UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 41312 / April 20, 1999 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1126 / April 20, 1999 ADMINISTRATIVE PROCEEDING File No. 3-9877 ___________________________ In the Matter of : TEREX CORPORATION, : ORDER INSTITUTING KCS INDUSTRIES, L.P., f/k/a : PROCEEDINGS PURSUANT TO KCS INDUSTRIES, INC. and : SECTION 21C OF THE RANDOLPH W. LENZ : SECURITIES EXCHANGE ACT : OF 1934, MAKING FINDINGS : AND IMPOSING A CEASE-AND- Respondents. : DESIST ORDER : ______________________________ I The Securities and Exchange Commission ("Commission") deems it appropriate to institute public administrative proceedings, pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against Terex Corporation ("Terex", KCS Industries, L.P., f/k/a KCS Industries, Inc. ("KCS") and Randolph W. Lenz ("Lenz"). II In anticipation of the institution of these administrative proceedings, Terex, KCS and Lenz have each submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of the proceeding, which are admitted, Terex, KCS and Lenz consent to the entry of this Order Instituting Proceedings pursuant to Section 21C of the Exchange Act, Making Findings and Imposing a Cease-and-Desist Order. Accordingly, it is ordered that proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted. III On the basis of this Order and Respondents Offers of Settlement, the Commission makes the following findings: A. Summary This matter arises primarily out of the application of complex principles of purchase accounting to Terex's acquisition of certain assets of Fruehauf Corporation in 1989.[1] Specifically, in July 1989, Terex, through a subsidiary, acquired the trailer operations and certain assets and liabilities from Fruehauf Corporation. The subsidiary was subsequently named Fruehauf Trailer Corporation ("Fruehauf"). The purchase accounting treatment at issue was reviewed and approved at the time by a "Big Six" accounting firm (the "auditors"), who served as independent auditors of both Terex and Fruehauf (collectively, "the companies"). Following the acquisition of Fruehauf in 1989 and until Fruehauf's June 1991 initial public offering ("IPO"), Fruehauf's operating results and financial condition appeared in the financial statements of Terex via consolidation. Beginning with Fruehauf's April 16, 1991, initial registration statement, which became effective on June 28, 1991, Fruehauf's operating results and financial condition were presented in Fruehauf's own filings as well as Terex's filings with the Commission. Terex ceased consolidation of Fruehauf in 1992. In 1994, [2] Fruehauf restated its financial statements for the years 1989 through 1993. Due to the consolidation of Terex and Fruehauf's financial statements from 1989 through December 31, 1991, Terex published in its Form 10-K for the fiscal year ended December 31, 1994 selected financial data for the years 1990 through 1994 which reflected for the years 1989 to 1991 Fruehauf's restatement of its financial statements.[3] The improper application of purchase accounting caused Fruehauf to overstate pre-tax earnings by approximately $77.3 million from the time of the acquisition through the fiscal year ended December 31, 1992. By virtue of Terex's consolidated reporting of Fruehauf's financial results from 1989 through 1991, Terex similarly overstated its pre-tax earnings. Terex's financial condition and results of operations were primarily misstated by excluding losses of certain of Fruehauf's subsidiaries held for sale from consolidated earnings and through the use of reserve accounts established as purchase accounting adjustments. Moreover, although Terex and Fruehauf disclosed certain aspects and financial effects of the use of purchase accounting in their public filings during the relevant time period, the disclosures of the impact of purchase accounting in the companies' MD&A sections were inadequate. In addition, in 1991, Fruehauf, and by virtue of consolidation, Terex, inadequately disclosed the impact of an adjustment of a pension liability and its effect on the nature of a bank debt. Therefore, Fruehauf through its own financials, and by virtue of its consolidation, Terex, misstated their financial condition in public filings in violation of Sections 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 and thereunder, and Section 13(b)(2)(A), which requires that an issuer make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect its transactions. Finally, with respect to their 1992 annual reports, Terex and Fruehauf violated the reporting provisions by inadequately disclosing a related party transaction and, with respect to the 1992 Proxy Statements, Terex and Fruehauf violated Section 14(a) of the Exchange thereunder by failing to disclose the related party transaction. In addition, this Order addresses certain violations by Mr. Lenz of the beneficial ownership provisions of Sections 13(d), 13(g) and 16(a) of the Exchange Act and Rules 13d-1, 13d-2, 16a-2, 16a-3 and former Rule 16a-1 thereunder. 1. Respondents a. Terex Corporation Terex is a Delaware corporation headquartered in Westport, Connecticut. At the time of the IPO, Fruehauf was an indirect, majority-owned subsidiary of Terex, with its corporate headquarters in Southfield, Michigan. From in or about 1989 through in or about December 31, 1991, Terex included in its financial statements, among other things, Fruehauf's operations on a consolidated basis. b. KCS Pursuant to contracts with Terex and Fruehauf, KCS provided certain administrative, financial, marketing, technical, real estate and legal services to Terex from 1987 through part of 1993 and to Fruehauf from 1990 through 1992. KCS also assisted Terex and Fruehauf in the evaluation, negotiation and consummation of potential acquisitions of other companies, products and processes, as well as the development of new areas of business. KCS was paid a fixed monthly management fee. KCS ceased operations in 1993 and is now inactive. KCS had certain officers and directors in common with Fruehauf and Terex. c. Randolph W. Lenz Lenz was chairman of Terex from in or about 1983 through in or about August 1995 and chairman and majority owner of KCS. He was chief executive officer of Terex from in or about 1993 through in or about March 1995. Lenz was chairman of Fruehauf from in or about July 1989 through in or about August 1992. Lenz was Chairman of the Board of Directors of CBC Bancorp, Inc. ("CBC") from August 1992 through November 1997. Lenz is a beneficial owner of approximately ten percent of the equity securities of Terex and more than ten percent of the equity securities of CBC, and at all relevant times he beneficially owned more than ten percent of the equity securities of Fruehauf. 2. Other Entities a. Fruehauf Trailer Corporation Fruehauf is a Delaware corporation headquartered in Indianapolis, Indiana. From 1989 through 1995, Fruehauf maintained its corporate headquarters in Southfield, Michigan, where it maintained its own management, legal and accounting staff. Fruehauf manufactured and marketed new and used truck trailers and related parts and service. Fruehauf completed its IP0 on July 8, 1991, at $11.00 per share. In or about October 1996, Fruehauf filed for protection under Chapter 11 of the Bankruptcy Code. b. CBC Bancorp, Inc. CBC Bancorp, Inc. (formerly Amity Bancorp., Inc.), a Connecticut corporation with its principal offices in Stamford, Connecticut, was a registered bank holding company until November 1997 when it was liquidated. CBC's common stock was registered with the Commission pursuant to Section 12 of the Exchange Act, and was traded on the NASDAQ Small-Cap Market, until June 22, 1995, when the stock was delisted for failure to meet listing requirements. On November 30, 1997, CBC ceased operating pursuant to a Plan of Liquidation and Dissolution which was authorized and approved at a special meeting of the CBC shareholders on November 19, 1997. At that time, the shares of its bank subsidiary and CBC's other assets were distributed to CBC shareholders. 3. Accounting Issues and Relevant Generally Accepted Accounting Principles APB No. 16 is the authoritative literature under generally accepted accounting principles ("GAAP") for business combinations, including the acquisition of Fruehauf by Terex. APB No. 16 specifies that the cost of an acquired company should be allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. The accounting issues related to the Fruehauf acquisition primarily concern the identification and treatment of assets expected to be sold and the type of costs that may be recorded as liabilities assumed in the acquisition. GAAP normally reflects application of the "all-inclusive" income statement concept. This concept recog- nizes all income and expenses, even irregularly occurring losses or costs, in the results of operations in the period incurred, unless GAAP provide otherwise. This "all-inclusive" concept is intended, among other things, to avoid discretionary omissions of losses or gains from income, thereby avoiding a presentation of a more or less favorable report of performance than is justified. See Statement of Financial Accounting Concepts No. 5, "Recognition and Measurement in Financial Statements of Business Enterprises," paragraph 35. When accounting for the acquisition of one company by another, GAAP carve out certain exceptions to this "all-inclu- sive" income statement notion. One such exception is for costs expected to be incurred in connection with assets acquired in a business combination which management, at the time of the acquisition, has determined will be sold within a year of the acquisition date. In this special situation, GAAP provide that subsequent earnings or losses from these assets are not to be reflected in the consolidated statement of operations but as part of the carrying value of the asset held for sale. Another exception to the "all-inclusive" income statement concept relates to certain costs that should be capitalized as part of the purchase price. GAAP provide that assumed liabilities, whether or not shown on the acquired company's financial statements, should be considered when accounting for the acquisition. Thus, previously unrecorded liabilities should be recorded if they represent obligations at the date of purchase. Further, certain expected future costs related to the closing of facilities should, in certain circumstances, be recorded as liabilities assumed in the acquisition. However, costs which are not obligations at the date of purchase should not be recorded. Instead, these costs should be accounted for when incurred in the periods subsequent to the business combination. At the time it acquired Fruehauf, Terex had in place plans to restructure Fruehauf's operations. In the private placement memorandum for the Fruehauf acquisition, for example, Terex announced its intention to dispose of certain assets, including Fruehauf's Maritime operations, Jacksonville Shipyards, Inc. ("JSI") and Coast Engineering and Manufacturing Company ("CEMCO"), and excess real estate. Terex also announced plans to improve Fruehauf's operating income by reducing excess capacity, reducing corporate and divisional overhead, emphasizing higher margin business, and restructuring Fruehauf's branch system. Using purchase accounting, Terex allocated the purchase price paid to the assets and liabilities acquired in the Fruehauf acquisition, as well as "other liabilities and commitments, including unfavorable leases, contracts and commitments, and plant closing expense incident to the acquisition." APB No. 16 ¶ 88. As part of this process, Fruehauf established reserves to cover (1) assumed liabilities, which were pre-existing obligations of the acquired entity; (2) pre-acquisition contingencies, which are conditions, situations or circumstances involving uncertainty as to possible gain or loss to the acquired entity that will ultimately be resolved when one or more future events occur or fail to occur (see generally SFAS No. 5, Accounting for Contingencies); and (3) costs incident to the acquisition. The process of assigning values to acquired assets, assumed liabilities, pre-acquisition contingencies and costs incident to the acquisition necessarily involves estimation. The auditors, after review of Fruehauf’s and Terex’s records, concurred in the companies’ application of APB No. 16 and related accounting principles to the assets and liabilities acquired in the Fruehauf acquisition, the companies’ accounting for certain assets held for sale, the companies’ establishment of purchase accounting reserves, and the companies’ establishment, and subsequent reversal, of a reserve for pension liability. The auditors also audited and issued reports containing unqualified opinions that Terex's year-end financials for 1989 through 1992 were fairly presented and in accordance with GAAP. a. Terex's and Fruehauf's Accounting for Certain Assets Held for Sale When assets of an acquired business are identified as held for sale, Financial Accounting Standards Board ("FASB") Emerging Issue Task Force Issue No. 87-11, "Allocation of Purchase Price to Assets to be Sold" ("EITF No. 87-11"), provides that those assets should be recorded at a value equal to their expected cash flows from operations from the date of the acquisition until the date of sale (not to exceed one year), less interest on incremental debt incurred to finance the asset (for a period not to exceed one year), plus anticipated sales proceeds. Subsequent earnings or losses related to these assets within one year are excluded from consolidated earnings and are reflected as adjustments of the carrying value of the asset held for sale. This accounting treatment hinges on the following: (1) the asset must be identified at the purchase date as held for sale and, at that date, there must be a reasonable expectation of sale within one year of the date of acquisition); and (2) the asset to be sold must constitute a line of business or a portion of a line of business as defined by APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," ("APB No. 30"), and the American Institute of Certified Public Accountants Accounting Interpretation No. 1, "Illustration of the Application of APB Opinion No. 30" ("Interpretation No. 1 of APB No. 30"). Furthermore, EITF Issue No. 90-6, "Accounting for Certain Events Not Addressed In Issue No. 87-11 Relating to an Acquired Operating Unit to Be Sold" ("EITF No. 90-6"), provides that a company should discontinue accounting for assets under EITF No. 87-11 and include earnings or losses from such assets in its income statement if these assets are not sold within one year from the date of the acquisition. Terex and Fruehauf improperly accounted for certain businesses held for sale acquired in the combination. In some instances, Terex and Fruehauf continued to apply EITF No. 87-11 accounting after it became apparent that assets would not be disposed of within the time frame required. In other cases, the companies retroactively applied EITF No. 87-11 accounting to assets which were not originally designated as held for dispos- al. Furthermore, Terex and Fruehauf failed to discontinue application of EITF No. 87-11 accounting for the period ended September 30, 1990, and subsequent periods. (1) Maritime Businesses At or around the time of the acquisition, Terex announced its intent to sell Fruehauf's interest in JSI and CEMCO (collectively, the "Maritime Businesses"). Because the companies identified these assets as held for sale, the companies accounted for the proposed sale of the Maritime Businesses by excluding the Maritime Businesses' operating losses from the results of operations. When the Maritime Businesses were not sold within one year of the acquisition, the companies improperly continued to exclude the majority of operating losses of the Maritime Businesses from the companies' results of operations from July 1990 until December 1992. Excluding the Maritime Businesses' operating losses from results of operations resulted in the overstatement of Terex's consolidated pre-tax earnings before minority interests and extraordinary items ("consolidated pre-tax earnings") by approximately $19.8 million, $11.9 million and $1.2 million in 1990, 1991 and 1992, respectively. (2) Decatur Businesses As part of the acquisition, Terex acquired certain interests in the Decatur Aluminum Company and Decatur Extrusion Company (the "Decatur Businesses"). In or about October 1990, approximately 15 months after the date of the acquisition, Fruehauf established a purchase accounting reserve, entitled "Decatur Loss Reserve." The Decatur Loss Reserve was established to exclude estimated losses from the Decatur Businesses' operations until the projected date of sale, in or about September 1991. However, because more than one year had elapsed since the date of acquisition, Fruehauf was not entitled to establish such a reserve nor to exclude the Decatur Businesses operating losses from its results of operations. Contrary to EITF No. 87-11 and EITF No. 90-6, from in or about October 1990 through in or about 1992, the operating losses of the Decatur Businesses were excluded from Terex's results of operations. Excluding the Decatur Businesses' operating losses from results of operations resulted in the overstatement of Terex's consolidated pre-tax earnings by approximately $146,000, $943,000 and $1.4 million in 1990, 1991 and 1992, respectively. b. Purchase Accounting Reserves In accounting for the acquisition, Fruehauf established reserves for future costs. Fruehauf then charged current period costs incurred in the restructuring and downsizing of its trailer business against these reserves instead of reflecting the costs as operating expenses in the income statement. Recording future costs as liabilities assumed in an acquisition directly impacts earnings subsequent to the acquisition. When liabilities are recorded in purchase accounting, certain subsequent expenditures are recorded as reductions in these liabilities instead of being recognized as current period expenses. This exclusion of expenses from the results of operations increases reported earnings. Paragraph 87 of APB No. 16 provides that assumed liabilities, even if previously unrecorded, should be recorded in purchase accounting if they represent liabilities at the date of acquisition.[4] Further, GAAP provide that certain costs related to closing facilities after the acquisition should be recorded as liabilities assumed in the acquisition. Specifically, paragraph 88(i) of APB No. 16 states that a company should record as liabilities unfavorable leases, contract commitments and "plant closing expense incident to the acquisition," i.e., those costs directly attributable to the closing of facilities of the acquired company.[5] Plant closing expense does not include costs that benefit activities to be continued or costs which are related to the ongoing revenue-generating activities of a company. Examples of such ongoing revenue-generating expenses include costs of purchasing new computers, consulting fees, retraining costs for employees that will be part of a company's ongoing activities, as well as costs of packing and moving inventory and equipment from one facility to another. Also, plant closing expense does not include costs which are incurred to improve operating efficiencies. These may include, for example, costs of developing new software that will enable the remaining personnel to work more efficiently. (1) Plant Restructuring Costs In connection with, at least, the closure of plants in Harrisburg, Pennsylvania, Fort Worth, Texas and part of a complex at Fresno, California in 1989-1990, Fruehauf established two purchase accounting reserves. These purchase accounting reserves were entitled "Reserve for Plant Variance" and "Reserve for Plant Shutdown" (collectively referred to as "the Plant Restructuring Reserves"). In or about 1991, more than one year after the acquisition date, Fruehauf charged to the Plant Restructuring Reserves certain current period costs unrelated to the acquisition. In addition, from in or about July 1989 through in or about December 1991, Fruehauf charged to the Plant Restructuring Reserves manufacturing variances at plants which received transferred product lines. These charges were inconsistent with EITF No. 87-11 and EITF No. 90-6. These charges, as well as other charges to the Plant Restructuring Reserves, were contrary to GAAP in that they should have been expensed in the periods incurred. Charging these costs to the Plant Restructuring Reserves resulted in overstating Terex's consolidated pre-tax earnings by approximately $14.3 million in 1990 and $7.2 million in 1991. (2) Corporate Restructuring Costs In 1989, Fruehauf established three purchase accounting reserves entitled "Corporate Restructuring," "Home Office Moving Reserve" and "MIS Restructuring" (collectively, "Corporate Restructuring Reserves"). From in or about 1989 through 1992, Fruehauf charged to the Corporate Restructuring Reserves certain costs incurred after, and unrelated to, the acquisition. The charges to the Corporate Restructuring Reserves included, among other things, consulting fees, "excess" MIS costs, costs incurred during a Fruehauf national sales meeting, special tooling costs and costs related to the decline in value of a marketable security bought after the acquisition. Under GAAP, only costs directly related to closing acquired facilities may be recorded as liabilities in purchase accounting. These charges to the Corporate Restructuring reserves should have been expensed in the period incurred. Charging these costs to the Corporate Restructuring Reserves was inconsistent with GAAP and resulted in overstating Terex's consolidated pre-tax earnings by approximately $1.1 million, $4.0 million, $5.1 million and $1.1 million in 1989 through 1992, respectively. (3) Branch and Regional Sales Office Restructuring Costs In 1989, Fruehauf established a purchase accounting reserve entitled "Reserve for Branch Shutdown." Fruehauf charged to this reserve operating losses and other current period costs associated with the closing of 20 branch offices that had not been previously specifically identified. This was contrary to EITF 87-11 because Fruehauf failed to identify at the time of the acquisition these specific 20 branch offices as offices to be closed. Fruehauf also charged to the Reserve for Branch Shutdown operating costs incurred by its branch and regional sales offices. Charging these operating costs to the Reserve for Branch Shutdown was contrary to GAAP because the operating costs should have been expensed in the period incurred. Charging operating losses and certain costs to the Reserve for Branch Shutdown overstated Terex's consolidated pre-tax earnings by approximately $4.6 million in 1990 and $150,000 in 1991. (4) Parts Distribution Center Moving Costs In or about December 1989, Fruehauf established a purchase accounting reserve for its Westerville, Ohio parts distribution facility ("Westerville Reserve"). Beginning in 1990, Fruehauf charged certain operating costs to the Westerville Reserve, including salary and fringe benefit costs of Fruehauf employees who were not employed at the Westerville distribution facility. These operating costs should have been expensed in the period incurred. Charging operating costs to the Westerville Reserve was inconsistent with GAAP and overstated Terex's consolidated pre-tax earnings by approximately $1.1 million in 1990 and $576,000 in 1991. (5) Plant Start-up Costs In 1989, Fruehauf established a purchase accounting reserve for costs related to moving production of refrigerated van lines to a facility to be constructed in Indianola, Iowa ("Indianola Reserve"). From in or about June 1990 to in or about November 1990, Fruehauf charged to the Indianola Reserve costs incurred before the commencement of Indianola's operations. From in or about November 1990 to in or about April 1991, Fruehauf also charged Indianola's operating losses to the Indianola Reserve. These charges were not in accordance with GAAP. Charging operating losses and certain other costs to the Indianola Reserve overstated Terex's consolidated pre-tax earnings by approximately $1.6 million in 1990 and $1.1 million in 1991. 4. Purchase Accounting Information Sent to KCS and Lenz From in or about July 1989 to in or about 1992, there were monthly operations reports, referred to as the Blue Book ("Blue Book") sent to KCS, some of which were also sent to Lenz. Among other things, the Blue Book listed the dollar amount of Terex's and Fruehauf's purchase accounting adjustments. Some Blue Books indicated the impact of excluding purchase accounting adjustments from operating results and net income for given periods. Some Blue Book pages included a section entitled "Income Statement Restructuring Benefit" and a column entitled "Purchase Acctg," which reflected the impact of purchase accounting adjustments on income. 5. Pension Liability Reversal and Debt Classification In 1987, Fruehauf established a new retirement plan for salaried employees. Apparently because of the economically unfa- vorable conditions at the time, the new plan contained a temporary provision that future benefits would not include consideration of earnings after 1991, with the expectation that this benefits "cap" would be lifted as economic conditions allowed. Pursuant to the requirements of APB No. 16 and paragraph 74 of SFAS No. 87, the purchase price allocation for the Fruehauf acquisition included all retirement plan liabilities for estimated future benefits at the date of the acquisition, including benefits deferred under SFAS No. 87. Accordingly, Fruehauf recorded a $10 million accrual for the costs associated with the ultimate lifting of the pension cap. In the first quarter of 1991, after Fruehauf management decided to maintain the cap, Fruehauf proposed to its outside auditors to release $3 million of the $10 million accrual into income, but its auditor objected, and stated that the reserve had to be reversed all at once. In the second quarter of 1991, based on its decision to maintain the cap on pension benefits, Fruehauf released the entire $10 million into income. Fruehauf and Terex's accounting for this pension modification was inconsistent with FAS No. 87, "Employers' Accounting for Pensions," which required the $10 million to be amortized over future periods rather than recorded as a one-time gain in the period of change.[6] Excluding the $10 million, Fruehauf would have reported a loss from operations and an overall net loss of $3.6 million and $8.1 million, respectively, in the quarter immediately prior to Fruehauf's initial public offering. In addition to the violation of FAS No. 87, Terex and Fruehauf inadequately disclosed the $10 million pension adjustment. The following language, which omitted reference to the amount of the Pension Adjustment, was included in the 1991 second quarter Form 10-Q Fruehauf filed with the Commission: During the second quarter of 1991, the Company recorded a nonrecurring adjustment to pension expense as a result of a change in certain pension benefits. This adjustment increased gross profit and income from operations for the three and six month periods ended June 30, 1991, increased net income for the three month period ended June 30, 1991 and reduced the net loss for the six month period ended June 30, 1991. Terex's 1991 second quarter Form 10-Q filed with the Commission contained similar language describing the pension adjustment. After discussions with the Commission's Division of Corporation Finance during the third quarter of 1991, Fruehauf and Terex agreed to amortize the income effects of the pension reserve over a 12.3 year period. Accordingly, in its November 20, 1991, Form 8 Amendment Number 2 to its Form 10-Q for the quarter ended June 30, 1991, Fruehauf and Terex announced that it had revised the accounting treatment of pension benefits. The effect of the change, the companies stated, was "to defer a $10 million gain, previously recognized in the second quarter of 1991, resulting from the elimination of a potential pension liability." Id. The revised accounting increased Terex's net reported loss by $10 million, from ($1,410) to ($11,410) and from ($13,899) to ($23,899) for the three and six months periods ended June 30, 1991. A similar disclosure appeared in Fruehauf's Form 8 Amendment Number 2 to its Form 10-Q for the quarter ended June 30, 1991 at 2. In its November 15, 1991 press release announc- ing the reversal of the reserve, Fruehauf disclosed that the outside auditors had been consulted at the time of the adoption of the original accounting treatment and had concurred in that treatment. In addition, Fruehauf's $10 million reversal caused the entire amount owed by Fruehauf under a secured bank credit agreement to be callable. FAS No. 78, "Classification of Obliga- tions that are Callable by the Creditor," required Fruehauf to classify this debt as a current liability. Prior to the issuance of the companies' Form 8 Amendments on November 20, 1991, Fruehauf and Terex obtained an oral indication from their agent bank that no action would be taken with respect to any default caused by the pension reversal. This indication was incorporated into a formal waiver and amendment to the credit facility and finalized in the first quarter of 1992, prior to the issuance of the companies' annual reports on Form 10-K for the fiscal year ended December 31, 1991 (filed March 30, 1992). Nonetheless, in its third quarter Form 10-Q for the quarter ended September 30, 1991, Fruehauf continued to classify approximately $82.7 million of the debt as a long-term liability and thus understated its current liabilities. Likewise, because it accounted for its investment in Fruehauf on a consolidated basis, Terex similarly understated its current liabilities in its third quarter 1991 Form 10-Q. **FOOTNOTES** [1]: The management involved in the conduct discussed in this Order are no longer with Terex. [2]: On October 2, 1992, based on the decision of its board of directors, Terex dismissed the auditors. See Terex Form 8-K dated October 2, 1992. Terex engaged new independent accountants for the year ended December 31, 1992, who had been the accoun- tants for a major subsidiary which was acquired by Terex on July 31, 1992. Following its deconsolidation from Terex in 1992, Fruehauf announced in its Form 10-K for the fiscal year ended December 31, 1994 that it was conducting a detailed analysis of the allocation of purchase price paid by Terex in its 1989 acquisition of Fruehauf and determining the impact thereof on the opening balance sheet and subsequent periods. [3]: Note A to Terex's Consolidated Financial Statements in its 1994 Form 10-K at F-9 quantified the cumulative effect to Terex of Fruehauf's restatements for 1989 through 1991 as a negative $64,022,000, adjusting previously reported stockholders' investment for December 1991 of $59,881,000 to the restated amount of $(4,141). [4]: Whether a particular cost constitutes a liability at the date of acquisition requires a determination of (1) whether there exists a legal, equitable or constructive obligation for the company to sacrifice its assets in the future, and (2) whether that obligation existed at the date of acquisition. Only present obligations, that is, those obligations resulting from a past transaction or event, are liabilities. See Financial Accounting Concepts No. 6, "Elements of Financial Statements", paragraphs 195-206. [5]: According to EITF Issue No. 84-35, "Business Combinations: Sale of Duplicate Facilities and Accrual of Liabilities" ("EITF No. 84-35"), the allocation of the purchase price in a business combination may involve establishing liabilities for plant closings after the combination. However, only the costs of closing a facility acquired via the acquisition may be accrued in purchase accounting. Neither paragraph 88 (i) of APB No. 16 nor EITF No. 84-35 specify what type of costs are considered "closing costs." However, analogous accounting guidance is provided by APB No. 30, which identifies closing costs as costs which (a) are a direct result of the decision to dispose of a business segment and (b) are not adjustments or expenses that should be recognized on a going-concern basis. Costs and expenses directly associated with the decision to dispose of a business segment may include items such as severance pay, additional pension costs and future rentals on long-term leases to the extent they are not offset by sub-lease rentals. [6]: Fruehauf improperly relied upon FAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises," which requires adjustments made after the "allocation period" to be reflected in net income in the period adjusted. 6. Management's Discussion & Analysis Item 303(a) of Regulation S-K, "Management's Discussion and Analysis of Financial Condition and Results of Operations," requires an issuer to provide information with respect to "its liquidity, capital resources and results of operation" as well as other information which is "necessary to an understanding of its financial condition, changes in financial condition and results of operation." Thus, Item 303(a) requires additional disclosures when reported financial information is not indicative of future operating results or financial condition or when required to make the financial information as presented not misleading. "Management's Discussion and Analysis," Exchange Act Release No. 34-26831, ("MD&A Release") § III.E. In other words, Item 303(a) requires that management address any issues which impact the quality of earnings. Specifically, Item 303(a)(3) requires that management "describe any unusual or infrequent events or transactions . . . that materially affected the amount of reported income from continuing operations and in each case, indicate the extent to which income was so affected," and "describe any known trends or uncertainties that have had or that the registrant reasonably expects will have a materially favorable or unfavorable impact on net sales or revenues or income from continuing operations." While an auditor or other third party may review the MD&A section, the substance of the MD&A is the responsibility of management. MD&A Release, § III.A. (emphasis added). For interim reports such as a Form 10-Q, Item 303(b) requires a discussion and analysis of the results of operations to enable the reader to assess material changes in financial condition and results of operations that have occurred since the end of the preceding fiscal year. Instruction 4 to Item 303(b) mandates that discussions of material changes in results of operations must identify any significant elements of the registrant's income or loss from continuing operations which do not arise from or are not necessarily representative of the registrant's business. Fruehauf and, through consolidation, Terex, failed to comply with these requirements in a number of respects. Throughout the 1989-92 period, Terex disclosed in the MD&A section of certain public filings its use of purchase accounting and the creation of reserves in connection with the Fruehauf acquisition. For example, in the MD&A section of its June 30, 1989 10-Q (filed Aug. 14, 1989), describing details of the Fruehauf acquisition, Terex stated its intention to pursue ongoing restructuring activities. Further, the MD&A section of Terex's 1989 Form 10-K (filed on March 27, 1990) begins with a table listing the effects of the business combination on operating results for 1989. The 10-K also disclosed, inter alia, that (i) proceeds from the anticipated disposition of certain assets of Fruehauf, JSI and CEMCO would be used to reduce Terex's debt, and (ii) the Consolidated Statement of Income did not include operating results from JSI and CEMCO. Finally, the MD&A section of Terex's 1991 Form 10-K (filed March 30, 1992) reported the 1991 sale of certain JSI and CEMCO assets. In addition, although not in the MD&A section of its public filings, during this period Terex made numerous disclosures of its use of purchase accounting. For example, in its June 30, 1989 10-Q (filed Aug. 14, 1989), describing the Fruehauf acquisition, Terex stated in Note C its intention to sell JSI and CEMCO. Terex's Form 8 Amendment No. 1 to Form 8-K, dated July 14, 1989 (filed September 27, 1989), which contained no MD&A section, disclosed: (1) the use of purchase accounting in the Fruehauf acquisition; (2) Terex's intent to restructure the acquired entity; (3) that Fruehauf's maritime operations and CEMCO were held for sale; and (4) that Terex was actively reorganizing operations of the acquired entity. Note C of Terex's September 30, 1989 10-Q (filed November 14, 1989), the first to include Fruehauf, referred to the aforementioned Form 8-K and specifically stated that: JSI and CEMCO's operating results were not included in the consolidated income statement, adequate reserves had been established to absorb such operating results, and Terex was actively reorganizing the operations of all acquired entities. Further, Note B and E of Terex's 1989 Form 10-K (filed on March 27, 1990) disclosed that: (1) purchase accounting was used to account for the company's acquisitions; (2) certain assets of the company's Maritime business (consisting of JSI and CEMCO) were being held for sale; and (3) the Maritime business's losses for the prior two quarters were not included in the Consolidated Statement of Income, but were absorbed by reserves established for that purpose. In addition, Note A to Terex's 10-Q for the quarter ended September 30, 1990 (filed November 14, 1990) disclosed the negative goodwill acquired in the Fruehauf acquisition and how the discount associated with the acquisition was allocated. Notes B and E to Terex's December 31, 1990 Form 10-K (filed April 1, 1991) reported: (1) the continued treatment of Fruehauf's Maritime Business as assets held for sale; (2) the company's intent to sell the Decatur Business and its treatment as assets held for sale; and (3) the final allocation of the discount associated with the Fruehauf acquisition. Terex's Form 8 amendment No. 2 to Form 10-Q (filed Nov. 21, 1991) revealed the effect of the reversal of the pension reserve established in connection with the Fruehauf acquisition. Finally, Notes B and F to Terex's 1991 Form 10-K (filed March 30, 1992) reported, inter alia, the use of purchase accounting in all of Terex's acquisitions, and that certain assets of Decatur and JSI were being held for sale. Nonetheless, the foregoing disclosures did not adequately separate and quantify the aggregate impact of purchase accounting adjustments on the results of Fruehauf, and through consolidation, Terex. a. 1990 Income from Operations During 1990, Fruehauf used purchase accounting reserves to absorb operating costs which would otherwise have been charged against operating income. For the year, these purchase accounting adjustments increased Fruehauf's operating income by at least $31.7 million. Terex failed to comply with Item 303 of Regulation S-K in that there was inadequate disclosure in Terex's public filings of the quantifiable, non-recurring impact of purchase accounting on Fruehauf's -- and therefore, via consolidation, Terex's -- income from operations. For the first quarter of 1990, Terex reported income from Fruehauf's operations of $6.6 million. Without the benefits afforded by purchase accounting, however, Fruehauf would have sustained an operating loss of $1.3 million. Thus, purchase accounting adjustments for the quarter totaled at least $7.9 million. Terex, however, failed to disclose in its Form 10-Q the amount and nature of the purchase accounting adjustments and the likely effect on future earnings and liquidity, as required by Item 303 of Regulation S-K. Similarly, in the second and third quarters of 1990, Terex reported income from Fruehauf's operations of $5.2 million and $3.8 million, respectively. Without the benefits of purchase accounting, however, Fruehauf would have shown losses from operations of at least $5.2 million and $5.7 million, respectively, for differences of $10.4 million and $9.5 million, respectively. Terex's second and third quarter 1990 Forms 10-Q again failed to adequately disclose the significant purchase accounting component of income from operations. For the fiscal year ended December 31, 1990, Terex reported operating income from Fruehauf of $19.3 million. Purchase accounting adjustments for the year, however, totaled at least $31.7 million, meaning that without the benefits of purchase accounting adjustments, Terex would have reported a loss from Fruehauf's operations of approximately $12.4 million. Terex's 1990 Form 10-K failed to adequately disclose the extent to which its reported operating earnings were affected by the use of purchase accounting adjustments, the amount of these adjustments and that the benefits of purchase accounting were not expected to recur beyond the immediate future. b. 1991 Income from Operations During 1991, in addition to using purchase accounting reserves to absorb operating costs which would otherwise have been included in operating income, Fruehauf also directly released "excess" balances of a number of purchase accounting reserves into income. For the year, Fruehauf's purchase accounting adjustments increased Fruehauf's operating income by at least $22.3 million. Contrary to the requirements of Item 303 of Regulation S-K, Fruehauf and Terex failed to adequately disclose in their MD&A sections the amounts of these purchase accounting adjustments, the true quality of current income from operations or likely future earnings once the reserves were exhausted. For the first quarter of 1991, the last full quarter prior to the Fruehauf IPO, Fruehauf reported in its registration statement income from operations of $76,000. Without the benefits afforded by purchase accounting, however, Fruehauf would have sustained an operating loss of $6.5 million. Thus, purchase accounting adjustments for the quarter totaled at least $6.6 million. In the MD&A section included in Fruehauf's IPO prospectus, Fruehauf made the following disclosure regarding its operating results in the first quarter of 1991: Income from operations for the first quarter of 1991 was $0.1 million compared to $6.6 million for the first quarter of 1990 due to the decrease in sales volume and increased engineering, selling and administrative expenses. Furthermore, Fruehauf stated that it "remained slightly profitable on an operating basis in the first quarter of 1991, in spite of the lowest level of industry unit sales since 1983." Fruehauf, however, failed to disclose in its registration statement that in the first quarter of 1991, it had reversed or released $6.9 million of excess reserves into first quarter income. Of the total $6.9 million in adjustments, $4.1 million related to purchase accounting reserves and $2.8 million was from inventory-related reserves. In addition to the $6.9 million in excess reserves released into income, purchase accounting reserves absorbed an additional $2.5 million in operating costs. Similarly, in the second quarter of 1991, Fruehauf reported income from operations of $6.4 million. Without the benefit of purchase accounting adjustments, however, Fruehauf had a loss from operations of $8.5 million, for a difference of $14.9 million. In its 1991 second quarter Form 10-Q, Fruehauf reported that for the three months ended June 30, 1991, "income from operations increased 24%" to $6.4 million versus $5.2 million for the same period in 1990, and that net income for the three month period was $1.9 million in 1991 versus $179,000 in 1990. However, as discussed above, Fruehauf failed to adequately disclose the $10 million nonrecurring adjustment related to the pension liability reversal discussed above. In fact, this adjustment was spread across several line items of the income statement.[7] During the second quarter of 1991, the Company recorded a nonrecurring adjustment to pension expense as a result of a change in certain pension benefits. This adjustment increased gross profit and income from operations for the three and six month periods ended June 30, 1991, increased net income for the three month period ended June 30, 1991 and reduced the net loss for the six month period ended June 30, 1991. In addition to the $10 million pension adjustment, Fruehauf released an additional $3.4 million of excess reserves into income and purchase accounting reserves absorbed an additional $1.5 million in operating costs, all without adequate disclosure. In the third quarter of 1991, Fruehauf reported income from operations of $2.5 million. Without the benefits of purchase accounting, however, Fruehauf had a loss from operations of $7.8 million, for a difference of $10.3 million. Fruehauf's third quarter 1991 Form 10-Q failed to make any reference to the significant effect of purchase accounting on income from operations. Further, in its third quarter 1991 Form 10-Q, and amendments thereto, there was no reclassification of approximately $82.7 million of debt from a long-term to short-term liability as a result of Fruehauf's debt covenant violations.[8] For the fiscal year ended December 31, 1991, Fruehauf reported an operating loss of $23.2 million.[9] Purchase accounting adjustments for the year, however, totaled at least $22.3 million, meaning that without the benefits of purchase accounting adjustments, Fruehauf would have almost doubled its reported losses from operations to $45.4 million. Once again, Fruehauf's 1991 Form 10-K failed to adequately disclose the nature and amount of these adjustments and their impact on current and future earnings. 7. Inadequate Disclosure of Related Party Transaction In 1990, due to the rising cost of insurance to both Terex and Fruehauf, Terex and KCS decided to establish an insur- ance company to provide low-cost liability insurance to the operating units. On September 10, 1990, the Terex Board of Direc- tors approved a resolution to establish a self-insurance program. The offshore insurance company that was created to perform this function was named PLIC, and was majority owned by Terex's then chairman, Lenz (the "former chairman"). On March 16, 1992, Fruehauf loaned KCS $1 million to help PLIC meet its initial capital requirements. In or about April 1992, Fruehauf and Terex filed Notices of Annual Meeting of Stockholders ("1992 Proxy Statements") for the election of board members, including the former chairman. Fruehauf and Terex were required to disclose in their Proxy Statements any indebtedness, greater than $60,000, owed to them by any of their executive officers, directors or by any company whose majority owner is an executive officer or director of Fruehauf. However, the loan to purchase PLIC insurance was not disclosed, as required, in the 1992 Proxy Statements, filed on April 7, 1992, and was not mentioned until it was subsequently discussed in Fruehauf and Terex's 1992 10-K. Later in 1992, the former chairman commenced a lawsuit against a broker-dealer registered with the Commission to prevent the broker-dealer from selling shares of both Terex and Fruehauf owned by the former chairman and held in several margin accounts at the broker-dealer. In November 1992, the former chairman borrowed $622,000 from Fruehauf, and used the $1 million previ- ously loaned to PLIC to post a cash collateral deposit for a $2 million bond during the pendency of the proceedings. On December 30, 1992, the Fruehauf Board of Directors ratified the $622,000 advance to the former chairman and his use of the $1 million paid to the KCS affiliate for the captive insurance program. The Fruehauf Board further resolved that the former chairman would make efforts to repay the company the entire $1.6 million by January 15, 1993. On January 22, 1993, the Board of Directors of Terex unanimously adopted a resolution authorizing a $1.6 million loan to the former chairman so that he could repay Fruehauf. The money was paid directly by Terex to Fruehauf on January 25, 1993. KCS repaid Terex on February 1, 1993. These events were described in Terex's 1992 Form 10-K as follows: KCS and Fruehauf entered into an agreement (the "KCS Note") whereby Fruehauf advanced to KCS $1,000 [$1,000,000] on an unsecured basis during 1992. These funds were to be used by KCS as an advance in connec- tion with a KCS-owned insurance company through which Fruehauf would obtain coverage as authorized by the Board of Directors. The funds were utilized by KCS, pending implementation of the insurance program, which is not yet complete. KCS also borrowed $622[000] from Fruehauf during 1992. The KCS Note is obligated to bear interest at prime. On January 25, 1993, Terex entered into an agreement whereby KCS borrowed an amount equal to the principal and accrued interest owed by KCS to Fruehauf ("the KCS/Terex Note"). The funds were sent directly to Fruehauf in payment of the KCS Note. The KCS/Terex Note bore interest at prime . . . . The entire balance was repaid to Terex on February 1, 1993, six days after the initial borrowing. . . . Id.[10] Fruehauf's 1992 Form 10-K contained a similar disclosure. Fruehauf's and Terex's 1992 Forms 10-K did not adequately disclose that the former chairman ultimately used the funds discussed above. 8. Terex's and Fruehauf's Public Filings From in or about 1989 through in or about 1995, Terex filed with the Commission, pursuant to Section 13 of the Exchange Act, annual reports on Form 10-K, quarterly reports on Form 10-Q and amendments thereto. In or about April 1992, pursuant to Section 14 of the Exchange Act, Terex filed a Notice of Annual Stockholders Meeting on Schedule 14A. In or about July 1991, Fruehauf filed with the Commission a registration statement on Form S-1, pursuant to Section 12 of the Exchange Act. From in or about 1991 through in or about 1995, Fruehauf filed with the Commission, pursuant to Section 13 of the Exchange Act, annual reports on Form 10-K, quarterly reports on Form 10-Q and amendments thereto. In or about April 1992, pursuant to Section 14 of the Exchange Act, Fruehauf filed a Notice of Annual Stockholders Meeting on Schedule 14A. By virtue of its management contracts with Terex and Fruehauf, respectively, KCS reviewed some of Terex's and Fruehauf's annual and quarterly reports before the reports were filed with the Commission. As chairman of Terex and Fruehauf during the relevant time period, Lenz reviewed some of Terex's and Fruehauf's annual and quarterly reports before the reports were filed with the Commission. Moreover, during the relevant period, Lenz signed certain quarterly and annual reports and amendments thereto for Terex and Fruehauf. a. Terex's and Fruehauf's Restated Financial Statements In or about March 1995, Fruehauf restated its financial statements for the years 1989 through 1992. The Restatement focused primarily on the improper accounting treatment afforded the Maritime Businesses and certain purchase accounting reserves. The effect of the Restatement on Fruehauf was: Reported Restated Net income Net income Year (loss) (loss) Difference in 000s in 000s in 000s 1989 $ (l9l) $ 1,554 $ 1,745 l990 (2,176) (51,066) (48,890) 1991 (28,876) (73,125) (44,249) 1992 (65,160) (47,448) 17,712 Total $(96,403) $(170,085) $(73,682) Due to the consolidation of Terex and Fruehauf's financial statements from 1989 through December 31, 1991, Terex published in its Form 10-K for the fiscal year ended December 31, 1994 selected financial data for the years 1990 through 1994 which reflected for the years 1989 to 1991 Fruehauf's restatement of its financial statements. As a result of the improper use of purchase accounting by Fruehauf before the Restatement, Terex's periodic reports filed with the Commission for the years 1989 through 1991 contained material misstatements. B. VIOLATIONS OF CERTAIN REPORTING, RECORDKEEPING, PROXY SOLICITATION AND BENEFICIAL OWNERSHIP PROVISIONS OF THE FEDERAL SECURITIES LAWS[11] 1. Violations of Certain Reporting and Recordkeeping Provisions of the Federal Securities Laws Section 13(a) of the Exchange Act requires issuers of securities registered pursuant to Section 12 of the Exchange Act to file with the Commission such periodic reports as the Commission shall prescribe by its rules and regulations. Rules 13a-1 and 13a-13 require issuers to file annual and quarterly reports, respectively. These filing requirements also include an obligation to set forth the information accurately. Pursuant to Section 4-01(a)(1) of Regulation S-X, the financial statements included in an issuer's periodic reports must be prepared in conformity with GAAP. Fruehauf and Terex's quarterly and annual reports were not in conformity with GAAP because income was overstated before taxes by approximately $77.3 million from 1989 through 1992. Fruehauf and Terex filed quarterly reports which were not in conformity with GAAP with respect to the release of a $10 million pension liability into income and the classification of a short-term liability as long-term debt. Additionally, Fruehauf and Terex filed annual and quarterly reports which failed to disclose the impact of purchase accounting in MD&A on the quality of current and future income. Finally, Terex failed to quantify the amount of the pension liability released into income in its second quarter 1991 quarterly report and inadequately disclosed the details of the use of $1.6 million of Fruehauf's funds in Terex's 1992 annual report. Terex and Fruehauf violated Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder by failing to adequately reflect the information required to be included in such statements. Section 13(b)(2)(A) of the Exchange Act requires an issuer to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect its transactions. The application of purchase accounting resulted in Fruehauf's and Terex's violation of Section 13(b)(2)(A) because such accounting resulted in the companies' overstatement of their earnings in their books, records and accounts. As consultant to Terex with the ability to review the adequacy of Terex's public filings, KCS, among others, was a cause of Terex's and Fruehauf's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and Section 13(b)(2)(A) of the Exchange Act. As president of KCS and as chairman of Terex and Fruehauf during the period of the companies' violations charged with ensuring the adequacy of Terex's public filings, Lenz was a cause of Terex's and Fruehauf's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and Section 13(b)(2)(A) of the Exchange Act. 2. Violations of Certain Proxy Solicitation Provisions of the Exchange Act Section 14(a) of the Exchange Act prohibits any person from soliciting a proxy in contravention of the rules and regulations prescribed by the Commission. Terex and Fruehauf, in connection with the election of board members, including its former chairman, filed with the Commission and distributed to shareholders proxy statements which did not disclose, in response to Item 7(b), on Schedule 14A, that either the former chairman or one of his companies utilized $1 million in Fruehauf's marketable securities.[12] Certain company safeguards and procedures concerning related party transactions were not followed with respect to the former chairman's borrowing of $622,000 in marketable securities. By soliciting a proxy in contravention of the rules and regulations prescribed by the Commission, Lenz was a cause of Terex's and Fruehauf's violations of Section 14(a) of the Exchange Act. 3. Lenz's Violations of Certain Beneficial Ownership Provisions of the Securities Exchange Act Section 13(d) of the Exchange Act and Rule 13d-1 thereunder, in relevant part, provide that any person who, after acquiring directly or indirectly the beneficial ownership of any equity security of a company registered pursuant to Section 12 of the Exchange Act, is directly or indirectly the beneficial owner of more than 5 percent of such security, shall, within 10 days after such acquisition, file a Schedule 13D with the Commission and the appropriate Exchange.[13] Rule 13d-2(a) requires that amendments to Schedule 13D be promptly filed if any material change to the facts set forth in the Schedule 13D occurs. A change of one percent or more in the reporting person's beneficial ownership of the specified securities is deemed material for the purposes of Rule 13d-2(a). Section 13(g) of the Exchange Act and Rule 13d-l(c) thereunder, in relevant part, require any person who, as of December 31, 1978 or as of the end of any calendar year thereafter, beneficially owns more than 5 percent of any equity security of a company registered pursuant to Section 12 of the Exchange Act, and who is not otherwise required to file a Schedule 13D, to file a Schedule 13G with the Commission within 45 days of the end of the calendar year in which the obligation arises. Rule 13d-2(b) provides that yearly amendments shall be filed to Schedule 13G reporting changes in the information previously reported. Section 16(a) of the Exchange Act[14] requires that beneficial owners of more than ten percent of any class of any equity security registered pursuant to Section 12 of the Exchange Act and the officers and directors of the issuer of any such security (hereinafter "insider") file a statement with the Commission by the effective date of a registration statement filed pursuant to Section 12 of the Exchange Act, or within ten days of becoming such officer, director or beneficial owner, reporting the amount of all equity securities of such issuer of which they are a beneficial owner. Section 16(a) also requires an insider to file with the Commission within ten days after the close of each calendar month, if there has been a change in the insider's ownership of the issuer's equity securities during such month, a statement indicating such changes. The rules enacted pursuant to Section 16(a) provide that an initial statement by an insider is to be made on a Form 3 and subsequent statements of changes in beneficial ownership are to be made on a Form 4 or a Form 5. As shown in the tables attached hereto as Exhibit A, Lenz failed to timely file for periods ranging from one week to thirteen years and seven months twenty-seven amendments to Schedules 13D and 13G, reporting acquisition or ownership, and changes thereto, in the securities of Terex, Fruehauf and CBC. Lenz failed to timely file for more than fourteen years and eight months a Form 3, reporting his holdings of Terex, failed to timely file a Form 5 for three years and six months, and failed to timely file for periods ranging from one month to one year and one month fourteen Forms 4, reporting changes in his beneficial ownership of the securities of Terex, was one week late filing a Form 3 reporting his holdings of Fruehauf and CBC, and did not timely file for periods ranging from one month to more than four years and four months seven Forms 4, and failed to timely file for three years and six months a Form 5, reporting changes in his beneficial ownership of the equity securities of CBC. The combined value of Lenz’s stock transactions in late Forms 4 and 5 filings for Terex and CBC is approximately $20.6 million. IV Based on the foregoing, the Commission finds that: Terex and Fruehauf violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder and Section 13(b)(2)(A) of the Exchange Act and that KCS and Lenz were a cause of Terex's and Fruehauf's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Further, Terex and Fruehauf violated Section 14(a) of the Exchange Act and Rule 14a-3 thereunder, and Lenz was a cause of Terex's and Fruehauf's violations of Section 14(a) and Rule 14a-3. Further, Lenz violated Sections 13(d), 13(g) and 16(a) of the Exchange Act, and Rules 13d-1, 13d-2, 16a-2, 16a-3 and former Rule 16a-1 promulgated thereunder. V Accordingly, the Commission hereby orders, pursuant to Section 21C of the Exchange Act that: Terex cease and desist from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-3 thereunder; that KCS cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and that Lenz cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder and cease and desist from committing or causing any violation and any future violation of Sections 13(d), 13(g), 14(a) and 16(a) of the Exchange Act and Rules 13d-1, 13d-2, 14a-3, 16a-2 and 16a-3 thereunder. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [7]: Fruehauf amended its second quarter 1991 Form 10-Q on November 15, 1991 to reflect the proper accounting for the $10 million pension liability reversal and its amortization over future periods, and disclosed the amount of the adjustment. [8]: There was also no equivalent information contained in the second and third quarter Forms 10-Q, such as an explanatory footnote, which would alert the user of the financial statements that Fruehauf's lenders could accelerate the loans due to the company's failure to meet financial ratios. [9]: This figure includes a restructuring charge of $15.8 million without which Fruehauf would have shown an operating loss of $7.4 million. [10]: Terex's 1992 10-K also disclosed that (a) KCS was principally owned by the former chairman (Ex. 49 at 32, F-30) and (b) the former chairman pledged the shares of common stock owned by him as collateral for margin calls which could be sold by pledgee triggering a change in control. Id.; see also Form 10- K/A for 1992, filed December 7, 1993, at F-29, F-57. Fruehauf and Terex's May 27, 1993 Proxy Statement contained virtually identical disclosures. [11]: No showing of scienter, that is, intent to deceive, defraud or manipulate, is required for establishing the violations cited in this Order, Sections 13(a), 13(b)(2)(A), 13(d), 13(g), 14(a) and 16(a) of the Exchange Act and Rules 13a-1, 13a-13, 12b-20, 13d-1, 13d-1(c), 13d-2(a), 13d-2(b), 14a-3, 16a-2 and 16a-3 thereunder. [12]: Rule 14a-3 requires a proxy solicitation to contain the information required by Schedule 14A. See 17 C.F.R. § 240.14a-3 (1995). Item 7(b) of Schedule 14A, in turn, requires the disclosure of information mandated by Item 404(c) of Regulation S-K. See 17 C.F.R. § 240.14a-101 (1995). Item 404(c) of Regulation S-K, "Indebtedness of Management," requires information on any indebtedness, over $60,000, owed to the company by, among others, a director of the registrant or corporation whose director or owner is also a director of the registrant. See 17 C.F.R. § 229.404(a) (1995). The $1 million advance to a company controlled by the former chairman constituted an indebtedness of management which required disclosure. [13]: The Commission recently adopted amendments to Regulation- 13D-G under the Exchange Act, permitting certain large shareholders to use short form Schedule 13G, rather than long form Schedule 13D, to report accumulations and changes in stock holdings. The shareholders that will be permitted to use Schedule 13G under these amendments are ones that own less than 20% and that do not have the purpose or effect of changing or influencing control of the issuer. See Release No. 34-39538, January 12, 1998 (63 Fed. Reg. 2854, January 16, 1998). [14]: Until May 1, 1991, the statutory filing requirements under Section 16 of the Exchange Act were implemented by Rule 16a-1. On January 10, 1991, the Commission adopted a comprehensive revision of the rules under Section 16 which became effective on May 1, 1991. See Rel. 34-28869, 56 Fed. Reg. 7242 (Feb. 21, 1991). Among other things, these amendments place the implementation of the former Rule 16a-1 filing requirements in new Rules 16a-2 and 16a-3. Accordingly this Order, at paragraph V below, orders that Lenz cease-and-desist from violating Rules 16a-2 and 16a-3. Exhibit A RANDOLPH W. LENZ Forms 3, 4 and 5 For Holdings and Transactions in the Equity Securities of Terex Corporation (formerly Northwest Engineering Co.) December 7, 1983 through September 10, 1998 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late Form 3 11-83 C/S 795,151 12-07-83 14y8m1w 08-19-98 _________________________________________________________________ Forms 4, 5 01-85 Acq 4,419,460 N/A N/A 02-11-85 6m (conversion) 08-13-85- 09-10-85** 09-92 Buy 2,200 8.50 18,700 10-13-92 3m2w 15,000 8.63 129,450 01-26-93 148,158 10-92 Buy 1,000 7.50 7,500 11-10-92 2m2w 2,400 7.75 18,600 01-26-93 46,600 7.50 349,500 375,600 08-93 Sale 6,000 7.88 47,280 09-10-93 4m3w 100 8.00 800 01-31-94 9,900 7.75 76,725 200 7.88 1,576 5,000 7.50 37,500 11,700 7.50 87,750 1,100 7.63 8,393 13,500 7.50 101,250 20,000 7.00 140,000 5,000 7.25 36,250 10,000 7.00 70,000 800 7.13 5,704 6,300 7.00 44,100 9,900 6.88 68,112 725,440 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late 11-93 Sale 8,400 8.38 70,392 12-10-93 1m3w 800 8.25 6,600 01-31-94 20,200 8.25 166,650 5,400 8.38 45,252 11,800 8.13 95,934 5,000 8.38 41,900 31,000 8.50 263,500 46,700 8.38 391,346 1,081,574 06-94 Buy 4,000 5.88 23,520 07-11-94 1y1m 4,000 5.88 23,520 08-10-95 2,000 6.00 12,000 2,000 5.88 11,760 2,000 6.00 12,000 2,000 6.00 12,000 2,000 6.00 12,000 1,000 5.38 5,380 112,180 06-94 Opt 43,000 5.50 236,500 02-14-95 6m Grant (ESO) 08-10-95 FY-94 Form 5 02-14-95 3y6m 08-19-98 08-95 Sale 128,000 3.13 400,640 09-11-95 5m 02-14-96 10-95 Sale 57,143 4.38 250,286 11-13-95 3m 7,857 4.38 34,414 02-14-96 100,000 4.38 438,000 722,700 12-95 Sale 100,000 4.09 409,000 01-10-96 1m 100,000 4.09 409,000 02-14-96 818,000 01-96 Sale 15,000 4.88 73,200 02-12-96 1m 9,600 4.54 43,584 03-12-96 7,600 4.38 33,288 5,600 4.30 24,080 3,200 4.25 13,600 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late 01-96 10,000 4.25 42,500 (cont.) 17,077 4.13 70,528 300,780 12-96 Sale 6,100 10.00 61,000 01-10-97 1m 3,900 10.00 39,000 02-10-97 100,000 12-97 Other 100,000 N/A N/A 01-12-98 8m Disp*** 09-08-98 01-98 Other 40,000 N/A N/A 02-10-98 7m Acq*** 09-10-98 04-98 Other 13,000 N/A N/A 05-11-98 4m Disp*** 09-10-98 Total value late reported transactions: $ 5,021,572 * = Price per share rounded off ** = Official Summary of Security Transactions and Holdings ***=Change in the form of beneficial ownership not exempt from Rule 16a-13 of the Exchange Act. C/S = Common Stock Opt = Option N/A = Not applicable ESO = Employee Stock Option Acq = Acquisition Disp = Disposition Schedules 13D and Amendments Terex Corporation (formerly Northwest Engineering Co.) January 28, 1985 through August 25, 1998 Date Date Event Due/ Apprx. of No. of Triggering Date Yrs/Mos/ Trans. Type Shares Amendment Rec'd Wks.Late 01-28-85 13D Amendment Change of 01-28-85* 13y7m Ownership 08-25-98 03-09-87 13D Amendment " 03-09-87 11y5m1w 08-25-98 10-08-87 13D Amendment " 10-08-87 10y10m2w 08-25-98 03-18-88 13D Amendment " 03-18-88 10y5m 08-25-98 02-19-90 13D Amendment " 02-19-90 8y6m 08-25-98 04-16-90 13D Amendment " 04-16-90 8y4m 08-25-98 06-18-92 13D Amendment " 06-18-92 6y2m 08-25-98 11-24-93 13D Amendment " 11-24-93 4y9m 08-25-98 03-16-94 13D Amendment " 03-16-94 4y5m 08-25-98 06-07-94 13D Amendment " 06-07-94 4y2m2w 08-25-98 04-25-95 13D Amendment " 04-25-95 3y4m 08-25-98 Date Date Event Due/ Apprx. of No. of Triggering Date Yrs/Mos/ Trans. Type Shares Amendment Rec'd Wks.Late 07-06-95 13D Amendment Change of 07-06-95 3y1m2w Ownership 08-25-98 08-15-95 13D Amendment " 08-15-95 3y1w 08-25-98 10-17-95 13D Amendment " 10-17-95 2y10m 08-25-98 12-22-95 13D Amendment " 12-22-95 2y8m 08-25-98 02-21-96 13D Amendment 1/ " 02-21-96 2y6m 08-25-98 04-25-96 13D Amendment " 04-25-96 2y4m 08-25-98 12-30-96 13D Amendment " 12-30-96 1y7m3w 08-25-98 05-14-97 13D Amendment " 05-14-97 1y3m 08-25-98 06-04-97 13D Amendment " 06-04-97 1y2m2w 08-25-98 07-22-97 13D Amendment " 07-22-97 1y1m 08-25-98 08-20-97 13D Amendment " 08-20-97 1y 08-25-98 * = For the purpose of this table, the due date for amendments reflects the date the obligation to file the amendment arose. 1/ Lenz filed a Schedule 13G with the Commission on February 14, 1996, which reflects beneficial ownership of 4,442,237 shares as of February 13, 1996. Forms 3 and 4 For Holdings and Transactions in the Equity Securities of Fruehauf Trailer Corporation June 28, 1991 through July 5, 1991 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late Form 3 06-91 C/S 7,749,546 06-28-91 1w 07-05-91 _________________________________________________________________ Total value late reported transactions: $ 0 * = Price per share rounded off C/S = Common Stock . Schedule 13G and Amendments Fruehauf Trailer Corporation February 16, 1993 through August 28, 1998 Date Date Event Due/ Apprx. of No. of Triggering Date Yrs/Mos/ Trans. Type Shares Amendment Rec'd Wks.Late 1992 13G Amendment Change in 02-16-93* 5y6m1w Information 08-28-98 * = For the purpose of this table, the due date for amendments reflects the date the obligation to file the amendment arose. Forms 3 and 4 For Holdings and Transactions in the Equity Securities of CBC Bancorp, Inc. (formerly Amity Bancorp., Inc.) August 17, 1992 through August 19, 1998 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late Form 3 08-92 C/S 5,491,488 08-17-92 1w Series 08-26-92 I PfdStk Forms 4 03-94 Other 13,000 N/R N/R 04-11-94 2y6m Acq (Series I PfdStk) 10-10-96 03-94 Other 50,000 N/R 5,000,000 04-11-94 3y8m1w Acq (Series II PfdStk) 12-18-97 03-94 Acq N/R N/R N/R 04-11-94 2y6m (Warrant) 10-10-96 03-94 Other 416 10,000 4,160,000 04-11-94 2y6m Acq (Series III Conv.PfdStk) 10-10-96 03-94 Other 5,300 N/R N/R 04-11-94 3y8m1w Acq (Series I PfdStk) 12-18-97 03-94 Other 50,000 N/R N/R 04-11-94 4y4m1w Acq (Conv.Capital Notes) 08-19-98 09-94 Other 26 10,000 260,000 10-11-94 1y4m Acq (Series III) 02-13-96 12-94 Other 337 10,000 3,370,000 01-10-95 1y1m Acq (Series III) 02-13-96 FY-94 Form 5 02-14-95 3y6m 08-19-98 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late 12-95 Other 13 10,000 130,000 01-10-96 1m Acq (Series III) 02-13-96 12-95 Other 86 10,000 860,000 01-10-96 1m Acq (Series III) 02-13-96 12-96 Other 10 10,000 100,000 01-10-97 11m1w Acq 12-18-97 (Series III Conv.PfdStk)** 12-96 Other 25 10,000 250,000 01-10-97 11m1w Acq 12-18-97 (Series III Conv.PfdStk)** 12-96 Other 69 10,000 690,000 01-10-97 11m1w Acq 12-18-97 (Series III Conv.PfdStk)*** 03-97 Other 12 10,000 120,000 04-10-97 8m1w Acq 12-18-97 (Series III Conv.PfdStk)** 03-97 Other 28 10,000 280,000 04-10-97 8m1w Acq 12-18-97 (Series III Conv.PfdStk)** 08-97 Other 10 10,000 100,000 09-10-97 3m1w Acq 12-18-97 (Series III Conv.PfdStk)** 08-97 Other 30 10,000 300,000 09-10-97 3m1w Acq 12-18-97 (Series III Conv.PfdStk)** Total value late reported transactions: $ 15,620,000 * = Price per share rounded off ** = Payment of dividends due on Preferred Series II and III Stock. *** = Increase in 9/30/96 subscription agreement guaranteed "Threshold." C/S = Common Stock Acq = Acquisition PfdStk = Preferred Stock Conv. = Convertible Schedules 13D and Amendments CBC Bancorp, Inc. (formerly Amity Bancorp, Inc.) August 25, 1992 through August 26, 1998 Date Date Event Due/ Apprx. of No. of Triggering Date Yrs/Mos/ Trans. Type Shares Amendment Rec'd Wks.Late 08-25-92 13D Amendment Change 08-25-92* 1w Items 3,5 09-08-92 03-24-94 13D Amendment Change 03-24-94 4y5m Items 3-7 08-26-98 09-30-96 13D Amendment Change 09-30-96 1y10m3w Items 3-7 08-26-98 12-31-96 13D Amendment Change 12-31-96 1y7m2w Items 3-7 08-26-98 * = For the purpose of this table, the due date for amendments reflects the date the obligation to file the amendment arose.