Terex Corp.: 10-K for Year ended 12/31/97 1 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 For the Fiscal Year Ended December 31, 1997 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) |_| OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______. Commission File Number 1-10702 TEREX CORPORATION (Exact Name of Registrant as Specified in Charter) Delaware 34-1531521 (State of incorporation) (I.R.S. Employer Identification No.) 500 Post Road East, Suite 320, Westport, Connecticut 06880 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: (203) 222-7170 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 and non-voting common equity stock held by non-affiliates of the Registrant was approximately $462.8 million based on the last sale price on March 23, 1998. The number of shares of the Registrant's Common Stock outstanding was 20,642,649 as of March 23, 1998. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the 1998 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 1998 Annual Meeting of Stockholders are incorporated by reference into Part III 2 TEREX CORPORATION AND SUBSIDIARIES Index to Annual Report on Form 10-K For the Year Ended December 31, 1997 Page PART I Item 1 Business..............................................................3 Item 2 Properties...........................................................13 Item 3 Legal Proceedings....................................................14 Item 4 Submission of Matters to a Vote of Security Holders..................14 PART II Item 5 Market for Registrant's Common Stock and Related Stockholder Matters.14 Item 6 Selected Financial Data..............................................16 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................17 Item 8 Financial Statements and Supplementary Data..........................26 Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosures..............................................26 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.......27 * Incorporated by reference from Terex Corporation Proxy Statement. 3 As used in this Annual Report on Form 10-K, unless otherwise indicated, Terex Corporation, together with its consolidated subsidiaries, is hereinafter referred to as "Terex", the "Registrant", or the "Company". PART I ITEM 1. BUSINESS General Terex is a global manufacturer of a broad range of construction and mining related capital equipment. The Company strives to manufacture high quality machines which are low cost, simple to use and easy to maintain. The Company's principal products include telescopic mobile cranes, aerial work platforms, utility aerial devices, telescopic material handlers, truck mounted mobile cranes, rigid and articulated off-highway trucks and high capacity surface mining trucks, and related components and replacement parts. The Company's products are manufactured at 15 plants in the United States and Europe and are sold primarily through a worldwide network of dealers in over 750 locations to the global construction, infrastructure and surface mining markets. The Company's operations began in 1983 with the purchase of Northwest Engineering Company, the Company's original business and name. Since 1983, management has expanded and changed the Company's business through a series of acquisitions and dispositions. In 1988, Northwest Engineering Company merged into a subsidiary acquired in 1986 named Terex Corporation, with Terex Corporation as the surviving entity. As a result of the completion of the PPM Acquisition (as defined below) in May 1995, the Company's operations were divided into three principal segments: Material Handling, Heavy Equipment and Mobile Cranes. On November 27, 1996, the Company completed the sale of its worldwide material handling segment, which was originally acquired in July 1992, and currently the Company operates in two business segments: Terex Lifting (formerly known as Terex Cranes) and Terex Earthmoving (formerly known as Terex Trucks). Terex Lifting manufactures and sells telescopic mobile cranes (including rough terrain, truck and all terrain mobile cranes), aerial work platforms (including scissor, articulated boom and straight telescoping boom aerial work platforms), utility aerial devices (including digger derricks and articulated aerial devices), telescopic material handlers (including container stackers and rough terrain lift trucks), truck mounted cranes (boom trucks) and related components and replacement parts. These products are used by construction and industrial customers, as well as utility companies. Terex Earthmoving manufactures and sells articulated and rigid off-highway trucks and high capacity surface mining trucks, and related components and replacement parts. These products are used primarily by construction, mining and government customers. As discussed more fully below under the heading "Recent Developments," the Company has agreed to purchase all of the outstanding shares of O & K Mining GmbH ("O & K Mining"), whose principal executive offices and primary manufacturing facility are located in Dortmund, Germany. O & K Mining's product line includes a full range of large hydraulic excavators and related parts and components to be sold primarily by O&K Mining's and Terex's combined sales organization. Over the past several years, Terex has implemented a series of interrelated strategic initiatives designed to improve manufacturing efficiency and offer its products at a lower cost than competitors, thereby increasing sales, earnings and market share. These include: (i) focusing the Company's business on its core lifting and earthmoving businesses; (ii) focusing product lines on products which it can manufacture for low cost relative to its competitors by rationalizing product lines and simplifying its product designs; (iii) growth in the size and scope of operations through both acquisitions and new product development; and (iv) increasing profitability through cost reductions and improved manufacturing efficiency. The Company has also implemented a strategy to improve significantly its financial flexibility, strengthen its capital structure and enhance its liquidity to execute its growth initiatives. In addition, the Company has, and continues to, seek out acquisitions in the capital goods industry where aggressive management can achieve substantial improvements in profitability and cash flow. 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." 4 Terex Lifting Terex Lifting 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 are part of the Terex Lifting segment. During 1997, the Company completed two acquisitions to augment its Terex Lifting segment. On April 7, 1997, the Company completed the acquisition of substantially all of the capital stock of certain of the former subsidiaries of Simon Engineering plc (collectively referred to herein as the "Simon Access Companies") for approximately $90 million. The Simon Access Companies consist principally of business units in the United States and Europe engaged in the manufacture, sale and worldwide distribution of access equipment designed to position people and materials to work at heights. The Simon Access Companies' products include utility aerial devices, aerial work platforms and truck-mounted cranes (boom trucks) which are sold to customers in the industrial and construction markets, as well as utility companies. Specifically, the Company acquired 100% of the outstanding common stock of (i) Simon Telelect, Inc. (now named Terex Telelect Inc.), a Delaware corporation, (ii) Simon Aerials, Inc. (now named Terex Aerials, Inc.), a Wisconsin corporation and parent company of Terex RO, (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 (now named Terex Aerials Limited), a company incorporated under the laws of Ireland; and 60% of the outstanding common stock of Simon-Tomen Engineering Company Limited, a limited liability stock company organized under the laws of Japan. On April 14, 1997, the Company completed the acquisition of all of the capital stock of Baraga Products, Inc. and M&M Enterprises of Baraga, Inc. Baraga Products, Inc. (now named Terex Baraga Products, Inc.) manufactures the Square Shooter, a rough terrain telescopic lift truck designed to lift materials to heights where they are used in construction. Terex Lifting has eight significant manufacturing operations: (i) PPM S.A. located in Montceau-les-Mines, France, at which mobile cranes and container stackers under the brand names TEREX and PPM are manufactured; (ii) PPM SpA, located in Crespellano, Italy, at which mobile cranes are manufactured under the TEREX, BENDINI and PPM brand names; (iii) Terex Lifting, 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; (iv) Terex Lifting - 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 names TEREX AERIALS, TEREX AND MARK; (v) Terex Telelect, Inc., located in Watertown, South Dakota, at which utility aerial devices and digger derricks are manufactured under the TELELECT and HI-RANGER brand names, (vi) Terex Aerials, Inc., located in Milwaukee, Wisconsin, at which aerial platforms are manufactured under the TEREX, SIMON, MARK and TEREX AERIALS brand names; (vii) Terex RO, Inc., located in Olathe, Kansas, at which truck mounted cranes are manufactured under the RO-STINGER brand name; and (viii) Terex Baraga Products, Inc., located in Baraga, Michigan, at which rough terrain telescopic lift trucks are manufactured under the SQUARE SHOOTER brand name. Throughout the world market, mobile cranes are principally sold to rental companies and dealers with rental fleets. Terex Lifting's 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 Lifting's principal worldwide mobile crane competitors are Grove Worldwide and Link Belt (Sumitomo); Terex Lifting competes with several smaller specialty companies in North America and with Grove Cranes Ltd., Liebherr Werk Ehingen and DeMag in Europe. Terex Lifting's major competitors in the container stacker market are Kalmar, Valmet Belloti and Taylor. The Company believes that it is the fifth largest manufacturer of aerial work platforms in North America. Currently, the leading competitors in the aerial lift industry are JLG Industries, Genie, Grove Manlift (including the recently acquired Krupp Mobil Krane), Skyjack, and Snorkel. Currently, the leading competitors in the telescopic rough terrain lift truck industry are OmniQuip and Gradall. The Company believes that it is the second largest manufacturer in the United States of utility aerial devices behind Altec. 5 Terex Earthmoving Terex Earthmoving currently manufactures and sells articulated and rigid off-highway trucks and high capacity surface mining trucks, and related components and replacement parts. These products are used primarily by construction, mining and government customers. Terex Earthmoving currently has three 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; (ii) the Unit Rig Division, 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; and (iii) Payhauler Corp. ("Payhauler"), located in Batavia, Illinois, which was acquired by Terex on January 5, 1998 and manufactures all-wheel drive rigid off highway trucks. In addition, Terex Earthmoving 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. As discussed more fully below under the heading "Recent Developments," the Company has agreed to purchase all of the outstanding shares of O & K Mining GmbH ("O & K Mining"), whose principal executive offices and primary manufacturing facility are located in Dortmund, Germany. O & K Mining's product line includes a full range of large hydraulic excavators and related parts and components to be sold primarily by O&K Mining's and Terex's combined sales organization. A "hauler" is an off-road dump truck with a capacity in excess of 25 tons. Haulers produced by TEL and Payhauler have capacities ranging from 25 to 100 tons. The "scrapers" manufactured by TEL are off-road vehicles, commonly referred to as "earthmovers," 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. 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. Payhauler manufactures 30- and 50-ton all-wheel drive rigid rear dump haulers under the PAYHAULER trade name. Terex Earthmoving believes that it is 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. Recent Developments Acquisition of O & K Mining GmbH The Company has agreed to purchase all of the outstanding shares of O&K Mining from O&K Orenstein & Koppel AG ("Orenstein & Koppel") for net aggregate consideration of DM 309 million (approximately $172 million), subject to certain post-closing adjustments. The transaction is scheduled to close on March 31, 1998 and will be financed through the issuance by the Company of its New Senior Subordinated Notes (defined below) and borrowings under the New Bank Credit Facility (as defined below). O&K Mining, which will be part of the Terex Earthmoving segment, is headquartered in Dortmund, Germany, and has operations in the United States, United Kingdom, Australia, Canada, South Africa and Singapore. O&K Mining markets a complete range of large hydraulic excavators serving the global surface mining industry and the global construction and infrastructure development markets. The Company believes that O&K Mining has the leading market share for large hydraulic excavator models having machine weights in excess of 200 tons. The use of O&K Mining's excavators in around the clock intensive, harsh condition mining operations requires significant higher margin after-market parts and service, which in the case of the larger hydraulic excavators can generate revenues of up to 200% of the original sale price over the expected life of the machines. In 1997, O&K Mining introduced the RH 400, the world's largest hydraulic excavator with an 800 ton machine weight and 80 ton bucket capacity. The Company has identified and plans to initiate several programs to increase sales and reduce costs in connection with the integration of O&K Mining into the Terex Earthmoving segment. Since 1993, O&K Mining has successfully marketed the Company's off-highway trucks under private label, primarily in Europe. The Company believes that additional opportunities exist to offer packages of off-highway trucks with complementary small hydraulic excavators to the construction industry outside Europe and of high capacity trucks with complementary large hydraulic excavators to the global surface mining industry. The new machine product combinations and the related integrated parts and field 6 service business will allow the Company to expand on its and O&K Mining's established customer relationships and position itself as an integrated provider of surface mining and construction products. Repurchase of 13-1/4% Senior Secured Notes and New Bank Credit Facility On March 6, 1998, the Company completed the purchase or defeasance of all of the $166.7 million in principal amount of its then outstanding 13-1/4% Senior Secured Notes due 2002 (the "Senior Secured Notes"). Concurrently therewith, the Company also amended or eliminated certain of the principal restrictive covenants contained in the Indenture governing the Senior Secured Notes and refinanced substantially all of its then existing domestic and foreign revolving credit debt. The proceeds for the offer to purchase and the repayment of its then existing revolving credit facility were obtained from borrowings under the Company's new $500 million global bank credit facility (the "New Bank Credit Facility"). The New Bank Credit Facility consists of a new secured global revolving credit facility aggregating up to $125 million (the "New Revolving Credit Facility") and two term loan facilities (collectively, the "Term Loan Facilities") providing for loans in an aggregate principal amount of up to approximately $375 million. The New Revolving Credit Facility, which is currently undrawn, will be used for working capital and general corporate purposes, including acquisitions. Pursuant to the Term Loan Facilities, the Company has borrowed, or may borrow in the future, (i) up to $175 million in aggregate principal amount pursuant to a Term Loan A due March 2004 (the "Term A Loan") and (ii) up to $200 million in aggregate principal amount pursuant to a Term Loan B due March 2005 (the "Term B Loan"). The outstanding principal amount of the Term A Loan initially bears interest, at Company's option, at an all-in drawn cost of 2% per annum in excess of the adjusted eurocurrency rate or, with respect to U.S. dollar denominated alternate base rate loans, at an all-in drawn cost of 1% per annum in excess of the prime rate. The outstanding principal amount of the Term B Loan initially bears interest, at the Company's option, at a rate of 2.5% per annum in excess of the adjusted eurodollar rate or, with respect to U.S. dollar denominated alternate base rate loans, 1.5% in excess of the prime rate. The Term A Loan amortizes on a quarterly basis, in the annual percentages of 0%, 16%, 16%, 21%, 21% and 26%, respectively, during the six year term of the loan. The Term B Loan amortizes in an annual percentage of 1% during each of the first six years of the term of the loan and 94% in the seventh year of the term of the loan. The Term A Loan and Term B Loan are subject to mandatory prepayment under certain circumstances and is voluntarily prepayable without payment of a premium (subject to reimbursement of the lenders' costs in case of prepayment of eurodollar loans other than on the last day of an interest period). The outstanding principal amount of loans under the New Revolving Credit Facility initially bears interest, at the Company's option, at an all-in drawn cost of 2% per annum in excess of the adjusted eurocurrency rate or, with respect to U.S. dollar denominated alternate base rate loans, at an all-in drawn cost of 1% per annum in excess of the prime rate. The New Revolving Credit Facility terminates on March 5, 2004. The Company has entered into certain interest rate protection agreements with respect to a portion of the principal amount of the New Bank Credit Facility. With limited exceptions, the obligations of the Company under the New Bank Credit Facility are secured by (i) a pledge of all of the capital stock of domestic subsidiaries of the Company, (ii) a pledge of 65% of the stock of certain of the foreign subsidiaries of the Company and (iii) a first priority security interest in, and mortgages on, substantially all of the assets of Terex and its domestic subsidiaries. The New Bank Credit Facility contains covenants limiting the Company's activities, including, without limitation, limitations on dividends and other payments, liens, investments, incurrence of indebtedness, mergers and asset sales, related party transactions and capital expenditures. The New Bank Credit Facility also contains certain financial and operating covenants, including a maximum leverage ratio, a minimum interest coverage ratio and a minimum fixed charge coverage ratio. If for any reason the Company is unable to comply with the terms of the New Bank Credit Facility, including the covenants included therein, such noncompliance would result in an event of default under the New Bank Credit Facility and could result in acceleration of the payment of the indebtedness outstanding under the New Bank Credit Facility. New Senior Subordinated Notes On March 24, 1998, the Company entered into a Purchase Agreement to issue and sell $150 million aggregate principal amount of 8.875% Senior Subordinated Notes Due 2008 (the "New Senior Subordinated Notes"). The New Senior Subordinated Notes are being issued and sold pursuant to an exemption from registration under the Securities Act of 1933, as amended, and the closing is expected to occur on March 31, 1998. The New Senior Subordinated Notes are unsecured and repayment is guaranteed on an unsecured basis by certain of the Company's domestic subsidiaries. The proceeds of the issuance and sale of the New Senior Subordianted Notes will be used to fund a portion of the aggregate consideration for the acquisition of O&K Mining and for general corporate purposes. Products Telescopic Mobile Cranes Telescopic mobile cranes are used primarily in new industrial, commercial construction and public works construction industries and in maintenance applications, to lift equipment or material to heights in excess of 50 feet. The Company's Terex Lifting segment manufactures the following types of telescopic mobile cranes: 7 Rough Terrain Cranes--are designed to lift materials and equipment on rough or uneven terrain and are most often located on a single construction or work site such as a building site, a highway or a utility project for long periods of time. Rough terrain cranes cannot be driven on highways and accordingly must be transported by truck to the work site. Rough terrain cranes manufactured by Terex Lifting have maximum lifting capacities of up to 90 tons and maximum tip heights of up to 205 feet. Terex Lifting manufactures its rough terrain cranes at its facilities located at Waverly, Iowa, Conway, South Carolina, Montceau-les-Mines, France, and Crespellano, Italy under the brand names TEREX, LORAIN, P&H, PPM and BENDINI. Truck Cranes--have two cabs and can travel rapidly from job site to job site at highway speeds. In contrast to rough terrain cranes which are often located for extended periods at a single work site, truck cranes are often used for multiple local jobs, primarily in urban or suburban areas. Truck cranes manufactured by Terex Lifting have maximum lifting capacities of up to 75 tons and maximum tip heights of up to 193 feet. Terex Lifting manufactures truck cranes at its Waverly, Iowa and Conway, South Carolina facilities under the brand names P&H and LORAIN. All Terrain Cranes--were developed in Europe as a cross between rough terrain and truck cranes in that they are designed to travel across both rough terrain and highways. All terrain cranes have two cabs and are versatile and highly maneuverable. All terrain cranes manufactured by Terex Lifting have lifting capacities of up to 130 tons and maximum tip heights of up to 223 feet. Terex Lifting manufactures its all terrain cranes at its Montceau-les-Mines, France facility under the brand names TEREX and PPM. Truck Mounted Cranes (Boom Trucks) Terex Lifting manufactures telescopic boom cranes for mounting on commercial truck chassis. Terex also distributes truck mounted articulated cranes under the EFFER brand name which are manufactured by Effer SpA. Truck mounted cranes are used primarily in the construction industry to lift equipment or materials to various heights. Boom trucks are generally lighter and have a lower lifting capacity than truck cranes, and are used for many of the same applications when lower lifting capabilities are required. An advantage of a boom truck is that the equipment or material to be lifted by the crane can be transported by the truck which can travel at highway speeds. Applications include the installation of air conditioners and other roof equipment. The Company's Terex Lifting segment manufactures the following types of cranes for installation on truck chassis: Telescopic Boom Truck Mounted Cranes--enable an operator to reach heights of up to 167 feet and have a maximum lifting capacity of up to 37.5 tons. Terex Lifting manufactures its telescopic boom truck mounted cranes at its Olathe, Kansas facility under the brand name RO-STINGER. Articulated Boom Truck Mounted Cranes--are for users who prefer greater capacities over the greater vertical reach provided by a telescopic boom truck mounted crane. At its Olathe, Kansas facility, Terex Lifting acts as the master distributor for the EFFER brand line of articulated boom truck mounted cranes which have maximum capacities up to 87,305 pounds and horizontal reach to 66 feet. Aerial Work Platforms Aerial work platforms are self propelled devices which position workers and materials easily and quickly to elevated work areas. These products have developed over the past 20 years as alternatives to scaffolding and ladders. The work platform is mounted on either a telescoping and/or articulating boom or on a vertical lifting scissor mechanism. 8 Scissor Lifts--are used in open areas in indoor or outdoor applications in a variety of construction, industrial and commercial settings. Scissor lifts manufactured by Terex Lifting have maximum working heights of up to 52 feet and maximum load capacities of up to 2,000 pounds. Terex Lifting manufactures scissor aerial work platforms at its Waverly, Iowa and Milwaukee, Wisconsin facilities under the brand names TEREX, SIMON and MARK. Straight Telescopic Boom Lifts--are used primarily outdoors in residential, commercial and industrial new construction and maintenance projects. Straight telescopic boom lifts manufactured by Terex Lifting have maximum working heights of up to 126 feet and maximum load capacities of up to 650 pounds. Terex Lifting manufactures its straight telescopic aerial work platforms at its Waverly, Iowa and Milwaukee, Wisconsin facilities under the brand names TEREX, SIMON and MARK. Articulating Telescopic Boom Lifts--are generally used in industrial environments where the articulation allows the user to access elevated areas over machines or structural obstacles which prevent access with a scissor lift or straight boom. Articulating lifts available from Terex Lifting have maximum working heights of up to 70 feet and maximum load capacities of up to 500 pounds. Terex Lifting manufactures its articulating telescopic boom lifts at its Waverly, Iowa and Milwaukee, Wisconsin facilities under the brand name TEREX AERIALS. Utility Aerial Devices Utility aerial devices are used to set utility poles and move workers and materials to work areas at the top of utility poles and towers. Utility aerial devices are mounted on commercial truck chassis which include separately installed steel cabinets for tool and material storage. Most utility aerial devices are insulated to permit live wire work. Articulated Aerial Devices--are used to elevate workers to work areas at the top of utility poles or in trees and include one or two man baskets. Articulated aerial devices available from Terex Lifting include telescopic, non-overcenter and overcenter models and range in working heights from 32 to 203 feet. Articulated aerial devices are manufactured by Terex Lifting at its Watertown, South Dakota facility under the brand names TELELECT and HI-RANGER. Digger Derricks--are used to set telephone poles. The digger derricks include a telescopic boom with an auger mounted at the tip which digs a hole, and a device to grasp, manipulate and set the pole. Digger derricks available from Terex Lifting have sheave heights exceeding 70 feet and lifting capacities up to 48,000 pounds. Digger derricks are manufactured by Terex Lifting at its Watertown, South Dakota facility under the brand name TELELECT. Telescopic Material Handlers Telescopic material handlers are used to lift containers or other material from one location to another at the same job site. Telescopic Container Stackers--are used to pick up and stack containers at dock and terminal facilities. At the end of a telescopic container stacker's boom is a spreader which enables it to attach to containers of varying lengths and weights and to rotate the container up to 360 degrees. Telescopic container stackers are particularly effective in storage areas where containers are continually added and removed, and where the efficient manipulation of, and access to, specific containers is required. Telescopic container stackers manufactured by Terex Lifting have lifting capacities up to 49.5 tons, can stack up to six full or nine empty containers and are able to maneuver through very narrow areas. Terex Lifting manufactures its telescopic container stackers under the brand names PPM and P&H SUPERSTACKERS at its Conway, South Carolina and Montceau-les-Mines, France facilities. 9 Rough Terrain Telescopic Boom Forklifts--serve a similar function as smaller size rough terrain telescopic mobile cranes and are used exclusively to move and place materials on new residential and commercial job sites. Terex Lifting manufactures rough terrain telescopic boom forklifts with load capacities of up to 10,000 pounds and with a maximum extended reach of up to 31 feet and lift capabilities of up to 48 feet. Terex Lifting manufactures rough terrain telescopic boom forklifts at its facility in Baraga, Michigan under the brand name SQUARE SHOOTER. Rigid and Articulated Off-Highway Trucks Terex Earthmoving manufactures two distinct types of off-highway trucks with hauling capacities from 25 to 100 tons: articulated and rigid frame. Terex Earthmoving manufactures rigid and articulated trucks at its TEL facility in Motherwell, Scotland. TEL manufactures and markets articulated trucks and rigid frame trucks under the TEREX brand name and sells to O&K Mining on a private label basis. Upon consummation of the O&K Acquisition, the Company will continue to manufacture articulated trucks and rigid frame trucks under the O&K name. Articulated Off-Highway Trucks--are three axle, six wheel drive machines with a capacity range of 25 to 40 tons. Their differentiating feature is an oscillating connection between the cab and body which allows the cab and body to move independently, thereby enabling all six tires to maintain ground contact for improved traction on rough terrain. This allows the truck to move effectively through extremely rough or muddy off-road conditions. Articulated off-highway trucks are typically used together with an excavator or wheel loader to move dirt in connection with road, tunnel or other infrastructure construction and commercial, industrial or major residential construction projects. Terex's articulated trucks are manufactured in Motherwell, Scotland, under the brand name TEREX. Rigid Off-Highway Trucks--are two axle machines which generally have larger capacities than articulated trucks but can operate only on improved or graded surfaces. The capacities of rigid off-highway trucks range from 35 to 100 tons, and off-highway trucks have applications in large construction or infrastructure projects, aggregates and smaller surface mines. Terex Earthmoving's rigid trucks are manufactured in Motherwell, Scotland, under the TEREX brand name and in Batavia, Illinois, under the PAYHAULER brand name. High Capacity Surface Mining Trucks--are off road dump trucks with capacities in excess of 120 tons primarily for surface mining. Terex Earthmoving's haulers are powered by a diesel engine driving an electric generator that provides power to individual electric motors in each of the rear wheels. Unit Rig's current LECTRA HAUL product line consists of a series of rear dump trucks with payload capacities ranging from 120 to 260 tons, and bottom dump trucks with capacities ranging from 180 to 270 tons. Terex Earthmoving's high capacity surface mining trucks are manufactured at Unit Rig, located in Tulsa, Oklahoma, under the UNIT RIG and LECTRA HAUL brand names. Backlog The Company's backlog as of December 31, 1997 and 1996 was as follows: December 31, --------------------------- 1997 1996 ------------- ------------- Terex Lifting...................... $ 186.5 $ 67.2 Terex Earthmoving.................. 30.3 53.4 ============= ============= Total......................... $ 216.8 $ 120.6 ============= ============= Substantially all of the Company's backlog orders are expected to be filled 10 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. Terex Lifting backlog at December 31, 1997 increased $119.3 million to $186.5 million as compared to $67.2 at December 31, 1996. The increase in backlog was due to the effect of the Simon Access and Square Shooter businesses acquired in April 1997 (approximately $51 million in backlog) as well as increases in the businesses other than the 1997 acquisitions. The backlog at Terex Earthmoving decreased to $30.3 million at December 31, 1997 from $53.4 million at December 31, 1996, principally because of the decline in sales and backlog of Unit Rig machines during 1997. Distribution Terex Lifting distributes its products primarily through a global network of dealers in over 750 different locations. With respect to telescopic mobile cranes in North America, Terex Lifting maintains extensive dealer networks. The geographic strength of Terex Lifting's telescopic mobile cranes marketed under the LORAIN brand name centers in the midwest and mid-Atlantic regions of the United States and the geographic strength of telescopic mobile cranes marketed under the P&H brand name centers in the southern and western regions of the United States. Terex Lifting's European distribution is carried out primarily under three brand names, TEREX, PPM and BENDINI, through a single distribution network comprised of both distributors and a direct sales force. Terex Lifting sells its utility aerial devices under the SIMON, TEREX and TELELECT brand names principally through a network of North American distributors. Terex Lifting sells its aerial work platform products through a distribution network that includes many of the Aerials Limited and Aerials dealers throughout the world, but principally in North America and Europe. Terex Lifting's aerial work platform products are sold under the brand name TEREX AERIALS. TEL markets machines and replacement parts primarily through worldwide dealership networks. TEL's truck dealers are independent businesses which generally serve the construction, mining, timber and/or scrap industries. Although these dealers carry products of a variety of manufacturers, and may or may not carry more than one of the Company's products, each dealer generally carries only one manufacturer's "brand" of each particular type of product. The Company employs sales representatives who service these dealers from offices located throughout the world. Payhauler distributes its products primarily through a dealership network. Unit Rig distributes its products and services directly to customers primarily through its own distribution system. 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 $6.2, $6.1 and $5.0 million in 1997, 1996 and 1995, 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. The Company is endeavoring to develop alternative sources and has entered into a contract with General Atomics, a former defense contractor, to develop electric wheel motors for Unit Rig trucks. If the Company is unable to develop alternative sources, or if there is disruption or termination of its relationship with General Electric Company (which is not governed by a written contract), it could have a material adverse effect on Unit Rig's operations. 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. Competition Telescopic Mobile Cranes--The domestic telescopic mobile crane industry is comprised primarily of three manufacturers. The Company believes that Terex Lifting is the second largest domestic manufacturer, with approximately a 36% market share. The Company believes that the number one domestic manufacturer is Grove Worldwide, and the number three domestic manufacturer is Link-Belt, a 11 subsidiary of Sumitomo Corp. The Company's principal markets in Europe are in France and Italy, where the Company believes it has the largest market shares, with an estimated 50% market share in each of these countries. In Europe, Terex Lifting's primary competitors are Grove Cranes Ltd., Liebherr Werk Ehingen and DeMag. Outside the United States and Europe, the most active new mobile crane markets are the Middle East and South America. Terex Lifting sells approximately 10% of its newly manufactured telescopic mobile cranes to those markets. The United States boom truck industry is dominated by four manufacturers, of which the Company believes Terex RO, with a 25% market share, is the second largest behind Grove National. Aerial Work Platforms--The aerial work platform industry in North America is fragmented, with seven major competitors. The Company believes that its approximate 7% market share makes it the fifth largest manufacturer of aerial work platforms in North America, behind JLG, Grove Manlift, Skyjack and Snorkel. The Company believes that approximately 42,000 aerial platforms were sold in the United States during 1997, of which approximately 70% were scissor lifts, 19% were articulated boom lifts, and 11% were straight boom lifts. The Company believes that its market share in boom lifts is greater than its market share in scissor lifts. Utility Aerial Devices--The utility aerial device industry is comprised primarily of three manufacturers. The Company believes that it has a 20% market share of that industry and that it is the second largest manufacturer in the United States of utility aerial devices behind Altec. Outside the United States, the Company is focusing primarily on the Mexican and Caribbean markets. Telescopic Container Stackers--The Company believes that three manufacturers account for approximately 66% of the global market for telescopic container stackers. The Company believes that it has a global market share of 25% and that it is the second largest manufacturer behind Kalmar. Other manufacturers include Valmet Belloti and Taylor. Telescopic Rough Terrain Lift Trucks--OmniQuip and Gradall are the largest manufacturers of telescopic rough terrain lift trucks. The Company believes that the Square Shooter Business has approximately a 4% market share. Off-Highway Trucks--North America and Europe account for greater than 60% of the global market. Four manufacturers dominate the global market. The Company believes that it is the third largest of these manufacturers (behind Volvo and Caterpillar), with approximately a 10% global market share. High Capacity Surface Mining Trucks--The high capacity surface mining truck industry includes three principal manufacturers: Caterpillar, Komatsu-Dresser and the Company. The Company believes that it is the third largest manufacturer with a global market share of approximately 13%. Employees As of December 31, 1997, the Company had approximately 2,950 employees. The Company considers its relations with its personnel to be good. Approximately 35% of the Company's employees are represented by labor unions which have entered into or are in the process of entering into various separate collective bargaining agreements with the Company. The Company experienced a labor strike at its parts distribution center in Southaven, Mississippi during the second quarter of 1995 which was settled in February 1997. The strike 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. Patents, Licenses and Trademarks Several of the trademarks and trade names of the Company, in particular the TEREX, LORAIN, UNIT RIG, MARK, P&H, PPM, SIMON, TELELECT, SQUARE SHOOTER and PAYHAULER trademarks, are important to the business of the Company. The Company owns and maintains trademark registrations and patents in countries where it conducts business, and monitors the status of its trademark registrations and patents to maintain them in force and renews them as required. The Company also protects its trademark, trade name and patent rights when circumstances warrant such action, including the initiation of legal proceedings, if necessary. P&H is a registered trademark of Harnischfeger Corporation which the Company has the right to use for certain products pursuant to a license agreement until 2011. Pursuant to the terms of the acquisition agreements for the Simon Access Companies, the Company has the right to use the SIMON name (which is a registered trademark of Simon Engineering plc) for certain products until April 7, 2000. CELLA is a trademark of Sergio Cella. EFFER is a trademark of Effer SpA. All other trademarks and tradenames referred to in this Annual Report are registered trademarks of Terex Corporation or its subsidiaries. 12 Environmental Considerations The Company generates hazardous and non-hazardous 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 ("CERCLA"), that (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for hazardous and non-hazardous 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. 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 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. 13 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 Lifting Terex Lifting - Waverly Operations.......Waverly, Iowa(3) Office, manufacturing and warehouse; 383,000 sq.ft. Terex Lifting - Conway Operations........Conway, South Carolina(1) Office, manufacturing and warehouse; 168,716 sq.ft. PPM S.A..................Montceau-les-Mines, Office, manufacturing and France warehouse; 419,764 sq.ft. P.P.M SpA................Crespellano, Italy Office, manufacturing and warehouse; 79,900 sq.ft. PPM Europe Subsidiary....Dortmund, Germany (1) Office and warehouse; 129,180 sq.ft. PPM Europe Subsidiary....Rethel, France Office, manufacturing and warehouse; 215,300 sq.ft. Telelect.................Huron, South Dakota Manufacturing; 88,000 sq.ft Telelect.................Watertown, South Dakota Office, manufacturing and warehouse; 222,450 sq.ft. Cella....................Brescia, Italy (1) Office and manufacturing; 64,000 sq.ft. Aerials Limited..........Cork, Ireland (1) Manufacturing; 80,000 sq.ft PPM Europe Subsidiary....Hong Kong (1) Office; 830 sq.ft. Aerials (Terex RO)......Olathe, Kansas Office and manufacturing; 80,400 sq.ft. Aerials ................Milwaukee, Wisconsin Office, manufacturing and warehouse; 103,000 sq.ft. Square Shooter...........Baraga, Michigan Office, manufacturing and warehouse; 41,152 sq.ft. Terex Earthmoving Unit Rig................ Tulsa, Oklahoma Office, manufacturing and warehouse; 375,587 sq.ft. TEL......................Motherwell, Scotland Office, manufacturing and warehouse; 473,000 sq.ft. Payhauler................Batavia, Illinois Office, manufacturing and warehouse; 112,000 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. Management believes that 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. 14 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 million (the "Clark Sale"). 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. 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 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 million per incident. 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 (a) The Company's Common Stock is listed on the NYSE under the symbol "TEX." Quarterly Market Prices The high and low stock prices for the Company's Common Stock on the NYSE Composite Tape (for the last two completed years) are as follows: 1997 1996 --------------------------------- --------------------------------- Fourth Third Second First Fourth Third Second First ------ ----- ------ ----- ------ ----- ------ ----- High... $ 25.19 $ 23.75 $ 19.50 $ 13.50 $ 10.13 $ 9.38 $ 9.25 $ 7.13 Low.... 18.94 18.75 13.13 9.50 6.63 6.50 6.38 4.13 No dividends were declared or paid in 1996 or in 1997. Certain of the Company's debt agreements contain restrictions as to the payment of cash dividends. In order for the Company to pay dividends, the New Bank Credit Facility requires that the ratio of the Company's total debt to pro forma earnings before interest, taxes, depreciation and amortization for the immediately preceding four fiscal quarters be less than 3.85 to 1.0, and that the amount of dividends paid by the Company during the entire term of New Bank Credit Facility not exceed an aggregate of $25 million. The Company intends generally to retain earnings, if any, to fund the development and growth of its business. The Company does not plan on paying dividends on the Common Stock in the foreseeable future. Any future payments of cash dividends will depend upon the financial condition, capital requirements and earnings of the Company, as well as other factors that the Board of Directors may deem relevant. 15 As of March 23, 1998, there were 661 stockholders of record of the Company's Common Stock. (b) On December 30, 1997, the Company issued 87,300 shares of Common Stock to Randolph W. Lenz in connection with the conversion of all of the shares of Series B Preferred Stock held by him. The issuance of the shares of Common Stock by the Company to Mr. Lenz was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. The Company did not receive any cash proceeds from the issuance of the shares of Common Stock to Mr. Lenz. 16 ITEM 6. SELECTED FINANCIAL DATA (in millions except per share amounts and employees) As of or for the Year Ended December 31, ------------------------------------------------------------ 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- Summary of Operations Net sales..................................................$ 842.3 $ 678.5 $ 501.4 $ 314.1 $ 274.7 Operating income (loss) from continuing operations......... 71.1 5.1 12.8 10.4 (8.2) Income (loss) from continuing operations before extraordinary items...................................... 30.3 (54.3) (32.1) 4.9 (40.7) Income (loss) from discontinued operations................. --- 102.0 4.4 (3.7) (24.3) Income (loss) before extraordinary items................... 30.3 47.7 (27.7) 1.2 (65.0) Net income (loss).......................................... 15.5 47.7 (35.2) 0.5 (66.5) Income (loss) applicable to common stock................... 10.7 24.8 (42.5) (5.5) (66.7) Per Common and Common Equivalent Share: Basic Income (loss) from continuing operations...............$ 1.57 $ (6.54)$ (3.79) $ (0.10) $ (4.11) Income (loss) from discontinued operations............. --- 8.64 0.42 (0.36) (2.44) Income (loss) before extraordinary items............... 1.57 2.10 (3.37) (0.46) (6.55) Net income (loss)...................................... 0.66 2.10 (4.09) (0.53) (6.70) Diluted Income (loss) from continuing operations...............$ 1.44 $ (5.81)$ (3.79) $ (0.10) $ (4.11) Income (loss) from discontinued operations............. --- 7.67 0.42 (0.36) (2.44) Income (loss) before extraordinary items............... 1.44 1.86 (3.37) (0.46) (6.55) Net income (loss)...................................... 0.60 1.86 (4.09) (0.53) (6.70) Working Capital Current assets.............................................$ 426.5 $ 390.2 $ 312.0 $ 278.1 $ 257.3 Current liabilities........................................ 236.1 195.0 196.3 221.6 187.8 Working capital............................................ 190.4 195.2 115.7 56.5 69.5 Property, Plant and Equipment Net property, plant and equipment..........................$ 47.8 $ 31.7 $ 40.1 $ 86.2 $ 97.5 Capital expenditures....................................... 9.9 8.1 5.2 12.7 11.5 Depreciation............................................... 8.2 7.0 7.4 13.7 12.1 Total Assets.................................................$ 588.5 $ 471.2 $ 478.9 $ 401.6 $ 390.7 Capitalization Long-term debt and notes payable, including current maturities...............................................$ 300.1 $ 281.3 $ 329.9 $ 190.9 $ 218.0 Minority interest, including redeemable preferred stock of a subsidiary......................................... 0.6 10.0 9.4 --- --- Redeemable convertible preferred stock..................... --- 46.2 24.6 17.3 10.5 Stockholders' equity (deficit)............................. 59.6 (71.7) (96.9) (55.7) (62.3) Dividends per share of Common Stock........................$ --- $ --- $ --- $ --- $ --- Shares of Common Stock outstanding at year end............. 20.5 13.2 10.6 10.3 10.3 Employees Continuing operations...................................... 2,950 2,270 2,614 1,549 1,520 Discontinued operations (Material Handling)................ --- --- 986 1,302 1,410 Total.................................................... 2,950 2,270 3,600 2,851 2,930 The Selected Financial Data include the results of operations of the Simon Access Companies, Square Shooter and PPM from April 7, 1997, April 14, 1997 and May 9, 1995, respectively, the dates of their acquisitions. See Note C -- "Acquisitions" in the Notes to the Consolidated Financial Statements for further information. The Selected Financial Data for the years ended December 31, 1995 and 1996 include the results of operations of CMHC as discontinued operations. See Note B -- "Discontinued Operations" in the Notes to the Consolidated Financial statements for further information. 17 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 Lifting and Terex Earthmoving. The Company previously operated a third industry segment, the Material Handling segment, the results of which are now accounted for as Income from Discontinued Operations. The Terex Lifting segment results for periods prior to April 1997 consist of Terex Lifting - Waverly Operations, Terex Lifting - - Conway Operations and PPM Europe. Subsequent to that date, Terex Lifting' results also include the results of the Simon Access and Square Shooter businesses acquired in April of 1997. Terex Earthmoving consists of TEL and Unit Rig. 1997 Compared with 1996 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 1997 and 1996. The 1996 amounts include $30.0 million in special charges comprised of $18.3 million at Terex Lifting ($16.8 gross profit; $1.6 million engineering, selling and administrative expenses), $10.4 million at Terex Earthmoving (gross profit), and $1.2 million General/Corporate (engineering, selling and administrative expenses). Year Ended December 31, Increase ----------------------- 1997 1996 (Decrease) ----------- ---------- ------------ (in millions of dollars) NET SALES Terex Lifting.................................. $ 548.0 $ 363.9 $ 184.1 Terex Earthmoving.............................. 288.4 314.9 (26.5) General/Corporate/Eliminations................. 5.9 (0.3) 6.2 =========== ========== ============ Total....................................... $ 842.3 $ 678.5 $ 163.8 =========== ========== ============ GROSS PROFIT Terex Lifting.................................. $ 87.2 $ 38.1 $ 49.1 Terex Earthmoving.............................. 50.7 31.3 19.4 General/Corporate/Eliminations................. 1.7 (0.2) 1.9 =========== =========== ============ Total....................................... $ 139.6 $ 69.2 $ 70.4 =========== =========== ============ ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES Terex Lifting.................................. $ 40.0 $ 33.3 $ 6.7 Terex Earthmoving.............................. 26.0 25.7 0.3 General/Corporate.............................. 2.5 5.1 (2.6) =========== =========== ============ Total....................................... $ 68.5 $ 64.1 $ 4.4 =========== =========== ============ INCOME (LOSS) FROM OPERATIONS Terex Lifting.................................. $ 47.2 $ 4.8 $ 42.4 Terex Earthmoving.............................. 24.7 5.6 19.1 General/Corporate.............................. (0.8) (5.3) 4.5 ----------- ----------- ------------ Total....................................... $ 71.1 $ 5.1 $ 66.0 =========== ============ ============ INCOME FROM DISCONTINUED OPERATIONS $ --- $ 102.0 $ (102.0) =========== ============ ============ 18 Net Sales Sales increased $163.8 million, or approximately 24.1%, to $842.3 million in 1997 from $678.5 million in 1996, primarily reflecting the Simon Access and Square Shooter Acquisitions in the second quarter of 1997. Terex Lifting's sales were $548.0 million for 1997, an increase of $184.1 million, or 50.6%, from $363.9 million in 1996 which did not include the results of Simon Access and Square Shooter. Machine sales increased $168.7 million to $460.5 million in 1997. This increase in sales was due primarily to the inclusion of Simon Access and Square Shooter since their acquisition in April 1997. The increase in Terex Lifting's sales in 1997 as compared to 1996 was also attributable to an increase of $22.7 million in sales at Terex--Waverly Operations as compared to 1996. Parts sales increased $8.6 million to $72.9 million in 1997. Terex Lifting's bookings were $613.3 million for 1997, compared to $356.1 million for 1996, an increase of $257.2 million. Terex Earthmoving's sales decreased $26.5 million in 1997 to $288.4 million. This decline in sales resulted from a decrease in sales of Unit Rig machines which was partially offset by sales increases in the other Terex Earthmoving businesses. Machine sales at Terex Earthmoving in 1997 decreased $22.2 million to $189.0 million from $211.2 million in 1996 of which approximately $33 million was attributable to a decrease in Unit Rig's machine sales partially offset by increased sales in Terex products primarily in North America. Sales of parts at Terex Earthmoving in 1997 increased $2.2 million to $96.2 million as compared to $94.0 million in 1996. The sales mix was approximately 33% parts in 1997 compared to approximately 29% parts in 1996. Terex Earthmoving's bookings for 1997 were $268.0 million, a decrease of $9.9 million, or 3.6%, from 1996. Backlog decreased to $30.3 million at December 31, 1997 from $53.4 million in 1996 primarily as a result of the decrease in machine sales at Unit Rig. Gross Profit Gross profit for 1997 increased $70.4 million to $139.6 million. The increase in the gross profit was due to the addition of the Simon Access and Square Shooter businesses, general improvements at most operations and the effect of $27.1 million of non-recurring charges in 1996. The 1996 charges included a $16.8 million write down of goodwill and other long lived assets at Terex Lifting and $10.4 million of non-recurring charges recorded at Terex Earthmoving, primarily Unit Rig, in the fourth quarter of 1996. Gross profit as a percentage of net sales for 1997 increased to 16.6% as compared to 10.2% for 1996 as a result of the effect of the non-recurring charges in 1996. Excluding these $27.1 million charges in 1996, gross profit as a percentage of sales in 1997 increased to 16.6% from 14.2% in 1996. Terex Lifting's gross profit increased $49.1 million to $87.2 million for 1997, compared to $38.1 million for 1996, reflecting the Simon Access and Square Shooter acquisitions. The gross profit percentage increased to 15.9% in 1997 as compared to 10.5% in 1996. Excluding the effect of the Simon Access and Square Shooter acquisitions and the 1996 impairment charge, Terex Lifting's gross profit in 1997 increased $3.6 million as compared to 1996. Terex Earthmoving's gross profit increased $19.4 million to $50.7 million in 1997 compared to $31.3 million for 1996. Excluding the $10.4 million non-recurring charges in 1996 noted above, Terex Earthmoving's gross profit increased $9.0 million in 1997 as compared to 1996. Excluding the 1996 non-recurring charges, the gross profit percentage in 1997 increased to 17.6% from 13.2% in 1996 due to an increase in the proportion of higher margin parts sales as compared to machine sales, an increase in the gross margin for the Terex product line, primarily due to cost reduction initiatives, and a decrease in the percentage of Terex Earthmoving's sales in 1997 comprised of the lower margin Unit Rig machines. Engineering, Selling and Administrative Expenses Engineering, selling and administrative expenses (which include the Company's research and development expenses) increased to $68.5 million in 1997 from $64.1 million for 1996, reflecting the effects of the acquisition of the Simon Access Companies and Square Shooter. However, engineering, selling and administrative expenses as a percentage of net sales decreased to 8.1% for 1997 from 9.4% for 1996. Terex Earthmoving's engineering, selling and administrative expenses increased $0.3 million to $26.0 million for 1997 due to increased selling efforts. Terex Lifting's engineering, selling and administrative expenses increased to $40.0 million for 1997 from $33.3 million for 1996, reflecting the acquisition of the Simon Access Companies and Square Shooter. Excluding the effect of the acquired companies, Terex Lifting engineering, selling and administrative expenses fell by almost 22% year over year. Unallocated corporate engineering, selling and administrative expenses decreased to $2.5 million in 1997 as compared to $5.1 million in 1996. See "Business--Research and Development" for a discussion of the Company's engineering expenses. 19 Income (Loss) from Operations Terex Lifting's income from operations of $47.2 million for 1997 increased by $42.4 million over 1996, primarily due to the inclusion of the Simon Access and Square Shooter businesses ($14.3 million), the 1996 impairment charges, improved results at the European operations and continued strong performance by Terex Lifting--Waverly Operations. Terex Earthmoving's income from operations increased by $19.1 million to $24.7 million for 1997 from $5.6 million in 1996, primarily due to improved profits at Unit Rig, higher gross margin percentages and the 1996 non-recurring charges mentioned above under "Gross Profit." On a consolidated basis, the Company had operating income of $71.1 million for 1997, compared to operating income of $5.1 million for 1996, for the reasons mentioned above. Interest Expense Net interest expense decreased to $38.5 million for 1997 from $43.6 million in 1996 as a result of lower average debt levels and interest rates in 1997. A portion of the decrease was due to the $139.5 million of cash provided from the sale of the Company's Materials Handling Segment in November 1996, which allowed the Company to eliminate borrowings under its revolving credit facility prior to the acquisition of the Simon Access Companies on April 7, 1997. Furthermore, the proceeds from the issuance of the Common Stock in July 1997 were used to reduce the average balance borrowed under the then existing revolving credit facility, and then on September 4, 1997, the Company redeemed $83.3 million of the Senior Secured Notes. Other Income (Expense) The Company realized gains in 1996 of $3.3 million from the sale of excess property principally in Scotland and Italy. During 1996, the Company recorded a provision for income taxes of $12.1 million; in 1997, the Company recorded $0.7 million provision for income taxes. The 1996 provision for income taxes primarily relates to $11.3 million of tax expense recognized at PPM Europe in connection with its recapitalization which required the Company to utilize a net operating loss carryforward. The additional $0.8 million provision relates to taxes due on the sale of property in Europe. Income (Loss) from Discontinued Operations Income from discontinued operations in the Company's Material Handling Segment ("Clark") was $102.0 million for 1996. The income was primarily due to the gain realized on the Clark Sale of $84.5 million. Gross profit for 1996 (through the date of the Clark Sale) was $46.0 million. Extraordinary Items The Company recorded a charge of $2.6 million in 1997 to recognize a loss on the early extinguishment of debt in connection with its debt refinancing in April 1997. Additionally, the Company recorded a charge of $12.2 million to recognize a loss on the early extinguishment of debt in connection with the September 1997 redemption of $83.3 million of the Senior Secured Notes. 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 million in special charges comprised of $18.3 million at Terex Lifting ($16.8 gross profit; $1.6 million engineering, selling and administrative expenses), $10.4 million at Terex Earthmoving (gross profit), and $1.2 million General/Corporate (engineering, selling and administrative expenses). 20 Year Ended December 31, Increase ------------ ------------ 1996 1995 (Decrease) ------------ ------------ ------------ (in millions of dollars) NET SALES Terex Lifting.................................. $ 363.9 $ 252.3 $ 111.6 Terex Earthmoving.............................. 314.9 250.3 64.6 Eliminations................................... (0.3) (1.2) 0.9 ============ ============ ============ Total....................................... $ 678.5 $ 501.4 $ 177.1 ============ ============ ============ GROSS PROFIT Terex Lifting.................................. $ 38.1 $ 35.2 $ 2.9 Terex Earthmoving.............................. 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 Lifting.................................. $ 33.3 $ 28.0 $ 5.3 Terex Earthmoving.............................. 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 Lifting.................................. $ 4.8 $ 7.2 $ (2.4) Terex Earthmoving.............................. 5.6 13.0 (7.4) General/Corporate.............................. (5.3) (7.4) 2.1 ------------ ------------ ------------ Total....................................... $ 5.1 $ 12.8 $ (7.7) ============ ============ ============ INCOME FROM DISCONTINUED OPERATIONS $ 102.0 $ 4.4 $ 97.6 ============ ============ ============ Net Sales Sales increased $177.1 million, or approximately 35.3%, to $678.5 million in 1996 from $501.4 million in 1995, reflecting the PPM Acquisition in the second quarter of 1995. Terex Lifting's sales were $363.9 million for 1996, an increase of $111.6 million, or 44.2%, from $252.3 million in 1995 which did not include PPM prior to the PPM Acquisition. Machine sales increased $94.9 million to $291.8 million in 1996. This increase in sales was due primarily to the inclusion of PPM Europe and Terex Lifting--Conway Operations for all of 1996, as compared to 1995 when the results of these operations were not included prior to May 9, 1995. The increase in Terex Lifting's sales in 1996 as compared to 1995 was also attributable to an increase of $34.3 million in sales at Terex--Waverly Operations as compared to 1995 and, to a lesser extent, to growth in sales at PPM Europe and Terex Lifting--Conway Operations during such period. Parts sales increased $11.4 million to $64.3 million in 1996. Terex Lifting's bookings were $356.1 million for 1996, compared to $236.7 million for 1995, an increase of $119.4 million. Terex Earthmoving's sales increased $64.6 million in 1996 to $314.9 million. Machines sales increased 36.2% primarily due to increased presence in the Asian market and the United States 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 Earthmoving's bookings for 1996 were $277.9 million, a decrease of $3.0 million, or 1.1%, from 1995. Backlog decreased to $53.4 million at December 31, 1996 from $88.8 million in 1995 as a result of a large order which was placed late in 1995. However, the average backlog increased slightly to $68.1 million for 1996 as compared to $57.0 million for 1995. 21 Gross Profit Gross profit for 1996 decreased $1.2 million to $69.2 million. The decline in the gross profit was primarily due to the $16.8 million write down of goodwill and other long lived assets at Terex Lifting and $10.4 million of non-recurring charges recorded at Terex Earthmoving 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 10.2% as compared to 14.0% for 1995 as a result of the non-recurring charges. However, excluding these $27.1 million charges in 1996, gross profit as a percentage of sales increased to 14.2% and increased from $70.4 million to $96.3 million. Terex Lifting's gross profit increased $2.9 million to $38.1 million for 1996, compared to $35.2 million for 1995, reflecting the PPM Acquisition, the effect of cost reduction actions put in place at PPM Europe and Terex Lifting--Conway Operations, and improved performance at Terex Lifting--Waverly Operations. These improvements were substantially offset by an impairment charge which resulted from a detailed analysis of future cash flows from operations primarily at Terex Lifting--Conway Operations facility. Excluding the impairment charge, Terex Lifting's gross profit in 1996 increased $19.7 million as compared to 1995 and the gross profit percentage increased to 15.1% as compared to 14.0% in 1995. Terex Earthmoving's gross profit decreased $4.6 million to $31.3 million in 1996 compared to $35.9 million for 1995. Excluding the $10.4 million non-recurring charges noted above, Terex Earthmoving's gross profit increased $5.8 million in 1996 as compared to 1995. The $10.4 million non-recurring charges are comprised mainly of $8.6 million at Unit Rig for the reduction in value of the Unit Rig Tulsa facility due to changes in production methods, and $1.9 million of goodwill associated with TEL's acquisition of its UK distributor, Terex (UK) Limited, which was written off and recorded as an impairment charge in 1996. Exclusive of these non-recurring charges, the gross profit percentage in 1996 decreased to 13.2% from 14.3% in 1995 due to an increase in the proportion of machine sales as compared to parts sales. Parts sales have higher margins than machine sales. Engineering, Selling and Administrative Expenses Engineering, selling and administrative expenses (which include the Company's research and development expenses) increased to $64.1 million in 1996 from $57.6 million for 1995, reflecting the effects of the PPM Acquisition. However, engineering, selling and administrative expenses as a percentage of net sales decreased to 9.4% for 1996 from 11.5% for 1995. Terex Earthmoving's engineering, selling and administrative expenses increased to $25.7 million for 1996 from $22.9 million for 1995 primarily due to costs associated with a new parts sales office and a new U.K. dealership. Terex Lifting's engineering, selling and administrative expenses increased to $33.3 million for 1996 from $28.0 million for 1995, reflecting the PPM Acquisition and non-recurring charges of $1.6 million. See "Business--Research and Development" for a discussion of the Company's engineering expenses. Income (Loss) from Operations Terex Lifting's income from operations of $4.8 million for 1996 decreased by $2.4 million over 1995, primarily due to the impairment charges at the Terex Lifting--Conway Operations 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 Lifting--Waverly Operations. Terex Earthmoving's income from operations decreased by $7.4 million to $5.6 million for 1996 from $13.0 million in 1995, primarily due to the non-recurring charges mentioned above under "Gross Profit." Excluding these charges, income from operations increased to $16.0 million. On a consolidated basis, the Company had operating income of $5.1 million for 1996, compared to operating income of $12.8 million for 1995, for the reasons mentioned above. Interest Expense Net interest expense increased to $43.6 million for 1996 from $38.0 million in 1995 as a result of incremental borrowings associated with the PPM Acquisition. Other Income (Expense) The Company realized gains in 1996 of $3.3 million from the sale of excess property principally in Scotland and Italy. During 1996, the Company recorded a provision for income taxes of $12.1 million; in 1995, the Company recorded no 22 provision for income taxes. The 1996 provision for income taxes primarily relates to $11.3 million of tax expense recognized at PPM Europe in connection with its recapitalization which required the Company to utilize a net operating loss carryforward. The additional $0.8 million provision relates to taxes due on the sale of property in Europe. In 1995, the Company had a gain of $1.0 million from the sale of stock of a former subsidiary and recorded a charge of $0.5 million 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 million to $102.0 million for 1996 as compared to $4.4 million in 1995. The increased income was primarily due to the gain realized on the Clark Sale of $84.5 million. Gross profit for 1996 (through the date of the Clark Sale) increased $1.2 million to $46.0 million as compared to 1995 even though net sales decreased $124.2 million or 23%. Additionally, in 1995 the Clark Material Handling Segment recorded charges of $6.0 million related to 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 million in 1995 to recognize a loss on the early extinguishment of debt in connection with its debt refinancing in May 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. 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 through debt refinancings, issuances of equity, asset sales, including the sale of business units, or any combination thereof. As part of its strategy the Company has consummated several transactions over the past 18 months which have strengthened its capital structure and significantly reduced its cost of funds. On November 27, 1996, the Company completed the Clark Sale for an aggregate cash purchase price of approximately $139.5 million. Upon closing, the Company initially used the proceeds to pay down its then existing domestic credit facility. Then, on December 30, 1996, the Company called all of its issued and outstanding Series A Preferred Stock for redemption on January 29, 1997 (the "Series A Redemption Date"). The Series A Preferred Stock was accreting initially at a rate of 13% per annum, which was to increase to 18% per annum at the end of 1998. All 1,200,000 shares of the Series A Preferred Stock outstanding on the Series A Redemption Date were redeemed at a redemption price of $37.80 per share, or approximately $45.4 million in aggregate. On July 28, 1997 and August 7, 1997, the Company issued an additional 5,000,000 shares and 700,000 shares, respectively, of its Common Stock in an underwritten public stock offering. The shares were issued at a price to the public of $19.50 per share. The net proceeds received by the Company were $104.6 million. A portion of the proceeds from the stock offering were initially used to reduce borrowings under the Company's then existing domestic revolving credit facility. On September 4, 1997, the Company used a portion of the proceeds from the stock offering to redeem $83.3 million of the Senior Secured Notes. The total funds paid at the redemption were $94.6 million ($83.3 million principal, $7.9 million redemption premium and $3.4 million accrued interest). As a result of the redemption of a portion of the Senior Secured Notes, the annual interest payments on the Senior Secured Notes decreased from $33.1 million to $22.1 million, a savings of $11.0 million per year. In December 1997, two additional transactions were completed that further improved the Company's capital structure. On December 10, 1997, the Company eliminated all of the issued and outstanding shares of Series A Redeemable Exchangeable Preferred Stock of its subsidiary, Terex Cranes, Inc. (the "Subsidiary Preferred Stock"), by merging Terex Cranes, Inc. with the Company and exchanging the Subsidiary Preferred Stock (originally issued in connection with the PPM Acquisition) into 705,969 shares of Common Stock of the Company. On December 30, 1997, all of the Company's issued and outstanding shares of Series B Cumulative Redeemable Convertible Preferred Stock, which was accreting initially at a rate of 13% per annum, and was to increase to 18% per annum at the end of 1998, were converted by the holder thereof into 87,300 shares of Common Stock of the Company. 23 On March 6, 1998, the Company consummated the New Bank Credit Facility, the refinancing of substantially all of its domestic and foreign revolving credit facilities, and the purchase or defeasance of all of the Company's outstanding Senior Secured Notes. The New Bank Credit Facility consists of the New Revolving Credit Facility aggregating up to $125 million and the Term Loan Facilities providing for loans in an aggregate principal amount of up to approximately $375 million. Borrowings under the Term Loan Facilities were used by the Company to (i) finance the purchase of the $166.7 million of its then outstanding Senior Secured Notes and pay the premium and accrued interest in connection therewith and (ii) repay in full the outstanding indebtedness and related fees and expenses under certain of the Company's then existing credit facilities. In connection with these actions, the Company will incur an extraordinary loss of $38.4 million in the first quarter of 1998. Borrowings under the Term Loan Facilities will also be used to fund a portion of the aggregate consideration for the acquisition of O&K Mining. The New Revolving Credit Facility, which is currently undrawn, will be used for working capital and general corporate purposes. On March 24, 1998, the Company entered into a Purchase Agreement to issue and sell $150 million aggregate principal amount of 8.875% Senior Subordinated Notes Due 2008 (the "New Senior Subordinated Notes"). The New Senior Subordinated Notes are being issued and sold pursuant to an exemption from registration under the Securities Act of 1933, as amended, and the closing is expected to occur on March 31, 1998. The New Senior Subordinated Notes are unsecured and repayment is guaranteed on an unsecured basis by certain of the Company's domestic subsidiaries. The proceeds of the issuance and sale of the New Senior Subordinated Notes will be used to fund a portion of the aggregate consideration for the acquisition of O&K Mining and for general corporate purposes. Net cash of $0.3 million was used by operating activities during 1997. $85.4 million was provided by operating results plus depreciation and amortization, and approximately $9.8 million was invested in working capital during the period to support the increase in business activity at Terex Lifting and TEL. The remaining effect on cash from operations for the period was due to the costs of financing. Net cash used in investing activities was $98.6 million during 1997, primarily related to the purchase of the Simon Access Companies and Baraga Products, Inc. Net cash provided by financing activities was $64.2 million during 1997. Cash was provided by the net proceeds from the public offering of common stock and additional borrowings primarily related to the purchase of the Simon Access Companies. Cash was used for the redemption of the Series A Preferred Stock and the redemption of a portion of the Senior Secured Notes. Cash and cash equivalents totaled $28.7 million at December 31, 1997. Factors Affecting Future Liquidity The Company's debt service obligations for 1998 include quarterly interest and principal payments on the Term Loan Facilities and variable periodic payments on the New Revolving Credit Facility and will include semi-annual interest payments due on the Senior Subordinated Notes issued in connection with the O&K Mining acquisition. Management believes that with cash generated from operations, together with borrowings under the New Revolving Credit Facility (which is currently undrawn), the Company has adequate liquidity to meet the Company's operating and debt service requirements for the foreseeable future. The New Bank Credit Facility places certain limits on the Company's ability, among other things, to incur indebtedness and liens, pay dividends and make other payments, consummate mergers and asset acquisitions and sales, enter into related party transactions and make capital expenditures and investments. The New Bank Credit Facility also contains certain financial and operating covenants, including a maximum leverage ratio, a minimum interest coverage ratio and a minimum fixed charge coverage ratio. 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 Pound Sterling and the French Franc. Following consummation of the O&K Mining acquisition, the Company will also conduct significant business in Deutsche Marks. 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. Because certain of the Company's obligations, including indebtedness under the New Bank Credit Facility, will bear interest at floating rates, an increase in interest rates could adversely affect, among other things, the ability of the Company to meet its debt service obligations. The Company has entered into interest protection arrangements with respect to approximately $220 million of the principal amount of its indebtedness under the New Bank Credit Facility fixing interest at various rates between 6.6% and 8.3%. Contingencies and Uncertainties The Internal Revenue Service (the "IRS") is currently examining the Company's Federal tax returns for the years 1987 through 1989. In December 1994, the Company received an examination report from the IRS proposing a substantial tax deficiency. The examination report raised a variety of issues, including the Company's substantiation for certain deductions taken during this period, the Company's utilization of certain net operating loss carryovers ("NOLs") and the availability of such NOLs to offset future taxable income. The Company filed an administrative appeal to the examination report in April 1995. In June 1996, the Company was advised that the matter was being referred back to the audit division of the IRS. The IRS is currently reviewing information provided by the Company. The ultimate outcome of this matter is subject to the resolution of significant legal and factual issues. Given the stage of the audit, and the 24 number and complexity of the legal and administrative proceedings involved in reaching a resolution of this matter, it is unlikely that the ultimate outcome, if unfavorable to the Company, will be determined for at least several years. If the IRS were to prevail on all the issues raised, the amount of the tax assessment would be approximately $56 million plus penalties of approximately $12.8 million and interest through December 31, 1997 of approximately $94.5 million. The penalties asserted by the IRS are calculated as 20% of the amount of the tax assessed for fiscal year 1987 and 25% of the tax assessed for each of fiscal years 1988 and 1989. Interest on the amount of tax assessed and penalties is currently accruing at a rate of 11% per annum. The applicable annual rate of interest has historically varied from 7% to 12%. If the Company were required to pay a significant portion of the assessment with related interest and penalties, such payment might exceed the Company's resources. In such event, the viability of the Company would be placed in jeopardy, and it is uncertain that the Company could, through financing or otherwise, obtain the funds required to pay such assessment, interest, and applicable penalties. Management believes, however, that the Company will be able to provide adequate documentation for a substantial portion of the deductions questioned by the IRS and that there is substantial support for the Company's past and future utilization of the NOLs. Based upon consultation with its tax advisors, management believes that the Company's position will prevail on the most significant issues. Accordingly, management believes that the outcome of the examination will not have a material adverse effect on its financial condition or results of operations, but may result in some reduction in the amount of the NOLs available to the Company. No additional accruals have been made for any amounts which might be due as a result of this matter because the possible loss ranges from zero to $56 million plus interest and penalties, and the ultimate outcome cannot be determined or estimated at this time. No reserves are being expensed to cover the potential liability. As of December 31, 1997, the Company had federal NOLs of approximately $290.5 million. The Company would be subject to an annual limitation (described below) on its ability to utilize its NOLs to offset future taxable income if the Company undergoes an ownership change (an "Ownership Change") within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"). Generally, an Ownership Change is deemed to occur if the aggregate cumulative increase in the percentage ownership of the capital stock of the Company (which generally includes for this purpose, but is not limited to, the common stock and certain options and warrants) by persons owning 5% or more of such capital stock and certain public groups (within the meaning of Section 382) is more than 50 percentage points in any three-year testing period. In the event of an Ownership Change, the Company's utilization of its NOLs would be limited to an annual amount (without extending the applicable 15-year carryforward period for NOLs) equal to the product of the fair market value of the Company immediately before such Ownership Change (as determined pursuant to Section 382, which may provide for certain reductions in value) multiplied by the long-term tax-exempt rate, which is an interest-indexed rate that is published monthly by the IRS and which is approximately 5.23% as of the date of this Annual Report. NOLs arising after the date that any Ownership Change occurs will be unaffected by such Ownership Change. It is impossible for the Company to ensure that an Ownership Change will not occur in the future, in part because the Company has no ability to restrict the acquisition or disposition of the Company's capital stock by persons whose ownership could cause an Ownership Change. In addition, the Company may in the future take certain actions which, alone or coupled with other events, could give rise to an Ownership Change, if in the exercise of the business judgment of the Company such actions (which may include future issuances of equity securities) are necessary or desirable. If an Ownership Change were to occur, the NOL annual limitation under Section 382 could substantially reduce the Company's future after-tax earnings and cash flow. In March 1994, the Securities and Exchange Commission (the "Commission") initiated a private investigation, which included the Company and certain of its present and former officers and affiliates, to determine whether violations of certain aspects of the Federal securities laws had occurred. To date, the 25 inquiry of the Commission has primarily focused on accounting treatment and reporting matters relating to various transactions which took place in the late 1980s and early 1990s. The Company is cooperating with the Commission in its investigation. The Company has recently been advised by the Staff of the Commission that it has been authorized by the Commission to institute an administrative proceeding against the Company and certain of its present and former officers and affiliates. Based on information currently available to the Company, it is the Company's understanding that if a proceeding were to be brought, the Staff intends to seek an order to cease and desist violations of the Federal securities laws (without monetary penalties) based on claims relating to accounting treatment and reporting matters with respect to the Company's financial statements for the years ended December 31, 1990 and 1991, as well as the Company's Proxy Statement covering the 1992 fiscal year. It is not possible at this time to determine the outcome of the Commission's investigation. During 1997, in connection with the Commission's investigation, the Company incurred $0.2 million 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 officers 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 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 adverse 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 non-hazardous wastes in the normal course of its manufacturing operations. As a result, the Company is subject to a wide range of federal, state, local and foreign environmental laws and regulations, including CERCLA, that (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for hazardous and non-hazardous wastes, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous substances. Compliance with such laws and regulations has, and will, require expenditures by the Company on a continuing basis. The Company does not expect that these expenditures will have a material adverse effect on its financial condition or results of operations. 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, when included in this Annual Report or in documents incorporated herein by reference, the words "may," "expects," "intends," "anticipates," "plans," "projects," "estimates" and the negatives thereof and analogous or similar expressions are intended to identify forward-looking statements. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties, many of which are beyond the Company's control, include, among others, the sensitivity of construction and mining activity to interest rates, government spending and general economic conditions; the success of the integration of acquired businesses; the retention of key management; foreign currency fluctuations; pricing, product initiatives and other actions taken by competitors; the effects of changes in laws and regulations; continued use of net operating loss carryovers and other factors. Actual events or the actual future results of the Company may differ materially from any forward looking statement due to these and other risks, uncertainties and significant factors. The forward-looking statements contained herein speak only as of the date of this Annual Report and the forward-looking statements contained in documents incorporated herein by reference speak only as of the date of the respective documents. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained or incorporated by reference in this Annual Report to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. 26 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Unaudited Quarterly Financial Data Summarized quarterly financial data for 1997 and 1996 are as follows (in millions, except per share amounts): 1997 1996 ------------------------------------- ------------------------------------- Fourth Third Second First Fourth Third Second First ------------------------------------- ------------------------------------- Net sales.................................... $ 219.7 $ 214.1 $ 232.2 $ 176.3 $ 156.8 $ 165.7 $ 182.8 $ 173.2 Gross profit................................. 36.8 37.0 38.3 27.5 (4.9) 23.7 27.0 23.4 Income (loss) from continuing operations before extraordinary items................. 10.0 8.7 7.7 3.9 (46.5) (3.4) (1.7) (2.7) Income (loss) from discontinued operations... --- --- --- --- 87.8 4.8 6.2 3.2 Income (loss) before extraordinary items.... 10.0 8.7 7.7 3.9 41.3 1.4 4.5 0.5 Net income (loss)............................ 10.0 (3.5) 5.1 3.9 41.3 1.4 4.5 0.5 Income (loss) applicable to common stock..... 6.4 (3.9) 4.7 3.5 24.4 (0.9) 2.6 (1.4) Per share: Basic Income (loss) before extraordinary items. $ 0.32 $ 0.47 $ 0.35 $ 0.26 $ 1.85 $ (0.07) $ 0.19 $ (0.13) Net income (loss)........................ 0.32 (0.21) 0.33 0.26 1.85 (0.07) 0.19 (0.13) Diluted Income (loss) before extraordinary items. $ 0.30 $ 0.43 $ 0.48 $ 0.24 $ 1.71 $ (0.06) $ 0.18 $ (0.13) Net income (loss)........................ 0.30 (0.20) 0.31 0.24 1.71 (0.06) 0.18 (0.13) 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. The results of the Company's Material Handling Segment have been accounted for as discontinued operations for all periods presented. See Item 1. - Business. In 1997, the Company recognized an extraordinary loss on the early extinguishment of debt -- $2.6 million in connection with the refinancing of its then existing revolving credit in the second quarter and $12.2 million in connection with the redemption of $83.3 million of its Senior Secured Notes in the third quarter. In 1996, the Company recognized a gain of $2.4 million 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 million on the sale of CMHC in the fourth quarter. In the fourth quarter of 1996 the Company recorded special charges of $45.1 million, including impairment charges of $18.7 million (see Note D -- "Impairment of Long Lived Assets and Other Special Charges"), a reduction in the value of certain assets of $8.6 million, $2.0 million related to pre-purchase tax contingencies at PPM, $3.0 million of other one time accruals, and income tax expense of $12.1 million (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 million, which included $14.5 of additional accretion due to the redemption of the Series A Preferred Stock on January 29, 1997. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 27 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 Annual Report on 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 December 8, 1997 was filed December 8, 1997 reporting that the Company had entered into an underwriting agreement with Credit Suisse First Boston Corporation (the "Underwriter") and Legris Industries S.A. and Potain S.A. (collectively, the "Selling Shareholders"), providing for the purchase by the Underwriter from the Selling Stockholders of 705,969 shares of the Company's Common Stock. A report on Form 8-K dated December 15, 1997 was filed December 29, 1997 reporting the Company's announcement of an agreement to acquire the shares of O&K Mining GmbH. 28 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 27, 1998 ---------------------------------- Ronald M. DeFeo, Chairman, Chief Executive Officer and Director 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 Chairman, Chief Executive Officer, March 27, 1998 - ---------------------- and Director Ronald M. DeFeo (Principal Executive Officer) /s/ David J. Langevin Executive Vice President March 27, 1998 - ---------------------- (Acting Principal Financial Officer) David J. Langevin /s/ Joseph F. Apuzzo Vice President Finance and Controller March 27, 1998 - ---------------------- (Principal Accounting Officer) Joseph F. Apuzzo /s/ G. Chris Andersen Director March 27, 1998 - ---------------------- G. Chris Andersen /s/ William H. Fike Director March 27, 1998 - ---------------------- William H. Fike /s/ Bruce I. Raben Director March 27, 1998 - ---------------------- Bruce I. Raben /s/ Marvin B. Rosenberg Director March 27, 1998 - ------------------------ Marvin B. Rosenberg /s/ David A. Sachs Director March 27, 1998 - ------------------------ David A. Sachs /s/ Adam E. Wolf Director March 27, 1998 - ------------------------ Adam E. Wolf 29 THIS PAGE IS INTENTIONALLY BLANK NEXT PAGE IS NUMBERED "F-1" 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, 1997 AND 1996 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997 Report of independent accountants.......................................F - 2 Consolidated statement of operations ...................................F - 3 Consolidated balance sheet..............................................F - 4 Consolidated statement of changes in stockholders' equity (deficit).....F - 5 Consolidated statement of cash flows....................................F - 6 Notes to consolidated financial statements..............................F - 7 FINANCIAL STATEMENT SCHEDULES Schedule II -- Valuation and Qualifying Accounts and Reserves...........F - 28 Schedule IV -- Indebtedness of and to Related Parties -- Not Current....F - 29 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. F-2 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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, 1998 F-3 TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in millions except per share amounts) Year Ended December 31, ------------------------------------ 1997 1996 1995 ----------- ----------- ------------ NET SALES............................................... $ 842.3 $ 678.5 $ 501.4 COST OF GOODS SOLD...................................... 702.7 609.3 431.0 ----------- ----------- ------------ Gross Profit......................................... 139.6 69.2 70.4 ENGINEERING, SELLING AND ADMINISTRATIVE EXPENSES........ 68.5 64.1 57.6 ----------- ----------- ------------ Income from operations............................... 71.1 5.1 12.8 OTHER INCOME (EXPENSE) Interest income...................................... 0.9 1.2 0.7 Interest expense..................................... (39.4) (44.8) (38.7) Amortization of debt issuance costs.................. (2.6) (2.6) (2.3) Other income (expense) - net......................... 1.0 (1.1) (4.6) ----------- ----------- ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS............... 31.0 (42.2) (32.1) PROVISION FOR INCOME TAXES.............................. (0.7) (12.1) --- ----------- ----------- ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEMS.................................. 30.3 (54.3) (32.1) INCOME FROM DISCONTINUED OPERATIONS (net of tax expense of $2.6, in 1996................. --- 102.0 4.4 ----------- ----------- ------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS.............. 30.3 47.7 (27.7) EXTRAORDINARY LOSS ON RETIREMENT OF DEBT................ (14.8) --- (7.5) ----------- ----------- ------------ NET INCOME (LOSS).................................... 15.5 47.7 (35.2) LESS PREFERRED STOCK ACCRETION.......................... (4.8) (22.9) (7.3) ----------- ----------- ------------ INCOME (LOSS) APPLICABLE TO COMMON STOCK............. $ 10.7 $ 24.8 $ (42.5) =========== =========== ============ PER COMMON AND COMMON EQUIVALENT SHARE: Basic Income (loss) from continuing operations.......... $ 1.57 $ (6.54) $ (3.79) Income from discontinued operations............... --- 8.64 0.42 ----------- ----------- ------------ Income (loss) before extraordinary items....... 1.57 2.10 (3.37) Extraordinary loss on retirement of debt.......... (0.91) --- (0.72) =========== =========== ============ Net income (loss).................................. $ 0.66 $ 2.10 $ (4.09) =========== =========== ============ Diluted Income (loss) from continuing operations.......... $ 1.44 $ (5.81) $ (3.79) Income from discontinued operations............... --- 7.67 0.42 ---------- ------------ ----------- Income (loss) before extraordinary items...... 1.44 1.86 (3.37) Extraordinary loss on retirement of debt.......... (0.84) --- (0.72) ----------- ----------- ------------ Net income (loss)................................. $ 0.60 $ 1.86 $ (4.09) =========== =========== ============ AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING IN PER SHARE CALCULATION: Basic........................................... 16.2 11.8 10.4 Diluted......................................... 17.7 13.3 10.4 The accompanying notes are an integral part of these financial statements. F-4 TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions, except par value) December 31, ------------------------ 1997 1996 ----------- ------------ CURRENT ASSETS Cash and cash equivalents............................................................. $ 28.7 $ 72.0 Trade receivables (less allowance of $4.5 in 1997 and $7.0 in 1996)................... 139.3 110.3 Net inventories....................................................................... 232.1 190.6 Other current assets.................................................................. 26.4 17.3 ------------- ----------- Total Current Assets............................................... 426.5 390.2 LONG-TERM ASSETS Property, plant and equipment - net................................................... 47.8 31.7 Goodwill - net........................................................................ 88.4 32.4 Other assets - net.................................................................... 25.8 16.9 ------------- ----------- TOTAL ASSETS............................................................................. $ 588.5 $ 471.2 ============= =========== CURRENT LIABILITIES Notes payable and current portion of long-term debt................................... $ 26.6 $ 19.2 Trade accounts payable................................................................ 138.1 104.4 Accrued compensation and benefits..................................................... 16.4 15.8 Accrued warranties and product liability.............................................. 25.3 19.4 Other current liabilities............................................................. 29.7 36.2 ------------- ----------- Total Current Liabilities........................................... 236.1 195.0 NON CURRENT LIABILITIES Long-term debt, less current portion.................................................. 273.5 262.1 Other................................................................................. 18.7 29.6 MINORITY INTEREST, INCLUDING REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY Liquidation preference $0 in 1997 and $21.4 in 1996................................... 0.6 10.0 REDEEMABLE CONVERTIBLE PREFERRED STOCK Liquidation preference $0 in 1997 and $46.2 in 1996................................... --- 46.2 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT) Warrants to purchase common stock..................................................... 0.8 3.2 Equity rights.......................................................................... 3.2 --- Common Stock, $0.01 par value -- authorized 30.0 shares; issued and outstanding 20.5 in 1997 and 13.2 in 1996....... 0.2 0.1 Additional paid-in capital............................................................ 178.7 55.8 Accumulated deficit................................................................... (115.4) (126.1) Pension liability adjustment.......................................................... (1.8) (2.0) Cumulative translation adjustment..................................................... (6.1) (2.7) ------------- ----------- Total Stockholders' Equity (Deficit).................................. 59.6 (71.7) ------------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)..................................... $ 588.5 $ 471.2 ============= =========== The accompanying notes are an integral part of these financial statements. F-5 TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (in millions) Unrealized Additional Accumu- Pension Holding Cumulative Equity Common Paid-in lated Liability Gain Translation Warrants Rights Stock Capital Deficit Adjustment (Loss) Adjustment Total ---------- --------- --------- ----------- --------- ----------- --------- ----------- -------- 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 loss 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 --- --- --- --- (22.9) --- --- --- (22.9) redemption value........ Pension liability --- --- --- --- --- 0.7 --- --- 0.7 adjustment.............. 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) Conversion of Warrants... (2.4) --- --- 2.4 --- --- --- --- --- Issuance of Common Stock. --- --- 0.1 106.1 --- --- --- --- 106.2 Net income............... --- --- --- --- 15.5 --- --- --- 15.5 Accretion of carrying value of redeemable preferred stock to redemption value........ --- --- --- --- (4.8) --- --- --- (4.8) Reclassification of equity rights from non-current liabilities. --- 3.2 --- --- --- --- --- --- 3.2 Exchange of Preferred Stock of a subsidiary for common stock........ --- --- --- 13.4 --- --- --- --- 13.4 Conversion of Series B preferred stock......... --- --- --- 1.0 --- --- --- --- 1.0 Pension liability adjustment.............. --- --- --- --- --- 0.2 --- --- 0.2 Translation adjustment... --- --- --- --- --- --- --- 3.4 (3.4) ---------- ---------- ---------- ----------- -------- ---------- --------- ---------- -------- BALANCE AT DECEMBER 31, 1997....................$ 0.8 $ 3.2 $ 0.2 $ 178.7 $ (115.4) $ (1.8) $ --- $ (6.1) $ 59.6 ========== ========== ========== ========== ========= ========= ========= =========== ========= The accompanying notes are an integral part of these financial statements. F-6 TEREX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in millions) Year Ended December 31, ------------------------------------------ 1997 1996 1995 ------------- ------------- -------------- OPERATING ACTIVITIES Net Income (Loss)...................................................$ 15.5 $ 47.7 $ (35.2) Adjustments to reconcile net income (loss) to cash used in operating activities: Depreciation .................................................... 8.2 7.0 7.4 Amortization .................................................... 6.1 6.7 5.5 Extraordinary loss on retirement of debt......................... 14.8 --- 7.5 Gain on sale of discontinued operations.......................... --- (84.5) --- Impairment charges and asset writedowns.......................... --- 33.8 --- Deferred taxes................................................... --- 11.3 --- Other............................................................ 0.1 (2.9) (0.9) Changes in operating assets and liabilities (net of effects of acquisitions): Trade receivables............................................ (4.8) (23.7) 7.0 Net inventories.............................................. (11.5) (12.7) (7.9) Net assets of discontinued operations........................ --- (5.4) 2.0 Trade accounts payable....................................... 6.5 4.9 (2.3) Accrued compensation and benefits............................ (2.6) 3.3 5.6 Other, net................................................... (32.6) (3.1) (17.3) ------------- ------------- ------------- Net cash used in operating activities...................... (0.3) (17.6) (28.6) ------------- ------------- ------------- INVESTING ACTIVITIES Net proceeds from sale of discontinued operations ............... --- 137.2 --- Acquisition of businesses, net of cash acquired.................. (97.2) --- (92.4) Capital expenditures............................................. (9.9) (8.1) (5.2) Proceeds from sale of excess assets.............................. 8.5 6.5 3.3 Other............................................................ --- 0.1 0.2 ------------- ------------- ------------- Net cash provided by (used in) investing activities........ (98.6) 135.7 (94.1) ------------- ------------- ------------- FINANCING ACTIVITIES Redemption of preferred stock.................................... (45.4) --- --- Issuance of common stock......................................... 104.6 --- --- Net borrowings (repayments) under revolving line of credit agreements..................................................... 99.7 (55.0) 35.9 Principal repayments of long-term debt........................... (83.7) (1.0) (153.9) Proceeds from issuance of long-term debt, net of issuance costs.. --- --- 239.8 Other............................................................ (11.0) 5.6 --- ------------- ------------- ------------- Net cash provided by (used in) financing activities........ 64.2 (50.4) 121.8 ------------- ------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS........ (8.6) (2.7) (0.3) ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ (43.3) 65.0 (1.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 72.0 7.0 8.2 ============= ============= ============= CASH AND CASH EQUIVALENTS AT END OF PERIOD..........................$ 28.7 $ 72.0 $ 7.0 ============= ============= ============= The accompanying notes are an integral part of these financial statements. F-7 TEREX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 (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 Clark Material Handling business on November 27, 1996. The sale resulted in a gain of $84.5. The Clark Material Handling business is accounted for as a discontinued operation in the consolidated statement of operations for the years ended December 31, 1996 and 1995. 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 Clark 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. 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. Inventories. Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out ("FIFO") 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 $12.6 and $16.9 at December 31, 1997 and 1996, respectively. During 1997, 1996 and 1995, the Company amortized $2.6, $2.6 and $2.3, respectively, of capitalized debt issuance costs; in addition, $4.1 and $7.5 of such costs were charged to extraordinary loss on retirement of debt in 1997 and 1995, 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 $8.9 and $5.6 at December 31, 1997 and 1996, 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 F-8 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 and Other Special Charges.") 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' Equity (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, 1997 and 1996 the Company had foreign exchange contracts, which were hedges of firm commitments, totaling $13.8 and $29.4, respectively, fair value of which approximates their carrying value. 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, 1997 and 1996. 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.") F-9 Earnings Per Share. Effective with the fourth quarter of 1997, Terex implemented SFAS No. 128 "Earnings per Share", which establishes new standards for computing and presenting earnings per share and requires the disclosure of basic and diluted amounts. Earnings per share amounts for all prior periods have been restated. Basic earnings per share is computed by dividing net income for the period by the weighted average number of Terex common shares outstanding. Diluted earnings per share, which is consistent with the Company's previously disclosed amounts, is computed by dividing net income for the period by the weighted average number of Terex common shares outstanding and dilutive common stock equivalents. NOTE B -- DISCONTINUED OPERATIONS The Company sold its worldwide Clark Material Handling business ("CMHC") on November 27, 1996 for $139.5 in cash. 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 and 1995 include the results of CMHC in "Income from Discontinued Operations." 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 ----------- ----------- Net sales................................... $ 404.6 $ 528.8 Income before income taxes.................. 17.5 4.4 Provision for income taxes.................. --- --- Income from operations of discontinued operations................................ $ 17.5 $ 4.4 Gain on sale of discontinued operations..... 84.5 --- =========== =========== Income from discontinued operations......... $ 102.0 $ 4.4 =========== =========== NOTE C -- ACQUISITIONS Simon Access and Baraga - On April 7, 1997, the Company completed the purchase of the industrial businesses of Simon Access division ("Simon Access") of Simon Engineering plc for $90 in cash, subject to adjustment. Simon Access 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. Simon Access 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, the Company acquired 100% of the outstanding common stock of (i) Simon-Telelect Inc. (now named Terex-Telelect, Inc.), a Delaware corporation, (ii) Simon Aerials, Inc. (now named Terex Aerials, Inc.), a Wisconsin corporation, (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 (now named Terex Aerials Limited), a company incorporated under the laws of Ireland; and 60% of the outstanding common stock of Simon-Tomen Engineering Company Limited, a limited liability stock company organized under the laws of Japan. Not included in the businesses acquired were Simon Access' fire fighting equipment business. The Company obtained the funds necessary to complete the transaction from its cash on hand and borrowings under a new revolving credit facility. (See Note G - "Long-Term Obligations"). On April 14, 1997 the Company completed the purchase of Baraga Products, Inc. and M&M Enterprises of Baraga, Inc. (collectively, "Baraga", or the "Square Shooter Business"). Baraga manufactures rough terrain telescopic boom forklifts. The Simon Access and Baraga (the "Acquired Businesses") acquisitions are being accounted for using the purchase method, with the purchase price allocated to the assets acquired and the liabilities assumed based upon their respective estimated fair values at the date of acquisition. The excess of purchase price over the net assets acquired (approximately $54.5) is being amortized on a straight-line basis over 40 years. F-10 The estimated fair values of assets and liabilities acquired in the Simon Access and Baraga businesses are summarized as follows: Accounts receivable..................................$ 23.1 Inventories.......................................... 38.8 Other current assets................................. 0.9 Property, plant and equipment........................ 21.1 Goodwill............................................. 54.5 Other assets......................................... 11.8 Accounts payable and other current liabilities....... (42.1) Long-term debt....................................... (4.9) Other non-current liabilities........................ (4.5) --------------- $ 98.7 =============== The Company is in the process of completing evaluations and estimates for purposes of determining certain values. The Company has also estimated costs related to plans to integrate the activities of the Acquired Businesses into the Company, including plans to exit certain activities and consolidate and restructure certain functions. The Company may revise the estimates as additional information is obtained. The operating results of the Acquired Businesses are included in the Company's consolidated results of operations since April 7, 1997 and April 14, 1997, respectively. The following pro forma summary presents the consolidated results of operations as though the Company completed the acquisition of the Acquired Businesses on January 1, 1996, after giving effect to certain adjustments, including amortization of goodwill, interest expense and amortization of debt issuance costs on the New Credit Facility: Unaudited Pro Forma for the Year Ended December 31, ------------------------- 1997 1996 ----------- ----------- Net sales.........................................$ 893.3 $ 887.1 Income from operations............................ 71.4 20.2 Income (loss) before discontinued operations and extraordinary items......................... 29.2 (45.3) Income (loss) before discontinued operations and extraordinary items, per share Basic.......................................$ 1.80 $ (3.84) Diluted..................................... 1.65 (3.41) 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. PPM - 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 P.P.M. 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"). 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. On December 10, 1997, the Company issued 706.0 thousand shares of Terex Common Stock in exchange for the outstanding preferred stock of Terex Cranes. At the time of the exchange Terex recorded an additional $3.2 preferred stock accretion to reflect the difference between the fair market value of the Common Stock issued and the carrying value of the Terex Cranes preferred stock. F-11 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 were: 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 ----------------------- Net sales...................................... $ 566.3 Income (loss) from operations.................. (3.7) Loss before discontinued operations and extraordinary items........................ (53.0) Loss before discountinued operations and extraordinary items, per share: Basic.................................. $ (5.89) Diluted................................ (5.89) 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 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. F-12 NOTE E -- INVENTORIES Inventories consist of the following: December 31, ------------------------- 1997 1996 ----------- ----------- Finished equipment..................... $ 54.1 $ 46.5 Replacement parts...................... 82.8 68.0 Work-in-process........................ 22.4 19.8 Raw materials and supplies............. 72.8 56.3 ----------- ----------- Net inventories...................... $ 232.1 $ 190.6 =========== =========== NOTE F -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: December 31, ----------------------- 1997 1996 ----------- ------------ Property......................................... $ 13.6 $ 0.2 Plant............................................ 43.8 14.0 Equipment........................................ 25.6 51.2 ----------- ------------ 83.0 65.4 Less: Accumulated depreciation.................. (35.2) (33.7) =========== ============ Net property, plant and equipment.............. $ 47.8 $ 31.7 =========== ============ NOTE G -- LONG-TERM OBLIGATIONS See Note P -- "Subsequent Events" for a discussion regarding the refinancing of substantially all of the Company's debt in the first quarter of 1998. Long-term debt is summarized as follows: December 31, ------------------------ 1997 1996 ----------- ----------- 13.25% Senior Secured Notes due May 15, 2002 ("Senior Secured Notes")........................ $ 165.1 $ 247.3 Credit Facility maturing April 7, 2000.............. 94.9 --- Note payable........................................ 4.7 5.0 Capital lease obligations........................... 12.1 14.7 Other............................................... 23.3 14.3 ------------ ----------- Total long-term debt.............................. 300.1 281.3 Current portion of long-term debt................. 26.6 19.2 ------------ ----------- Long-term debt, less current portion.............. $ 273.5 $ 262.1 ============ =========== The Senior Secured Notes On May 9, 1995, the Company issued $250 of 13.25% 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 13.25% per annum. Prior to the consummation of an exchange offer on November 5, 1996, the interest rate on the Notes was 13.75% per annum. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. F-13 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 is 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 13.25% 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 the Senior Secured Notes. The Offer expired on December 27, 1996, with no Senior Secured Notes being tendered for repurchase. As a result, the $100 of sale proceeds was available for other corporate purposes. On July 28, 1997 and August 7, 1997, the Company issued an additional five million shares and 700 thousand shares, respectively, of its Common Stock in a public stock offering. The shares were issued at a price to the public of $19.50 per share. The net proceeds received by the Company after deduction of underwriting discounts, commissions and other expenses was $104.6. On September 4, 1997, the Company used a portion of the proceeds to redeem $83.3 in principal of the Secured Senior Notes. In accordance with the terms of the Indenture, the redemption of the Senior Secured Notes was at a 9.46% redemption premium. The redemption premium plus the pro-rata share of unamortized debt origination costs totaled $12.2 and have been reflected as extraordinary items in the third quarter of 1997. The 1997 Credit Facility On April 7, 1997, the Company and certain of its domestic subsidiaries (collectively, the "Borrowers") entered a Revolving Credit Agreement with a financial institution, as agent (the "Agent"), pursuant to which the Agent and other financial institutions party thereto have provided the Borrowers with a line of credit of up to $125 secured by accounts receivable and inventory (the "1997 Credit Facility"). The 1997 Credit Facility replaced the Company's $100 revolving credit facility (the "Old Credit Facility"). Loans made under the 1997 Credit Facility (a) bear interest, based on the Company's fixed charge coverage ratio, at a rate between 0.5% and 1.5% per annum in excess of the prime rate or at a rate between 2.0% and 3.0% per annum in excess of the eurodollar rate, at the election of the Company, (b) mature on April 7, 2000, (c) were used by the Borrowers to repay the Old Credit Facility, and (d) are to be used for working capital and other general corporate purposes, including acquisitions. The Old Credit Facility The Old Credit Facility was terminated in April 1997 in conjunction with the Simon Access acquisition and entering into the 1997 Credit Facility. The Company paid a fee of $2.0 upon termination of the Old Credit Facility. Additionally, $0.6 of unamortized debt acquisition costs related to the Old Credit Facility were written off at the termination of the Old Credit Facility. These expenses have been reflected as extraordinary items in the second quarter of 1997. The Company had the option to base the interest rate on prime or the Eurodollar rate. The outstanding principal amount of prime rate loans was at the rate of 1.75% per annum in excess of the prime rate. The outstanding principal amount of Eurodollar rate loans was at the rate of 3.75% per annum in excess of the adjusted Eurodollar rate. 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 13.25% 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. F-14 Old 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 (pound)47.0 ($80.5) including up to (pound)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 $12.7, $6.9 and $11.7 at December 31, 1997, 1996, and 1995, respectively. Schedule of Debt Maturities See Note P - "Subsequent Events" for a discussion regarding the refinancing of substantially all of the debt of the Company in the first quarter of 1998. Prior to the refinancing in the first quarter of 1998, scheduled annual maturities of long-term debt outstanding at December 31, 1997 in the successive five-year period are summarized below. Amounts shown are exclusive of minimum lease payments disclosed in Note H -- "Lease Commitments": 1998................................... $ 21.9 1999................................... 1.8 2000................................... 96.3 2001................................... 0.9 2002................................... 165.6 Thereafter............................. 1.5 ----------- Total............................ $ 288.0 =========== Based on quoted market values, the Company believes that the fair value of the Senior Secured Notes was approximately $190.4 as of December 31, 1997. 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 $39.8, $45.3 and $43.0 of interest in 1997, 1996 and 1995, respectively. The weighted average interest rate on short term borrowings outstanding was 8.3% at December 31, 1997 and 10.0% at December 31, 1996. 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 $21.9 and $8.2 at December 31, 1997 and 1996, respectively, net of accumulated amortization of $8.2 and $9.6 at December 31, 1997 and 1996, respectively. F-15 Future minimum capital and noncancelable operating lease payments and the related present value of capital lease payments at December 31, 1997 are as follows: Capital Operating Leases Leases ------------- ------------- 1998............................................ $ 5.4 $ 5.2 1999............................................ 2.7 3.9 2000............................................ 2.9 3.1 2001............................................ 1.3 2.6 2002............................................ 0.3 2.2 Thereafter...................................... 0.6 3.3 ------------- ------------- Total minimum obligations .................. 13.2 $ 20.3 ============= Less amount representing interest............... 1.1 ------------- Present value of net minimum obligations.... 12.1 Less current portion............................ 4.7 ------------- Long-term obligations....................... $ 7.4 ============= 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 $6.8, $4.7 and $3.9 in 1997, 1996, and 1995, 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, -------------------------------- 1997 1996 1995 ---------- ---------- ---------- United States...................................... $ 16.1 $ (40.6) $ (36.1) Foreign............................................ 14.9 (1.6) 4.0 ========== ========== ========== Income (loss) from continuing operations before income taxes and extraordinary items........... $ 31.0 $ (42.2) $ (32.1) ========== ========== ========== The major components of the Company's provision for income taxes are summarized below: Year ended December 31, ------------------------------- 1997 1996 1995 ---------- --------- -------- Current: Federal...................................... $ --- $ --- $ --- State........................................ --- --- --- Foreign...................................... 5.2 12.1 3.8 Utilization of foreign net operating loss ("NOL") carryforward..................... (4.5) (11.3) (3.8) ---------- --------- -------- Current income tax provision............. 0.7 0.8 --- Deferred: Deferred foreign income tax.................. --- 11.3 --- ---------- --------- -------- Total provision for income taxes......... $ 0.7 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. F-16 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, 1997 and 1996 are summarized below for major balance sheet captions: 1997 1996 ----------- ----------- Intangibles................................ $ (0.4) $ --- Accrued liabilities........................ (1.6) --- Other...................................... (0.8) (0.8) ----------- ----------- Total deferred tax liabilities........ (2.8) (0.8) ----------- ----------- Receivables................................ 0.6 0.6 Net inventories............................ 4.0 4.6 Fixed assets............................... 0.7 2.4 Warranties and product liability........... 7.8 5.8 All other items............................ 7.8 6.2 Benefit of net operating loss carryforward. 140.2 96.2 ----------- ----------- Total deferred tax assets............. 161.1 115.8 ----------- ----------- Deferred tax assets valuation allowance.... (158.3) (115.0) ----------- ----------- Net deferred tax liabilities.......... $ --- $ --- =========== =========== The valuation allowance for deferred tax assets as of January 1, 1996 was $149.6. The net change in the total valuation allowance for the years ended December 31, 1996 and 1997 were a decrease of $34.6 and an increase of $43.3, 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, -------------------------------- 1997 1996 1995 ----------- --------- ---------- Statutory federal income tax rate................................. $ 10.9 $ (14.8) $ (11.2) Recognition of fully reserved preacquisition deferred tax asset... --- 11.3 --- Change in valuation allowance relating to NOL..................... (6.6) 7.8 11.4 Foreign tax differential on income/losses of foreign subsidiaries. (4.5) 1.4 (1.4) Goodwill.......................................................... 0.9 6.3 1.1 Other............................................................. --- 0.1 0.1 ---------- --------- ---------- Total provision for income taxes............................. $ 0.7 $ 12.1 $ --- ========== ========== ========== The effective tax rate for discontinued operations differs from the statutory rate due primarily to utilization of NOLs and foreign tax differential on the income of foreign subsidiaries. The Company has not provided for U.S. federal and foreign withholding taxes on $37.8 of foreign subsidiaries' undistributed earnings as of December 31, 1997, 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 NOLs. 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 $6.6. At December 31, 1997, the Company had domestic federal net operating loss carryforwards of $290.5. Approximately $66.6 of the remaining net operating loss carryforwards are subject to special limitations under the Internal Revenue Code, and the NOLs may be affected by the current Interal Revenue Service (the "IRS") examination discussed below. F-17 The tax basis net operating loss carryforwards expire as follows: Tax Basis Net Operating Loss Carryforwards ---------------- 1998................................. $ 8.1 1999................................. 11.9 2000................................. 0.1 2001................................. 4.8 2002................................. 0.5 2003................................. 0.9 2004................................. 22.4 2005................................. 0.8 2006................................. 14.8 2007................................. 41.1 2008................................. 100.4 2009................................. 34.2 2010................................. 42.3 2012................................. 8.2 ---------- Total............................ $ 290.5 ========== The Company also has various state net operating loss and tax credit carryforwards expiring at various dates through 2012 available to reduce future state taxable income and income taxes. In addition, the Company's foreign subsidiaries have approximately $78.4 of loss carryforwards, $33.6 in the United Kingdom, $23.1 in France, and $21.7 in other countries, which are available to offset future foreign taxable income. The tax loss carryforwards in the United Kingdom and other countries are available without expiration. Tax loss carryforwards in France of $6.7 expire in 2000 and 2002, with the remaining $16.4 available without expiration. The IRS is currently examining the Company's Federal tax returns for the years 1987 through 1989. In December 1994, the Company received an examination report from the IRS proposing a substantial tax deficiency. The examination report raised a variety of issues, including the Company's substantiation for certain deductions taken during this period, the Company's utilization of certain NOLs and the availability of such NOLs to offset future taxable income. The Company filed an administrative appeal to the examination report in April 1995. 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. The ultimate outcome of this matter is subject to the resolution of significant legal and factual issues. Given the stage of the audit, and the number and complexity of the legal and administrative proceedings involved in reaching a resolution of the matter, it is unlikely that the ultimate outcome, if unfavorable to the Company, will be determined for at least several years. If the IRS were to prevail on all the issues raised, the amount of the tax assessment would be approximately $56 plus penalties of approximately $12.8 and interest through December 31, 1997 of approximately $94.5. The penalties asserted by the IRS are calculated as 20% of the amount of the tax assessed for fiscal year 1987 and 25% of the tax assessed for each of fiscal years 1988 and 1989. Interest on the amount of tax assessed and penalties is currently accruing at a rate of 11% per annum. The applicable annual rate of interest has historically carried from 7% to 12%. If the Company were required to pay a significant portion of the assessment with related interest and penalties, such payment might exceed the Company's resources. In such event, the viability of the Company would be placed in jeopardy, and it is uncertain that the Company could, through financing or otherwise, obtain the funds required to pay such assessment, interest, and applicable penalties. Management believes, however, that the Company will be able to provide adequate documentation for a substantial portion of the deductions questioned by the IRS and that there is substantial support for the Company's past and future utilization of the NOLs. Based upon consultation with its tax advisors, management believes that the Company's position will prevail on the most significant issues. Accordingly, management believes that the outcome of the examination will not have a material adverse effect on its financial condition or results of operations, but may result in some reduction in the amount of the NOLs available to the Company. No additional accruals have been made for any amounts which might be due as a result of this matter because the possible loss ranges from zero to $56 million plus interest and penalties, F-18 and the ultimate outcome cannot be determined or estimated at this time. No reserves are being expensed to cover the potential liability. The Company made income tax payments of $1.8 in 1997. No income tax payments were made in 1996 and 1995. 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, 1997, no shares of preferred stock are 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. There was no accretion recorded in 1997. 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 constituted 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. On December 30, 1997 all 38.8 thousand outstanding shares of Series B Preferred Stock were converted by the holder thereof into 87.3 thousand shares of common stock. NOTE K -- STOCKHOLDERS' EQUITY (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, 1997, there were 20.5 million shares issued and outstanding. Of the 9.5 million unissued shares at that date, $1.7 million shares were reserved for issuance for the exercise of stock options and Series A Warrants. Equity Rights. On May 9, 1995, the Company sold one million equity rights securities (the "Equity Rights") along with $250 of the Senior Secured Notes. A portion of the proceeds ($3.2) of the sale of the Senior Secured Notes and the Equity Rights was allocated to the Equity Rights. The portion of the proceeds related to the Equity Rights has been reclassified from other non-current liabilities to the stockholders' equity (deficit) section of the balance sheet, because they can be satisfied in Common Stock or cash at the option of the Company. The Equity Rights entitle the holders, upon exercise at any time on or prior to May 15, 2002, to receive cash or, at the election of the Company, Common Stock in an amount equal to the average closing sale price of the Common Stock for the 60 consecutive trading days prior to the date of exercise (the "Current Price"), less $7.288 per share, subject to adjustment in certain circumstances. Changes in the Current Price do not affect the net income or loss reported by the Company; however, changes in the Current Price vary the amount of cash that the Company would have to pay or the number of Shares of Common Stock that would have to be issued in the event holders exercise the Equity Rights. As of December 31, 1997, the Current Price of the Common Stock was $21.891, which would have required the Company to either pay $14.6 or issue F-19 621.4 thousand shares of Common Stock, at the Company's option, in the event that all of the holders had exercised their Equity Rights. 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 66.4 thousand warrants were outstanding at December 31, 1997. 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, 1997, 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, 1997, all Series B Warrants had 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, 1997, 11.1 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 was not to exceed 300 thousand shares. In May 1997, the shareholders approved that the aggregate number of shares available under the 1996 Plan be increased to 1.0 million shares. At December 31, 1997, 489.5 thousand shares were available for grant under the 1996 Plan. 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, 1997, 15.6 thousand shares were available for grant under the Plan. F-20 The following table is a summary of stock options under all three of the Company's plans. Weighted Exercise Number of Average Price Options per Share ------------- -------------- Outstanding at December 31, 1994.......... 423,966 $ 6.60 448,300 4.85 --- --- (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 Granted................................ 176,750 13.93 Exercised.............................. (184,988) 6.04 Canceled or expired.................... (103,600) 5.69 ------------- -------------- Outstanding at December 31, 1997.......... 731,587 $ 7.64 ============= ============== Exercisable at December 31, 1997.......... 473,340 $ 6.92 ============= ============== Exercisable at December 31, 1996.......... 479,364 $ 6.08 ============= ============== Exercisable at December 31, 1995.......... 269,893 $ 6.31 ============= ============== The following table summarizes information about stock options outstanding at December 31, 1997: Weighted Exercise Range of Number of Average Life Price per Exercise Prices Options (in years) Share - ------------------------- ------------- ------------ ------------ $ 3.50 - $ 6.00 382,187 7.0 $ 4.70 $ 6.01 - $ 10.00 147,150 7.6 $ 6.68 $ 10.01 - $ 15.00 179,500 8.4 $ 12.90 $ 15.01 - $ 24.13 22,750 9.6 $ 21.67 ------------- 731,587 7.5 $ 7.64 ============= 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 $1.1 ($0.07 (basic) and $0.06 (diluted) per share), $0.6 ($0.05 (basic) and 0.04 (diluted) per share) and $0.6 ($0.06 (basic and diluted) per share) in 1997, 1996 and 1995, respectively. F-21 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 1997, 1996 and 1995, respectively: dividend yields of 0%, 0% and 0%; expected volatility of 57.50%, 58.72% and 63.76%; risk-free interest rates of 6.34%, 6.42% and 5.57%; and expected life of 8.1 years, 6.6 years and 8.6 years. The weighted average fair value of options granted during 1997, 1996 and 1995 for which the exercise price equals the market price on the grant date was $1.7, $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. 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 1997, 1996 and 1995: Year ended December 31, ---------------------------- 1997 1996 1995 --------- --------- -------- Service cost for benefits earned during period.... $ 0.2 $ 0.2 $ 0.1 Interest cost on projected benefit obligation..... 2.4 2.3 2.2 Actual (return) loss on plan assets............... (4.0) (5.0) (3.8) Net amortization and deferral..................... 2.2 3.4 2.0 --------- --------- -------- Net pension expense.......................... $ 0.8 $ 0.9 $ 0.5 ========= ========= ======== The following table sets forth the US plans' funded status and the amounts recognized in the Company's financial statements at December 31: 1997 1996 1995 ------------------------- --------------------------- -------------------------- Overfunded Underfunded Overfunded Underfunded Overfunded Underfunded Plans Plan Plans Plans Plans Plans ----------- ------------- ------------ ------------- ----------- ------------- Actuarial present value of: Vested benefits....................$ 24.9 $ 9.3 $ 9.8 $ 21.8 $ 9.4 $ 20.9 =========== ============ ============ ============= =========== ============= Accumulated benefits...............$ 25.4 $ 9.3 $ 10.2 $ 21.8 $ 9.9 $ 20.9 =========== ============ ============ ============= =========== ============= Projected benefits.................$ 25.4 $ 9.3 $ 10.2 $ 21.8 $ 9.9 $ 20.9 Fair value of plan assets............ 25.8 6.1 11.5 18.6 10.2 16.5 ----------- ------------ ------------ ------------- ----------- ------------- Projected benefit obligation (in excess of) less than 0.5 (3.2) 1.3 (3.2) 0.4 (4.4) plan assets........................ Unrecognized net loss from past experience different than assumed.. 1.7 1.8 1.4 2.0 2.6 2.7 Unrecognized prior service cost...... 0.8 --- 0.8 --- 0.9 --- Adjustment to recognize minimum liability.......................... --- (1.8) --- (2.0) --- (2.7) ----------- ------------ ------------ ------------- ----------- ------------- Pension asset (liability) recognized in the balance sheet....$ 3.0 $ (3.2) $ 3.5 $ (3.2) $ 3.9 $ (4.4) =========== ============ ============ ============= =========== ============= F-22 The expected long-term rate of return on plan assets was 9% for the periods presented. The discount rate assumption was 7.0% for 1997, 7.5% for 1996 and 7.5% for 1995. In accordance with the provisions of the SFAS No. 87, "Employers' Accounting for Pensions," the Company has recorded an adjustment of $1.8 and $2.0 to recognize a minimum pension liability at December 31, 1997 and 1996, respectively. This liability is offset by a direct reduction of stockholders' equity (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 $8.2 at December 31, 1997. 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 $0.5, $0.4 and $0.3 for the years ended December 31, 1997, 1996 and 1995, respectively. Terex Aerials Limited (Ireland) maintains a voluntary, defined pension plan covering its employees. Pension expense relating to this plan was approximately $0.1 for the year ended December 31, 1997. 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 may, 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: 1997 1996 ------------ ------------ Actuarial present value of accumulated postretirement benefit obligation of: Retirees....................................... $ 2.6 $ 2.8 Active participants............................ --- --- ------------ ------------ Total accumulated postretirement benefit obligation................................... 2.6 2.8 Unamortized transition obligation................. (2.2) (3.0) ------------ ------------ Liability (asset) recognized in the balance sheet................................ $ 0.4 $ (0.2) ============ ============ Health care trend rates used in the actuarial assumptions range from 9.0% to 11.5% These rates decrease to 5.5% over a period of 8 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 4.8%. The discount rate used in determining the accumulated postretirement benefit obligation was 7.5% for the years ended December 31, 1997 and 1996. F-23 Net periodic postretirement benefit expense includes the following components for 1997 and 1996: Year ended December 31, ----------------------- 1997 1996 ---------- ---------- Service cost..................... $ --- $ --- Interest cost.................... 0.2 0.2 Net amortization................. 0.2 0.2 ========== ========== Total....................... $ 0.4 $ 0.4 ========== ========== The Company's postretirement benefit obligations are not funded. Net periodic postretirement benefit expense for the years ended December 31, 1997, 1996 and 1995 was approximately $0.1, $0.3 and $0.6 greater on the accrual basis than it would have been on the cash basis. NOTE M -- LITIGATION AND CONTINGENCIES 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 $13.8. 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 (i) 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 (ii) 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. During 1997 the former chairman received 150.0 thousand shares of common stock in accordance with this agreement. In contemplation of the execution of this retirement agreement, the Company advanced to the former chairman the principal amount of the forgivable loan. During 1997 and 1996, the Company forgave $0.6 F-24 and $0.4, respectively, 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, certain directors and executives of the Company, and KCS, have been named parties in various legal proceedings. During 1997, 1996 and 1995, the Company incurred $0.2, $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. On December 31, 1997, an officer and director of the Company retired as an officer. In connection with his retirement, the Company and the former officer entered into an agreement providing certain benefits to the former officer and the Company. Pursuant to the agreement, the former officer received an award of 5.0 thousand shares of Common Stock in consideration of his years of service to the Company. The agreement also provides for a two-year consulting engagement requiring the former officer to make himself available to the Company to provide consulting services for a certain portion of his time, for such services he will receive a consulting fee equal to his base salary in 1997 of $0.3 for services provided in 1998 and $0.1 for services provided in 1999. In 1997, the Company invested $0.1 in a company ("Investee") which was additional reorganizing after declaring bankruptcy. Subsequent to the initial investment, the Company was required to make an additional investment in Investee. As a result, the Company elected not to continue its investment in Investee and not to make the additional required investment. A director of the Company and one of his business associates, acquired the Company's investment in Investee for the amount invested by the Company and assumed the Company's obligations to make additional investments in Investee. 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 Lifting and Terex Earthmoving. 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 Lifting designs, manufactures and markets telescopic mobile cranes (including rough terrain trucks and all-terrain mobile cranes), aerial platforms (including-scissor articulated boom and straight telescoping boom aerial work platforms), utility aerial devices (including digger derricks and articulated aerial devices), telescopic materials handlers (including container stackers and rough terrain lift trucks), truck-mounted cranes (boom trucks) 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, transportation and utilities industries as well as in the scrap, refuse and lumber industries. Terex Lifting has eight significant manufacturing operations: (i) P.P.M. S.A. located in Montceau Les Mines, France, at which mobile cranes and container stackers under the brand names TEREX and PPM are manufactured; (ii) PPM SpA, located in Crespellano, Italy, at which mobile cranes are manufactured under the TEREX, BENDINI and PPM brand names; (iii) Terex Lifting, 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; (iv) Terex Lifting - 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 names TEREX AERIALS, TEREX AND MARK; (v) Terex Telelect, Inc., located in Watertown, South Dakota, at which utility aerial devices and digger derricks are manufactured under the TELELECT and HI-RANGER brand names, (vi) Terex Aerials, Inc., located in Milwaukee, Wisconsin, at which aerial platforms are manufactured under the TEREX, SIMON, MARK and TEREX AERIALS brand names; (vii) Terex RO, Inc., located in Olathe, Kansas, at which truck mounted cranes are manufactured under the RO-STINGER brand name; and (viii) Terex Baraga Products, F-25 Inc., located in Baraga, Michigan, at which rough terrain telescopic lift trucks are manufactured under the SQUARE SHOOTER brand name. Terex Earthmoving 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 Earthmoving has two manufacturing operations: (i) Terex Equipment Limited ("TEL"), located in 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 Earthmoving, 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: 1997 1996 1995 ------------- ------------- -------------- Sales Terex Earthmoving................. $ 288.4 $ 314.9 $ 250.3 Terex Lifting..................... 548.0 363.9 252.3 General/Corporate/Eliminations.... 5.9 (0.3) (1.2) ------------- ------------- -------------- Total........................... $ 842.3 $ 678.5 $ 501.4 ============= ============= ============== Income (Loss) from Operations Terex Earthmoving................. $ 24.7 $ 5.6 $ 13.0 Terex Lifting..................... 47.2 4.8 7.2 General/Corporate/Eliminations.... (0.8) (5.3) (7.4) ------------- ------------- -------------- Total........................... $ 71.1 $ 5.1 $ 12.8 ============= ============= ============== Depreciation and Amortization Terex Earthmoving................. $ 2.3 $ 1.8 $ 2.3 Terex Lifting..................... 8.8 8.6 7.6 General/Corporate................. 3.2 3.3 3.0 Discontinued Operations........... --- --- 14.8 ------------- ------------- -------------- Total........................... $ 14.3 $ 13.7 $ 27.7 ============= ============= ============== Capital Expenditures Terex Earthmoving................. $ 4.5 $ 5.1 $ 2.7 Terex Lifting..................... 4.3 2.9 2.4 General/Corporate................. 1.1 0.1 0.1 Discontinued Operations........... --- --- 5.3 ------------- ------------- -------------- Total........................... $ 9.9 $ 8.1 $ 10.5 ============= ============= ============== Identifiable Assets Terex Earthmoving................. $ 174.6 $ 189.2 $ 169.4 Terex Lifting..................... 402.1 210.5 239.9 General/Corporate................. 11.8 71.5 27.8 Discontinued Operations........... --- --- 41.8 ------------- ------------- -------------- Total........................... $ 588.5 $ 471.2 $ 478.9 ============= ============= ============== F-26 Geographic segment information is presented below: 1997 1996 1995 ------------- ------------- -------------- Sales North America.................. $ 499.8 $ 379.2 $ 292.3 Europe......................... 362.3 348.6 223.0 All other...................... 91.0 27.2 12.9 Eliminations................... (110.8) (76.5) (26.8) ------------- ------------- -------------- Total........................ $ 842.3 $ 678.5 $ 501.4 ============= ============= ============== Income (Loss) from Operations North America.................. $ 53.4 $ 1.7 $ 8.6 Europe......................... 18.6 8.3 12.0 All other...................... 1.0 (1.7) (4.2) Eliminations................... (1.9) (3.2) (3.6) ------------- ------------- -------------- Total........................ $ 71.1 $ 5.1 $ 12.8 ============= ============= ============== Identifiable Assets North America.................. $ 466.1 $ 237.0 $ 170.2 Europe......................... 295.0 271.1 247.7 All other...................... 7.4 7.2 23.1 Eliminations................... (180.0) (44.1) 37.9 ------------- ------------- -------------- Total........................ $ 588.5 $ 471.2 $ 478.9 ============= ============= ============== 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, ------------------------------------------ 1997 1996 1995 ------------- ------------- --------------- North and South America............ $ 56.4 $ 31.6 $ 20.1 Europe, Africa and Middle East..... 41.1 49.7 21.5 Asia and Australia................. 32.6 37.5 33.5 ============= ============= =============== $ 130.1 $ 118.8 $ 75.1 ============= ============= =============== NOTE P -- SUBSEQUENT EVENTS (UNAUDITED) The Company has agreed to purchase all of the outstanding shares of O&K Mining GmbH ("O&K Mining") from O&K Orenstein & Koppel AG ("Orenstein & Koppel") for net aggregate consideration of DM 309 (approximately $172), subject to certain post-closing adjustments. The transaction is scheduled to close on March 31, 1998 and will be financed through the issuance of debt securities and borrowings under the Company's new $500 global bank credit facility, the New Bank Credit Facility (as defined below). O&K Mining, which will be part of the Terex Earthmoving segment, is headquartered in Dortmund, Germany, and has operations in the United States, United Kingdom, Australia, Canada, South Africa and Singapore. O&K Mining markets a complete range of large hydraulic excavators serving the global surface mining industry and the global construction and infrastructure development markets. On March 6, 1998, the Company refinanced its 1997 Credit Facility and redeemed or defeased all of its $166.7 principal amount of its then outstanding Senior Secured Notes. The refinancing included effectiveness of a revolving credit facility aggregating up to $125.0 and term loan facilities providing for loans in an aggregate principal amount of up to approximately $375.0 (collectively the "New Bank Credit Facility"). In connection with the refinancing of the Company's 1997 F-27 1997 Bank Credit Facility and the repurchase of the Senior Secured Notes, the Company incurred extraordinary losses of $1.9 and $36.5, respectively. These extraordinary charges will be recorded in the first quarter of 1998. On March 24, 1998, the Company entered into a Purchase Agreement to issue and sell $150.0 aggregate principal amount of Senior Subordinated Notes due 2008 at 8.875%, discounted to yield 8.94% (the "New Senior Subordinated Notes"). It is expected that delivery of the New Senior Subordinated Notes will be made against payment therefore on or about March 31, 1998. The New Senior Subordinated Notes will be issued in a private placement made in reliance upon an exemption from registation under the Securities Act of 1933, as amended. It is expected that the net proceeds from the offering will be used to fund a portion of the aggregate consideration for the acquisition of O&K Mining and for general working capital purposes. Ares Leverage Investment Fund L.P. ("Ares"), an affiliate of a director of the Company, participated as a lender under the New Bank Credit Facility for the amount of $15.0. Ares also received a fee of less than $0.1 for participating as a lender under the New Bank Credit Facility. Participation by Ares as a lender under the New Bank Credit facility was made in the ordinary course of Ares' business and on the same terms as all other lenders under the New Bank Credit Facility. Canadian Imperial Bank of Commerce, an affiliate of CIBC Oppenheimer Corp., of which a director of the Company is a managing director, is a lender with a commitment of up to $37.5 and a Co-Documentation Agent under the New Bank Credit Facility. Canadian Imperial Bank of Commerce received a fee of $0.8 for acting as a Co-Documentation Agent under the New Bank Credit Facility. Participation by Canadian Imperial Bank of Commerce as a lender under the New Bank Credit Facility was made in the ordinary course of its business and on the same terms as all other lenders under the New Bank Credit Facility. In addition, CIBC Oppenheimer Corp. was retained by the Company in connection with the offering of the New Senior Subordinated Notes. CIBC will be paid $0.5 as an underwriting discount upon issuance of the New Senior Subordinated Notes. F-28 TEREX CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Amounts in millions) Additions ---------------------- Balance Beginning Charges to Balance of Year Earnings Other Deductions(1) End of Year ---------- ---------- ----------- ------------- ------------ Year ended December 31, 1997: Deducted from asset accounts: Allowance for doubtful accounts........................... $ 7.0 $ 0.4 $ --- $ (2.9) $ 4.5 Reserve for excess and obsolete inventory................. 18.7 8.1 --- (2.8) 24.0 ---------- ---------- ------------ ------------- ------------ Totals................................................... $ 25.7 $ 8.5 $ --- $ (5.7) $ 28.5 ========== ========== ============ ============= ============ 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 (4.4)(2) (9.5) 15.9 ---------- ---------- ------------ ------------- ------------ Totals................................................... $ 27.2 $ 15.0 $ (7.5) $ (11.4) $ 23.3 ========== ========== ============ ============= ============ (1) Primarily represents the utilization of established reserves, net of recoveries. (2) Added with the acquisition of businesses and the restatement to Net Assets of Discontinued Operations. F-29 TEREX CORPORATION AND SUBSIDIARIES SCHEDULE IV - INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT Indebtedness of ------------------------------------------------------------ Balance at Balance at Beginning of End of Name of Person Period Additions Deductions Period - --------------------------------------------- --------------- --------------- -------------- ------------- Year ended December 31, 1997: Randolph W. Lenz Promissory note, interest at 6.56% due November 2, 2000........................ $ 1,440,000 $ --- $ (600,000) $ 840,000 Payable for shipping charges.............. --- --- --- --- =============== =============== ============== ============= Total................................... $ 1,440,000 $ --- $ (600,000) $ 840,000 =============== =============== ============== ============= 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 =============== =============== ============== ============= E-1 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 Amended and Restated Bylaws of Terex Corporation. 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 Certificate of Elimination with respect to the Series B Preferred Stock. 4.4 Indenture dated as of May 9, 1995 among Terex Corporation, the Guarantors named therein and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit 4.7 of Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 33-52711). 4.5 Fifth Supplemental Indenture dated as of February 18, 1998 among Terex Corporation, the Guarantors named therein and United States Trust Company of New York, as Trustee. 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 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). 10.6 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). 10.7 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). 10.8 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 Three Months ended September 30, 1995, Commission File No. 1-10702). 10.9 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). 10.10 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 F orm 8-K Current Report, Commission File No. 1-10702, dated and filed with the Commission on December 11, 1996). 10.11 Agreement of Purchase and Sale, dated as of February 24, 1997, among Simon United States Holdings, Inc. and Simon Overseas Holdings as Buyer (incorporated by reference to Exhibit 10.25 of the Form 10-K Annual Report for the year ended December 31, 1996, Commission File No. 1-10702). E-2 10.12 Standstill Agreement , dated June 27, 1997, among Terex Corporation Randolph W. Lenz and the other parties named herein (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to the Form S-1 Registration Statement of Terex Corporation, Registration No. 333-27749). 10.13 Credit Agreement dated as of March 6, 1998 among Terex Corporation, certain of its subsidiaries, the lenders named therein, Credit Suisse First Boston, as Administrative Agent, Bank Boston N.A., as Syndication Agent and Canadian Imperial Bank of Commerce and First Union National Bank, as Co-Documentation Agents. 10.14 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation and Credit Suisse First Boston, as Collateral Agent. 10.15 Guarantee Agreement dated as of March 6, 1998 of Terex Corporation, each of the subsidiaries of Terex Corporation listed therein and Credit Suisse First Boston, as Collateral Agent. 10.16 Security Agreement dated as of March 6, 1998 of Terex Corporation, each of the subsidiaries of Terex Corporation listed therein and Credit Suisse First Boston, as Collateral Agent. 10.17 Pledge Agreement dated as of March 6, 1998 of Terex Corporation, each of the subsidiaries of Terex Corporation listed therein and Credit Suisse First Boston, as Collateral Agent. 10.18 Form Mortgage, Leasehold Mortgage , Assignment of Leases and Rents, Security Agreement and Financing entered into by Terex Corporation and certain of the subsidiaries of Terex Corporation, as Mortgagor, and Credit Suisse first Boston, as Mortgagee. 10.19 Share Purchase Agreement dated December 18, 1997 between O&K AG and Terex Mining Equipment, Inc. 11.1 Computation of per share earnings. 21.1 Subsidiaries of Terex Corporation. 23.1 Independent Accountants' Consent of Price Waterhouse LLP, Stamford, Connecticut. 24.1 Power of Attorney. 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, --------------- --------------- -------------- 1997 1996 1995 --------------- --------------- -------------- BASIC: Income (loss) from continuing operations before extraordinary items....$ 30.3 $ (54.3) $ (32.1) Income from discontinued operations.................................... --- 102.0 4.4 --------------- --------------- -------------- Income (loss) before extraordinary items............................... 30.3 47.7 (27.7) Less: Accretion of Preferred Stock................................. (4.8) (22.9) (7.3) --------------- --------------- -------------- Income (loss) before extraordinary item applicable to common stock..... 25.5 24.8 (35.0) Extraordinary loss on retirement of debt............................... (14.8) --- (7.5) =============== =============== ============== Net income (loss) applicable to common stock...........................$ 10.7 $ 24.8 $ (42.5) =============== =============== ============== Basic shares outstanding............................................... 16.2 11.8 10.4 =============== =============== ============== Basic income per common share Income (loss) from continuing operations before extraordinary item..$ 1.57 $ (6.54) $ (3.79) Income from discontinued operations................................. --- 8.64 0.42 --------------- -------------- --------------- Income (loss) before extraordinary items............................ 1.57 2.10 (3.37) Extraordinary loss.................................................. (0.91) --- (0.72) =============== ============== =============== Net income (loss)...................................................$ 0.66 $ 2.10 $ (4.09) =============== ============================== 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, --------------- --------------- -------------- 1997 1996 1995 --------------- --------------- -------------- DILUTED: Income (loss) from continuing operations before extraordinary items....$ 30.3 $ (54.3) $ (32.1) Income from discontinued operations.................................... --- 102.0 4.4 --------------- --------------- -------------- Income (loss) before extraordinary items............................... 30.3 47.7 (27.7) Less: Accretion of Preferred Stock................................. (4.8) (22.9) (7.3) --------------- --------------- -------------- Income (loss) before extraordinary item applicable to common stock..... 25.5 24.8 (35.0) Add: Accretion of Preferred Stock assumed converted at beginning of period............................................... --- --- (a) --- (a) --------------- --------------- -------------- 25.5 24.8 (35.0) Extraordinary loss on retirement of debt............................... (14.8) --- (7.5) --------------- --------------- -------------- Net income (loss) applicable to common stock...........................$ 10.7 $ 24.8 $ (42.5) =============== =============== ============== Weighted average shares outstanding during the period.................. 16.2 11.8 10.4 Assumed exercise of warrants at ratio determined as of December 31, 1997................................................. 0.3 1.2 --- (a) Assumed conversion of Preferred Stock.................................. --- --- (a) --- (a) Assumed exercise of equity rights...................................... 0.5 --- --- Assumed exercise of stock options...................................... 0.7 0.3 --- (a) =============== =============== ============== Diluted shares outstanding............................................. 17.7 13.3 10.4 =============== =============== ============== Diluted income per common share Income (loss) from continuing operations before extraordinary item..$ 1.44 $ (5.81) $ (3.79) Income from discontinued operations................................. --- 7.67 0.42 --------------- --------------- -------------- Income (loss) before extraordinary items............................ 1.44 1.86 (3.37) Extraordinary loss.................................................. (0.84) --- (0.72) =============== =============== ============== Net income (loss)...................................................$ 0.60 $ 1.86 $ (4.09) =============== =============== ============== (a) Excluded from the computation because the effect is anti-dilutive. 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 report dated March 6, 1998 appearing on page F-2 of this Form 10-K. PRICE WATERHOUSE LLP Stamford, Connecticut March 27, 1998 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 Eric I Cohen, 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, 1997 (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 Chairman, Chief Executive Officer March 27, 1998 Ronald M. DeFeo and Director (Principal Executive Officer) /s/ David J. Langevin Executive Vice President March 27, 1998 David J. Langevin (Acting Principal Financial Officer) /s/ Joseph F. Apuzzo Vice President Finance and March 27, 1998 Joseph F. Apuzzo and Controller (Principal Accounting Officer) /s/ G. Chris Andersen Director March 27, 1998 G. Chris Andersen /s/ William H. Fike Director March 27, 1998 William H. Fike /s/ Bruce I. Raben Director March 27, 1998 Bruce I. Raben /s/ Marvin B. Rosenberg Director March 27, 1998 Marvin B. Rosenberg /s/ David A. Sachs Director March 27, 1998 David A. Sachs /s/ Adam E. Wolf Director March 27, 1998 Adam E. Wolf 1 AMENDED AND RESTATED BYLAWS OF TEREX CORPORATION Dated as of March 9, 1998 ARTICLE I. OFFICES 1.1. Principal and Business Offices. The Corporation may have such principal and other business offices, either within or without the State of Delaware, as the Board of Directors may designate or as the business of the Corporation may require from time to time. 1.2. Registered Office. The registered office of the Corporation required by the Delaware General Corporation Law to be maintained in the State of Delaware may be, but need not be, identical with the principal office in the State of Delaware, and the address of the registered office may be changed from time to time by resolution of the Board of Directors or by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office. ARTICLE II. STOCKHOLDERS 2.1. Annual Meetings. (a) The annual meeting of the stockholders shall be held at such place, on such date and at such time as may be fixed by or under the authority of the Board of Directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors shall not be held on the day fixed as herein provided for any annual meeting of the stockholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as conveniently may be. (b) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this bylaw, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 2.1. (c) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (III) of Section 2.1(b), the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation 2 not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being name in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (x) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (y) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (d) Notwithstanding anything in the second sentence of Section 2.1(c) to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least seventy (70) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 2.1 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. (e) Only such persons who are nominated in accordance with the procedures set forth in these bylaws shall be eligible to serve as directors and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these bylaws. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in these bylaws. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in these bylaws and, if any proposed nomination or business is not in compliance with these bylaws, to declare that such defective proposed business or nomination shall be disregarded. (f) For purposes of these bylaws, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly 3 filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act. (g) Notwithstanding the foregoing provisions of this Section 2.1, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this bylaw. Nothing in this bylaw shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 2.2 Special Meetings. (a) Except as otherwise set forth in the certificate of inCorporation, special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Board of Directors or by the person or in the manner designated by the Board of Directors. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. (b) Nominations for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be selected pursuant to the Corporation's notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 2.2, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 2.2. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice complies with the notice requirements set forth in clause (i) of Section 2.1(c) and is delivered to the Secretary at the principal executive offices of the Corporation not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to the date of such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. 2.3. Place of Meeting. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made or if a special meeting be otherwise called, the place of meeting shall be at the principal executive offices of the Corporation. 2.4. Notice of Meeting. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered to each stockholder of record entitled to vote at such meeting not less than ten (10) days (unless a longer period is required by law) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the President or the Secretary or other officer or persons calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock record books of the Corporation, with postage thereon prepaid. 2.5. Adjournment. The Board of Directors may postpone or reschedule any previously scheduled special meeting. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. No notice of the time or place of an adjournment need be given if the 4 time and place are announced at the meeting at which an adjournment is taken, unless the adjournment is for more than thirty (30) days or a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat. Unless a new record date for the adjourned meeting is fixed, the determination of stockholders of record entitled to notice of or to vote at the meeting at which adjournment is taken shall apply to the adjourned meeting. 2.6. Fixing of Record Date. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a date as the record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. For the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a date as the record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action. For the purpose of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date is fixed, the record date for determining: (a) stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) stockholders entitled to express consent to a corporate action in writing without a meeting, when no prior action of the Board of Directors is necessary, shall be the first day on which a signed written consent is delivered to the Corporation in accordance with applicable law; (c) stockholders entitled to express consent to a corporate action in writing without a meeting, when prior action of the Board of Directors is necessary, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (d) stockholders for any other purpose shall be the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 2.7. Voting Records. The officer having charge of the stock transfer books for shares of the Corporation shall, at least ten (10) days before each meeting of stockholders, make a complete record of the stockholders entitled to vote at such meeting, arranged in alphabetical order, showing the address of 5 each stockholder, the number of shares of each class of stock of the Corporation entitled to vote registered in the name of each stockholder and the total number of votes to which each stockholder is entitled. Such record shall be produced and kept open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held as specified in the notice of the meeting or at the place of the meeting. The record shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder present. The original stock transfer books shall be the only evidence as to who are the stockholders entitled to examine such record or transfer books or to vote at any meeting of stockholders. 2.8 Quorum; Required Vote. Except as otherwise provided in the Certificate of InCorporation or as may be required by law, a quorum at a meeting of stockholders will exist if shares of the Corporation holding a majority of all votes entitled to be cast at such meeting are represented in person or by proxy. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. In all matters other than the election of directors, the affirmative vote of the holders of a majority of the votes represented at the meeting in person or by proxy voting together as one class shall be the act of the stockholders, unless a greater vote is required by law or the certificate of inCorporation. Unless otherwise required by law or the certificate of inCorporation, directors shall be elected by a plurality of the votes of shares represented at the meeting in person or by proxy and entitled to vote on the election of directors. If a quorum shall fail to attend any meeting, the chairman of the meeting may adjourn the meeting to another place, date, or time. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. 2.9. Conduct of Meeting. (a) Such person as the Board of directors may have designated or, in the absence of such a person, the Chairman of the Board, or, in his or her absence, the President or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. (b) The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The chairman shall have the power to adjourn the meeting to another place, date and time. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. 2.10. Proxies. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed with the Corporation in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission 6 created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Unless otherwise provided in the proxy and supported by sufficient interest, a proxy may be revoked at any time before it is voted, either by written notice filed with the Secretary or the acting secretary of the meeting or by oral notice given by the stockholder to the presiding officer during the meeting. The presence of a stockholder who has filed his proxy shall not of itself constitute a revocation. No proxy shall be valid after three (3) years from the date of its execution, unless otherwise provided in the proxy. The Board of Directors shall have the power and authority to make rules establishing presumptions as to the validity and sufficiency of proxies. 2.11. Voting of Shares. (a) Each outstanding share of stock of the Corporation shall be entitled to that number of votes, if any, upon each matter submitted to a vote at a meeting of stockholders as provided in or in accordance with the certificate of inCorporation. (b) All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. (c) The Corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Every vote taken by ballots shall be counted by a duly appointed inspector or inspectors. 2.12. Voting of Shares by Certain Holders. (a) Other Corporations. Shares standing in the name of another Corporation may be voted either in person or by proxy, by the president of such Corporation or any other officer appointed by such president. A proxy executed by any principal officer of such other Corporation or assistant thereto shall be conclusive evidence of the signer's authority to act, in the absence of express notice to this Corporation, given in writing to the Secretary of this Corporation, of the designation of some other person by the board of directors or the bylaws of such other Corporation. (b) Legal Representatives and Fiduciaries. Shares held by any administrator, executor, guardian, conservator, trustee in bankruptcy, receiver, or assignee for creditors may be voted by duly executed proxy, without a transfer of such shares to his name. Shares standing in the name of a fiduciary may be voted by him, either in person or by proxy. A proxy executed by a fiduciary shall be conclusive evidence of the signer's authority to act in the absence of express notice to this Corporation, given in writing to the Secretary of this Corporation, that such manner of voting is expressly prohibited or otherwise directed by the document creating the fiduciary relationship. (c) Pledgees. A stockholder whose shares are pledged shall be entitled to vote such shares unless in the transfer of the shares the pledger 7 has expressly authorized the pledgee to vote the shares and thereafter the pledgee or his proxy shall be entitled to vote the shares so transferred. (d) Treasury Stock and Subsidiaries. Neither treasury shares, nor shares held by another Corporation if a majority of the shares entitled to vote for the election of directors of such other Corporation is held by this Corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares entitled to vote, but shares of its own issue held by this Corporation in a fiduciary capacity or held by such other Corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote. (e) Joint Holders. Shares of record in the names of two or more persons or shares to which two or more persons have the same fiduciary relationship, unless the Secretary of the Corporation is given notice otherwise and furnished with a copy of the instrument creating the relationship, may be voted as follows: (i) If voted by an individual, his vote binds all holders. (ii) If voted by more than one holder, the majority vote binds all, unless the vote is evenly split in which case the shares may be voted proportionally, or according to the ownership interest as shown in the instrument filed with the Secretary of the Corporation. 2.13. Waiver of Notice by Stockholders. Whenever any notice whatever is required to be given to any stockholder of the Corporation under the certificate of inCorporation or bylaws or any provision of the Delaware General Corporation Law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the stockholder entitled to such notice, shall be deemed equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute waiver of notice of such meeting, except when the person attends for the express purpose of objecting to the transaction of any business. Neither the business nor purpose of any regular or special meeting of stockholders, directors or members of a committee of directors need be specified in the waiver. 2.14. Stock List. (a) A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. (b) The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE III. BOARD OF DIRECTORS 3.1.Number, Election, and Term of Directors. Subject to the rights of the holders of any series of preferred stock to elect directors under specified 8 circumstances, the number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. Except as otherwise set forth in the certificate of incorporation, each director shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and qualified, or until his prior death, resignation or removal. Directors need not be residents of the State of Delaware or stockholders of the corporation. 3.2. Newly Created Directorships and Vacancies. Subject to applicable law and to the rights of the holders of any series of preferred stock with respect to such series of preferred stock, and unless the Board of Directors otherwise determines, newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled only by a majority vote of the Directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director. 3.3. Removal and Resignation. Except as otherwise set forth in the certificate of incorporation, a director may be removed from office by affirmative vote of a majority of the votes represented by outstanding shares entitled to vote for the election of such director taken at a meeting of stockholders called for that purpose. A director may resign at any time by filing his written resignation with the Secretary of the Corporation. 3.4. Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately after the annual meeting of stockholders and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the meeting of stockholders which precedes it, or such other suitable place as may be announced at such meeting of stockholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Delaware, for the holding of additional regular meetings without other notice than such resolution. 3.5. Special Meetings. Except as otherwise set forth in the certificate of inCorporation, special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, President, Secretary or any two (2) or more directors. The individual(s) calling any special meeting of the Board of Directors may fix any place, either within or without the State of Delaware, as the place for holding any special meeting of the Board of Directors called by them, and if no other place is fixed the place of the meeting shall be at the principal executive offices of the Corporation. 3.6 Notice; Waiver. Notice of each special meeting of the Board of Directors shall be given by written notice to each director at his business address or at such other address as such director shall have designated in writing filed with the Secretary, by mailing such notice not less than seventy-two (72) hours prior thereto or by personal delivery, telephone, or facsimile transmission of such notice not less than twenty-four (24) hours prior thereto. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. Whenever 9 any notice whatever is required to be given to any director of the Corporation under the certificate of inCorporation or bylaws or any provision of law, a waiver thereof in writing, signed at any time, whether before or after the time of meeting, by the director entitled to such notice, shall be deemed equivalent to the giving of such notice. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the sole purpose of objecting thereat to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. 3.7 Quorum. Except as otherwise provided by law or by the certificate of inCorporation or these bylaws, a majority of the whole Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. A majority of the directors present (though less than such quorum) may adjourn the meeting to another place, date, or time without further notice or waiver thereof. 3.8. Manner of Acting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by law or by the certificate of inCorporation or these bylaws. 3.9. Conduct of Meetings. The Chairman of the Board or, in his absence, the President or, in their absence, any director chosen by the directors present, shall call meetings of the Board of Directors to order and shall act as chairman of the meeting. The Secretary of the Corporation shall act as secretary of all meetings of the Board of Directors but in the absence of the Secretary, the presiding officer may appoint any Assistant Secretary or any director or other person present to act as secretary of the meeting. 3.10. Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (a) To declare dividends from time to time in accordance with law; (b) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (c) To authorize the creation, making, and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith; (d) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (e) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (f) To adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; 10 (g) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees, and agents of the Corporation and its subsidiaries as it may determine; and (h) To adopt from time to time regulations, not inconsistent with these bylaws, for the management of the Corporation's business and affairs. 3.11. Compensation. (a) Unless otherwise restricted by the certificate of inCorporation, the Board of Directors shall have the authority to fix the compensation of the directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or paid a stated salary and/or paid other compensation as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed compensation for serving on a committee and/or attending committee meetings. (b) The Board of Directors shall also shall have authority to provide for or delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to directors, officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such directors, officers and employees to the Corporation. 3.12. Presumption of Assent. Solely for the purposes of Section 174 of the Delaware General Corporation Law, a director of the Corporation who is present at a meeting of the Board of Directors or a committee thereof of which he is a member at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. 3.13. Unanimous Consent without Meeting. Any action required or permitted by the certificate of inCorporation or bylaws or any provision of law to be taken by the Board of Directors at a meeting or by a resolution of any committee thereof may be taken without a meeting if a consent in writing, setting forth the action so taken, filed with the minutes of the proceedings, shall be signed by all of the directors then in office or comprising such committee. ARTICLE IV. COMMITTEES 4.1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to 11 serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. In the absence of disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. 4.2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. ARTICLE V. OFFICERS 5.1. Number. The principal officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any number of offices may be held by the same person. 5.2. Election and Term of Office. The officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office until his successors shall have been duly elected or until his prior death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Failure to elect officers shall not dissolve or otherwise affect the Corporation. 5.3. Removal. Any officer or agent may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment shall not of itself create contract rights. 5.4. Vacancies. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. 5.5 The Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. He shall, when present, preside at all meetings of the stockholders and of the Board of Directors. He shall have authority, 12 subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the Corporation as he shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the Chairman of the Board. He shall have authority to sign, execute and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the Corporation's regular business or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he may authorize the President or any other officer or agent of the Corporation to sign, execute and acknowledge such documents or instruments in his place and stead. In general, he shall perform all duties incident to the office of Chairman of the Board and such other duties as may be prescribed by the Board of Directors from time to time. 5.6. The President. The President shall be the chief operating officer of the Corporation, and if there shall be no Chairman of the Board, the Chief Executive Officer of the Corporation) and, subject to the control of the Board of Directors, shall assist the Chairman of the Board in supervising and controlling all of the business and affairs of the Corporation. In the absence of the Chairman of the Board or in the event of his death, inability or refusal to act, or in the event for any reason it shall be impracticable for the Chairman of the Board to act personally, the President shall perform the duties of the Chairman of the Board and, when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board. He shall, in the absence of the Chairman of the Board, when present, preside at all meetings of the stockholders and of the Board of Directors. He shall have authority, subject to such rules as may be prescribed by the Board of Directors and to the approval of the Chairman of the Board, to appoint such agents and employees of the Corporation as he shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the President. He shall have authority to sign, execute and acknowledge, on behalf of the Corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the Corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he may authorize any Vice President or other officer or agent of the Corporation to sign, execute and acknowledge such documents or instruments in his place and stead. In general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. 5.7. The Vice Presidents. In the absence of the President or in the event of his death, inability or refusal to act, or in the event for any reason it shall be impracticable for the President to act personally, the Vice President (or, in the event there shall be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors, or in the absence of such designation, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the Corporation; and shall perform such other duties and have such authority as from time to time may be delegated or assigned to him by the President or the Board of Directors. The execution of any instrument of the Corporation by any Vice President shall be conclusive evidence, as to third parties, of his authority to act in the stead of the President. 13 5.8. The Secretary. The Secretary shall: (a) keep the minutes of the meetings of the stockholders and the Board of Directors in one or more books provided for the purpose; (b) attest instruments to be filed with the Secretary of State; (c) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (d) be custodian of the corporate records and of the seal of the Corporation, if any, and see that the seal of the Corporation, if any, is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (e) keep or arrange for the keeping of a register of the post office address of each stockholder which shall be furnished to the Secretary by such stockholders; (f) sign with the Chairman of the Board, the President or any Vice President certificates for shares of the Corporation the issuance of which shall have been authorized by resolution of the Board of Directors; (g) have general charge of the stock transfer books of the Corporation; and (h) in general perform all duties incident to the office of the Secretary and have such other duties and exercise such authority as from time to time may be delegated or assigned to him by the President or by the Board of Directors. 5.9. The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation; (b) receive and give receipts for moneys due and payable to the Corporation from any source whatsoever, and deposit all such moneys in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Section 5.4; and (c) in general perform all of the duties and exercise such other authority as from time to time may be delegated or assigned to him by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. 5.10. Assistant Secretaries and Assistant Treasurers. There shall be such number of Assistant Secretaries and Assistant Treasurers as the Board of Directors may from time to time authorize. The Assistant Secretaries may sign with the President or any Vice President certificates for shares of the Corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. 5.11. Other Assistants and Acting Officers. The Board of Directors shall have the power to appoint any person to act as assistant to any officer, or as agent for the Corporation in his stead, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer or other agent so appointed by the Board of Directors shall have the power to perform all the duties of the office to which he is so appointed to be an assistant, or as to which he is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors. 5.12. Salaries. The salaries of the principal officers shall be fixed from time to time by the Board of Directors or by a duly authorized committee thereof, and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. 14 5.13. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. 5.14. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other Corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other Corporation. ARTICLE VI. CONTRACTS, CHECKS AND SPECIAL CORPORATE ACTS 6.1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the Corporation, and such authorization may be general or confined to specific instances. In the absence of other designation, all deeds, mortgages and instruments or assignment or pledge made by the Corporation shall be executed in the name of the Corporation by the Chairman of the Board, the President or any Vice President and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an Assistant Secretary, when necessary or required, shall affix the corporate seal, if any, thereto; and when so executed no other party to such instrument or any third party shall be required to make any inquiry into the authority of the signing officer or officers. 6.2. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors. 6.3. Voting of Securities Owned by this Corporation. Subject always to the specific directions of the Board of Directors, (a) any shares or other securities issued by any other Corporation and owned or controlled by this Corporation may be voted at any meeting of security holders of such other Corporation by the Chairman of the Board, the President, any Vice President, the Treasurer, or the Secretary of this Corporation, and (b) whenever, in the judgment of the Chairman of the Board or in his absence, of the President, or in their absence, any Vice President, it is desirable for this Corporation to execute a proxy or written consent in respect to any shares or other securities issued by any other Corporation and owned by this Corporation, such proxy or consent shall be executed in the name of this Corporation by the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of this Corporation, without necessity of any authorization by the Board of Directors, affixation of corporate seal, if any, or countersignature or attestation by another officer. Any person or persons designated in the manner above stated as the proxy or proxies of this Corporation shall have full right, power and authority to vote the shares or other securities issued by such other Corporation and owned by this Corporation the same as such shares or other securities might be voted by this Corporation. 15 ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER 7.1. Certificates for Shares. Certificates representing shares of the Corporation shall be in such form, consistent with law, as shall be determined by the Board of Directors. Such certificates shall be signed by the Chairman of the Board, the President or any Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books for the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except as provided in Section 7.6. 7.2. Facsimile Signatures. The signatures of any officers of the Corporation upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or a registrar, other than the Corporation itself or an employee of the Corporation. 7.3. Signature by Former Officers. In case any officer, who has signed or whose facsimile signature has been placed upon any certificate for shares, shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. 7.4. Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer the Corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and power of an owner. Transfers of shares shall be made only upon the books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the Corporation. Where a certificate for shares is presented to the Corporation with a request to register for transfer, the Corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if (a) there were on or with the certificate the necessary endorsements, and (b) the Corporation had no duty to inquire into adverse claims or has discharged any such duty. The Corporation may require reasonable assurance that said endorsements are genuine and effective and in compliance with such other regulations as may be prescribed by or under the authority of the Board of Directors. Where a transfer of shares is made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the shares are presented, both the transferor and the transferee so request. 7.5. Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction imposed by the Corporation upon the transfer of such shares. 7.6. Lost, Destroyed or Stolen Certificates. Where the owner claims that his certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the Corporation has notice that such shares have been acquired by a bona fide purchaser, and (b) satisfies such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors concerning proof 16 of such loss, theft, or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. 7.7. Consideration of Shares. The shares of the Corporation may be issued for such consideration as shall be fixed from time to time by the Board of Directors, consistent with the law of the State of Delaware. 7.8. Stock Regulations. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with the statutes of the State of Delaware as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation. 7.9. Record Date. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights or to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may, except as otherwise required by law, fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion, or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. (b) A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VIII. SEAL 8.1. The Board of Directors may provide for a corporate seal in an appropriate form or may provide that the Corporation shall have no seal. ARTICLE IX. AMENDMENTS 9.1. By Stockholders. Except as otherwise set forth herein, in the certificate of inCorporation or required by law, these bylaws may be adopted, amended or repealed by the stockholders entitled to vote at the stockholders annual meeting without prior notice, or at any other meeting provided the amendment under consideration has been set forth in the notice of meeting, by the affirmative vote of not less than two-thirds of the votes present or represented by outstanding shares at any meeting at which a quorum is in attendance. 17 9.2. By Directors. Except as otherwise set forth herein in the certificate of inCorporation or required by law, the Board of Directors is expressly authorized to adopt, alter, amend, or repeal these bylaws by the affirmative vote of a majority of the Board of Directors at any meeting at which a quorum is present. 9.3. Implied Amendments. Any action taken or authorized by the Board of Directors which would be inconsistent with these bylaws, but is taken or authorized by the affirmative vote of not less than the number of votes or the number of directors required to amend the bylaws to conform with such action, shall be given the same effect as though the bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. ARTICLE X. INDEMNIFICATION 10.1. Mandatory Indemnification. (a) In all cases other than those set forth in Section 10.1(b) hereof and subject to the conditions and limitations set forth hereinafter in this Article X, the Corporation shall indemnify and hold harmless any person who is or was a party, or is threatened to be made a party, to any Action (see Section 10.17 for definitions of capitalized terms used herein) by reason of his or her status as an Executive and/or as to acts performed in the course of such Executive's duties to the Corporation and/or an Affiliate, against Liabilities and reasonable Expenses incurred by or on behalf of an Executive in connection with any Action, including, without limitation, in connection with the investigation, defense, settlement or appeal of any Action; provided, that it is not determined by the Authority, or by a court, pursuant to Section 10.3 that the Executive engaged in misconduct which constitutes a Breach of Duty. (b) To the extent an Executive has been successful on the merits or otherwise in connection with any Action, including, without limitation, the settlement, dismissal, abandonment or withdrawal of any such Action where the Executive does not pay, incur or assume any material Liabilities, or in connection with any claim, issue or matter therein, he or she shall be indemnified by the Corporation against reasonable Expenses incurred by or on behalf of him or her in connection therewith. The Corporation shall pay such Expenses to the Executive (net of all Expenses, if any, previously advanced to the Executive pursuant to Section 10.2), or to such other person or entity as the Executive may designate in writing to the Corporation, within ten (10) days after the receipt of the Executive's written request therefor, without regard to the provisions of Section 10.3. In the event the Corporation refuses to pay such requested Expenses the Executive may petition a court to order the Corporation to make such payment pursuant to Section 10.4. (c) Notwithstanding any other provision contained in this Article X to the contrary, the Corporation shall not: (i) indemnify, contribute or advance Expenses to an Executive with respect to any Action initiated or brought voluntarily by the Executive and not by way of defense, except with respect to Actions: (1) brought to establish or enforce a right to indemnification, contribution and/or an advance of Expenses under Section 10.4, 18 under the Statute as it may then be in effect or under any other applicable statute or law or otherwise as required; (2) initiated or brought voluntarily by an Executive to the extent such Executive is successful on the merits or otherwise in connection with such an Action in accordance with and pursuant to Section 10.1(b); or (3) as to which the Board determines it be appropriate. (ii) indemnify an Executive against judgments, fines or penalties incurred in a Derivative Action if the Executive is finally adjudged liable to the Corporation by a court (unless the court before which such Derivative Action was brought determines that the Executive is fairly and reasonably entitled to indemnity for any or all of such judgments, fines or; (iii) indemnify an Executive under this Article X for any amounts paid in settlement of any Action effected without the Corporation's written consent. (d) The Corporation shall not settle any Action in any manner which would impose any Liabilities or other type of limitation on the Executive without the Executive's written consent. Neither the Corporation nor the Executive shall unreasonably withhold their consent to any proposed settlement. (e) An Executive's conduct with respect to an employee benefit plan sponsored by or otherwise associated with the Corporation and/or an Affiliate for a purpose he or she reasonably believes to be in the interests of the participants in and beneficiaries of such plan is conduct that does not constitute a breach or failure to perform his or her duties to the Corporation or an Affiliate, as the case may be. 10.3. Advance for Expenses. (a) The Corporation shall pay to an Executive, or to such other person or entity as the Executive may designate in writing to the Corporation, his or her reasonable Expenses incurred by or on behalf of such Executive in connection with any Action, or claim, issue or matter associated with any such Action, in advance of the final disposition or conclusion of any such Action (or claim, issue or matter associated with any such Action), within ten (10) days after the receipt of the Executive's written request therefor; provided, the following conditions are satisfied: (i) the Executive has first requested an advance of such Expenses in writing (and delivered a copy of such request to the Corporation) from the insurance carrier(s), if any, to whom a claim has been reported under an applicable insurance policy purchased by the Corporation and each such insurance carrier, if any, has declined to make such an advance; (ii) the Executive furnishes to the Corporation an executed written certificate affirming his or her good faith belief that he or she has not engaged in misconduct which constitutes a Breach of Duty; and (iii) the Executive furnishes to the Corporation an executed written agreement to repay any advances made under this Section 10.2 if it is ultimately determined that he or she is not entitled to be indemnified by the Corporation for such Expenses pursuant to this Article X. 19 (b) If the Corporation makes an advance of Expenses to an Executive pursuant to this Section 10.2, the Corporation shall be subrogated to every right of recovery the Executive may have against any insurance carrier from whom the Corporation has purchased insurance for such purpose. 10.4. Determination of Right to Indemnification. (a) Except as otherwise set forth in this Section 10.3 or in Section 10.1(c), any indemnification to be provided to an Executive by the Corporation under Section 10.1(a) upon the final disposition or conclusion of any Action, or any claim, issue or matter associated with any such Action, unless otherwise ordered by a court, shall be paid by the Corporation to the Executive (net of all Expenses, if any, previously advanced to the Executive pursuant to Section 10.2), or to such other person or entity as the Executive may designate in writing to the Corporation, within sixty (60) days after the receipt of the Executive's written request therefor. Such request shall include an accounting of all amounts for which indemnification is being sought. No further corporate authorization for such payment shall be required other than this Section 10.3(a). (b) Notwithstanding the foregoing, the payment of such requested indemnifiable amounts pursuant to Section 10.1(a) may be denied by the Corporation if: (i) the Board by a majority vote thereof determines that the Executive has engaged in misconduct which constitutes a Breach of Duty; or (ii) a majority of the directors of the Corporation is party in interest to such Action. (c) In either event of nonpayment pursuant to Section 10.3(b), the Board shall immediately authorize and direct, by resolution, that an independent determination be made as to whether the Executive has engaged in misconduct which constitutes a Breach of Duty and, therefore, whether indemnification of the Executive is proper pursuant to this Article X. (d) Such independent determination shall be made, at the option of the Executive(s) seeking indemnification, by (i) a panel of three arbitrators (selected as set forth below in Section 10.3(f) from the panels of arbitrators of the American Arbitration Association) in New York, New York, in accordance with the Commercial Arbitration Rules then prevailing of the American Arbitration Association; (ii) an independent legal counsel mutually selected by the Executive(s) seeking indemnification and the Board by a majority vote of a quorum thereof consisting of directors who were not parties in interest to such Action (or, if such quorum is not obtainable, by the majority vote of the entire Board); or (iii) a court in accordance with Section 10.4. (e) In any such determination there shall exist a rebuttable presumption that the Executive has not engaged in misconduct which constitutes a Breach of Duty and is, therefore, entitled to indemnification hereunder. The burden of rebutting such presumption by clear and convincing evidence shall be on the Corporation. (f) If a panel of arbitrators is to be employed hereunder, one 20 of such arbitrators shall be selected by the Board by a majority vote of a quorum thereof consisting of directors who were not parties in interest to such Action (or, if such quorum is not obtainable, by an independent legal counsel chosen by the majority vote of the entire Board), the second by the Executive(s) seeking indemnification and the third by the previous two arbitrators. (g) The Authority shall make its independent determination hereunder within sixty (60) days of being selected and shall simultaneously submit a written opinion of its conclusions to both the Corporation and the Executive. (h) If the Authority determines that an Executive is entitled to be indemnified for any amounts pursuant to this Article X, the Corporation shall pay such amounts to the Executive (net of all Expenses, if any, previously advanced to the Executive pursuant to Section 10.2), including interest thereon as provided in Section 10.6(c), or to such other person or entity as the Executive may designate in writing to the Corporation, within ten (10) days of receipt of such opinion. (i) The Expenses associated with the indemnification process set forth in this Section 10.3, including, without limitation, the Expenses of the Authority selected hereunder, shall be paid by the Corporation. 10.5. Court-Ordered Indemnification and Advance for Expenses. (a) An Executive may, either before or within two years after a determination, if any, has been made by the Authority, petition the court before which such Action was brought or any other court of competent jurisdiction to independently determine whether or not he or she has engaged in misconduct which constitutes a Breach of Duty and is, therefore, entitled to indemnification under the provisions of this Article X. Such court shall thereupon have the exclusive authority to make such determination unless and until such court dismisses or otherwise terminates such proceeding without having made such determination. An Executive may petition a court under this Section 10.4 either to seek an initial determination by the court as authorized by Section 10.3(d) or to seek review by the court of a previous adverse determination by the Authority. (b) The court shall make its independent determination irrespective of any prior determination made by the Authority; provided, however, that there shall exist a rebuttable presumption that the Executive has not engaged in misconduct which constitutes a Breach of Duty and is therefore entitled to indemnification hereunder. The burden of rebutting such presumption by clear and convincing evidence shall be on the Corporation. (c) In the event the court determines that an Executive has engaged in misconduct which constitutes a Beach of Duty, it may nonetheless order indemnification to be paid by the Corporation if it determines that the Executive is fairly and reasonably entitled to indemnification in view of all of the circumstances of such Action. (d) In the event the Corporation does not (i) advance Expenses to the Executive within ten (10) days of such Executive's compliance with Section 10.2; or (ii) indemnify an Executive with respect to requested Expenses under Section 10.1(b) within ten (10) days of such Executive's written request therefor, the Executive may petition the court before which such Action was brought, if any, or any other court of competent jurisdiction to order the Corporation to pay such reasonable Expenses immediately. Such court, after 21 giving any notice it considers necessary, shall order the Corporation to pay such Expenses if it determines that the Executive has complied with the applicable provisions of Section 10.2 or 10.1(b), as the case may be. (e) If the court determines pursuant to this Section 10.4 that the Executive is entitled to be indemnified for any Liabilities and/or Expenses, or to the advance of Expenses, unless otherwise ordered by such court, the Corporation shall pay such Liabilities and/or Expenses to the Executive (net of all Expenses, if any, previously advanced to the Executive pursuant to Section 10.2), including interest thereon as provided in Section 10.6(c) or to such other person or entity as the Executive may designate in writing to the Corporation, within ten (10) days of the rendering of such determination. (f) An Executive shall pay all Expenses incurred by such Executive in connection with the judicial determination provided in this Section 10.4, unless it shall ultimately be determined by the court that he or she is entitled, in whole or in part, to be indemnified by, or to receive an advance from, the Corporation as authorized by this Article X. All Expenses incurred by an Executive in connection with any subsequent appeal of the judicial determination provided for in this Section 10.4 shall be paid by the Executive regardless of the disposition of such appeal. 10.6. Termination of an Action Is Nonconclusive. The adverse termination of any Action against an Executive by judgment, order, settlement or conviction, or upon a plea of no contest or its equivalent, shall not, of itself, create a presumption that the Executive has engaged in misconduct which constitutes a Breach of Duty. 10.7. Partial Indemnification; Reasonableness; Interest. (a) If it is determined by the Authority, or by a court, that an Executive is entitled to indemnification as to some claims, issues or matters, but not as to other claims, issues or matters, involved in any Action, the Authority, or the court, shall authorize the proration and payment by the Corporation of such Liabilities and/or reasonable Expenses with respect to which indemnification is sought by the Executive, among such claims, issues or matters as the Authority, or the court, shall deem appropriate in light of all of the circumstances of such Action. (b) If it is determined by the Authority, or by a court, that certain Expenses incurred by or on behalf of an Executive are for whatever reason unreasonable in amount, the Authority, or the court, shall nonetheless authorize indemnification to be paid by the Corporation to the Executive for such Expenses as the Authority, or the court, shall deem reasonable in light of all of the circumstances of such Action. (c) Interest shall be paid by the Corporation to an Executive, to the extent deemed appropriate by the Authority, or by a court, at a reasonable interest rate, for amounts for which the Corporation indemnifies or advances to the Executive. 10.8. Insurance; Subrogation. (a) The Corporation may purchase and maintain insurance on behalf of any person who is or was an Executive of the Corporation, and/or is or was serving as an Executive of an Affiliate, against Liabilities and/or Expenses asserted against him or her and/or incurred by or on behalf of him or her in any such capacity or arising out of his or her status as such an Executive, whether or not the Corporation would have the power to 22 indemnify him or her against such Liabilities and/or Expenses under this Article X or under the Statute as it may then be in effect. Except as expressly provided herein, the purchase and maintenance of such insurance shall not in any way limit or affect the rights and obligations of the Corporation and/or any Executive under this Article X. Such insurance may, but need not, be for the benefit of all Executives of the Corporation and those serving as an Executive of an Affiliate. (b) If an Executive shall receive payment from any insurance carrier or from the plaintiff in any Action against such Executive in respect of indemnified amounts after payments on account of all or part of such indemnified amounts have been made by the Corporation pursuant to this Article X, such Executive shall promptly reimburse the Corporation for the amount, if any, by which the sum of such payment by such insurance carrier or such plaintiff and payments by the Corporation to such Executive exceeds such indemnified amounts; provided, however, that such portions, if any, of such insurance proceeds that are required to be reimbursed to the insurance carrier under the terms of its insurance policy, such as deductible, retention or coinsurance-insurance amounts, shall not be deemed to be payments to such Executive hereunder. (c) Upon payment of indemnified amounts under this Article X, the Corporation shall be subrogated to such Executive's rights against any insurance carrier in respect of such indemnified amounts and the Executive shall execute and deliver any and all instruments and/or documents and perform any and all other acts or deeds which the Corporation shall deem necessary or advisable to secure such rights. The Executive shall do nothing to prejudice such rights of recovery or subrogation. 10.9. Witness Expenses. The Corporation shall advance or reimburse any and all reasonable Expenses incurred by or on behalf of an Executive in connection with his or her appearance as a witness in any Action at a time when he or she has not been formally named a defendant or respondent to such an Action, within ten (10) days after the receipt of an Executive's written request therefor. 10.10. Contribution. (a) Subject to the limitations of this Section 10.9, if the indemnity provided for in Section 10.1 is unavailable to an Executive for any reason whatsoever, the Corporation, in lieu of indemnifying the Executive, shall contribute to the amount incurred by or on behalf of the Executive, whether for Liabilities and/or for reasonable Expenses in connection with any Action in such proportion as deemed fair and reasonable by the Authority, or by a court, in light of all of the circumstances of any such Action, in order to reflect: (i) the relative benefits received by the Corporation and the Executive as a result of the event(s) and/or transaction(s) giving cause to such Action; and/or (ii) the relative fault of the Corporation (and its other Executives, employees and/or agents) and the Executive in connection with such event(s) and/or transaction(s). (b) The relative fault of the Corporation (and its other Executives, employees and/or agents) on the one hand, and of the Executive, on the other hand, shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to 23 correct or prevent the circumstances resulting in such Liabilities and/or Expenses. The Corporation agrees that it would not be just and equitable if contribution pursuant to this Section 10.9 were determined by pro rata allocation or any other method of allocation which does not take into account the foregoing equitable considerations. (c) An Executive shall not be entitled to contribution from the Corporation under this Section 10.9 in the event it is determined by the Authority, or by a court, that the Executive has engaged in misconduct which constitutes a Breach of Duty. (d) The Corporation's payment of, and an Executive's right to, contribution under this Section 10.9 shall be made and determined in accordance with and pursuant to the provisions in Sections 10.3 and/or 10.4 relating to the Corporation's payment of, and the Executive's right to, indemnification under this Article X. 10.11. Indemnification of Employees. Unless otherwise specifically set forth in this Article X, the Corporation shall indemnify and hold harmless any person who is or was a party, or is threatened to be made a party to any Action by reason of his or her status as, or the fact that he or she is or was an employee or authorized agent or representative of the Corporation and/or an Affiliate as to acts performed in the course and within the scope of such employee's, agent's or representative's duties to the Corporation and/or an Affiliate, in accordance with and to the fullest extent permitted by the Statute as it may then be in effect. 10.12. Severability. If any provision of this Article X shall be deemed invalid or inoperative, or if a court of competent jurisdiction determines that any of the provisions of this Article X contravenes public policy, this Article X shall be construed so that the remaining provisions shall not be affected, but shall remain in full force and effect, and any such provisions which are invalid or inoperative or which contravene public policy shall be deemed, without further Action or deed by or on behalf of the Corporation, to be modified, amended and/or limited, but only to the extent necessary to render the same valid and enforceable, and the Corporation shall indemnify and hold harmless an Executive as to Liabilities and reasonable Expenses with respect to any Action to the full extent permitted by any applicable provision of this Article X that shall not have been invalidated and to the full extent otherwise permitted by the Statute as it may then be in effect. 10.13. Nonexclusivity of Article X. The right to indemnification, contribution and advancement of Expenses provided to an Executive by this Article X shall not be deemed exclusive of any other rights to indemnification, contribution and/or advancement of Expenses which any Executive or other employee or agent of the Corporation and/or of an Affiliate may be entitled under any charter provision, written agreement, resolution, vote of stockholders or disinterested directors of the Corporation or otherwise, including, without limitation, under the Statute as it may then be in effect, both as to acts in his or her official capacity as such Executive or other employee or agent of the Corporation and/or of an Affiliate or as to acts in any other capacity while holding such office or position, whether or not the Corporation would have the power to indemnify, contribute and/or advance Expenses to the Executive under this Article X or under the Statute: provided that it is not determined that the Executive or other employee or agent has engaged in misconduct which constitutes a Breach of Duty. 10.14. Notice to the Corporation; Defense of Actions. (a) An Executive 24 shall promptly notify the Corporation in writing upon being served with or having actual knowledge of any citation, summons, complaint, indictment or any other similar document relating to any Action which may result in a claim of indemnification, contribution or advancement of Expenses hereunder, but the omission so to notify the Corporation will not relieve the Corporation from any liability which it may have to the Executive otherwise than under this Agreement unless the Corporation shall have been irreparably prejudiced by such omission. (b) With respect to any such Action as to which an Executive notifies the Corporation of the commencement thereof: (i) The Corporation shall be entitled to participate therein at its own expense; and (ii) Except as otherwise provided below, to the extent that it may wish, the Corporation ( or any other indemnifying party, including any insurance carrier, similarly notified by the Corporation or the Executive) shall be entitled to assume the defense thereof, with counsel selected by the Corporation (or such other indemnifying party) and reasonably satisfactory to the Executive. (c) After notice from the Corporation (or such other indemnifying party) to the Executive of its election to assume the defense of an Action, the Corporation shall not be liable to the Executive under this Article X for any Expenses subsequently incurred by the Executive in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. The Executive shall have the right to employ his or her own counsel in such Action but the Expenses of such counsel incurred after notice from the Corporation (or such other indemnifying party) of its assumption of the defense thereof shall be at the expense of the Executive unless (i) the employment of counsel by the Executive has been authorized by the Corporation; (ii) the Executive shall have reasonably concluded that there may be a conflict of interest between the Corporation (or such other indemnifying party) and the Executive in the conduct of the defense of such Action; or (iii) the Corporation (or such other indemnifying party) shall not in fact have employed counsel to assume the defense of such Action, in each of which cases the Expenses of counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any Derivative Action or any Action as to which the Executive shall have made the conclusion provided for in clause (ii) above. 10.15. Continuity of Rights and Obligations. The terms and provisions of this Article X shall continue as to an Executive subsequent to his or her Termination Date and such terms and provisions shall inure to the benefit of the heirs, estate, executors and administrators of such Executive and the successors and assigns of the Corporation, including, without limitation any successor to the Corporation by way of merger, consolidation and/or sale or disposition of all or substantially all of the assets or capital stock of the Corporation. Except as provided herein, all rights and obligations of the Corporation and the Executive hereunder shall continue in full force and effect despite the subsequent amendment or modification of the Corporation's Certificate of InCorporation, as it is in effect on the date hereof, and such rights and obligations shall not be affected by any such amendment or modification, any resolution of directors or stockholders of the Corporation, or by any other corporate action which conflicts with or purports to amend, modify, limit or eliminate any of the rights or obligations of the Corporation and/or of the Executive hereunder. 25 10.16. Amendment. (a) This Article X may only be altered, amended or repealed by the affirmative vote of a majority of the stockholders of the Corporation so entitled to vote; provided, however, that the Board may alter or amend this Article X without such stockholder approval if any such alteration or amendment: (i) is made in order to conform to any amendment or revision of the Delaware General Corporation Law, including, without limitation, the Statute, which (A) expands or permits the expansion of an Executive's right to indemnification thereunder ; (B) limits or eliminates, or permits the limitation or elimination, of the liability of the Executives; or (C) is otherwise beneficial to the Executives; or (ii) in the sole judgment and discretion of the Board, does not materially adversely affect the rights and protections of the stockholders of the Corporation. (b) Any repeal, modification or amendment of this Article X shall not adversely affect any rights or protections of an Executive existing under this Article X immediately prior to the time of such repeal, modification or amendment. 10.17. Certain Definitions. The following terms as used in this Article X shall be defined as follows: (a) "Action(s)" shall include, without limitation, any threatened, pending or completed action, claim, litigation, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, whether predicated on foreign, federal, state or local law, whether brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, whether a Derivative Action and/or whether formal or informal. (b) "Affiliate" shall include, without limitation, any Corporation, partnership, joint venture, employee benefit plan, trust, or other similar enterprise that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the Corporation. (c) "Authority" shall mean the panel of arbitrators or independent legal counsel selected pursuant to Section 10.3 . (d) "Board" shall mean the Board of Directors of the Corporation. (e) "Breach of Duty" shall mean the Executive breached or failed to perform his or her duties to the Corporation or an Affiliate, as the case may be, and the Executive's breach of or failure to perform those duties constituted: (i) a breach of his or her "duty of loyalty" (as defined herein) to the Corporation or its stockholders; (ii) acts or omissions not in "good faith" (as further 26 defined herein) or which involve intentional misconduct or a knowing violation of the law; (iii) a violation of Section 174 of the Delaware General Corporation Law; or (iv) a transaction from which the Executive derived an improper direct personal financial profit (unless such profit is determined to be immaterial in light of all the circumstances). In determining whether an Executive has acted or omitted to act otherwise than in "good faith," as such term is used herein, the Authority, or the court, shall determine solely whether such Executive (i) in the case of conduct in his or her "official capacity" (as defined herein) with the Corporation, believed in the exercise of his or her business judgment that his or her conduct was in the best interests of the Corporation; and (ii) in all other cases reasonably believed that his or her conduct was at least not opposed to the best interests of the Corporation. (f) "Derivative Action" shall mean any Action brought by or in the right of the Corporation and/or an Affiliate. (g) "Duty of loyalty" shall mean a breach of fiduciary duty by an Executive which constitutes a willful failure to deal fairly with the Corporation or its stockholders in connection with a transaction in which the Executive has a material undisclosed personal conflict of interest. (h) "Executive(s)" shall mean any individual who is, was or has agreed to become a director and/or officer of the Corporation and/or an Affiliate. (i) "Expenses" shall include, without limitation, any and all expenses, fees, costs, charges, attorneys' fees and disbursements, other out-of-pocket costs, reasonable compensation for time spent by the Executive in connection with the Action for which he or she is not otherwise compensated by the Corporation, any Affiliate, any third party or other entity and any and all other direct and indirect costs of any type or nature whatsoever. (j) "Liabilities" shall include, without limitation, judgments, amounts incurred in settlement, fines, penalties and, with respect to any employee benefit plan, any excise tax or penalty incurred in connection therewith, and any and all other liabilities of every type or nature whatsoever. (k) "Official capacity" shall mean the office of director or officer in the Corporation, membership on any committee of directors, any other offices in the Corporation held by an Executive and any other employment or agency relationship between the Executive and the Corporation and "official capacity," as such term is used herein, shall not include service for any Affiliate or other foreign or domestic Corporation or any partnership, joint venture, trust, employee benefit plan, or other enterprise. (l) "Statute" shall mean Delaware General Corporation Law Section 145 (for any successor provisions). (m) "Termination Date" shall mean the date an Executive 27 ceases, for whatever reason, to serve in an employment relationship with the Company and/or any Affiliate. XI. NOTICES 11.1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee, or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, recognized overnight delivery service or by sending such notice by facsimile, receipt acknowledged, or by prepaid telegram or mailgram. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails or by telegram or mailgram, shall be the time of the giving of the notice. 11.2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee, or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee, or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting to the timeliness of notice. ARTICLE XII. MISCELLANEOUS 12.1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. 12.2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. 12.3. Reliance upon Books, Reports, and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports, or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. 12.4. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. 12.5. Time Periods. In applying any provision of these bylaws which requires that an act be done or not be done a specified number of days prior to 28 an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. CERTIFICATE OF ELIMINATION WITH RESPECT TO THE SERIES B 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 B Cumulative Redeemable Convertible Preferred Stock (the "Series B Preferred Stock") were duly adopted by the Company's Board of Directors: RESOLVED, all of its issued and outstanding Series B Preferred Stock have been converted to common stock of the Company in accordance with their terms and that no shares of the Company's Series B Preferred Stock are outstanding and that no shares of the Series B Preferred Stock will be issued subject to the certificate of designations previously filed with respect to the Series B 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 certificate of incorporation all matters set forth in the certificate of designations with respect to the Series B Preferred Stock. IN WITNESS WHEREOF, Terex Corporation has caused this certificate to be signed by its Senior Vice President this 23rd day of March, 1998. TEREX CORPORATION By:_______________________________ Eric I Cohen Senior Vice President TEREX CORPORATION $250,000,000 13 1/4% Senior Secured Notes due 2002 Series A and Series B --------------------------------- FIFTH SUPPLEMENTAL INDENTURE Dated as of February 18, 1998 -------------------------------- UNITED STATES TRUST COMPANY OF NEW YORK, Trustee 1 FIFTH SUPPLEMENTAL INDENTURE FIFTH SUPPLEMENTAL INDENTURE, dated as of February 18, 1998, between TEREX CORPORATION, a Delaware corporation (the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation, as trustee (the "Trustee"). WHEREAS, the Company, and CMH Acquisition Corp., Clark Material Handling Company, CMH Acquisition International Corp., Koehring Cranes, Inc., Legris Industries, Inc., PPM Cranes, Inc., as guarantors (collectively, the "Original Guarantors") and the Trustee are parties to an Indenture, dated as of May 9, 1995 (said Indenture, as it may heretofore or hereafter from time to time be amended, the "Indenture") providing for the issuance of the Company's 13 1/4% Series A Senior Secured Notes due 2002 and the Company's 13-1/4% Series B Senior Secured Notes due 2002 (collectively, the "Notes"); WHEREAS, the Company and the Trustee entered into a First Supplemental Indenture, dated as of April 7, 1997, pursuant to which Terex-Telelect Inc., Terex Aerial Inc., Terex Atlantico Inc., Terex-Ro Corporation, Terex West Coast Inc., and Terex Aviation Ground Equipment Inc. became additional guarantors under the Indenture (the "Additional Guarantors"); WHEREAS, the Company and the Trustee entered into a Second Supplemental Indenture, dated as of April 14, 1997, pursuant to which Terex Baraga Products, Inc. and M & M Enterprises of Baraga, Inc. (the "Baraga Guarantors") became additional guarantors under the Indenture; WHEREAS, the Company and the Trustee entered into a Third Supplemental Indenture, dated as of December 9, 1997, pursuant to which Terex Cranes, Inc. (formerly known as Terex/PPM Cranes Holdings, Inc.) ("Terex Cranes") became an additional guarantor under the Indenture; WHEREAS, the Company and the Trustee entered into a Fourth Supplemental Indenture, dated as of January 5, 1998, pursuant to which Payhauler Corp. and Progressive Components, Inc. became additional guarantors under the Indenture (together with the Original Guarantors, the Additional Guarantors, the Baraga Guarantors and Terex Cranes, the "Guarantors"); and WHEREAS, holders of at least a majority of the principal amount of the Notes outstanding have consented in writing to certain amendments to the Indenture pursuant to Section 9.2 thereof, and the Company, the Guarantors and the Trustee desire to make such amendments to the Indenture. NOW, THEREFORE, the Company, the Guarantors and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes. 2 ARTICLE 1 AMENDMENT TO THE INDENTURE Section 1.01. Article 1 of the Indenture is hereby amended as follows: (a) The following definitions are hereby deleted: Acquired Debt, Acquisition, Acquisition Agreement, Capital Lease Obligation, Cash Equivalent, Consolidated EBITDA, Consolidated Interest Expense, Consolidated Net Income, Consolidated Net Worth, Eligible Inventory, Eligible Receivables, Existing Credit Facility, Floor Plan Guaranty, Interest Coverage Ratio, Net Assets, Net Income, Permitted Investments, Permitted Proceeds, PPM Funded Debt, PPM Subordinated Note, Restricted Investment, Revolving Credit Facility and Weighted Average Life to Maturity. (b) The definition of "Permitted Liens" is hereby amended by (i) inserting on the third to last line thereof after the words "leases and subleases," a new clause (xii) which shall read as follows: "(xii) Liens junior to the Liens granted by the Company or any of its Subsidiaries on any of their respective properties, assets or revenues pursuant to the Security Documents," (ii) renumbering current clause (xii) as clause (xiii) and (iii) changing the number "(xi)" on the last line thereof to the number "(xii)." (c) The definition of "Purchase Money Liens" is hereby amended in its entirety to read as follows: "Purchase Money Liens" means (i) Liens to secure or securing Purchase Money Obligations and (ii) Liens to secure Indebtedness issued in exchange for, or the proceeds of which are contemporaneously used to extend, refinance, renew, replace, or refund outstanding Indebtedness of the Company or any of its Restricted Subsidiaries incurred solely to refinance Purchase Money Obligations provided that such refinancing indebtedness is incurred no later than 180 days after the satisfaction of such Purchase Money Obligations. (d) Section 1.2 is hereby amended by (i) deleting the references to "Affiliate Transaction," "Excess Proceeds," "Purchase Money Indebtedness," "Refinance," "Refinance Indebtedness" and "Restricted Payments" and (ii) changing the references to "Excess Proceeds Offer," "Excess Proceeds Offer Period" and "Excess Proceeds Payment Date" to "Net Proceeds Offer," "Net Proceeds Offer Period" and "Net Proceeds Payment Date," respectively. Section 1.02. Articles 4, 5, 6 and 8 of the Indenture are hereby amended as follows: (a) Sections 4.7, 4.8, 4.9, 4.11, 4.15 and 4.16 are hereby deleted in their entirety. (b) Section 4.10 is hereby amended in its entirety to read as follows: 3 Section 4.10. Purchase of Notes Following Asset Sales. If the Company or any Restricted Subsidiary (i) elects to make an Asset Sale on such terms as it may determine in its sole discretion and (ii) further elects to offer to purchase the Notes with any or all of the Net Proceeds of such Asset Sale (the "Net Proceeds Offer"), the Company shall offer to purchase Notes having an aggregate principal amount equal to the Net Proceeds of such Asset Sale that the Company elects to apply to the purchase of Notes (the "Purchase Amount"), at a purchase price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the purchase date. The Net Proceeds Offer shall remain open for a period of 20 Business Days and no longer, unless a longer period is required by law (the "Net Proceeds Offer Period"). Promptly after the termination of the Net Proceeds Offer Period (the "Net Proceeds Payment Date"), the Company shall purchase and mail or deliver payment for the Purchase Amount for the Notes or portions thereof tendered, pro rata or by such other method as may be required by law, or, if less than the Purchase Amount has been tendered, all Notes tendered pursuant to the Net Proceeds Offer. The principal amount of Notes to be purchased pursuant to a Net Proceeds Offer may be reduced by the principal amount of Notes acquired by the Company through purchase or redemption (other than pursuant to a Change of Control Offer) subsequent to the date of an Asset Sale and surrendered to the Trustee for cancellation. The Net Proceeds Offer shall be conducted in compliance with all applicable laws, including (without limitation), Regulation 14E of the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws. The Company shall commence the Net Proceeds Offer by mailing to the Trustee and each Holder, at such Holder's last registered address, a notice, which shall govern the terms of the Net Proceeds Offer, and shall state: (1) that the Net Proceeds Offer is being made pursuant to this Section 4.10, the principal amount of Notes which shall be accepted for payment and that all Notes validly tendered shall be accepted for payment on a pro rata basis; (2) the purchase price and the date of purchase; (3) that any Notes not tendered or accepted for payment pursuant to the Net Proceeds Offer shall continue to accrue interest; (4) that, unless the Company defaults in the payment of the purchase price with respect to any Notes tendered, Notes accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds Payment Date; (5) that Holders electing to have Notes purchased pursuant to a Net Proceeds Offer shall be required to surrender their Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company prior to the close of business on the third Business Day immediately preceding the Net Proceeds Payment Date; 4 (6) that Holders shall be entitled to withdraw their election if the Company receives, not later than the close of business on the second Business Day preceding the Net Proceeds Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; (7) that Holders whose Notes are purchased only in part shall be issued Notes representing the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in principal amount of $1,000 or whole multiples thereof; and (8) the instructions that Holders must follow in order to tender their Notes. On or before the Net Proceeds Payment Date, the Company shall (i) accept for payment on a pro rata basis the Notes or portions thereof tendered pursuant to the Net Proceeds Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted and (iii) deliver to the Trustee the Notes so accepted, together with an Officer's Certificate stating that the Notes or portions thereof tendered to the Company are accepted for payment. The Paying Agent shall promptly mail to each Holder of Notes so accepted payment in an amount equal to the purchase price of such Notes, and the Trustee shall promptly authenticate and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Note surrendered. The Company shall make a public announcement of the results of the Net Proceeds Offer as soon as practicable after the Net Proceeds Payment Date. For the purposes of this Section 4.10, the Trustee shall act as the Paying Agent. (c) Section 4.12 is hereby amended in its entirety to read as follows: Section 4.12. Limitation on Liens. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset (real, personal, tangible or intangible) now owned or hereafter acquired, or on any income or profits therefrom, or assign or convey any right to receive income therefrom, except (i) Liens on Accounts and Inventory and the proceeds thereof (and contract rights and general intangibles relating thereto and any other Mutual Collateral (as defined in the Intercreditor Agreement)), (ii) Purchase Money Liens and (iii) Permitted Liens. (b) Anything in the Security Documents to the contrary notwithstanding, the Company and its Subsidiaries may grant Liens in accordance with this Section 4.12; provided, that no such Lien shall affect the attachment, perfection or priority of the Lien of the Security Documents. Subject to the foregoing, upon receipt of a written notice from the Company or a pledging Subsidiary or another 5 secured party stating that Collateral is subject to a security interest under a security agreement executed by the pledgor which contains a description of the security, the Trustee shall execute appropriate instruments acknowledging that such Collateral is subject to such other security interest. (d) Section 4.17 is hereby amended by deleting the following clause which begins at the end of the twenty-first line thereof and ends on the twenty-fourth line thereof: "and such Person shall be permitted by virtue of its Fixed Charge Coverage Ratio to incur, immediately after giving effect to such acquisition, at least $1.00 of additional Indebtedness pursuant to Section 4.9(a) of this Indenture." (e) Section 5.1 of the Indenture is hereby amended by (i) adding the word "and" after Section 5.1(ii), (ii) replacing the comma and the word "and" at the end of Section 5.1(iii) with a period, (iii) deleting Section 5.1(iv) in its entirety and (iv) inserting a new paragraph immediately following Section 5.1(iii) which shall read as follows: Nothing in this Section 5.1 shall be construed to prohibit a consolidation or merger between the Company, any Guarantor and/or any Restricted Subsidiary or among Restricted Subsidiaries or Guarantors, nor prohibit the sale, assignment, transfer, lease, conveyance or other disposal by the Company or any Restricted Subsidiary of all or substantially all of its properties or assets in one or more related transactions to any Restricted Subsidiary or to the Company. (f) Section 6.1 of the Indenture is hereby amended by (i) changing the reference to "Excess Proceeds Offer" in Section 6.1(2) to "Net Proceeds Offer," (ii) amending Section 6.1(3) in its entirety to read as follows: "(3) the Company defaults in the performance of or breaches any of the provisions of Sections 4.10, 4.12 or 4.14 hereof" and (iii) deleting Sections 6.1(4), 6.1(6) and 6.1(7) in their entirety. (g) Section 8.1 of the Indenture is hereby amended by (i) deleting the words "(as certified by a nationally recognized accounting firm designated by the Company)" on the sixth and seventh lines of Section 8.1(1) and inserting therefor the words "(as certified by an Officers' Certificate delivered by the Company)", (ii) inserting the word "and" after Section 8.1(1), (iii) deleting Sections 8.1(2) and 8.1(3) and (iv) deleting the first sentence of the paragraph immediately following 8.1(4) which begins with the words "Then, this Indenture" and replacing it with a new sentence which shall read as follows: Then, this Indenture shall cease to be of further effect (except as provided in this paragraph), and the Trustee, on demand of the Company, shall execute proper instruments acknowledging confirmation of and discharge under this Indenture in the case of clause (A) above, and the Company's ability not to comply with restrictive covenants and related Events of Default in the case of clause (B) above, and, in the case of clauses (A) and (B) above, the release of the Liens created under the Security Documents. 6 ARTICLE 2 MISCELLANEOUS Section 2.01. The supplement to the Indenture effected hereby shall be binding upon all Holders of the Securities, their transferees and assigns. All Securities issued and outstanding on the date hereof shall be deemed to incorporate by reference or include the supplement to the Indenture effected hereby. Section 2.02. All terms used in this Fifth Supplemental Indenture which are defined in the Indenture shall have the meanings specified in the Indenture unless the context of this Supplemental Indenture otherwise requires. Section 2.03. This Fifth Supplemental Indenture shall become a binding agreement between the parties when counterparts hereof shall have been executed and delivered by each of the parties hereto. The amendments set forth in Article 1 shall become operative on the opening of business on the Acceptance Date, as defined in the Company's Offer to Purchase and Consent Solicitation Statement, dated February 2, 1998, relating to the Company's offer to purchase all of the outstanding Notes. Section 2.04. This Fifth Supplemental Indenture shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of New York, as applied to contracts made and performed within the State of New York, without regard to principles of conflicts of law. Section 2.05. This Fifth Supplemental Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same amendment. Section 2.06. The recitals contained in this Supplemental Indenture are made by the Company and not by the Trustee and all of the provisions contained in the Indenture, in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect thereof as fully and with like effect as if set forth herein in full. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental Indenture to be duly executed as of the date first above written. 7 TEREX CORPORATION By:___________________________ Name: Brian J. Henry ATTEST: Title: Vice President-Finance/Treasurer - ------------------------- Eric I Cohen, Secretary UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:______________________________ Name: ATTEST: Title: - ------------------------- GUARANTORS: KOEHRING CRANES, INC. By:____________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary PPM CRANES, INC. By:___________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - --------------------------- Eric I Cohen, Secretary 8 TEREX-TELELECT INC. By:___________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - --------------------------- Eric I Cohen, Secretary TEREX AERIALS INC. By:________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary TEREX WEST COAST INC. By:________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary TEREX ATLANTICO, INC. By:_________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary 9 TEREX AVIATION GROUND EQUIPMENT INC. By:________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary TEREX-RO CORPORATION By:________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary TEREX CRANES, INC. By:________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary PAYHAULER CORP. By:________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary 10 TEREX BARAGA PRODUCTS, INC. By:________________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary M & M ENTERPRISES OF BARAGA, INC. By:_______________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary PROGRESSIVE COMPONENTS, INC. By:_______________________________ Name: Brian J. Henry ATTEST: Title: Treasurer - -------------------------- Eric I Cohen, Secretary --------------------------------------------------------------------------- CREDIT AGREEMENT dated as of March 6, 1998 among TEREX CORPORATION, CERTAIN OF ITS SUBSIDIARIES, THE LENDERS NAMED HEREIN, CREDIT SUISSE FIRST BOSTON, as Administrative Agent, BANKBOSTON N.A., as Syndication Agent, and CANADIAN IMPERIAL BANK OF COMMERCE and FIRST UNION NATIONAL BANK as Co-Documentation Agents - ----------------------------------------------------------------------------- 1 TABLE OF CONTENTS ARTICLE I Definitions Page SECTION 1.01. Defined Terms............................................... 2 SECTION 1.02. Terms Generally............................................. 28 SECTION 1.03. Exchange Rates.............................................. 29 ARTICLE II The Credits SECTION 2.01. Commitments................................................. 29 SECTION 2.02. Loans....................................................... 30 SECTION 2.03. Borrowing Procedure......................................... 32 SECTION 2.04. Evidence of Debt; Repayment of Loans........................ 33 SECTION 2.05. Fees........................................................ 33 SECTION 2.06. Interest on Loans........................................... 35 SECTION 2.07. Default Interest............................................ 35 SECTION 2.08. Alternate Rate of Interest.................................. 36 SECTION 2.09. Termination and Reduction of Commitments.................... 36 SECTION 2.10. Conversion and Continuation of Borrowings................... 37 SECTION 2.11. Repayment of Term Borrowings................................ 39 SECTION 2.12. Prepayment.................................................. 40 SECTION 2.13. Mandatory Prepayments....................................... 41 SECTION 2.14. Reserve Requirements; Change in Circumstances............... 44 SECTION 2.15. Change in Legality.......................................... 45 SECTION 2.16. Indemnity................................................... 46 SECTION 2.17. Pro Rata Treatment.......................................... 46 SECTION 2.18. Sharing of Setoffs.......................................... 47 SECTION 2.19. Payments.................................................... 47 SECTION 2.20. Taxes....................................................... 48 SECTION 2.21. Assignment of Commitments Under Certain Circumstances; Duty to Mitigate......................................... 50 SECTION 2.22. Swingline Loans............................................. 51 SECTION 2.23. Letters of Credit........................................... 52 SECTION 2.24. A/C Fronted Loans........................................... 56 SECTION 2.25. Reporting Requirements of A/C Fronting Lenders and Issuing Banks........................................ 58 SECTION 2.26. Additional Issuing Banks.................................... 59 2 ARTICLE III Representations and Warranties SECTION 3.01. Organization; Powers........................................ 59 SECTION 3.02. Authorization............................................... 59 SECTION 3.03. Enforceability.............................................. 60 SECTION 3.04. Governmental Approvals...................................... 60 SECTION 3.05. Financial Statements........................................ 60 SECTION 3.06. No Material Adverse Change.................................. 60 SECTION 3.07. Title to Properties; Possession Under Leases................ 60 SECTION 3.08. Subsidiaries................................................ 61 SECTION 3.09. Litigation; Compliance with Laws............................ 61 SECTION 3.10. Agreements.................................................. 62 SECTION 3.11. Federal Reserve Regulations................................. 62 SECTION 3.12. Investment Company Act; Public Utility Holding Company Act.............................................. 62 SECTION 3.13. Use of Proceeds............................................. 62 SECTION 3.14. Tax Returns................................................. 62 SECTION 3.15. No Material Misstatements................................... 62 SECTION 3.16. Employee Benefit Plans...................................... 63 SECTION 3.17. Environmental Matters....................................... 63 SECTION 3.18. Insurance................................................... 64 SECTION 3.19. Security Documents.......................................... 64 SECTION 3.20. Location of Real Property and Leased Premises............... 65 SECTION 3.21. Labor Matters............................................... 65 SECTION 3.22. Solvency.................................................... 65 ARTICLE IV Conditions of Lending SECTION 4.01. All Credit Events........................................... 66 SECTION 4.02. First Credit Event.......................................... 66 ARTICLE V Affirmative Covenants SECTION 5.01. Existence; Businesses and Properties........................ 70 SECTION 5.02. Insurance................................................... 70 SECTION 5.03. Obligations and Taxes....................................... 72 SECTION 5.04. Financial Statements, Reports, etc. ........................ 72 SECTION 5.05. Litigation and Other Notices................................ 73 SECTION 5.06. Employee Benefits........................................... 73 SECTION 5.07. Maintaining Records; Access to Properties and Inspections.......................................... 74 SECTION 5.08. Use of Proceeds............................................. 74 SECTION 5.09. Compliance with Environmental Laws.......................... 74 3 SECTION 5.10. Preparation of Environmental Reports........................ 74 SECTION 5.11. Further Assurances.......................................... 74 SECTION 5.12. Interest Rate Protection Agreements......................... 75 ARTICLE VI Negative Covenants SECTION 6.01. Indebtedness................................................ 76 SECTION 6.02. Liens....................................................... 77 SECTION 6.03. Sale and Lease-Back Transactions............................ 79 SECTION 6.04. Investments, Loans and Advances............................. 79 SECTION 6.05. Mergers, Consolidations, Sales of Assets and Acquisitions... 80 SECTION 6.06. Dividends and Distributions; Restrictions on Ability of Subsidiaries to Pay Dividends............................ 81 SECTION 6.07. Transactions with Affiliates................................ 81 SECTION 6.08. Business of Borrowers and Subsidiaries...................... 81 SECTION 6.09. Other Indebtedness and Agreements........................... 82 SECTION 6.10. Capital Expenditures........................................ 82 SECTION 6.11. Consolidated Leverage Ratio................................. 83 SECTION 6.12. Consolidated Interest Coverage Ratio........................ 83 SECTION 6.13. Consolidated Fixed Charge Coverage Ratio.................... 83 SECTION 6.14. Fiscal Year................................................. 83 ARTICLE VII Events of Default........................... 84 ARTICLE VIII The Administrative Agent and the Collateral Agent............ 86 ARTICLE IX Miscellaneous SECTION 9.01. Notices..................................................... 88 SECTION 9.02. Survival of Agreement....................................... 89 SECTION 9.03. Binding Effect.............................................. 89 SECTION 9.04. Successors and Assigns...................................... 89 SECTION 9.05. Expenses; Indemnity......................................... 92 SECTION 9.06. Right of Setoff............................................. 93 SECTION 9.07. Applicable Law.............................................. 93 SECTION 9.08. Waivers; Amendment.......................................... 94 SECTION 9.09. Interest Rate Limitation.................................... 94 SECTION 9.10. Entire Agreement............................................ 95 SECTION 9.11. WAIVER OF JURY TRIAL........................................ 95 4 SECTION 9.12. Severability................................................ 95 SECTION 9.13. Counterparts................................................ 95 SECTION 9.14. Headings.................................................... 95 SECTION 9.15. Jurisdiction; Consent to Service of Process................. 95 SECTION 9.16. Conversion of Currencies.................................... 96 SECTION 9.17. Confidentiality............................................. 97 SECTION 9.18. European Monetary Union..................................... 97 SECTION 9.19. German Borrower............................................. 98 SCHEDULES Schedule 1.01(a) Additional Cost Schedule 1.01(b) Subsidiary Guarantors Schedule 1.01(c) Mortgaged Properties Schedule 1.01(d) Existing Letters of Credit Schedule 1.01(e) Certain Countries Schedule 1.01(f) Inactive Subsidiaries Schedule 1.01(g) Subordination Provisions Schedule 2.01(a) Lenders; Commitments Schedule 2.01(b) Sublimits for Alternative Currency Extensions of Credit Schedule 3.08 Subsidiaries Schedule 3.09 Litigation Schedule 3.17 Environmental Matters Schedule 3.18 Insurance Schedule 3.19(d) Mortgage Filing Offices Schedule 3.20(a) Owned Real Property Schedule 3.20(b) Leased Real Property Schedule 4.02(a) Local Counsel Schedule 6.01 Indebtedness Schedule 6.02 Liens Schedule 6.04 Investments EXHIBITS Exhibit A Form of Assignment and Acceptance Exhibit B Form of Borrowing Request Exhibit C Form of Indemnity, Subrogation and Contribution Agreement Exhibit D Form of Mortgage Exhibit E Form of Pledge Agreement Exhibit F Form of Security Agreement Exhibit G Form of Subsidiary Guarantee Agreement Exhibit H Form of Terex Guarantee Exhibit I-1 Form of Opinion of Eric Cohen Exhibit I-2 Form of Local Counsel Opinion 1 CREDIT AGREEMENT dated as of March 6, 1998, among TEREX CORPORATION, a Delaware corporation ("Terex"), TEREX EQUIPMENT LIMITED, a company organized under the laws of Scotland (the "Scottish Borrower"), P.P.M. S.A., a company organized under the laws of the Republic of France (the "French Borrower"), UNIT RIG (AUSTRALIA) PTY. LTD., a company organized under the laws of the New South Wales, Australia (the "Australian Borrower"), and P.P.M. Sp.A., a company organized under the laws of the Republic of Italy (the "Italian Borrower"), the Lenders (as defined in Article I), the Issuing Banks (as defined in Article I) and CREDIT SUISSE FIRST BOSTON, a bank organized under the laws of Switzerland, acting through its New York branch ("CSFB"), as administrative agent (in such capacity, the "Administrative Agent") and as collateral agent (in such capacity, the "Collateral Agent") for the Lenders. Terex intends to (a) refinance indebtedness outstanding under the Existing Credit Agreement (such term and each other capitalized term used but not defined herein having the meaning given it in Article I) and (b) offer to purchase (the "Debt Tender Offer") all its outstanding 13-1/4% Senior Secured Notes due 2002 (the "Existing Notes") and, in connection therewith, seek the consent (the "Consent Solicitation") of the holders of the Existing Notes to amend certain of the provisions of the indenture (the "Existing Note Indenture") governing the Existing Notes. Certain of the Subsidiary Borrowers intend to refinance (together with the refinancing referred to in clause (a) of the preceding sentence, the "Refinancing") certain of their existing indebtedness. In addition, following the Closing Date, Terex intends to acquire (the "Acquisition") all the outstanding capital shares of O&K Mining from O&K Orenstein & Koppel AG and to issue the Senior Subordinated Notes. The Borrowers have requested the Lenders to extend credit in the form of (a) Tranche A Term Loans to be made on the Closing Date and on one other day during the Tranche A Term Loan Availability Period, in an aggregate principal amount not in excess of $175,000,000 (or the Dollar Equivalent thereof in Alternative Currencies), (b) Tranche B Term Loans to be made on the Closing Date, in an aggregate principal amount not in excess of $200,000,000, and (c) Revolving Loans to be made at any time and from time to time during the period from the Closing Date to the Revolving Credit Maturity Date, in an aggregate principal amount at any time outstanding not in excess of $125,000,000 (or the Dollar Equivalent thereof in Alternative Currencies). The Borrowers have requested the A/C Fronting Lenders and the Swingline Lender to extend credit, at any time and from time to time during the period from the Closing Date to the Revolving Credit Maturity Date, in the form of A/C Fronted Loans and Swingline Loans, respectively. The Borrowers have requested the Issuing Banks to issue letters of credit, in an aggregate face amount at any time outstanding not in excess of $35,000,000 (or the Dollar Equivalent thereof in Alternative Currencies), to support payment obligations incurred in the ordinary course of business by the Borrowers and their respective Subsidiaries. The proceeds of the Term Loans, together with a portion of the Revolving Loans, are to be used solely (a) on the Closing Date, (i) to effect the Refinancing, (ii) to finance the Debt Tender Offer, (iii) to pay related fees and expenses and (iv) for working capital purposes and (b) on the date on which the Acquisition is 2 consummated, to fund a portion of the cash consideration therefor and to pay related fees and expenses, and the proceeds of the Revolving Loans, A/C Fronted Loans and Swingline Loans (other than the Loans used for the purposes previously specified in this sentence) are to be used solely for working capital and other general corporate purposes, including the financing of the Acquisition and other Permitted Acquisitions. The Lenders are willing to extend such credit to the Borrowers and the Issuing Banks are willing to issue letters of credit for the account of the Borrowers on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below: "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans. "ABR Loan" shall mean any ABR Term Loan or ABR Revolving Loan. "ABR Revolving Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "ABR Term Borrowing" shall mean a Borrowing comprised of ABR Term Loans. "ABR Term Loan" shall mean any ABR Tranche A Term Loan or any ABR Tranche B Term Loan. "ABR Tranche A Term Loan" shall mean any Tranche A Term Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "ABR Tranche B Term Loan" shall mean any Tranche B Term Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "A/C Fronted Base Rate" shall mean, for any day, with respect to any A/C Fronted Loan, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the average rate at which overnight deposits in the currency in which the applicable A/C Fronted Loan is denominated and approximately equal in principal amount to such A/C Fronted Loan are obtainable by the applicable A/C Fronting Lender on such day at its lending office for such A/C Fronted Loan in the interbank market (or any other market for overnight funds in such currency utilized by such A/C Fronting Lender), adjusted to reflect any direct or indirect costs of obtaining such deposits (including reserve and assessment costs, to the extent applicable). The A/C Fronted Base Rate applicable to any A/C Fronted Loan shall be determined for each day by the A/C Fronting Lender in respect of such Loan and such determination shall be conclusive absent manifest error. The applicable A/C Fronting Lender shall 3 notify the applicable Borrower and the Administrative Agent promptly upon establishing the A/C Fronted Base Rate for any A/C Fronted Loan, or upon any change thereto. "A/C Fronted Base Rate Loans" shall mean any A/C Fronted Loan bearing interest at a rate determined by reference to the A/C Fronted Base Rate in accordance with the provisions of Article II. "A/C Fronted Exposure" shall mean, at any time, the Dollar Equivalent of the aggregate principal amount of all outstanding A/C Fronted Loans at such time. The A/C Fronted Exposure of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage of the aggregate A/C Fronted Exposure at such time. "A/C Fronted Fixed Rate Loan" shall mean any A/C Fronted Loan bearing interest at a rate determined by reference to the Bank Bill Rate or the Italian Fixed Rate in accordance with the provisions of Article II. "A/C Fronted Loan" shall mean any loan made by an A/C Fronting Lender pursuant to its A/C Fronting Commitment. "A/C Fronting Commitment" shall mean, with respect to any Lender, the commitment of such Lender to make Loans pursuant to Section 2.24, as set forth on Schedule 2.01(a), or in the Assignment and Acceptance pursuant to which such Lender assumed its A/C Fronting Commitment, as applicable, as the same may be reduced from time to time pursuant to Section 2.24(f) and pursuant to assignments by such Lender pursuant to Section 9.04. "A/C Fronting Fees" shall have the meaning assigned to such term in Section 2.05(e). "A/C Fronting Lender" shall mean (a) with respect to Australian Dollars, the Australian Fronting Lender, and (b) with respect to Lire, the Italian Fronting Lender. "A/C Participation Fees" shall have the meaning assigned to such term in Section 2.05(d). "Acquired Indebtedness" shall mean Indebtedness of a person or any of its subsidiaries (the "Acquired Person") (a) existing at the time such person becomes a Subsidiary of Terex or at the time it merges or consolidates with Terex or any of its Subsidiaries or (b) assumed in connection with the acquisition of assets from such person; provided in each case that (i) such Indebtedness was not created in contemplation of such acquisition, merger or consolidation and (ii) such acquisition, merger or consolidation is otherwise permitted under this Agreement. "Acquired Person" shall have the meaning assigned to such term in the definition of the term "Acquired Indebtedness". "Acquisition" shall have the meaning assigned to such term in the preamble to this Agreement. "Additional Cost" shall mean, in relation to any Borrowing that is denominated in Pounds and is made by the Scottish Borrower, for any Interest Period, the cost as calculated by the Administrative Agent in accordance with 4 Schedule 1.01(a) imputed to each Lender participating in such Borrowing of compliance with the mandatory liquid assets requirements of the Bank of England during that Interest Period, expressed as a percentage. "Additional Subordinated Notes" shall mean subordinated notes in an aggregate principal amount at any time outstanding not to exceed $150,000,000 and issued from time to time by Terex, or assumed in connection with a Permitted Acquisition, after the issuance of the Senior Subordinated Notes; provided that (a) except in the case of Additional Subordinated Notes assumed in connection with a Permitted Acquisition, the Net Cash Proceeds thereof are used either (i) to finance one or more Permitted Acquisitions or (ii) to prepay Term Loans in accordance with Section 2.13(e), (b) such subordinated notes do not require any scheduled payment of principal prior to a date that is 12 months after the Tranche B Maturity Date and (c) the subordination provisions and other non-pricing terms and conditions of such subordinated notes are no less favorable to the Loan Parties and the Lenders than the analogous provisions of the Senior Subordinated Notes. "Adjusted LIBO Rate" shall mean, with respect to any Eurocurrency Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the LIBO Rate in effect for such Interest Period multiplied by Statutory Reserves; provided, however, that, if such Eurocurrency Borrowing is denominated in Pounds and is made by the Scottish Borrower, then the "Adjusted LIBO Rate" shall be the LIBO Rate in effect for such Interest Period plus Additional Cost. "Administrative Agent Fees" shall have the meaning assigned to such term in Section 2.05(b). "Administrative Questionnaire" shall mean an Administrative Questionnaire in the form of Exhibit A. "Affiliate" shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified. "Aggregate Revolving Credit Exposure" shall mean the aggregate amount of the Lenders' Revolving Credit Exposures. "Agreement Currency" shall have the meaning assigned to such term in Section 9.16. "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. The term "Prime Rate" shall mean the rate of interest per 5 annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. The term "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Alternative Currency" shall mean (a) with respect to Tranche A Term Loans, Revolving Loans and Letters of Credit, Marks, Pounds and Francs, (b) with respect to A/C Fronted Loans and Letters of Credit, Australian Dollars and Lire and (c) with respect to Letters of Credit, any other foreign currency which is approved by the applicable A/C Fronting Lender and the applicable Issuing Bank, in each case in its sole discretion. "Alternative Currency Borrowing" shall mean a Borrowing comprised of Alternative Currency Loans. "Alternative Currency Equivalent" shall mean, on any date of determination, with respect to any amount denominated in dollars in relation to any specified Alternative Currency, the equivalent in such specified Alternative Currency of such amount in dollars, determined by the Administrative Agent pursuant to Section 1.03 using the applicable Exchange Rate then in effect. "Alternative Currency Loan" shall mean any Loan denominated in an Alternative Currency. "Alternative Currency Revolving Credit Exposure" shall mean, at any time with respect to any Alternative Currency, the sum of (a) the Dollar Equivalent of the aggregate principal amount of all A/C Fronted Loans and outstanding Revolving Loans that are denominated in such Alternative Currency at such time, (b) the Dollar Equivalent of the aggregate undrawn amount of all outstanding Letters of Credit that are denominated in such Alternative Currency at such time and (c) the Dollar Equivalent of the aggregate principal amount of all L/C Disbursements in respect of Letters of Credit that are denominated in such Alternative Currency at such time. "Alternative Currency Revolving Loan" shall mean a Revolving Loan denominated in an Alternative Currency. "Alternative Currency Term Loan" shall mean a Tranche A Term Loan denominated in an Alternative Currency. Each Alternative Currency Term Loan must be a Eurocurrency Term Loan. "Applicable Percentage" shall mean, for any day, with respect to any Eurocurrency Revolving Loan, Eurocurrency Tranche A Term Loan, Eurocurrency Tranche B Term Loan, ABR Revolving Loan, ABR Tranche A Term Loan, ABR Tranche B Term Loan, A/C Fronted Loan or with respect to the Facility Fees, as the case may be, the applicable percentage set forth below under the caption "Eurocurrency Spread--Tranche A Term Loans and Revolving Loans", "Eurocurrency 6 Spread--Tranche B Term Loans", "ABR Spread--Tranche A Term Loans and Revolving Loans", "ABR Spread--Tranche B Term Loans", "A/C Fronted Loan Spread" or "Facility Fee Percentage", as the case may be, based upon the Consolidated Leverage Ratio as of the relevant date of determination; provided that, until delivery of Terex's financial statements pursuant to Section 5.04(a) with respect to its fiscal year ended December 31, 1997, the Applicable Percentage shall be deemed to be in Category 3: ABR Eurocurrency Spread-- Spread-- Tranche A Tranche A Term Eurocurrency Term Loans ABR Consolidated Loans and Spread-- and ABR-- Spread-- Leverage Ratio Revolving Tranche B Revolving A/C Fronted Tranche B Facility Fee Loans Term Loans Loans Loan Spread Term Loans Percentage Category 1 Greater than or equal 2.00% 3.00% 1.00% 1.00% 2.00% 0.5000% to 5.25 to 1.00 Category 2 Greater than or equal 1.75% 2.75% 0.75% 0.75% 1.75% 0.5000% to 4.75 to 1.00 but less than 5.25 to 1.00 Category 3 Greater than or equal 1.50% 2.50% 0.50% 0.50% 1.50% 0.5000% to 4.00 to 1.00 but less than 4.75 to 1.00 Category 4 Greater than or equal 1.25% 2.50% 0.25% 0.25% 1.50% 0.5000% to 3.50 to 1.00 but less than 4.00 to 1.00 Category 5 Greater than or equal 1.125% 2.50% 0.125% 0.125% 1.50% 0.375% to 3.00 to 1.00 but less than 3.50 to 1.00 Category 6 0.875% 2.25% -0.125% 0.000% 1.25% 0.375% Less than 3.00 to 1.00 Each change in the Applicable Percentage resulting from a change in the Consolidated Leverage Ratio shall be effective with respect to all Loans, Commitments and Letters of Credit on the date of delivery to the Administrative Agent of the financial statements and certificates required by Section 5.04(a) or (b) based upon the Consolidated Leverage Ratio as of the end of the most 7 recent fiscal quarter included in such financial statements so delivered, and shall remain in effect until the date immediately preceding the next date of delivery of such financial statements and certificates indicating another such change. Notwithstanding the foregoing, at any time after the occurrence and during the continuance of an Event of Default, the Consolidated Leverage Ratio shall be deemed to be in Category 1 for purposes of determining the Applicable Percentage. "Asset Sale" shall mean the sale, transfer or other disposition (by way of merger or otherwise and including by way of a Sale and Leaseback) by any Borrower or any Subsidiary to any person other than any Borrower or any Guarantor of (a) any capital stock of any Subsidiary (other than directors' qualifying shares) or (b) any other assets of any Borrower or any Subsidiary (other than inventory, excess, damaged, obsolete or worn out assets, scrap, Permitted Investments and accounts receivable, in each case disposed of in the ordinary course of business and, in the case of accounts receivable, consistent with past practice); provided that any asset sale or series of related asset sales described in clause (b) above having a value not in excess of $1,000,000 shall be deemed not to be an "Asset Sale" for purposes of this Agreement. "Assignment and Acceptance" shall mean an assignment and acceptance entered into by a Lender and an assignee, and accepted by the Administrative Agent, in the form of Exhibit B or such other form as shall be approved by the Administrative Agent. "Australian Dollars" shall mean dollars in lawful currency of Australia. "Australian Fronting Lender" shall mean Credit Suisse First Boston, acting through its Sydney office branch, and its successors and assigns in such capacity. "Bank Bill Rate" shall mean, in relation to an Interest Period for any A/C Fronted Fixed Rate Loan denominated in Australian Dollars, the rate determined by the A/C Fronting Lender to be the average bid rate displayed at or about 10:10 a.m. (Sydney time) on the first day of such Interest Period on the Reuters screen BBSY page for a term equivalent to such Interest Period. If (a) for any reason there is no rate displayed for a period equivalent to such Interest Period or (b) the basis on which such rate is displayed is changed and in the reasonable opinion of the A/C Fronting Lender such rate ceases to reflect the A/C Fronting Lender's cost of funding to the same extent as at the date of this Agreement, then the Bank Bill Rate shall be the rate determined by the A/C Fronting Lender to be the average of the buying rates quoted to the A/C Fronting Lender by three reference banks selected by it at or about that time on that date for bills of exchange that are accepted by an Australian bank and that have a term equivalent to the Interest Period. If there are no such buying rates the rate shall be the rate reasonably determined by the A/C Fronting Lender to be its cost of funds. Rates will be expressed as a yield percent per annum to maturity and rounded up, if necessary, to the nearest two decimal places. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States of America. "Borrowers" shall mean, collectively, Terex, the Scottish Borrower, the French Borrower, the Australian Borrower, the Italian Borrower and, after its accession to this Agreement pursuant to Section 9.19, the German Borrower. 8 "Borrowing" shall mean a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect. "Borrowing Request" shall mean a request by any Borrower in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C. "Business Day" shall mean any day other than a Saturday, Sunday or day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurocurrency Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market, and, when used in connection with any Calculation Date or determining any date on which any amount is to be paid or made available in an Alternative Currency, the term "Business Day" shall also exclude any day on which commercial banks and foreign exchange markets are not open for business in the principal financial center in the country of such Alternative Currency. "Calculation Date" shall mean (a) the date of delivery of each Borrowing Request, (b) the date of issuance of any Letter of Credit, (c) the date of conversion or continuation of any Borrowing pursuant to Section 2.10 or (d) such additional dates as the Administrative Agent or the Required Lenders shall specify. "Capital Lease Obligations" of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Casualty" shall have the meaning assigned to such term in the Mortgages. "Casualty Proceeds" shall have the meaning assigned to such term in the Mortgages. A "Change in Control" shall be deemed to have occurred if (a) any person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934 as in effect on the date hereof) shall own directly or indirectly, beneficially or of record, shares representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of Terex; (b) a majority of the seats (other than vacant seats) on the board of directors of Terex shall at any time be occupied by persons who were neither (i) nominated by the board of directors of Terex, nor (ii) appointed by directors so nominated; (c) any change in control (or similar event, however denominated) with respect to Terex or any of its Subsidiaries shall occur under and as defined in any indenture or agreement in respect of Indebtedness in an outstanding principal amount in excess of $5,000,000 to which Terex or any of its Subsidiaries is a party; or (d) any person or group shall otherwise directly or indirectly Control Terex. "Closing Date" shall mean the date of the first Credit Event. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 9 "Collateral" shall mean all the "Collateral" as defined in any Security Document and shall also include the Mortgaged Properties. Notwithstanding any contrary provision contained herein, until such time as the condition described in Section 5.11(c) has been satisfied, the term "Collateral" shall not include any inventory or parts therefor of the Company which was manufactured or sold by Fiatallis Latino American, Ltda, Fiat-Hitachi Excavators, S.p.A or any of their subsidiaries or affiliated companies or inventory or parts therefor which bears the tradename "Fiatallis", and any proceeds therefrom, including without limitation accounts, contract rights, chattel paper and general intangibles generated in any manner from the sale, lease demonstration or other disposition of the inventory or parts therefor (collectively, the "Fiat Collateral"). "Commitment" shall mean, with respect to any Lender, such Lender's Revolving Credit Commitment, Term Loan Commitments, A/C Fronting Commitment and Swingline Commitment. "Condemnation" shall have the meaning assigned to such term in the Mortgages. "Condemnation Proceeds" shall have the meaning assigned to such term in the Mortgages. "Confidential Information Memorandum" shall mean the Confidential Information Memorandum of the Borrowers dated February 1998. "Consent Solicitation" shall have the meaning assigned to such term in the preamble to this Agreement. "Consolidated Capital Expenditures" shall mean, for any period, the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability) by Terex or any of its Subsidiaries during such period that, in accordance with GAAP, are or should be included in "additions to property, plant and equipment" or similar items reflected in the consolidated statement of cash flows of Terex and the Subsidiaries for such period (including the amount of assets leased by incurring any Capital Lease Obligation); provided that expenditures for Permitted Acquisitions shall not constitute Consolidated Capital Expenditures. "Consolidated Current Assets" shall mean, as of any date of determination, the total assets that would properly be classified as current assets (other than cash and cash equivalents) of Terex and its Subsidiaries as of such date, determined on a consolidated basis in accordance with GAAP. "Consolidated Current Liabilities" shall mean, as of any date of determination, the total liabilities (other than, without duplication, (a) the current portion of long-term Indebtedness and (b) outstanding Revolving Loans, A/C Fronted Loans and Swingline Loans) that would properly be classified as current liabilities of Terex and its Subsidiaries as of such date, determined on a consolidated basis in accordance with GAAP. "Consolidated EBITDA" shall mean, for any period, Consolidated Net Income for such period, plus, without duplication and to the extent deducted from revenues in determining Consolidated Net Income for such period, the sum of (a) the aggregate amount of Consolidated Interest Expense for such period, (b) the aggregate amount of letter of credit fees paid during such period, (c) the 10 aggregate amount of income and franchise tax expense for such period, (d) all amounts attributable to depreciation and amortization for such period, (e) all non-recurring non-cash charges during such period and (f) all non-cash adjustments made to translate foreign assets and liabilities for changes in foreign exchange rates made in accordance with FASB No. 52, and minus, without duplication and to the extent added to revenues in determining Consolidated Net Income for such period, (i) all non-recurring non-cash gains during such period and (ii) all non-cash adjustments made to translate foreign assets and liabilities for changes in foreign exchange rates made in accordance with FASB No. 52, all as determined on a consolidated basis with respect to Terex and the Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) the sum, without duplication, of (i) Consolidated Interest Expense for such period; (ii) income or franchise taxes paid in cash during such period; (iii) scheduled and voluntary payments of principal with respect to all Indebtedness (including the principal portion of Capital Lease Obligations but excluding payments for inventory to be sold in the ordinary course of business) of Terex and its Subsidiaries on a consolidated basis during such period (other than repayments of Indebtedness (x) pursuant to the Refinancing on or prior to the Closing Date or (y) with the proceeds of other Indebtedness permitted to be incurred hereunder or equity); (iv) payments permitted pursuant to Section 6.06 made in cash during such period; and (v) Consolidated Capital Expenditures made in cash during such period. "Consolidated Interest Coverage Ratio" shall mean, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period. "Consolidated Interest Expense" of Terex and its Subsidiaries shall mean, for any period, interest expense of Terex and its Subsidiaries for such period, net of interest income, included in the determination of Consolidated Net Income. For purposes of the foregoing, interest expense shall be determined after giving effect to any net payments made or received by Terex and its Subsidiaries under Interest Rate Protection Agreements. "Consolidated Leverage Ratio" shall mean, as of any date of determination, the ratio of (a) Total Debt on such date to (b) the sum of (i) Consolidated EBITDA for the most recent period of four consecutive fiscal quarters ended on or prior to such date and (ii) the Pro Forma Acquisition EBITDA of all Acquired Persons acquired during such period of four consecutive fiscal quarters. For purposes of calculating the Consolidated Leverage Ratio as of any date, if any portion of the Total Debt outstanding on such date is denominated in a currency other than dollars, then the portion, if any, of Consolidated EBITDA or Pro Forma Acquisition EBITDA during the period of four consecutive fiscal quarters ending on or prior to such date and denominated in any such other currency shall be translated to dollars using the same exchange rate as is used to translate such portion of the Total Debt denominated in such other currency. "Consolidated Net Income" shall mean, for any period, the sum of net income (or loss) for such period of Terex and its Subsidiaries on a consolidated basis determined in accordance with GAAP, but excluding: (a) the income (or loss) of any person accrued prior to the date it became a Subsidiary of Terex or is merged into or consolidated with Terex or such person's assets are acquired by Terex or any of its Subsidiaries; (b) non-recurring gains (or losses) during such period; (c) extraordinary gains (or losses), as defined under GAAP during 11 such period; and (d) the income of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by the Subsidiary of that income is prohibited by operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to the Subsidiary. "Consolidated Senior Secured Leverage Ratio" shall mean, as of any date of determination, the ratio of (a) Total Senior Secured Debt on such date to (b) the sum of (i) Consolidated EBITDA for the most recent period of four consecutive fiscal quarters ended on or prior to such date and (ii) the Pro Forma Acquisition EBITDA of all Acquired Persons acquired during such period of four consecutive fiscal quarters. For purposes of calculating the Consolidated Senior Secured Leverage Ratio as of any date, if any portion of the Total Senior Secured Debt outstanding on such date is denominated in a currency other than dollars, then the portion, if any, of Consolidated EBITDA or Pro Forma Acquisition EBITDA during the period of four consecutive fiscal quarters ending on or prior to such date and denominated in any such other currency shall be translated to dollars using the same exchange rate as is used to translate such portion of the Total Debt denominated in such other currency. "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms "Controlling" and "Controlled" shall have meanings correlative thereto. "Credit Event" shall have the meaning assigned to such term in Section 4.01. "Debt Tender Offer" shall have the meaning assigned to such term in the preamble to this Agreement. "Default" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. "Dollar Borrowing" shall mean a Borrowing comprised of Dollar Loans. "Dollar Equivalent" shall mean, on any date of determination, with respect to any amount denominated in any currency other than dollars, the equivalent in dollars of such amount, determined by the Administrative Agent pursuant to Section 1.03 using the applicable Exchange Rate with respect to such currency at the time in effect. "Dollar Loan" shall mean a Dollar Revolving Loan or a Dollar Term Loan. "Dollar Revolving Loan" shall mean a Revolving Loan denominated in dollars and made pursuant to Section 2.01. Dollar Term Loan" shall mean a Term Loan denominated in dollars. Each Dollar Term Loan shall be either a Eurocurrency Term Loan or an ABR Term Loan. "dollars" or "$" shall mean lawful money of the United States of America. "Domestic Subsidiaries" shall mean all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia. 12 "environment" shall mean ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. "Environmental Claim" shall mean any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or non-accidental Releases), (b) exposure to any Hazardous Material, (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. "Environmental Law" shall mean any and all applicable present and future treaties, laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601 et seq. (collectively "CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section. 6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. Section. 1251 et seq., the Clean Air Act of 1970, as amended 42 U.S.C. Section. 7401 et seq., the Toxic Substances Control Act of 1976, 15 U.S.C. Section. 2601 et seq., the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Section. 651 et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section. 11001 et seq., the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. Section. 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section. 5101 et seq., and any similar or implementing state or local law, and all amendments or regulations promulgated under any of the foregoing. "Environmental Permit" shall mean any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. "Equity Issuance" shall mean any issuance or sale by any Borrower or any Subsidiary of any shares of capital stock or other equity securities of any such person or any obligations convertible into or exchangeable for, or giving any person a right, option or warrant to acquire such securities or such convertible or exchangeable obligations, except in each case for (a) any issuance or sale to any Borrower or any Subsidiary, (b) any issuance of directors' qualifying shares, (c) sales or issuances of common stock to management or employees of any Borrower or any Subsidiary under any employee stock option plan, stock purchase plan, retirement plan, deferred compensation plan or other employee benefit plan in existence from time to time to the extent that (i) the proceeds from all sales and issuances described in this clause (c) shall not exceed in the aggregate $1,000,000 in any fiscal year of Terex and 13 (ii) the shares of common stock issued pursuant to this clause (c) shall not exceed 10% of the common stock of such Borrower or such Subsidiary, as applicable. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. "ERISA Affiliate" shall mean any trade or business (whether or not incorporated) that, together with Terex, is treated as a single employer under Section 414(b) or (c) of the Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of Terex or any of its ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by Terex or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the receipt by Terex or any ERISA Affiliate of any notice concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a "prohibited transaction" with respect to which Terex or any of its Subsidiaries is a "disqualified person" (within the meaning of Section 4975 of the Code) or with respect to which Terex or any such Subsidiary could otherwise be liable; (i) any other event or condition with respect to a Plan or Multiemployer Plan that could reasonably be expected to result in liability of any Borrower; and (j) any Foreign Benefit Event. "Eurocurrency Borrowing" shall mean a Borrowing comprised of Eurocurrency Loans. "Eurocurrency Loan" shall mean any Eurocurrency Revolving Loan or Eurocurrency Term Loan. "Eurocurrency Revolving Borrowing" shall mean a Eurocurrency Borrowing comprised of Eurocurrency Revolving Loans. "Eurocurrency Revolving Loan" shall mean any Revolving Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Eurocurrency Term Borrowing" shall mean a Borrowing comprised of Eurocurrency Term Loans. "Eurocurrency Term Loan" shall mean any Eurocurrency Tranche A Term Loan or Eurocurrency Tranche B Term Loan. 14 "Eurocurrency Tranche A Term Loan" shall meany any Tranche A Term Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Eurocurrency Tranche B Term Loan" shall mean any Tranche B Term Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. "Event of Default" shall have the meaning assigned to such term in Article VII. "Excess Cash Flow" shall mean, for any fiscal year of Terex, the excess of (a) the sum, without duplication, of (i) Consolidated EBITDA for such fiscal year, (ii) extraordinary or non-recurring cash receipts of Terex and its Subsidiaries, if any, during such fiscal year and not included in Consolidated EBITDA and (iii) reductions to non-cash working capital of Terex and its Subsidiaries for such fiscal year (i.e., the decrease, if any, in Consolidated Current Assets minus Consolidated Current Liabilities from the beginning to the end of such fiscal year), over (b) the sum, without duplication, of (i) the amount of any cash income taxes payable by Terex and its Subsidiaries with respect to such fiscal year, (ii) cash interest paid by Terex and its Subsidiaries during such fiscal year, (iii) Consolidated Capital Expenditures committed or made in cash in accordance with Section 6.10 during such fiscal year (and not deducted from Excess Cash Flow in any prior year), (iv) scheduled principal repayments of Indebtedness made by Terex and its Subsidiaries during such fiscal year, (v) optional and mandatory prepayments of the principal of Term Loans and reductions of Revolving Credit Commitments during such fiscal year, but only to the extent that such prepayments and reductions do not occur in connection with a refinancing of all or any portion of the Loans, (vi) extraordinary or non-recurring expenses and losses to the extent paid in cash by Terex and its Subsidiaries, if any, during such fiscal year and not included in Consolidated EBITDA and (vii) additions to non-cash working capital for such fiscal year (i.e., the increase, if any, in Consolidated Current Assets minus Consolidated Current Liabilities from the beginning to the end of such Fiscal Year); provided that, to the extent otherwise included therein, the Net Cash Proceeds of Asset Sales and Equity Issuances shall be excluded from the calculation of Excess Cash Flow. "Exchange Rate" shall mean, on any day, with respect to any currency other than dollars (for purposes of determining the Dollar Equivalent) or any Alternative Currency (for purposes of determining the Alternative Currency Equivalent with respect to such Alternative Currency), the rate at which such currency may be exchanged into dollars or the applicable Alternative Currency, as the case may be, as set forth at approximately 11:00 a.m., New York City time, on such date on the applicable Bloomberg Key Cross Currency Rates Page. In the event that any such rate does not appear on any Bloomberg Key Cross Currency Rates Page, the Exchange Rate shall be determined by reference to such other publicly available service for displaying exchange rates selected by the Administrative Agent for such purpose, or, at the discretion of the Administrative Agent, such Exchange Rate shall instead be the arithmetic average of the spot rates of exchange of the Administrative Agent in the market where its foreign currency exchange operations in respect of such currency are then being conducted, at or about 10:00 a.m., local time, on such date for the purchase of dollars or the applicable Alternative Currency, as the case may be, for delivery two Business Days later; provided that, if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any other reasonable method it deems appropriate 15 to determine such rate, and such determination shall be presumed correct absent manifest error. "Existing Credit Agreement" shall mean the Revolving Credit Agreement dated as of April 7, 1997, among Terex, the Subsidiaries listed therein, the lenders party thereto and BankBoston, N.A., as agent. "Existing Issuing Bank" shall mean BankBoston, N.A. "Existing Letter of Credit" shall mean each letter of credit that is (a) issued by an Existing Issuing Bank, (b) outstanding on the Closing Date and (c) listed in Schedule 1.01(d). "Existing Note Indenture" shall have the meaning assigned to such term in the preamble to this Agreement. "Existing Notes" shall have the meaning assigned to such term in the preamble to this Agreement. "Facility Fee" shall have the meaning assigned to such term in Section 2.05(a). "Fee Letter" shall mean the Fee Letter dated January 30, 1998, between Terex and the Administrative Agent. "Fees" shall mean the Facility Fees, the Administrative Agent's Fees, the A/C Participation Fees, the A/C Fronting Fees, the L/C Participation Fees and the Issuing Bank Fees. "Financial Officer" of any corporation shall mean the chief financial officer, a Vice President-Finance, principal accounting officer, Treasurer or Controller of such corporation. "Floor Plan Guarantees" shall mean Guarantees (including but not limited to repurchase or remarketing obligations) by Terex or a Subsidiary incurred in the ordinary course of business consistent with past practice of Indebtedness incurred by a franchise dealer, or other purchaser or lessor, for the purchase of inventory manufactured or sold by Terex or a Subsidiary, the proceeds of which Indebtedness is used solely to pay the purchase price of such inventory to such franchise dealer or other purchaser or lessor and any related reasonable fees and expenses (including financing fees); provided, however, that (a) to the extent commercially practicable, the Indebtedness so Guaranteed is secured by a perfected first priority Lien on such inventory in favor of the holder of such Indebtedness and (b) if Terex or such Subsidiary is required to make payment with respect to such Guarantee, Terex or such Subsidiary will have the right to receive either (i) title to such inventory, (ii) a valid assignment of a perfected first priority Lien in such inventory or (iii) the net proceeds of any resale of such inventory. "Foreign Base Rate Loans" shall mean Loans (other than A/C Fronted Loans) in any Alternative Currency the rate of interest applicable to which is based upon the rate of interest per annum maintained by the Administrative Agent as the rate of interest (in the absence of a eurocurrency rate) determined by it with the approval of a majority in interest of the Lenders participating in such Loan to be the average rate charged to borrowers of similar quality as the 16 applicable Borrower of such Loans in such Alternative Currency. Notwithstanding anything to the contrary contained herein, Loans may be made or maintained as Foreign Base Rate Loans only to the extent specified in Section 2.02(f), 2.08 or 2.15. "Foreign Benefit Event" shall mean, with respect to any Foreign Pension Plan, (a) the existence of unfunded liabilities in excess of the amount permitted under any applicable law, or in excess of the amount that would be permitted absent a waiver from a Governmental Authority, (b) the failure to make the required contributions or payments, under any applicable law, on or before the due date for such contributions or payments, (c) the receipt of a notice by a Governmental Authority relating to the intention to terminate any such Foreign Pension Plan or to appoint a trustee or similar official to administer any such Foreign Pension Plan, or alleging the insolvency of any such Foreign Pension Plan and (d) the incurrence of any liability in excess of $5,000,000 (or the Dollar Equivalent thereof in another currency) by Terex or any of its Subsidiaries under applicable law on account of the complete or partial termination of such Foreign Pension Plan or the complete or partial withdrawal of any participating employer therein, or (e) the occurrence of any transaction that is prohibited under any applicable law and could reasonably be expected to result in the incurrence of any liability by Terex or any of its Subsidiaries, or the imposition on Terex or any of its Subsidiaries of any fine, excise tax or penalty resulting from any noncompliance with any applicable law, in each case in excess of $5,000,000 (or the Dollar Equivalent thereof in another currency). "Foreign Pension Plan" shall mean any benefit plan which under applicable law is required to be funded through a trust or other funding vehicle other than a trust or funding vehicle maintained exclusively by a Governmental Authority. "Foreign Subsidiary" shall mean any Subsidiary that is not a Domestic Subsidiary. "Francs" and "Ffr" shall mean francs in lawful currency of the Republic of France. "GAAP" shall mean generally accepted accounting principles in effect in the United States applied on a consistent basis. "German Borrower" shall mean O&K Mining, but only following the consummation of the Acquisition and the accession to this Agreement by O&K Mining pursuant to Section 9.19. "Governmental Authority" shall mean the government of the United States of America, the United Kingdom, Germany, France, Italy, Australia, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any person shall mean any obligation, contingent or otherwise, of such person guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of such person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance 17 or supply funds for the purchase of) any security for the payment of such Indebtedness, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment of such Indebtedness or (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness; provided, however, that the term "Guarantee" shall not include (i) endorsements for collection or deposit in the ordinary course of business and (ii) Floor Plan Guarantees except to the extent that they appear as debt on the Borrower's balance sheet. "Guarantee Agreements" shall mean the Subsidiary Guarantee Agreement and the Terex Guarantee Agreement. "Guarantors" shall mean Terex and the Subsidiary Guarantors. "Hazardous Materials" shall mean all explosive or radioactive materials, substances or wastes, hazardous or toxic materials, substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBs") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" shall mean any Interest Rate Protection Agreement or any foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement not entered into for speculation. "Inactive Subsidiary" shall mean each Subsidiary of Terex listed on Schedule 1.01(f) until such time as such Subsidiary shall become a Subsidiary Guarantor. "Indebtedness" of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or advances of any kind, (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such person upon which interest charges are customarily paid, (d) all obligations of such person under conditional sale or other title retention agreements relating to property or assets purchased by such person, (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable and accrued obligations incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (g) all Guarantees by such person of Indebtedness of others, (h) all Capital Lease Obligations of such person, (i) all obligations of such person in respect of interest rate protection agreements, foreign currency exchange agreements or other interest or exchange rate hedging arrangements and (j) all obligations of such person as an account party in respect of letters of credit and bankers' acceptances. The Indebtedness of any person shall include the Indebtedness of any partnership in which such person is a general partner, to the extent such Indebtedness is recourse to such person either expressly or by operation of law. 18 "Indemnity, Subrogation and Contribution Agreement" shall mean the Indemnity, Subrogation and Contribution Agreement, substantially in the form of Exhibit D, among the Borrowers, the Subsidiary Guarantors and the Collateral Agent. "Interest Payment Date" shall mean, with respect to any Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months' duration been applicable to such Borrowing, and, in addition, the date of any prepayment of such Borrowing or conversion of such Borrowing to a Borrowing of a different Type. "Interest Period" shall mean (a) as to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter (and, in the case of an Alternative Currency Borrowing maturing or required to be repaid in less than one month, the date thereafter requested by the applicable Borrower and agreed to by the Administrative Agent), as the applicable Borrower may elect, (b) as to any ABR Borrowing or Borrowing bearing interest by reference to the A/C Fronted Base Rate, the period commencing on the date of such Borrowing and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Revolving Credit Maturity Date, the Tranche A Maturity Date or the Tranche B Maturity Date, as applicable, and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.10 or repaid or prepaid in accordance with Section 2.11 or 2.12, (c) as to any A/C Fronted Fixed Rate Loan bearing interest by reference to the Bank Bill Rate, the period commencing on the date of such Loan and ending on the date (more than 7 but not more than 92 days thereafter) as the Australian Borrower may elect and (d) as to any A/C Fronted Loan bearing interest by reference to the Italian Fixed Rate, the period commencing on the date of such Loan and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar that is 1, 2 or 3 months thereafter, as the Italian Borrower may elect; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or similar agreement or arrangement designed to protect any Borrower or any Subsidiary against fluctuations in interest rates, and not entered into for speculation. "Issuing Bank" shall mean CSFB and BankBoston, N.A. "Issuing Bank Fees" shall have the meaning assigned to such term in Section 2.05(c). "Italian Facilities" shall mean the credit facilities of the Italian Borrower existing on the date of this agreement with Medio Credito, Min Industria, PO MI, Carisp, Rolobanca, Banco Sicilia, First S. Paolo Torino, 19 Credito Bergamasco, S. Geminiano, Banco Nazionale del Lavaro and Pop Emilia. "Italian Fixed Rate" shall mean, with respect to any A/C Fronted Fixed Rate Loan denominated in Lire, the rate per annum (rounded upwards, if necessary, to the next 1/16 of 1% and adjusted for reserve requirements, if any) determined by the Italian Fronting Lender at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to or the beginning of the relevant Interest Period (as specified in the applicable Borrowing Request) by reference to page 3740 of the Telerate screen, or such other page as may replace such rate as the Telerate screen which displays the British Bankers' Association Interest Settlement Rates for deposits in Lire, for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "Italian Fixed Rate" shall be the interest rate per annum determined by the Italian Fronting Lender to be the average of the rates per annum (rounded upwards, if necessary, to the next 1/16 of 1% and adjusted for reserve requirements, if any) at which deposits in Lire are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the Italian Fronting Lender at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the beginning of such Interest Period. "Italian Fronting Lender" shall mean BankBoston, N.A., and its successors and assigns in such capacity. "Judgment Currency" shall have the meaning assigned to such term in Section 9.16. "L/C Commitment" shall mean the commitment of each Issuing Bank to issue Letters of Credit pursuant to Section 2.23. "L/C Disbursement" shall mean a payment or disbursement made by an Issuing Bank pursuant to a Letter of Credit. "L/C Exposure" shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit denominated in dollars at such time, (b) the Dollar Equivalent of the aggregate undrawn amount of all outstanding Letters of Credit denominated in Alternative Currencies at such time, (c) the aggregate principal amount of all L/C Disbursements in respect of Letters of Credit denominated in dollars that have not yet been reimbursed at such time and (d) the Dollar Equivalent of the aggregate principal amount of all L/C Disbursements in respect of Letters of Credit denominated in Alternative Currencies that have not yet been reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at any time shall mean its Pro Rata Percentage of the total L/C Exposure at such time. "L/C Participation Fee" shall have the meaning assigned to such term in Section 2.05(c). "Lenders" shall mean (a) the financial institutions listed on Schedule 2.01(a) (other than any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a party hereto pursuant to an Assignment and Acceptance. Unless the context clearly indicates otherwise, the term "Lenders" shall include the A/C Fronting Lenders and the Swingline Lender. 20 "Letter of Credit" shall mean (a) any letter of credit issued pursuant to Section 2.23 and (b) any Existing Letter of Credit. "LIBO Rate" shall mean, with respect to any Eurocurrency Borrowing, the rate per annum determined by the Administrative Agent at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to or, with respect to Eurocurrency Borrowings denominated in Pounds, at approximately 11:00 a.m. (London time) on the same day as, the beginning of the relevant Interest Period (as specified in the applicable Borrowing Request) by reference to the British Bankers' Association Interest Settlement Rates for deposits in dollars or the relevant Alternative Currency, as applicable (as set forth by any service selected by the Administrative Agent which has been nominated by the British Bankers' Association as an authorized information vendor for the purpose of displaying such rates), for a period equal to such Interest Period; provided that, to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition, the "LIBO Rate" shall be the interest rate per annum determined by the Administrative Agent to be the average of the rates per annum at which deposits in dollars or the relevant Alternative Currency, as applicable, are offered for such relevant Interest Period to major banks in the London interbank market in London, England by the Administrative Agent at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to or, with respect to Eurocurrency Borrowings denominated in Pounds, at approximately 11:00 a.m. (London time) on the same day as, the beginning of such Interest Period. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Lire" and "Lit" shall mean lire in lawful currency of Italy. "Loan Documents" shall mean this Agreement, the Guarantee Agreements, the Security Documents and the Indemnity, Subrogation and Contribution Agreement. "Loan Parties" shall mean the Borrowers and the Guarantors. "Loans" shall mean the Revolving Loans, the Term Loans, the A/C Fronted Loans and the Swingline Loans. "Margin Stock" shall have the meaning assigned to such term in Regulation U. "Marks" and "DM" shall mean deutsche marks in lawful currency of Germany. "Material Adverse Effect" shall mean (a) a materially adverse effect on the business, assets, operations, prospects or condition, financial or otherwise, of Terex and its Subsidiaries, taken as a whole, (b) material impairment of the ability of the Loan Parties to perform their obligations under the Loan Documents or (c) material impairment of the rights of or benefits available to the Lenders under any Loan Document. 21 "Mortgaged Properties" shall mean the owned real properties and leasehold and subleasehold interests specified on Schedule 1.01(c). "Mortgages" shall mean the mortgages, deeds of trust, leasehold mortgages, assignments of leases and rents, modifications and other security documents delivered pursuant to clause (i) of Section 4.02(j) or pursuant to Section 5.11, each substantially in the form of Exhibit F. "Multiemployer Plan" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds" shall mean (a) with respect to any Asset Sale, the cash proceeds (including cash proceeds subsequently received (as and when received) in respect of non-cash consideration initially received and including all insurance settlements and condemnation awards in excess of $250,000 from any single event or series of related events), net of (i) transaction expenses (including reasonable broker's fees or commissions, legal fees, accounting fees, investment banking fees and other professional fees, transfer and similar taxes and Terex's good faith estimate of income taxes paid or payable in connection with the receipt of such cash proceeds), (ii) amounts provided as a reserve, in accordance with GAAP, including pursuant to any escrow arrangement, against any liabilities under any indemnification obligations associated with such Asset Sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds), (iii) in the case of insurance settlements and condemnation awards, amounts previously paid by Terex and its Subsidiaries to replace or restore the affected property, and (iv) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money which is secured by the asset sold in such Asset Sale and is required to be repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such asset); provided, however, that, with respect to the proceeds of any Asset Sale or series of related Asset Sales in an amount of less than or equal to $50,000,000 in the aggregate, if (A) Terex shall deliver a certificate of a Financial Officer to the Administrative Agent at the time of receipt thereof setting forth Terex's intent to reinvest such proceeds in productive assets of a kind then used or usable in the business of Terex and its Subsidiaries within 300 days of receipt of such proceeds and (B) no Default or Event of Default shall have occurred and shall be continuing at the time of such certificate or at the proposed time of the application of such proceeds, such proceeds shall not constitute Net Cash Proceeds except to the extent not so used at the end of such 300-day period, at which time such proceeds shall be deemed to be Net Cash Proceeds, and (b) with respect to any Equity Issuance or any other issuance or disposition of Indebtedness, the cash proceeds thereof, net of all taxes and customary fees, commissions, costs and other expenses (including reasonable broker's fees or commissions, legal fees, accounting fees, investment banking fees and other professional fees, and underwriter's discounts and commissions) incurred in connection therewith. "O&K Mining" shall mean O&K Mining GmbH, a company organized under the laws of the Federal Republic of Germany. "Obligations" shall mean all obligations defined as "Obligations" in any of the Guarantee Agreements and the Security Documents. 22 "Payment Location" shall mean an office, branch or other place of business of any Borrower. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "Perfection Certificate" shall mean the Perfection Certificate substantially in the form of Annex 2 to the Security Agreement. "Permitted Acquisitions" shall mean acquisitions of not less than 100% (other than directors' qualifying shares) of the outstanding capital stock or other equity interests of any corporation, partnership, a division of any corporation or any similar business unit (or of all or substantially all the assets and business of any of the foregoing) engaged in a Related Business so long as (a) in the case of each such acquisition of capital stock or other equity interests, such acquisition was not preceded by an unsolicited tender offer for such capital stock or other equity interests by Terex or any of its Affiliates, (b) Terex shall have delivered to the Administrative Agent a certificate certifying that at the time of and immediately after giving effect to such acquisition, no Default or Event of Default shall have occurred and be continuing, and (c) either (i) the total consideration with respect to such acquisition shall not exceed $2,500,000, (ii) Terex shall have delivered to the Administrative Agent a certificate certifying that at the time of and immediately after giving effect to such acquisition, the Pro Forma Acquisition EBITDA of the entity acquired pursuant to such acquisition shall not exceed 25% of the sum of such Pro Forma Acquisition EBITDA plus Consolidated EBITDA, in each case for the period of four fiscal quarters ended on the last day of the most recent fiscal quarter ended prior to the date of such acquisition or (iii) (A) Terex shall have delivered to the Administrative Agent a certificate certifying that at the time of and immediately after giving effect to such acquisition, the ratio of (1) the Total Debt of Terex and its Subsidiaries on the date of such acquisition (including all Indebtedness incurred in connection with or resulting from such acquisition that would constitute Total Debt) to (2) the sum of (x) Pro Forma Acquisition EBITDA of the entity acquired pursuant to such acquisition, (y) Pro Forma Acquisition EBITDA for all other Acquired Persons acquired during the period of four consecutive fiscal quarters most recently ended prior to the date of such acquisition and (z) Consolidated EBITDA, in each case for the period of four fiscal quarters most recently ended prior to the date of such acquisition, shall be at least 0.15 to 1.00 less than the Consolidated Leverage Ratio required pursuant to Section 6.11 on such date and (B) such corporation, partnership, division, business or assets, as applicable, are located in the United States (or the principal place of business with respect thereto and substantially all of the applicable assets are located in the United States) or in any country included on Schedule 1.01(e) or on a list approved by the Required Lenders prior to the date of such acquisition. For purposes of determining compliance with clause (c)(i) above, the principal amount of Indebtedness assumed in connection with an acquisition shall be included in calculating the consideration therefor. "Permitted Investments" shall mean: (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; 23 (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from Standard & Poor's Ratings Service or from Moody's Investors Service, Inc.; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within one year from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, (i) the Administrative Agent or any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof or (ii) a commercial banking institution organized and located in a country recognized by the United States of America, in each case that has a combined capital and surplus and undivided profits of not less than $250,000,000 (or the Dollar Equivalent thereof in another currency); (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (c) above; (e) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (a) through (d) above; and (f) other short-term investments utilized by Foreign Subsidiaries in accordance with normal investment practices for cash management not exceeding $1.0 million in aggregate principal amount outstanding at any time. "person" shall mean any natural person, corporation, business trust, joint venture, association, company, limited liability company, partnership, other business entity or government, or any agency or political subdivision thereof. "Plan" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 307 of ERISA, and in respect of which Terex or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreement" shall mean the Pledge Agreement, substantially in the form of Exhibit G, between Terex, its Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. "Pounds" and "(pound)" shall mean pounds sterling in lawful currency of the United Kingdom. "Pro Forma Acquisition EBITDA" shall mean with respect to any entity or business unit acquired or to be acquired in a Permitted Acquisition, the amount of Consolidated EBITDA of such entity or business unit (as if such entity or business unit were Terex) determined by Terex and acceptable to the Administrative Agent in its reasonable discretion, based upon and derived from financial information delivered to Administrative Agent prior to consummation of such Permitted Acquisition for the four-quarter period ending on the last day of the immediately preceding fiscal quarter of such entity or business unit for 24 which such financial information for such entity or business unit has been delivered to the Administrative Agent, adjusted by the estimated amount of non-recurring revenues and expenditures with respect to the business of such entity or business unit, as calculated by Terex and acceptable to Administrative Agent in its reasonable discretion. On each subsequent determination date occurring within one year after the consummation of a Permitted Acquisition, the entity's Pro Forma Acquisition EBITDA shall include the Pro Forma Acquisition EBITDA only for those fiscal quarters in the trailing four-quarter period occurring prior to the closing of such Permitted Acquisition. "Pro Rata Percentage" of any Revolving Credit Lender at any time shall mean the percentage of the Total Revolving Credit Commitment represented by such Lender's Revolving Credit Commitment. "Purchase Money Indebtedness" shall mean any Indebtedness of a person to any seller or other person incurred to finance the acquisition (including in the case of a Capital Lease Obligation, the lease) of any after acquired real or personal tangible property or assets related to the business of Terex or the Subsidiaries and which is incurred substantially concurrently with such acquisition and is secured only by the assets so financed. "Refinancing Indebtedness" shall have the meaning assigned to such term in Section 6.01(n). "Register" shall have the meaning given such term in Section 9.04(d). "Regulation G" shall mean Regulation G of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Related Business" shall mean any business in the manufacture or sale of capital goods or parts or services, or otherwise reasonably related, ancillary or complementary to the businesses of Terex and the Subsidiaries on the date hereof. "Release" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. "Remedial Action" shall mean (a) "remedial action" as such term is defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) clean up, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. 25 "Required Lenders" shall mean, at any time, Lenders having Loans (excluding Swingline Loans and A/C Fronted Loans), L/C Exposure, Swingline Exposure, A/C Fronted Exposure and unused Revolving Credit and Term Loan Commitments representing at least 51% of the sum of all Loans outstanding (excluding Swingline Loans and A/C Fronted Loans), L/C Exposure, Swingline Exposure, A/C Fronted Exposure and unused Revolving Credit and Term Loan Commitments at such time. For purposes of determining the Required Lenders on any date, any amounts denominated in an Alternative Currency shall be translated into dollars at the Dollar Equivalent in effect on the most recent Calculation Date. "Responsible Officer" of any corporation shall mean any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration of the obligations of such corporation in respect of this Agreement. "Revolving Credit Borrowing" shall mean a Borrowing comprised of Revolving Loans. "Revolving Credit Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in L/C Disbursements, Swingline Loans and A/C Fronted Loans hereunder as set forth on Schedule 2.01(a), or in the Assignment and Acceptance pursuant to which such Lender assumed its Revolving Credit Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Revolving Credit Exposure" shall mean, with respect to any Lender at any time, the sum of (a) the aggregate principal amount of all outstanding Dollar Revolving Loans of such Lender at such time, (b) the Dollar Equivalent of the aggregate principal amount of all outstanding Revolving Loans of such Lender that are Alternative Currency Loans at such time and (c) the aggregate amount of such Lender's L/C Exposure, Swingline Exposure and A/C Fronted Exposure at such time. "Revolving Credit Lender" shall mean a Lender with a Revolving Credit Commitment. "Revolving Credit Maturity Date" shall mean March 6, 2004. "Revolving Loans" shall mean the revolving loans made by the Lenders to any Borrower pursuant to clause (c) of Section 2.01. Each Revolving Loan shall be a Eurocurrency Revolving Loan or an ABR Revolving Loan. "Sale and Leaseback" shall have the meaning set forth in Section 6.03. "Secured Parties" shall have the meaning assigned to such term in the Security Agreement. "Security Agreement" shall mean the Security Agreement, substantially in the form of Exhibit H, between Terex, its Subsidiaries party thereto and the Collateral Agent for the benefit of the Secured Parties. 26 "Security Documents" shall mean the Mortgages, the Security Agreement, the Pledge Agreement and each of the security agreements, mortgages and other instruments and documents executed and delivered pursuant to any of the foregoing or pursuant to Section 5.11. "Senior Subordinated Notes" shall mean the senior subordinated notes to be issued by Terex in an aggregate principal amount not to exceed $200,000,000; provided that such senior subordinated notes shall (a) require no scheduled payments of principal prior to the date that is 12 months later than the Tranche B Maturity Date, (b) be subject to subordination provisions no less favorable to the Lenders than those described in Schedule 1.01(g) and be reasonably satisfactory in all other respects to the Administrative Agent. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by any Governmental Authority to which banks are subject for any category of deposits or liabilities customarily used to fund loans or by reference to which interest rates applicable to Loans are determined. Such reserve, liquid asset or similar percentages shall include those imposed pursuant to Regulation D of the Board (and for purposes of Regulation D, Eurocurrency Loans denominated in dollars shall be deemed to constitute Eurocurrency Liabilities). Loans shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any other applicable law, rule or regulation. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" shall mean, with respect to any person (herein referred to as the "parent"), any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, or (b) that is, at the time any determination is made, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" shall mean any subsidiary of Terex. "Subsidiary Borrowers" shall mean, collectively, the Scottish Borrower, the French Borrower, the Australian Borrower, the Italian Borrower and, after its accession to this Agreement pursuant to Section 9.19, the German Borrower. "Subsidiary Guarantee Agreement" shall mean the Guarantee Agreement, substantially in the form of Exhibit I, made by the Subsidiary Guarantors in favor of the Collateral Agent for the benefit of the Secured Parties. "Subsidiary Guarantors" shall mean each person listed on Schedule 1.01(b) and each other person that becomes party to a Subsidiary Guarantee Agreement as a Guarantor, and the permitted successors and assigns of each such person. 27 "Swingline Commitment" shall mean the commitment of the Swingline Lender to make loans pursuant to Section 2.22. "Swingline Exposure" shall mean at any time the aggregate principal amount at such time of all outstanding Swingline Loans. The Swingline Exposure of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage of the aggregate Swingline Exposure at such time. "Swingline Lender" shall mean CSFB. "Swingline Loan" shall mean any loan made by the Swingline Lender pursuant to its Swingline Commitment. "Terex Guarantee Agreement" shall mean the Guarantee Agreement substantially in the form of Exhibit K, made by Terex in favor of the Collateral Agent for the benefit of the Secured Parties. "Term Borrowing" shall mean a Borrowing comprised of Tranche A Term Loans or Tranche B Term Loans. "Term Loan Commitments" shall mean the Tranche A Commitments and the Tranche B Commitments. "Term Loan Repayment Dates" shall mean the Tranche A Term Loan Repayment Dates and the Tranche B Term Loan Repayment Dates. "Term Loans" shall mean the Tranche A Term Loans and the Tranche B Term Loans. "Total Debt" shall mean, as of any date of determination, without duplication, the aggregate principal amount of Indebtedness of Terex and its Subsidiaries outstanding as of such date, determined on a consolidated basis (other than Indebtedness of the type referred to in clause (i) of the definition of the term "Indebtedness", except to the extent of any unreimbursed drawings thereunder). For purposes of calculating the Leverage Ratio on any date, the amount of Total Debt on such date shall be reduced by the amount, if any, that cash on the balance sheet of Terex and its consolidated Subsidiaries on such date exceeds $5,000,000. "Total Revolving Credit Commitment" shall mean, at any time, the aggregate amount of the Revolving Credit Commitments, as in effect at such time. "Total Senior Secured Debt" shall mean, as of any date of determination, the sum of the aggregate principal amount of all (a) Loans outstanding as of such date, (b) unreimbursed L/C Disbursements as of such date, (c) Capital Lease Obligations of Terex and the Subsidiaries outstanding as of such date and (d) other Indebtedness of Terex and the Subsidiaries that is secured by any assets of Terex and the Subsidiaries. "Tranche A Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Tranche A Term Loans hereunder as set forth on Schedule 2.01(a), or in the Assignment and Acceptance pursuant to which such Lender assumed its Tranche A Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased 28 from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Tranche A Maturity Date" shall mean March 6, 2004. "Tranche A Term Borrowing" shall mean a Borrowing comprised of Tranche A Term Loans. "Tranche A Term Loan Availability Period" shall mean the period from and including the Closing Date, to and including the earlier of (a) the date of consummation of the Acquisition and (b) June 30, 1998. "Tranche A Term Loan Closing Date" shall mean each date on which Tranche A Term Loans are made. "Tranche A Term Loan Repayment Date" shall have the meaning assigned to such term in Section 2.11(a)(i). "Tranche A Term Loans" shall mean the term loans made by the Lenders to any Borrower pursuant to clause (a) of Section 2.01. Each Tranche A Term Loan shall be either a Eurocurrency Term Loan or an ABR Term Loan. "Tranche B Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Tranche B Term Loans hereunder as set forth on Schedule 2.01(a), or in the Assignment and Acceptance pursuant to which such Lender assumed its Tranche B Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. "Tranche B Maturity Date" shall mean March 6, 2005. "Tranche B Term Borrowing" shall mean a Borrowing comprised of Tranche B Term Loans. "Tranche B Term Loan Closing Date" shall mean the Closing Date. "Tranche B Term Loan Repayment Date" shall have the meaning assigned to such term in Section 2.11(a)(ii). "Tranche B Term Loans" shall mean the term loans made by the Lenders to Terex pursuant to clause (b) of Section 2.01. Each Tranche B Term Loan shall be either a Eurocurrency Term Loan or an ABR Term Loan. "Transactions" shall have the meaning assigned to such term in Section 3.02. "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined and the currency in which such Loan or the Loans comprising such Borrowing is denominated. For purposes hereof, the term "Rate" shall include the Adjusted LIBO Rate, the Alternate Base Rate and the rate with 29 respect to any Foreign Base Rate Loan, and currency shall include dollars and any Alternative Currency permitted hereunder. "wholly owned Subsidiary" of any person shall mean a subsidiary of such person of which securities (except for directors' qualifying shares) or other ownership interests representing 100% of the equity or 100% of the ordinary voting power or 100% of the general partnership interests are, at the time any determination is being made, owned, controlled or held by such person or one or more wholly owned subsidiaries of such person or by such person and one or more wholly owned subsidiaries of such person; provided that each of Terex Cranes, Inc., P.P.M. Cranes, Inc., P.P.M. S.A., and any future wholly owned subsidiaries of any of the foregoing shall be deemed to be wholly owned Subsidiaries, in each case so long as Terex or one or more wholly owned Subsidiaries maintains a percentage ownership interest in such entity equal to or greater than such ownership interest (on a fully diluted basis) on the later of (a) the date hereof or (b) the date such entity is incorporated or acquired by Terex or one or more wholly owned Subsidiaries. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (a) any reference in this Agreement to any Loan Document shall mean such document as amended, restated, supplemented or otherwise modified from time to time and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that if Terex notifies the Administrative Agent that Terex wishes to amend any covenant in Article VI or any related definition to eliminate the effect of any change in GAAP occurring after the date of this Agreement on the operation of such covenant (or if the Administrative Agent notifies Terex that the Required Lenders wish to amend Article VI or any related definition for such purpose), then Terex's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to Terex and the Required Lenders. SECTION 1.03. Exchange Rates. On each Calculation Date, the Administrative Agent shall determine the Exchange Rate as of such Calculation Date to be used for calculating relevant Dollar Equivalent and Alternative Currency Equivalent amounts. The Exchange Rates so determined shall become effective on such Calculation Date, shall remain effective until the next succeeding Calculation Date and shall for all purposes of this Agreement (other than any provision expressly requiring the use of a current Exchange Rate) be the Exchange Rates employed in converting any amounts between the applicable currencies. 30 ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, (a) to make Tranche A Term Loans to the Borrowers, in dollars (in the case of Terex), Marks (in the case of the German Borrower), Pounds (in the case of the Scottish Borrower) and Francs (in the case of the French Borrower) on the Closing Date and on a single additional date prior to the earlier of the expiration of the Tranche A Term Loan Availability Period and the termination of the Tranche A Term Commitment of such Lender in accordance with the terms hereof, in an aggregate principal amount not to exceed its Tranche A Term Commitment; provided, however, that the Dollar Equivalent of the Alternative Currency Term Loans in any Alternative Currency made by all Tranche A Lenders shall not exceed the sublimit for such Alternative Currency set forth on Schedule 2.01(b), (b) to make Tranche B Term Loans to Terex, in dollars, on the Closing Date in accordance with the terms hereof, in an aggregate principal amount not to exceed its Tranche B Term Commitment, and (c) to make Revolving Loans to the Borrowers, at any time and from time to time on or after the date hereof, and until the earlier of the Revolving Credit Maturity Date and the termination of the Revolving Credit Commitment of such Lender in accordance with the terms hereof, in dollars (in the case of Terex), Marks (in the case of the German Borrower), Pounds (in the case of the Scottish Borrower) and Francs (in the case of the French Borrower) in an aggregate principal amount at any time outstanding that will not result in such Lender's Revolving Credit Exposure exceeding such Lender's Revolving Credit Commitment; provided, however, that the Alternative Currency Revolving Credit Exposure with respect to any Alternative Currency shall not exceed the sublimit for such Alternative Currency set forth in Schedule 2.01(b). Within the limits set forth in clause (c) of the preceding sentence and subject to the terms, conditions and limitations set forth herein, the Borrowers may borrow, pay or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of Term Loans may not be reborrowed. SECTION 2.02. Loans. (a) Each Loan (other than A/C Fronted Loans and Swingline Loans) shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their applicable Tranche A Commitments, Tranche B Commitments or Revolving Credit Commitments, as applicable; provided, however, that the failure of any Lender to make any Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Except for Loans deemed made pursuant to Section 2.02(f), the Loans comprising any Borrowing shall be in an aggregate principal amount that is (i) an integral multiple of $100,000 (or the Alternative Currency Equivalent thereof) and not less than $2,500,000 (or the Alternative Currency Equivalent thereof) or (ii) equal to the remaining available balance of the applicable Commitments. As provided in Section 2.03, each request for a Borrowing shall state the amount requested in dollars (whether or not such Borrowing is to be an Alternative Currency Borrowing). To the extent any Tranche A Term Loans are made as Alternative Currency Loans, such Loans shall continue to be Alternative Currency Loans (denominated and payable in the Alternative Currency in which such Loans are advanced) for as long as they are outstanding under this Agreement. 31 (b) Subject to Sections 2.08, 2.15 and 2.24, (i) each Dollar Borrowing shall be comprised entirely of ABR Loans or Eurocurrency Loans as Terex may request pursuant to Section 2.03 and (ii) each Alternative Currency Borrowing shall be comprised entirely of Eurocurrency Loans. Each Lender may at its option make any Eurocurrency Loan by causing any domestic or foreign branch of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the applicable Borrower to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided, however, that no Borrower shall be entitled to request any Borrowing that, if made, would result in more than 15 Eurocurrency Borrowings outstanding hereunder at any time. For purposes of the foregoing, Borrowings having different Interest Periods or denominated in different currencies, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) Except with respect to Loans made pursuant to Section 2.02(f), each Lender shall make each Dollar Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Administrative Agent may designate not later than 11:00 a.m., New York City time, and the Administrative Agent shall, promptly upon receipt thereof, credit the amounts so received to an account as designated by Terex, in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. Each Lender shall make each Alternative Currency Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in the jurisdiction of the applicable Alternative Currency as the Administrative Agent may designate for such purposes not later than 11:00 a.m., local time of such jurisdiction, and the Administrative Agent shall, promptly upon receipt thereof, credit the amounts so received to an account as designated by the applicable Borrower in the applicable Borrowing Request or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (c) above and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the applicable Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of any Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds in the applicable currency (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. 32 (e) Notwithstanding any other provision of this Agreement, no Borrower shall be entitled to request any Interest Period with respect to any Eurocurrency Borrowing or A/C Fronted Fixed Rate Loan that would end after the Revolving Credit Maturity Date or the Tranche A Maturity Date or the Tranche B Maturity Date, as the case may be. (f) If any Issuing Bank shall not have received from any Borrower the payment required to be made by it pursuant to Section 2.23(e) within the time specified in such Section, such Issuing Bank will promptly notify the Administrative Agent of the L/C Disbursement and the Administrative Agent will promptly notify each Revolving Credit Lender of such L/C Disbursement and its Pro Rata Percentage thereof. In the case of Letters of Credit denominated in dollars, each Revolving Credit Lender shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Lender shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York City time, on the immediately following Business Day), an amount in dollars equal to such Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute an ABR Revolving Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure), and the Administrative Agent will promptly pay to the applicable Issuing Bank amounts so received by it from the Revolving Credit Lenders. In the case of Letters of Credit denominated in Marks, Pounds or Francs, each Revolving Credit Lender shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 2:00 p.m., local time of the jurisdiction of such Alternative Currency, on such date (or if such Revolving Credit Lender shall have received such notice later than 12:00 (noon), local time of such jurisdiction, on the immediately following Business Day), an amount in such Alternative Currency equal to such Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute an Alternative Currency Revolving Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure), and the Administrative Agent will promptly pay to the applicable Issuing Bank amounts so received by it from the Revolving Credit Lenders. In the case of Letters of Credit denominated in any Alternative Currency except for Marks, Pounds or Francs, the Administrative Agent shall notify each Revolving Credit Lender of the Dollar Equivalent of the L/C Disbursement and of such Revolving Credit Lender's Pro Rata Percentage thereof, and each Revolving Credit Lender shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 2:00 p.m., New York City time, on such date (or, if such Revolving Credit Lender shall have received such notice later than 12:00 (noon), New York City time, on any day, not later than 10:00 a.m., New York city time, on the immediately following Business Day), an amount in dollars equal to such Lender's Pro Rata Percentage of such L/C Disbursement (it being understood that such amount shall be deemed to constitute an ABR Revolving Loan of such Lender and such payment shall be deemed to have reduced the L/C Exposure), and the Administrative Agent will promptly pay to the applicable Issuing Bank amounts so received by it from the Revolving Credit Lenders. The Administrative Agent will promptly pay to the applicable Issuing Bank any amounts received by it from any Borrower pursuant to Section 2.23(e) prior to the time that any Revolving Credit Lender makes any payment pursuant to this paragraph (f); any such amounts received by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to the Revolving Credit Lenders that shall have made such payments and to the applicable Issuing Bank, as their interests may appear. If any Revolving Credit Lender shall not have made its Pro Rata Percentage of such L/C Disbursement available to the Administrative Agent as provided above, such Lender and the applicable Borrower severally agree to pay interest on such 33 amount, for each day from and including the date such amount is required to be paid in accordance with this paragraph to but excluding the date such amount is paid, to the Administrative Agent for the account of the applicable Issuing Bank at (i) in the case of any Borrower, a rate per annum equal to the interest rate applicable to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such Lender, for the first such day, a rate determined by the Administrative Agent to represent its cost of overnight funds in the applicable currency, and for each day thereafter, (x) if such L/C Disbursement is denominated in dollars, the Alternate Base Rate, and (y) if such L/C Disbursement is denominated in an Alternative Currency, the applicable Foreign Base Rate. SECTION 2.03. Borrowing Procedure. In order to request a Bo