Background
In April 1999 Deere acquired a 32% stake in Bell when 30 million shares were issued at R6,00 each. This was in terms of a shareholders’ agreement between Deere, Bell and the Bell Family shareholders who were at the time the controlling shareholders in the company. The shareholders’ agreement was underpinned by a supply and distribution agreement that gave Deere the virtually exclusive right to distribute and support Bell designed Articulated Dump Trucks (ADTs) in certain territories including North and South America. Deere were also granted an option by the Bell Family to purchase their shares at an agreed price and this option will, under the previous shareholders’ agreement, be valid until 31 December 2005.

At the time the distribution and supply agreement, which denominated selling prices in US Dollars, was acceptable but subsequently, due to the substantial strengthening of the Rand against the US Dollar, it became increasingly clear to Bell that it was not possible to continue with this arrangement since Bell’s exports to North America were resulting in gross losses. This led to the parties negotiating revised terms for their alliance.

Bell had embarked on various cost cutting programmes in order to maintain profitability but it was obvious that the strategic alliance between Bell and Deere would produce improved results if the parties could re-align their operations using each other’s strengths to better advantage. 
 

The new arrangements – the Shareholders’ Agreement
With effect from 15 March 2005 Bell and Deere are concluding new contracts which have been referred to various regulatory authorities and advisers and found to be acceptable. As in the former case there will be a shareholders’ agreement (in the form of an amendment to the 1999 Shareholders’ Agreement) which is underpinned by manufacturing, supply and distribution agreements with the exception that the latter will be product specific as will be seen below.
 

Deere’s earlier option over the Bell Family shares will still exist under the new arrangements, but will fall away at the end of 2005 if not exercised.

The shareholders’ agreement will once again be between Bell, its two largest shareholders viz. Deere who owns 32% and IA Bell & Company (Pty) Limited who owns 48% of the issued shares. Also party to this agreement are the constituent shareholders of IA Bell & Company, viz. GW Bell, PC Bell, PA Bell, MA Campbell, DI Campbell and HJ Buttery.

The purpose of this agreement is to protect the respective intellectual property of Bell and Deere and also to provide the terms under which each of them will re-align their operations strategically and what will need to be observed should the Bell Family or Deere wish to dispose of part or all of their respective shareholdings.

The new shareholders’ agreement places a restriction on the Bell Family unilaterally selling any part of their shareholding that is owned through IA Bell & Company until 15 March 2015 while any Product Agreement (see below) is in effect or while Deere remains the beneficial owner of 25% or more of the issued capital of Bell.

The restriction applies in the case of any Shareholder (being IA Bell & Company and its individual shareholders) contemplating the sale of any Bell shares to a construction equipment company where the prior written consent of Deere shall be required. On the same basis Deere will also need to consent should Bell, or any Shareholder, procure the disposal by Bell of certain defined assets to or the merging by Bell with another construction equipment company. The defined assets are assets with a market value in excess of US$500 000 irrespective of whether the disposal occurs in a single transaction or a series of related transactions. Deere will have a right of first refusal should any of such assets or the Bell Family shares be offered for sale.

After 15 March 2015 should any Shareholder party other than Deere wish to sell its shares then the agreement provides that Deere shall have a right of first refusal to purchase these shares at fair market value. Should Deere not exercise that right then the agreement provides the procedure whereby the shares may be sold through auction where Deere may be one of the bidders.

The Product Agreements
The new agreement between Bell and Deere centres around three products – Articulated Dump Trucks (ADTs), Front End Loaders (FELs) and side shift Tractor Loader Backhoes (TLBs). Bell is granting Deere the exclusive right to manufacture ADTs in North America and in exchange for this right Deere will pay Bell a royalty. Deere on the other hand is granting Bell the exclusive right to manufacture and distribute certain Deere designed FELs and side shift TLBs in southern Africa for which Bell will pay Deere royalties.

The initial royalties payable by each party are at an equal percentage of unit costs.

Each of the product agreements will be ‘evergreen’ but will be subject to termination should Deere or any affiliate of Deere cease to hold an equity interest in Bell or should either party be in breach and fail to rectify the breach.

Each of the parties will retain their respective intellectual property rights in the various products as exist at the time of concluding the agreements. Thereafter the agreements make various provisions for the allocation and sharing of product improvements. Thus the cost of having duplicated research and development departments will be rationalised.

The parties will leverage their respective purchasing strengths and any savings in the cost of producing any of the products will be shared for the mutual benefit of Bell and Deere in the future.

There are territorial restrictions attached to each product agreement. Deere may distribute and supply ADTs on an exclusive basis in North, Central and South America including the Caribbean Islands and China (the latter country and North America being shared initially with Hitachi). Deere may also sell ADTs on a non-exclusive basis anywhere in the world, excluding southern Africa and certain African countries for which Bell has exclusive rights and Australasia, South East Asia and Japan for which Hitachi has exclusive rights and excluding certain African countries. Hitachi may source its ADTs from either Bell or Deere, depending on where the products will be sold.

Bell has the non-exclusive right to market its ADT products anywhere in the world with the exception of Deere and Hitachi exclusive countries.

The FEL agreement relates to a range of products that will fill the gaps in Bell Equipment’s existing product offering of that equipment and permits Bell to market FELs on an exclusive basis in southern Africa and, upon approval of a business plan acceptable to Deere, on a non-exclusive basis in other countries except North, Central and South America. The agreement provides that Bell will discontinue production of its own FELs as soon as is practical, but in any event not later than 30 June 2006, and thereafter will only produce and sell the Deere designed models.
 

General provisions in all of the product agreements provide for the manufacturing party to use its brand on  the products it produces and that they will share the benefits of their research and development programmes with one another. The parties are confident that this new business model which is founded on good faith between them will deliver economies and translate into greater revenue earning opportunities.