaries under the Terex Health Plan (the Buyer's Health Plan) under terms and conditions applicable to similarly situated employees of Buyer and its affiliates and their dependents. (c) Buyer shall cause the Buyer's Health Plan to recognize periods of coverage under the Simon Health Plan for the purpose of applying any pre-existing conditions and actively-at- work exclusions set forth by the Buyer's Health Plan and shall provide that any expenses incurred on or before the Closing Date shall be taken into account under such plans for purposes of satisfying applicable deductible, coinsurance and maximum out-of-pocket provisions. (d) As of the Closing Date, each Company and Subsidiary shall assume all of the liabilities and obligations of the Parent and the Sellers and their affiliates which relate specifically to the Employees employed by the Company or Subsidiary, as the case may be, including all liabilities and obligations under the Company Benefit Plans and Benefit Arrangements and workers' compensation arrangements with respect to the Employees and all 9.01(e) Employees and their dependents and beneficiaries, including, but not limited to, (i) liabilities and obligations for wages, benefits, compensation, contributions, insurance and health maintenance organization premiums, whether incurred or accrued before, on or after the Closing Date and whether or not reported as of the Closing Date, (ii) liabilities and obligations arising under the continuation coverage requirements of Section 4980B(f) of the Code and Section 601 of ERISA with respect to all Employees and all 9.01(e) Employees (or any beneficiary or dependent of any Employee) who, as of the Closing Date, have exercised or are eligible to exercise their right to such continuation coverage and (iii) liabilities and obligations to provide post-retirement health and life insurance benefits to Employees and 9.01(e) Employees (whether or not currently retired). Notwithstanding the foregoing sentence, neither the Buyer nor any Company or Subsidiary shall assume any liability or obligation of Seller for benefits accruing after the Closing Date under the Company Benefit Plans or Benefit Arrangements. 9.05. Severance. Without limiting the generality of Section 9.04, Buyer agrees to provide, or cause the Companies and the Subsidiaries to provide, severance pay and other severance benefits to any Employee or 9.01(e) Employee with a written employment contract disclosed in Section 2.08(a)(v) or 9.01(e) of the Disclosure Schedule, in accordance with any applicable provision of such individual's employment contract. 9.06. Indemnity. (a) Without limiting the generality of Section 9.04, Buyer, the Companies and the Subsidiaries shall jointly and severally indemnify the Parent and the Sellers and their affiliates and hold each of them harmless from and against any Losses which may be incurred or suffered by any of them, (i) under the Worker Adjustment and Retraining Notification Act ("WARN") arising out of, or relating to, any actions taken by Buyer or the Companies or the Subsidiaries on or after the Closing Date and (ii) in connection with any claim made by any Employee or 9.01(e) Employee arising out of or relating to the failure by the Companies or the Subsidiaries to continue any particular employee benefit plan or provide any particular employee benefit or level of benefit, and (b) Parent, Sellers and their affiliates shall jointly and severally indemnify and hold harmless Buyer, the Companies and the Subsidiaries from and against any Losses which may be incurred or suffered by any of them (i) under WARN arising out of, or relating to, any actions taken by Parent or Sellers prior to the Closing Date or (ii) under or pursuant to any Company Benefit Plan and Benefit Arrangement as a result of or related to any employee covered by such plans and arrangements who are not Employees. ARTICLE X TERMINATION PRIOR TO CLOSING 10.01. Termination. This Agreement may be terminated at any time prior to the Closing: (a) By the mutual written consent of Buyer, Parent and the Sellers; or (b) By Parent or the Sellers, if the condition set forth in Section 8.03 shall not have been satisfied within 45 days after the date of this Agreement; provided, however, if Buyer shall be unable to make its initial filing under the HSR Act within 15 days after the date of this Agreement solely as a result of the failure of Parent and the Sellers to provide timely to Buyer any information that Buyer needs from Parent or the Sellers to complete such filing, the 45-day period shall be extended by one day for each day following such 15-day period through and including the day Parent or the Sellers deliver such information to Buyer; Parent and the Sellers must give notice to Buyer promptly following the expiration of such 45-day period, but in no event more than five days following the expiration of such 45-day period, if they intend to terminate this Agreement pursuant to this clause (b); or (c) By either Parent, the Sellers or Buyer in writing, if the Closing shall not have occurred on or before June 30, 1997; provided, however, that such failure to close is not a result of breach by Buyer (in the case of termination by Buyer) or by Parent and/or any Seller (in the case of termination by Parent or the Sellers) of any representation, warranty, covenant, agreement, obligation, or any understanding hereunder. (d) By either the Sellers or Buyer in writing, if there shall have been a material breach by the other party of any of its representations, warranties, covenants or agreements contained herein and such breach results in a failure to satisfy a condition to the terminating party's obligation to consummate the transactions provided herein, unless such breach can be remedied with diligent effort in a reasonable period, in which case this Agreement cannot be terminated for such period, not to exceed 15 days, as may be necessary to remedy such breach after actual knowledge of such breach by the breaching party. 10.02. Effect on Obligations. Termination of this Agreement pursuant to this Article X shall terminate all obligations of the parties hereunder, except for the obligations under Sections 10.02, 11.08 and 11.11 and the last sentence of Section 4.03; provided, however, that termination pursuant to clause (c) or (d) of Section 10.01 by reason of breaches of representations and warranties or covenants or agreements shall not relieve the defaulting or breaching party (whether or not it is the terminating party) from any liability to the other party hereto. ARTICLE XI MISCELLANEOUS 11.01. Survival. Except as otherwise set forth in this Section 11.01, the representations and warranties made in this Agreement or in any agreement, certificate (including the Sellers' Certificates and the Buyer's Certificate) or other document executed at or prior to the Closing in connection herewith (an "Ancillary Document") shall survive the Closing and shall expire on June 30, 1998 and shall thereupon expire together with any right to indemnification for breach thereof (except to the extent a written notice asserting a claim for breach of any such representation or warranty, describing the nature of the breach in reasonable detail, shall have been given prior to such date to the party which made such representation or warranty, in which case such representation and warranty shall survive, to the extent of such claim only, until such claim is resolved, whether or not the amount of the damages or expenses resulting from such breach has been finally determined at the time the notice is given, if, but only if, in the case of a claim made by Buyer by reason of a third party claim, the written notice is accompanied by a copy of the written notice of the third party claimant; and provided that any notice asserting a claim for breach of any of the representations and warranties contained in Section 2.16 (or in the Sellers' Certificates insofar as they pertain to Section 2.16) as to any environmental, health and safety matters) (including, without limitation, any arising under Environmental Laws or Environmental Permits) (an "Environmental Breach") shall not be effective notice unless accompanied by (a) written notice from the applicable regulatory authority, or, if there has been a claim made against Buyer by a third party, the written notice of the third party claimant, alleging the existence of the conditions as to which an Environmental Breach is claimed or (b) a written report from a reputable environmental consulting firm which is not affiliated with Buyer or any Company or Subsidiary, the fees and expenses of which firm shall be borne solely by Buyer, confirming, in reasonable detail, the existence of the conditions as to which an Environmental Breach is claimed). The representations and warranties contained in Sections 2.01, 2.02, 2.03 and 2.14 (and in the Sellers' Certificates insofar as they pertain to Sections 2.01, 2.02, 2.03 and 2.14) shall survive the Closing until the expiration of the applicable statute of limitations (as extended by the application of any tolling principles). The representations and warranties contained in Section 2.06 (and in the Sellers' Certificates insofar as they pertain to Section 2.06) insofar as they relate to any real property owned by the Companies and the Subsidiaries shall expire at the Closing if Buyer, the Companies or the Subsidiaries obtain or have in effect title insurance with respect thereto which covers the matter or matters subject to such breach. The representations and warranties contained in Section 2.16 (and in Sellers' Certificates insofar as they pertain to Section 2.16) shall expire at the third anniversary of the Closing. The covenants and agreements contained herein to be performed or complied with prior to the Closing (and the provisions of the Sellers' Certificates and the Buyer's Certificate pertaining thereto) shall expire at the Closing. The covenants and agreements contained herein to be performed or complied with at or after the Closing, including, without limitation, the indemnification obligations contained in Sections 6.01(d) and (e), shall survive the Closing until the expiration of the applicable statute of limitations (without regard to the application of any tolling principles). Parent's and the Sellers' indemnification obligations set forth in Section 11.02(a)(iii)(y) and (z) shall expire on the ninth anniversary of the Closing Date and in no event shall any Seller be responsible for any Environmental Losses or other Losses incurred, expended or suffered thereafter with respect to matters addressed therein. Subject to the obligations of Buyer in Section 4.07, no investigation by Buyer or on Buyer's behalf heretofore or hereafter conducted shall affect the representations, warranties or covenants of Parent and the Sellers set forth in this Agreement. 11.02. Indemnification. (a) Parent and the Sellers shall, jointly and severally, indemnify Buyer and its affiliates (including the Companies and the Subsidiaries) and hold each of them harmless from and against, and in respect of, any damages, claims, losses, charges, actions, suits, proceedings, deficiencies, taxes, interest, penalties, and reasonable costs and expenses (including without limitation reasonable attorneys' fees and expenses) (collectively, "Losses") (net of any tax benefits or insurance recoveries) which are incurred or suffered by any of them (i) by reason of the breach of any of the representations or warranties made by Parent and the Sellers herein or in any Ancillary Document (other than any which do not survive the Closing or which are contained in Section 2.16 hereof), (ii) by reason of the failure by the Sellers to perform or comply with any of the covenants or agreements contained herein (other than those contained in Section 11.02(a)(iii)(y) and (z) herein) or in any Ancillary Document to be performed or complied with by Sellers at or after the Closing; (iii) by reason of Losses which are Environmental Losses which are incurred or suffered by any of them (x) by reason of the breach of any of the representations and warranties made by Seller contained in Section 2.16 herein; (y) arising from, in respect of, incurred as a consequence of or in connection with any and all real property, business entities or assets, whether domestic or foreign, formerly owned, leased or operated by the Companies or the Subsidiaries and not owned, leased or operated by the Companies or any of the Subsidiaries as of the Closing Date; or (z) arising from, in respect of, incurred as a consequence of or in connection with the transport or disposal of any Hazardous Substances to or at any offsite facility or location by the Companies or the Subsidiaries as of the Closing Date or (iv) by reason of any retroactive rate or premium adjustments for workers compensation insurance for periods prior to the Closing Date to the extent not covered by any reserve therefor on the Closing Date Balance Sheet. Notwithstanding the foregoing, all representations and warranties concerning inventory, receivables, reserves and current liabilities and any matters which the parties specifically resolve in connection with the finalization of the Closing Date Balance Sheets, whether as a result of a decision of the Arbitrator or an agreement of the parties, shall not be the basis for an indemnity claim under this Agreement. Any recovery by Buyer and its affiliates for indemnification shall be limited as follows: (1) Buyer and its affiliates shall not be entitled to any recovery unless a claim for indemnification is made in accordance with Sections 11.01 and paragraph (c)(i) of this Section 11.02 and within the time period of survival set forth in Section 11.01; (2) Buyer and its affiliates shall not be entitled to recover any amount for indemnification claims under clauses (i) and (iii)(x) of this Section 11.02(a) unless and until the amount which Buyer and its affiliates are entitled to recover in respect of such claims exceeds, in the aggregate, $3 million, and only for individual claims or a series of related claims in excess of $25,000, in which event (subject to clause (3) below) the entire amount which Buyer and its affiliates are entitled to recover in respect of such claims less $1.5 million (the "Deductible") shall be payable; and (3) the maximum amount recoverable by Buyer and its affiliates for indemnification claims under clauses (i) and (iii)(x) of this Section 11.02(a) shall in the aggregate be equal to $20 million. (b) Buyer, the Companies and the Subsidiaries shall, jointly and severally, indemnify Parent, the Sellers and their affiliates and hold each of them harmless from and against all Losses (net of any tax benefit or insurance recovery) which are incurred or suffered by any of them (i) by reason of the breach by Buyer of any of the representations or warranties made by Buyer herein or in any Ancillary Document or (ii) by reason of the failure by Buyer (or, from and after the Closing, the Companies and the Subsidiaries) to perform or comply with any of the covenants or agreements contained herein or in any Ancillary Document to be performed or complied with by either of them at or after the Closing. Any recovery by Parent, any Seller and their affiliates for indemnification shall be limited as follows: (1) Parent, the Sellers and their affiliates shall not be entitled to any recovery unless a claim for indemnification is made in accordance with paragraph (c)(i) of this Section 11.02 and within the time period set forth in Section 11.01 (2) Parent, the Sellers and their Affiliates shall not be entitled to recover any amount for indemnification under clause (i) of this Section 11.02(a) unless and until the amount which Parent, the Sellers and their affiliates are entitled to recover in respect of such claims exceeds, in the aggregate, the Deductible and only for individual claims, or a series of related claims, in excess of $25,000 in which event (subject to clause (3) below) the entire amount which Parent, Sellers and their affiliates are entitled to recover in respect of such claims less the Deductible shall be payable and (3) the maximum amount recoverable by Parent, Sellers or any of their affiliates for indemnification claims under clause (i) of this Section 11.02(a) shall in the aggregate be equal to $20 million. (c) (i) In the event that any party shall incur or suffer any Losses in respect of which indemnification may be sought by such party pursuant to the provisions of this Section 11.02, the party seeking to be indemnified hereunder (the "Indemnitee") shall assert a claim for indemnification by written notice (a "Notice") to the party from whom indemnification is sought (the "Indemnitor") stating the nature and basis of such claim, and, if such claim is with respect to a third party claim or an Environmental Breach, accompanied by the documentation set forth in Section 11.01. In the case of losses arising by reason of any third party claim, the Notice shall be given within 30 days of the filing or other written assertion of any such claim against the Indemnitee. In the event that a claim for indemnification is not resolved by the Indemnitor and the Indemnitee within 24 months after the date such claim is brought, the Indemnitee shall have 30 days after the expiration of such 24 month period to commence a lawsuit with respect to such claim and if no such lawsuit is commenced by the Indemnitee within such 30- day period, the Indemnitor shall have no further obligation or liability hereunder or otherwise to Buyer and its affiliates with respect to such claim. (ii) The Indemnitee shall provide to the Indemnitor on request all information and documentation reasonably necessary to support and verify any Losses which the Indemnitee believes give rise to a claim for indemnification hereunder and shall give the Indemnitor reasonable access without cost to all books and records in the possession of, and make available at times reasonably acceptable to Buyer all personnel (including to attend or participate in depositions and/or trials) under the control of, the Indemnitee, which would have bearing on such claim. (iii) In the case of third party claims for which indemnification is sought, the Indemnitor shall have the option (x) to conduct any proceedings or negotiations in connection therewith, (y) to take all other steps to settle or defend any such claim (provided that the Indemnitor shall not settle any such claim without the consent of the Indemnitee, which consent shall not be unreasonably withheld) and (z) to employ counsel to contest any such claim or liability in the name of the Indemnitee or otherwise. In any event, the Indemnitee shall be entitled to participate at its own expense and by its own counsel in any proceedings relating to any third party claim. The Indemnitor shall, within 45 days of receipt of the Notice, notify the Indemnitee of its intention to assume the defense of such claim. Until the Indemnitee has received notice of the Indemnitor's election whether to defend any claim, the Indemnitee shall take reasonable steps to defend (but may not settle) such claim. If, after assuming the defense of any third party claim the Indemnitor shall determine such claim is not covered by the indemnification provided by this Section 11.02, the Indemnitor may, upon 60 days notice to the Indemnitee, withdraw from the defense of such claim. If the Indemnitor shall decline to assume the defense of any such claim, or shall fail to notify the Indemnitee within 45 days after receipt of the Notice of the Indemnitor's election to defend such claim, the Indemnitee shall defend against such claim (provided that the Indemnitee shall not settle such claim without the consent of the Indemnitor, which consent shall not be unreasonably withheld). The expenses of all proceedings, contests or lawsuits in respect of such claims (other than those incurred by the Indemnitee which are referred to in the second sentence of this subparagraph (iii)) shall be borne by the Indemnitor but only if the Indemnitor is responsible pursuant hereto to indemnify the Indemnitee in respect of the third party claim and, if applicable, only to the extent required by the second sentence of Section 11.02(a). Regardless of which party shall assume the defense of the claim, the parties agree to cooperate fully with one another in connection therewith. In the case of a claim for indemnification made under Section 11.02(a)(i) or 11.02(b)(i), (a) if (and to the extent) the Indemnitor is responsible pursuant hereto to indemnify the Indemnitee in respect of the third party claim, then within ten days after the occurrence of a final non-appealable determination with respect to such third party claim, the Indemnitor shall pay the Indemnitee, in immediately available funds, the amount of any Losses (or such portion thereof as the Indemnitor shall be responsible for pursuant to the provisions hereof, including, without limitation, the second sentence of Section 11.02(a)), and (b) in the event that any Losses incurred by the Indemnitee do not involve payment by the Indemnitee of a third party claim, then, if (and to the extent) the Indemnitor is responsible pursuant hereto to indemnify the Indemnitee against such Losses, the Indemnitor shall within ten days after agreement on the amount of Losses or the occurrence of a final non-appealable determination of such amount pay to the Indemnitee, in immediately available funds, the amount of such Losses (or such portion thereof as the Indemnitor shall be responsible for pursuant to the provisions hereof. (d) The provisions of this Section 11.02 shall apply to all claims for indemnification hereunder, except indemnification claims which involve matters addressed by Sections 6.01(d) or 6.01(e), which claims shall be governed by solely such Sections. (e) Except as set forth in Sections 5.04, 6.01, 6.02 and 6.03, the indemnification provided in this Section 11.02 shall be the sole and exclusive remedy of Parent, the Sellers and Buyer with respect to this Agreement and the transactions contemplated hereby. All amounts payable by one party in indemnification of the other shall be considered an adjustment to the Purchase Price. Notwithstanding the generality of the foregoing, the indemnification provided in this Section 11.02 relating to environmental, health and safety matters (including, without limitation, any arising under Environmental Laws or Environmental Permits) shall constitute Buyer's sole and exclusive remedy and Buyer hereby waives any rights and remedies that it may otherwise have against Parent, the Sellers and the Companies under any Environmental Laws, including, without limitation, any claims for recovery or contribution under CERCLA, its state analogies or common law. (f) In no event shall Parent or the Sellers be liable for loss of profits or consequential damages by reason of a breach of any representation, warranty or covenant made by the Sellers or any of their affiliates in this Agreement or any Ancillary Document. (g) Notwithstanding anything in this Agreement to the contrary, neither Parent nor the Sellers shall be responsible for any liability or obligation as a result of Buyers', or the Companies' or the Subsidiaries' failure to comply with applicable law after the Closing. (h) Upon making any payment to an Indemnitee for any indemnification claim pursuant to this Section 11.02, the Indemnitor shall be subrogated, to the extent of such payment, to any rights which the Indemnitee may have against any other parties with respect to the subject matter underlying such indemnification claim. 11.03. Interpretive Provisions. be Whenever used in this Agreement, "to the Sellers' knowledge" or "to the knowledge of the Sellers" shall mean the actual knowledge of those officers and/or employees of the Sellers and Parent who are listed in Section 11.03 of the Disclosure Schedule and "to Buyer's knowledge" or "to the knowledge of Buyer" shall mean the actual knowledge of Buyer and the persons listed in Section 11.03 of the Disclosure Schedule. (b) The words "hereof," "herein," "hereby" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision thereof. (c) For purposes of this Agreement, the Companies and the Subsidiaries shall be deemed to be affiliates of Parent and the Sellers prior to the Closing and affiliates of Buyer after the Closing. 11.04. Entire Agreement. This Agreement (including the Disclosure Schedule) and the Confidentiality Agreement constitute the sole understanding of the parties with respect to the subject matter hereof. Matters disclosed by Parent or the Sellers to Buyer pursuant to any Section of this Agreement shall be deemed to be disclosed with respect to all Sections of this Agreement. The Confidentiality Agreement shall survive for the full term thereof in accordance with the terms thereof regardless of the execution of this Agreement but shall terminate upon the consummation of the Closing, except with respect to those matters that were disclosed to Buyer which constitute confidential business information of Parent or any subsidiary of Seller not purchased by Buyer. Notwithstanding the foregoing, nothing in this Agreement (including the Disclosure Schedule) shall be deemed to expand or restrict the rights of any party hereto under the securities laws of any jurisdiction to the extent such laws are applicable to the transactions contemplated hereby. 11.05. Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto; provided, however, that this Agreement may not be assigned by Buyer without the prior written consent of Parent and the Sellers (which may be withheld in their absolute discretion), except that Buyer may, at its election, assign this Agreement to (i) any direct or indirect wholly owned subsidiary or (ii) its lenders in connection with the transactions contemplated by this Agreement, so long as (a) the representations and warranties of Buyer made herein are equally true of such assignee and (b) such assignment does not have any adverse consequences to Parent or the Sellers or any of their affiliates (including, without limitation, any adverse tax consequences or any adverse effect on the ability of Buyer to consummate (or timely consummate) the transactions contemplated hereby), and (c) such assignee shall execute a counterpart of this Agreement agreeing to be bound by the provisions hereof as "Buyer," and agreeing to be jointly and severally liable with the assignor and any other assignee for all of the obligations of the assignor hereunder, but no such assignment of this Agreement or any of the rights or obligations hereunder shall relieve Buyer of its obligations under this Agreement. 11.06. Headings. The headings of the Articles, Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 11.07. Modification and Waiver. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto, except that any of the terms or provisions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits of such waived terms or provisions. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. 11.08. Expenses. Except as otherwise provided herein, Parent, each Seller and Buyer shall pay all costs and expenses incurred by it or on its behalf in connection with this Agreement and the transactions contemplated hereby, including, without limiting the generality of the foregoing, fees and expenses of its own financial consultants, accountants and counsel. 11.09. Notices. Any notice, request, instruction or other document to be given hereunder by any party hereto to any other party shall be in writing and shall be given (and will be deemed to have been duly given upon receipt) by delivery in person, by electronic facsimile transmission, cable, telegram, telex or by international overnight courier, postage prepaid, if to Parent or the Sellers to: Simon Engineering plc Simon House 6 Eaton Gate London SWIW 9BJ ENGLAND Attention: Richard J. Catt Telecopy: 011 441 71 881 2225 with a copy to: Fried, Frank, Harris, Shriver & Jacobson One New York Plaza New York, New York 10004 Attention: Sanford Krieger, Esq. Telecopy: (212) 859-4000 if to Buyer to: Terex Corporation 500 Post Road East Suite 320 Westport, CT 06880 Telecopy: (203) 227-1647 Attention: David J. Langevin with a copy to: Robinson Silverman Pearce Aronsohn & Berman LLP 1290 Avenue of the Americas New York, NY 10104 Telecopy: (212) 541-4630 Attention: Stuart A. Gordon, Esq. or at such other address for a party as shall be specified by like notice. 11.10. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York applicable to agreements made and to be performed wholly within such jurisdiction. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of New York and of the United States of America, in each case located in the County of New York, for any Litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any Litigation relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. registered mail to its respective address set forth in Section 11.09 shall be effective service of process for any Litigation brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any Litigation arising out of this Agreement or the transactions contemplated hereby in the courts of the State of New York or the United States of America, in each case located in County of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Litigation brought in any such court has been brought in an inconvenient forum. The party in any Litigation whose position is closest to the final decision of the judge in such Litigation (based on the final positions of the parties prior to commencement of Litigation) shall be entitled to an award of the cost of such Litigation including reasonable fees and disbursements of counsel; provided, however, that if the judge in such Litigation finds the circumstances so warrant, he may divide the cost of such Litigation between the parties thereto in a manner he sees fit. 11.11. Public Announcements. Neither Parent, any Seller nor Buyer shall make any public statements, including, without limitation, any press releases, with respect to this Agreement and the transactions contemplated hereby without the prior written consent of the other party (which consent shall not be unreasonably withheld), except as may be required by applicable law or the rules of the New York Stock Exchange, the London Stock Exchange or the City Code on Take-overs and Mergers. If a public statement is required to be made by law or the rules of the New York Stock Exchange, the London Stock Exchange or the City Code on Take-overs and Mergers, the parties shall consult with each other in advance as to the contents and timing thereof. 11.12. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. 11.13. Currency Conversion. If, for any purpose under this Agreement, including the preparation of any Closing Date Balance Sheet, it is necessary to convert an amount denominated in a currency other than U.S. dollars into U.S. dollars, the parties hereto agree, to the fullest extent they may legally and effectively do so, that the rate of exchange used shall be that published in The Wall Street Journal as the rate to purchase with U.S. dollars the applicable currency in New York, New York on the business day immediately preceding the date as of which such amount is stated or, in the case of any payment, the payment date. 11.14. Exhibits and Disclosure Schedule. The Disclosure Schedule and the Exhibits hereto are hereby incorporated herein and shall be made a part hereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf as of the date first above written. SIMON UNITED STATES HOLDINGS INC. By:________________________________ Title:_____________________________ SIMON OVERSEAS HOLDINGS LIMITED By:________________________________ Title:_____________________________ SIMON ENGINEERING plc By:__________________________________ Title:_______________________________ TEREX CORPORATION By:__________________________________ Title:_______________________________ EX-11 4 EXHIBIT 11.1 EXHIBIT 11.1 (Page 1 of 2)
TEREX CORPORATION AND SUBSIDIARIES Computation of Earnings per Common Share (in millions except per share amounts) Year Ended December 31, ---------------------------------------------- 1996 1995 1994 --------------- -------------- --------------- PRIMARY: Income (loss) from continuing operations before extraordinary items....$ (54.3) $ (32.1) $ 4.9 Income (loss) from discontinued operations............................. 102.0 4.4 (3.7) --------------- -------------- --------------- Income (loss) before extraordinary items............................... 47.7 (27.7) (4.8) Less: Accretion of Preferred Stock................................. (22.9) (7.3) (6.0) --------------- -------------- --------------- Income (loss) before extraordinary item applicable to common stock..... 24.8 (35.0) (4.8) Extraordinary loss on retirement of debt............................... --- (7.5) (0.7) --------------- -------------- --------------- Net income (loss) applicable to common stock...........................$ 24.8 $ (42.5) $ (5.5) =============== ============== =============== Weighted average shares outstanding during the period.................. 11.8 10.4 10.3 Assumed exercise of warrants at ratio determined as of December 31, 1996................................................. 1.2 --- (a) --- (a) Assumed exercise of stock options...................................... 0.3 --- (a) --- (a) --------------- -------------- --------------- Primary shares outstanding............................................. 13.3 10.4 10.3 =============== ============== =============== Primary income per common share Income (loss) from continuing operations before extraordinary item..$ (5.81) $ (3.79) $ (0.10) Income (loss) from discontinued operations.......................... 7.67 0.42 (0.36) --------------- -------------- --------------- Income (loss) before extraordinary items............................ 1.86 (3.37) (0.46) Extraordinary loss.................................................. --- (0.72) (0.07) --------------- -------------- --------------- Net income (loss)...................................................$ 1.86 $ (4.09) $ (0.53) =============== ============== =============== (a) Excluded from the computation because the effect is anti-dilutive.
EXHIBIT 11.1 (Page 2 of 2)
TEREX CORPORATION AND SUBSIDIARIES Computation of Earnings per Common Share (in millions except per share amounts) Year Ended December 31, ---------------------------------------------- 1996 1995 1994 --------------- -------------- --------------- FULLY DILUTED: Income (loss) from continuing operations before extraordinary items....$ (54.3) $ (32.1) $ 4.9 Income (loss) from discontinued operations............................. 102.0 4.4 (3.7) --------------- -------------- --------------- Income (loss) before extraordinary items............................... 47.7 (27.7) (4.8) Less: Accretion of Preferred Stock................................. (22.9) (7.3) (6.0) --------------- -------------- --------------- Income (loss) before extraordinary item applicable to common stock..... 24.8 (35.0) (4.8) Add: Accretion of Preferred Stock assumed converted at beginning of period............................................... --- (a) --- (a) --- (a) --------------- -------------- --------------- 24.8 (35.0) (4.8) Extraordinary loss on retirement of debt............................... --- (7.5) (0.7) --------------- -------------- --------------- Net income (loss) applicable to common stock...........................$ 24.8 $ (42.5) $ (5.5) =============== ============== =============== Weighted average shares outstanding during the period.................. 11.8 10.4 10.3 Assumed exercise of warrants at ratio determined as of December 31, 1996................................................. 1.2 --- (a) --- (a) Assumed conversion of Preferred Stock.................................. --- (a) --- (a) --- (a) Assumed exercise of stock options...................................... 0.3 --- (a) --- (a) --------------- -------------- --------------- Fully diluted shares oustanding........................................ 13.3 10.4 10.3 =============== ============== =============== Fully diluted income per common share Income (loss) from continuing operations before extraordinary item..$ (5.81) $ (3.79) $ (0.10) Income (loss) from discontinued operations.......................... 7.67 0.42 (0.36) --------------- -------------- --------------- Income (loss) before extraordinary items............................ 1.86 (3.37) (0.46) Extraordinary loss.................................................. --- (0.72) (0.07) --------------- -------------- --------------- Net income (loss)...................................................$ 1.86 $ (4.09) $ (0.53 =============== ============== =============== (a) Excluded from the computation because the effect is anti-dilutive.
EX-21 5 EXHIBIT 21.1 EXHIBIT 21.1 CONSOLIDATED SUBSIDIARIES OF TEREX CORPORATION Jurisdiction of Name of Subsidiary Incorporation Terex of Western Michigan, Inc. Michigan Terex Material Handling Corp. Kentucky New Terex Holdings Corporation Delaware Terex Equipment Limited Scotland Fetter One Limited United Kingdom International Machinery Company Limited United Kingdom IMACO Construction Equipment Limited United Kingdom IMACO Blackwood Hodge Group Ltd. United Kingdom IMACO Blackwood Hodge Limited United Kingdom IMACO Trading Limited United Kingdom CMP Limited United Kingdom NGW Supplies Limited United Kingdom Gatewood Engineers Limited United Kingdom Bucyrus Construction Products Delaware Unit Rig Australia (Pty) Limited New South Wales, Australia Terex International Exports, Inc. Delaware Unit Rig South Africa (Pty) Limited South Africa Unit Rig (Canada) Limited Delaware Terex Cranes, Inc. Delaware PPM S.A. (France) France PPM SPA (Italy) Italy Brimont Engine (France) France Brimont Agaire (France) France PPM Krane (Germany) Germany Baulift (Germany) Germany Koehring Cranes Inc. Delaware Legris Industries Inc. Delaware (Liquidated) PPM Cranes, Inc. Delaware PPM PTY Ltd. (Australia) Australia PPM Far East Ltd. (Singapore) Singapore Century II Foreign Sales Corp. Virgin Islands Tower Cranes, Inc. New York North West International, Ltd. Virgin Islands EX-23 6 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-21483, 33-00949 and 33-03983) and on Form S-3 (No. 33-52297) of Terex Corporation of our reports dated March 6, 1997 appearing on pages F-2 and F-34 of this Form 10-K. PRICE WATERHOUSE LLP Stamford, Connecticut March 27, 1997 EX-23 7 EXHIBIT 23.2 Exhibit 23.2 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 33-52297) pertaining to the registration of 242,684 Common Stock Purchase Warrants, (Form S-8 No. 33-21483) pertaining to the registration of 167,812 Shares of Common Stock, (Form S-8 No. 33-00949) pertaining to the registration of 400,000 Shares of Common Stock and (Form S-8 No. 33-03983) pertaining to the registration of 300,000 Shares of Common Stock of Terex Corporation of our report dated August 22, 1995, with respect to the consolidated Statements of Operations, Shareholders' Equity and Cash Flows for the year ended December 31, 1994 of PPM Cranes, Inc. included in the Annual Report (Form 10-K) of Terex Corporation for the year ended December 31, 1996. ERNST & YOUNG, LLP Greenville, South Carolina March 27, 1997 EX-23 8 EXHIBIT 23.3 Exhibit 23.3 (Page 1 of 3) Consent of Independent Accountants We hereby consent to the use in the Annual Report on Form 10-K of Terex Corporation for the year ended December 31, 1996 of our report dated 30 January 1995 relating to the financial statements of PPM of Australia Pty Ltd as at 31 December 1994. PRICE WATERHOUSE Melbourne, Australia 26 March 1997 Exhibit 23.3 (Page 2 of 3) Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-52292), and Forms S-8 (No. 33-21483, No. 33-00949 and No. 33-03983) of PPM of Australia Pty Ltd of our report dated 30 January 1995. PRICE WATERHOUSE Melbourne, Australia 26 March 1997 Exhibit 23.3 (Page 3 of 3) INDEPENDENT AUDIT REPORT TO THE MEMBERS OF PPM OF AUSTRALIA PTY LTD Scope We have audited the financial statements of the Company for the year ended 31 December 1994 as set out on pages 4 to 22. The directors are responsible for the preparation and presentation of the financial statements and the information contained therein. We have conducted an independent audit of the financial statements in order to express an opinion on them to the members of the Company. Our audit has been conducted in accordance with Australian Accounting Standards to provide reasonable assurance as to whether the financial statements are free of material misstatement. Our procedures include examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial statements, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with Australian Accounting Standards and the Corporations Law so as to present a view which is consistent with our understanding of the Company's state of affairs, the results of its operations and its cash flows. The audit opinion expressed in this report has been formed on the above basis. Audit Opinion In our opinion, the financial statements of PPM of Australia Pty Ltd are properly drawn up: (a) so as to give a true and fair view of: (i) the state of affairs of the Company as at 31 December 1994 and its results and cash flows for the financial year ended on that date; and (ii) the other matters required by Divisions 4, 4A and 4B of Part 3.8 of the Corporations Law to be dealt with in the financial statements; (b) in accordance with provisions of the Corporations Law; and (c) in accordance with applicable accounting standards and Australian Accounting Standards. /s/ Price Waterhouse Price Waterhouse Chartered Accountants /s/ WD Russell WD Russell Partner Melbourne, Australia 30 January 1995 EX-24 9 EXHIBIT 24.1 Exhibit 24.1 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Ronald M. DeFeo and Marvin B. Rosenberg, or either of them, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Terex Corporation Annual Report on Form 10-K for the year ended December 31, 1996 (including, without limitation, amendments), and to file the same with all exhibits thereto, and all document in connection therewith, with the Securities and Exchange Commission, granting said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature Title Date --------- ----- ---- /s/ Ronald M. DeFeo President, Chief Executive Officer, March 26, 1997 Ronald M. DeFeo Chief Operating Officer and Director (Principal Executive Officer) /s/ David J. Langevin Executive Vice President March 26, 1997 David J. Langevin (Acting Principal Financial Officer) /s/ Marvin B. Rosenberg Senior Vice President, General Counsel, March 26, 1997 Marvin B. Rosenberg Secretary and Director /s/ Joseph F. Apuzzo Vice President Finance and Controller March 26, 1997 Joseph F. Apuzzo (Principal Accounting Officer) /s/ G. Chris Andersen Director March 26, 1997 G. Chris Andersen /s/ William H. Fike Director March 26, 1997 William H. Fike /s/ Bruce I. Raben Director March 26, 1997 Bruce I. Raben /s/ David A. Sachs Director March 26, 1997 David A. Sachs /s/ Adam E. Wolf Director March 26, 1997 Adam E. Wolf EX-27 10 FDS -- TEREX CORPORATION 10-K
5 THE SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE TEREX CORPORATION DECEMBER 31, 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 72,000 0 117,300 7,000 190,600 390,200 65,400 33,700 471,200 195,000 262,100 46,200 0 100 (71,800) 471,200 678,500 678,500 609,300 609,300 0 0 44,800 (42,200) 12,100 (54,300) 102,000 0 0 47,700 1.86 1.86
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