Exhibit 10.27


 


MARKETING
PROFIT SHARING AGREEMENT


 


[IMA Implementing
Agreement]


 


 


                THIS MARKETING PROFIT SHARING AGREEMENT (this
“Agreement”) is entered into as of the 1st day of January, 2002, by and between
John Deere Construction and Forestry Equipment Company (“JDCFC”), a Delaware
corporation wholly-owned by Deere & Company (“Deere”) and Hitachi
Construction Machinery Holding U.S.A. Corporation (“HHUS”), a Delaware
corporation wholly-owned by Hitachi Construction Machinery Co., Ltd, (“HCM”).


 


                WHEREAS, on
October 16, 2001, Deere and HCM entered into an Integrated Marketing
Agreement (“IMA”) in which they agreed to engage in a joint venture which would
integrate their respective marketing organizations in North, Central and South
America (“Territory”) for the distribution of certain products as defined in
the IMA and ancillary supply agreements (collectively, the “Products”); and


 


                WHEREAS, the new
marketing joint venture will be an unincorporated joint undertaking and will be
in addition to the existing manufacturing joint venture established by Deere
and HCM in an Agreement dated May 16, 1988 (“1988 JV Agreement”); and


 


                WHEREAS JDCFC and
HHUS agree to work together to achieve, and take mutual responsibility for, the
cost reductions and distribution synergies that will result from the combined
marketing organizations; and


 


                WHEREAS, following
the integration the parties agreed that all marketing functions previously
performed separately by JDCFC, Hitachi Construction Machinery of America
(“HCMA”) and Hitachi Construction Machinery of Canada (“HCMC”), would be
assumed by JDCFC, utilizing the existing systems and facilities of JDCFC; and


 


 


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                WHEREAS, the IMA
and ancillary supply agreements also provided, among other things, that upon
integration of the parties’ marketing organizations profits derived from
distribution of Products in the Territory by JDCFC would be shared as follows:
JDCFC—60%; HHUS—40%, such profits to be determined in accordance with United
States Generally Accepted Accounting Principles (“US GAAP”); and


 


                WHEREAS, the
parties desire to provide further definition with respect to their respective
rights and obligations in implementing the profit sharing terms of the IMA.


 


                NOW THEREFORE, the
parties hereto agree as follows:


 


                1.             In accordance with the terms of the
IMA, following integration JDCFC will assume sole responsibility for the
distribution of Products within the Territory.


 


                2.             The Parties anticipate that the
integration of their respective marketing organizations will result in
substantial cost reductions through, among other things, the sharing of common
marketing and product support systems, consolidation of facilities, as well as
realization of synergies through integration of their parts distribution
systems. It is also anticipated that these benefits will be accomplished by the
utilization of systems already in place, or to be put into place at JDCFC, and
through the discontinuance of separate systems and operations previously in
place at and utilized by HCMA and HCMC.


 


                3.             As JDCFC has agreed to assume
responsibility for the distribution of Products within the Territory, utilizing
its existing assets, facilities, systems, personnel and such Hitachi personnel
as may be required. No initial cash capital will be contributed by either party
in connection with carrying out the functions of the integrated marketing
organization. Accordingly, HHUS and its affiliates, including but not limited
to HCMA, HCMC, and Deere-Hitachi, shall not acquire any equity ownership in
JDCFC or interests in the tangible or intangible assets of


 


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JDCFC or its affiliates, and JDCFC and its affiliates shall not acquire
any equity ownership in HHUS or interests in the tangible or intangible assets
of HHUS or its affiliates, by virtue of the integration of their respective
marketing organizations. To provide further clarity, the parties agree that the
mutual benefits anticipated by the integration will be realized through, among
other things, improved efficiencies, and eliminating duplication and
redundancies within their respective organizations, all of which contribute to
the basis for the percentages agreed upon for the sharing of the profits
derived from the distribution of Products within the Territory.


 


                4.             Except as provided in paragraph 8
of this Agreement, the profits and losses derived from distributing Products
within the Territory for periods beginning on or after January 1, 2002,
shall be shared as follows: JDCFC—60%; HHUS—40%. The Parties acknowledge and
agree that the sharing of profits and losses in these percentages is based
upon, among other things, the cost reductions agreed upon in the IMA and the
synergies achieved from the integration as referred to in the IMA, as well as
in paragraph 2 of this Agreement. Accordingly, profit and loss sharing
provisions of this Agreement will become effective for Products distributed
after the execution of the IMA and at the time the cost reduction provisions
become effective, on January 1, 2002. In the event Euclid trucks are not
made available due to bankruptcy or other events not attributable to JDCFC or
any of its affiliates, the parties agree to increase Deere’s 60 percent split.
If the parties cannot agree on a mutually acceptable adjustment, the percentage
split shall be determined by arbitration pursuant to the 1988 JV Agreement,
section 10.10.


 


                5.             Profits and losses from the
distribution of Products shall be determined in accordance with US GAAP, and shall
take into account the following practices:


 


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                (i)            the standard profit by product accounting
methods and systems which have been heretofore utilized by Deere, provided that
Deere shall provide Hitachi with a description of such standard accounting
methods and systems in reasonable details and provided Deere shall have
discretionary authority to change such standard accounting methods and systems
so long as the new accounting methods and systems are applied consistently
within JDCFC and that detailed description of such new methods and systems
shall be provided to Hitachi annually; (ii) product or division specific
costs shall be directly assigned to such product or division; (iii) allocations
of indirect costs shall be in accordance with the standard allocation methods
which have heretofore been utilized by Deere provided that: (a) Deere
shall provide Hitachi with a description of such standard allocation methods in
reasonable detail, (b) such allocation methods use reasonably objective
allocation standards, and (c) Deere shall have discretionary authority to
change such allocation methods so long as the new allocation methods and
systems are applied consistently within Deere and that a detailed description
of such new methods and systems shall be provided to Hitachi annually; (iv) all
transactions between JDCFC and any of its affiliates shall be conducted on
terms and conditions no less favorable to JDCFC than those applicable to arms-length
transactions; (v) without limiting 5(i), any gain or loss of JDCFC,
Deere or any affiliate of JDCFC or Deere where such gain or loss is not within
the scope of the distribution joint venture which is the subject of this
Agreement shall not be allocated to the profits and losses subject to sharing
hereunder (without limiting the generality of this clause (v), profits and
losses attributable to Bell Equipment, Sun State, Deere-Hitachi, IJD, Nortrax,
Phoenix, Equipment Savers, Value Parts and Shanghai Leasing currently shall
have no impact or effect on the profits and losses subject to sharing
hereunder, but subject to inclusion if or when the business of such entity is
changed in such a manner that such entity shall become an integral part


 


 


 


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of the distribution business contemplated by the IMA. The gain or loss
from the sale, disposition, restructuring or other corporate adjustment of any
of the above entities as currently structured shall not be included in the
allocation to the business hereunder provided future benefits are not derived
by the business hereunder); (vi) the parties acknowledge and agree that
profits and losses determined on a pretax basis may be different from the
profits and losses determined for purposes of satisfying the requirements of
applicable federal, state, or local tax laws and regulations.


 


                6.             Profits and losses, as the case may
be, as determined pursuant to paragraph 5 of this Agreement, will be
distributed to the parties on a pre-income-tax basis.  HHUS’s share of any profits as thus determined
will be distributed by a direct payment from JDCFC to HHUS, or such other
entity as directed by HHUS, provided that such entity is treated as a domestic
corporation for U.S. federal income tax purposes. Likewise, if losses are
determined to have occurred, HHUS or its designated entity will reimburse JDCFC
for HHUS’s share of such losses as thus determined. All such payments will be
made annually, prior to December 31, on a pre-income-tax basis. Notwithstanding
the foregoing, JDCFC shall distribute to the parties, at least five (5)
business days prior to the due date of each quarterly estimated tax payment, an
amount in cash at least sufficient to allow JDCFC and HHUS to pay any United
States federal, state and local income taxes required to be paid by each party
in respect of the profits allocated to such party pursuant to this Agreement,
taking into account payments previously made, and the cumulative amount of
profit or loss realized during the taxable year. The amount of such payments
shall be determined at the highest net applicable marginal rates applicable to
either party. Any such amounts paid shall be treated as an advance of amounts
otherwise payable pursuant to this Agreement. In no event shall distribution
result in a negative balance in the capital accounts as


 


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defined by the Internal Revenue Code of 1986, as amended (the “Code”).
Each party shall be required to repay to JDCFC, within ten (10) business
days of receiving notice thereof, the amount of any such overpayments made
pursuant to this paragraph, as determined by JDCFC in good faith.


 


                7.             The parties acknowledge and agree
that it will be necessary to execute a separate agreement for purposes of
carrying out the terms of the IMA and this Agreement in Canada, and that such
agreement shall be consistent with and not change or otherwise alter the terms
of the IMA or this Agreement.


 


                8.             Notwithstanding the provisions of
paragraph 4 of this Agreement, the parties agree that pretax losses, if any,
associated with the distribution of excavators >100MT, shovels, rigid frame
haul trucks together with components, attachments and repair parts for such
excavators, shovels and haul trucks (“Mining Products”), net of all
profits/losses from the distribution of the Mining Products by John Deere
Limited in Canada, shall be separately determined as provided in paragraph 4
above, but will not be charged against the profits and/or losses for other
Products distributed by JDCFC under the IMA. The parties agree that all losses,
if any, from the distribution of Mining Products shall be charged to HHUS, or
an entity designated by HHUS, and not charged against the profits or losses
attributed to the distribution of other Products under the IMA in arriving at
the parties’ profit sharing under this Agreement. All such payments to JDCFC as
a result of such loss shall be made annually by December 31.


 


                9.             Income statements for Products
covered by the IMA and this Agreement, used in determining profits and losses
pursuant to this Agreement, will be provided by JDCFC to HHUS monthly. JDCFC
shall allow HHUS to have an on-line access to its monthly financial statements
to the extent such statements relate to the profits and losses subject to
sharing hereunder. JDCFC


 


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shall use reasonable efforts to respond to HHUS’s inquiries regarding
financial and accounting issues relating to such financial statements. Further,
HHUS shall have the right to retain KPMG or such other accounting firm which is
then the auditor for Hitachi to audit the financial statements and the profit
by product methodology, where the frequency of such audit shall not exceed once
per year. KPMG will be required to sign a confidentiality agreement prohibiting
the sharing of non-excavator/non-Mining Product Profit by Product financial
information with HCM, HHUS or any other parties.


 


                10.           The parties agree that beginning
January 1, 2002, and thereafter all Products (whole goods, components,
attachments and service parts), purchased by all Deere affiliated companies,
including Deere-Hitachi, from HHUS and its affiliated companies for
distribution within the Territory will be sold to such Deere affiliates at the
prices and in accordance with the terms of the IMA and pertinent supply
agreements, taking into account the cost reduction provisions of the IMA, and
also taking into account the currency risk sharing agreements then in effect
between the parties that will be applied to pricing of Products from HHUS and
its affiliates to Deere-Hitachi and from Deere-Hitachi to JDCFC.


 


                11.           This Agreement shall become effective
as of the date hereof and shall continue in full force and effect for an
indefinite terms hereafter unless terminated in accordance the provisions of
the IMA and the 1988 JV Agreement.


 


                12.           Each of JDCFC and HHUS shall have the
right to terminate this Agreement upon the happening of any of the events
enumerated in Section 9.2 of the 1988 JV Agreement provided, however, that
this Agreement may not be terminated unless the IMA is also terminated.


 


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                13.           The parties to this Agreement and
each of their respective affiliates hereby agree to treat the profit-sharing
arrangements created by the IMA and this Agreement as a partnership for all U.S.
federal, state and local income tax purposes, except as otherwise required by
applicable law, and shall file all relevant tax returns, information returns
and other relevant filings in a manner consistent with such treatment. JDCFC
shall be the “Tax Matters Partner” of the partnership within the meaning of
Section 6231 (a)(7) of the Code, shall make all elections for the
partnership provided for in the Code, and shall act for and on behalf of the
partnership to the extent permitted by Code Sections 6221 through 6233.


 


                14.           This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.


 


                15.           This Agreement supersedes all prior
understandings and agreements of the parties with respect to the matters
covered herein, and shall operate as additions to the IMA and, except as
modified by this Agreement, the IMA shall remain in full force and effect.


 


                16.           The parties hereto may amend, modify
and supplement this Agreement in such manner as may be agreed-upon by them in
writing.


 


                17.           This Agreement is executed in
English, which shall be the controlling text and this Agreement and all related
agreements (unless otherwise provided therein) shall be governed by and
construed in accordance with the laws of the State of Illinois applicable to
contracts made and to be performed therein.


 


                18.           This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original.


 


                19.           If any term, restriction or covenant
of this Agreement is deemed illegal or unenforceable under the laws of the
State of Illinois (or any other law deemed by a court of


 


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competent jurisdiction to be controlling), or if any application of any
term, restriction or covenant of this Agreement to any person or circumstance
is deemed illegal or unenforceable, the parties shall in good faith negotiate
changes to the unenforceable term, restriction or covenant so that the original
intent of such term, restriction or covenant is preserved insofar as is permissible
by law.


 


                20.           Any notice, request, information or
other document given hereunder to any of the parties by any other party shall
be in writing and sent to those persons identified, and in accordance with the
terms of Section 10.8 of the 1988 JV Agreement.


 


                21.           Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, which is unresolved within
90 days (or such other period as may be established by mutual agreement of the
parties) of first written notification by either party, shall be settled by
binding arbitration in accordance with the terms of the 1988 JV Agreement.


 


                IN WITNESS WHEREOF,
the parties have executed this Agreement on the day and year first above
written.


 


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  JOHN DEERE CONSTRUCTION

  AND FORESTRY COMPANY

  	
   

  	
  HITACHI CONSTRUCTION MACHINERY

  HOLDING U.S.A. CORPORATION

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Roger L. Bridges

  	
   

  	
  By:

  	
  /s/ Toru Sakai

  
	
  Name:

  	
  Roger L. Bridges

  	
   

  	
  Name:

  	
  Toru Sakai

  
	
  Title:

  	
  Vice President

  	
   

  	
  Title:

  	
  President and CEO

  



 


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