ASV ASV Holdings Inc

Notes to Unaudited Condensed Financial Statements

(In thousands, except par value and per share data)

Note 1. Business Description

Nature of Operations

ASV Holdings, Inc. (the “Company” or “ASV”) primarily designs, manufactures and markets compact track loaders and skid steer loaders as well as related parts for use primarily in the construction, landscaping, and agricultural industries. The Company’s headquarters and manufacturing facility is located in Grand Rapids, Minnesota. Products are marketed and sold in North America, Australia, New Zealand and Latin America.

Agreement and Plan of Merger

On June 26, 2019, ASV entered into an Agreement and Plan of Merger (the “Merger Agreement”) among Yanmar America Corporation, a Georgia corporation (“Yanmar”), Osaka Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Yanmar (“Merger Sub”), and Yanmar Co., Ltd., a company organized under the laws of Japan (“Guarantor”).

The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger” and, collectively with the other transactions contemplated by the Merger Agreement, the “Transactions”), with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Yanmar.

At the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of the Company (the “Common Stock”), issued and outstanding immediately prior to the Effective Time (other than (A) shares of Common Stock held in the treasury of the Company and shares of Common Stock owned by Yanmar or any direct or indirect subsidiary of Yanmar (including Merger Sub) which shall automatically be cancelled without any conversion thereof and no payment or distribution shall be made with respect thereto and (B) shares of Common Stock for which appraisal rights have been validly asserted) shall be converted into the right to receive $7.05 per share in cash, without interest (the “Per Share Merger Consideration”). Guarantor has irrevocably and unconditionally guaranteed to the Company the due and punctual payment and performance of (i) Yanmar’s and Merger Sub’s obligations under the Merger Agreement, and (ii) Yanmar’s and Merger Sub’s liability and obligations (including for breach) under the Merger Agreement.

At the Effective Time, any restricted stock units providing for a right to receive shares of Common Stock outstanding immediately prior to the Effective Time that are unvested or are subject to a repurchase option, risk of forfeiture or other condition shall, as of the Effective Time, whether granted prior to the date of the Merger Agreement or granted after the date of the Merger Agreement as permitted by the Merger Agreement, become fully vested and nonforfeitable and shall be cancelled and converted automatically into the right to receive an amount in cash equal to the product of (i) the Merger Consideration multiplied by (ii) the total number of shares of Common Stock subject to such restricted stock units.

The Board of Directors of the Company (the “Board”) has unanimously (i) determined that the Merger Agreement and the Transactions, including the Merger, are advisable and fair to, and in the best interests of, the Company’s stockholders, (ii) approved and declared advisable the Merger Agreement and the Transactions, including the Merger, (iii) approved the execution, delivery and performance by the Company of the Merger Agreement and the consummation of the Transactions, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (iv) recommended that the stockholders of the Company vote to approve the Transactions, including the Merger, and adopt the Merger Agreement, and (v) directed that the adoption of the Merger Agreement be submitted to a vote of the Company’s stockholders.

The consummation of the Merger (the “Closing”) is subject to certain conditions, including (i) the affirmative vote of the holders of a majority of the outstanding shares of Common Stock (the “Stockholder Approval”), (ii) the absence of any law or order restraining, enjoining or otherwise prohibiting the Merger and (iii) any waiting period (and any extension thereof) applicable to the consummation of the Merger under applicable foreign, federal or state antitrust, competition or fair-trade laws shall have expired or been terminated. Each of Yanmar’s, Merger Sub’s, and the Company’s obligation to consummate the Merger is also subject to additional customary conditions, including (x) subject to specific standards, the accuracy of the representations and warranties of the other party, (y) performance in all material respects by the other party of its obligations under the Merger Agreement, and (z) with respect to

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Yanmar’s and Merger Sub’s obligations to consummate the Merger, the absence of a Compan y Material Adverse Effect (as defined in the Merger Agreement).

The Company has made customary representations and warranties in the Merger Agreement and has agreed to customary covenants regarding the operation of the business of the Company and its subsidiaries prior to the earlier of the Closing or the date that the Merger Agreement is terminated in accordance with its terms. Each of Yanmar and Merger Sub has agreed to customary covenants related to treatment of employees and their compensation and benefits after Closing.

The Company is also subject to customary restrictions on its ability to solicit acquisition proposals from third parties, to provide information to, and enter into discussions or negotiations with, third parties regarding alternative acquisition proposals. However, prior to the Stockholder Approval, these restrictions are subject to customary “fiduciary out” provisions that allow, under certain circumstances, (i) the Company to provide information to, and enter into discussions or negotiations with, third parties with respect to an acquisition proposal if the Board determines in good faith, after consultation with and taking into account the advice of, the Company’s financial advisor and outside legal counsel, that such alternative acquisition proposal could reasonably be expected to constitute or result in a Superior Proposal (as defined in the Merger Agreement) and that failure to take such actions would be inconsistent with its fiduciary duties and (ii) the Board to withdraw or change its recommendation in favor of the Merger if a Company Intervening Event (as defined in the Merger Agreement) occurs and as a result thereof it determines that its failure to take such action would be inconsistent with its fiduciary duties. If the Company receives an unsolicited, written acquisition proposal that the Board determines in good faith (after consultation with its outside advisors) is a Superior Proposal (as defined in the Merger Agreement) and determines in good faith (after consultation with its outside legal counsel) that its failure to withdraw or change its recommendation with respect to the Merger would be inconsistent with its fiduciary duties, the Company may terminate the Merger Agreement to enter into a definitive agreement with respect to such Superior Proposal.

The Merger Agreement also includes customary termination provisions for both the Company and Yanmar and provides that, in connection with the termination of the Merger Agreement, under specified circumstances, the Company will be required to pay Yanmar a termination fee of $2,650, including if (i) the Company enters into an acquisition agreement with respect to a Superior Proposal prior to obtaining the Stockholder Approval or (ii) the Board changes its recommendation or takes similar actions prior to the meeting of the stockholders. The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, the Company will be required to pay to Yanmar up to $500 for expenses incurred by Yanmar. The Merger Agreement also provides that, upon termination of the Merger Agreement under specified circumstances, Yanmar will be required to pay to the Company up to $500 for expenses incurred by the Company.

Each party to the Merger Agreement is required to use its reasonable best efforts to take all actions to consummate the Merger.

The Merger Agreement includes customary representations, warranties, and covenants of the Company made solely for the benefit of Yanmar and Merger Sub. The assertions embodied in those representations and warranties were made solely for purposes of allocating risk among the Company, Yanmar and Merger Sub rather than establishing matters of fact and may be subject to important qualifications and limitations agreed to by the Company, Yanmar, and Merger Sub in connection with the negotiated terms. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”). Investors should not rely on the representations, warranties, and covenants or any description thereof as characterizations of the actual state of facts of the Company or any of its subsidiaries or affiliates.

If the Merger is consummated, the Common Stock will be delisted from the Nasdaq Capital Market and deregistered under the Securities Exchange Act of 1934.

Voting Agreement

Concurrently with the execution of the Merger Agreement, on June 26, 2019, A.S.V. Holding, LLC, which is a wholly owned subsidiary of Terex Corporation, Inc. (the “Key Stockholder”) representing approximately 34% of the outstanding Common Stock of the Company entered into a Voting Agreement (the “Voting Agreement”) with Yanmar, pursuant to which, among other things, and subject to the terms and conditions set forth therein, the Key Stockholder agreed to vote its shares of Common Stock in favor of the adoption of the Merger Agreement and against any alternative proposal. The Voting Agreement automatically terminates upon the earliest to occur of (i) the Effective Time, (ii) a change in the Board’s recommendation to stockholders that results from a Company Intervening Event, (iii) the termination of the Merger Agreement, (iv) the election of the Key Stockholder upon any amendment or modification to the Merger Agreement with respect to any terms of the merger consideration, the conditions to the merger or any change to the Merger Agreement that would have a materially adverse impact on the Key Stockholder or (v) the written agreement of the parties to the Voting Agreement.

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This summary of the principal terms of the Merger Agreement and the Voting Agreement is intended to provide information regarding the terms of the Merger Agreement and the Voting Agreement and is not intended to modify or supplement any factual disclosures about the Company in its public reports filed with the SEC. In particular, the Merger Agreement an d related summary is not intended to be, and should not be relied upon as, disclosure regarding any facts and circumstances relating to the Company. The foregoing description of the Merger Agreement and the Voting Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement and the Voting Agreement, copies of which were filed as Exhibit 2.1 and Exhibit 10.1, respectively, to the Company’s Current Report on Form 8-K filed on June 27, 2019.

Compensatory Arrangement

On June 26, 2019, in connection with the Merger, the Board adopted retention bonus agreements (the “Retention Agreements”) that apply to the following executive officers of the Company: Melissa How, Chief Financial Officer, Justin Rupar, Vice President of Sales and Marketing, and Thomas Foster, Vice President of Operations and Supply Chain (collectively, the “Participants”). The purpose of the Retention Agreements is to ensure that the expertise of such Participants is preserved for the benefit of the Company through at least the Effective Time.

Pursuant to the Retention Agreements, each Participant will receive a retention bonus in the event that such Participant (i) remains employed by the Company and performs his or her duties and responsibilities in a satisfactory manner through the earlier of (i) the closing date of the Merger or (ii) the Merger Agreement is terminated in accordance with its terms. If a Participant is terminated for Cause (as such term is defined in each Retention Agreement), such Participant shall not be entitled to receive the retention bonus. Pursuant to their respective Retention Agreements, Ms. How will receive $75 and Messrs. Rupar and Foster will each receive $50.

The foregoing description of the Retention Agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Retention Agreements, which is filed as Exhibit 10.2 to our Current Report on Form 8-K filed on June 27, 2019.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited financial statements, included herein, have been prepared by the Company pursuant to the rules and regulations of the SEC. Pursuant to these rules and regulations, the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and have been consistently applied. These unaudited financial statements should be read in conjunction with the Company’s audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.  

The unaudited financial statements include all adjustments of a normal, recurring nature considered necessary for a fair presentation of our financial position as of June 30, 2019 and the results of operations for the three and six months ended June 30, 2019 and 2018. Results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019.

Critical Accounting Policies and Estimates  

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require the Company to make estimates, judgments and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures and contingencies. The Company evaluates estimates used in preparation of the accompanying financial statements on a continual basis. We describe our significant accounting policies in Note 2, “Summary of Significant Accounting Policies,” of the audited financial statements for the year ended December 31, 2018 included in the Annual Report on Form 10-K.

Recent Accounting Pronouncements

Recent accounting pronouncements are described in Note 11, “Recent Accounting Pronouncements.” 

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the

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allowance based on individual customer review and current economic conditions. The Company reviews its allowance for doubtful accounts at least quarterly. Individual balances exceeding a threshold amount that are over 90 days past due are reviewed individually for collectability. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance wh en the Company determines it is probable the receivable will not be recovered.

The balance of the allowance for doubtful accounts was $104 and $109 at June 30, 2019 and December 31, 2018, respectively.

Revenue Recognition

The Company’s revenues result from the sale of goods or services and reflect the consideration to which the Company expects to be entitled. The Company records revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers ("ASC 606"). For its customer contracts, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is satisfied. A good or service is transferred when the customer obtains control of that good or service. The Company principally generates revenue from the sale of equipment and parts to dealers, distributors and Original Equipment Manufacturer (“OEM”) customers and recognizes revenue at a point in time when control transfers. The Company recognizes revenue for each distinct good or service when control of the good or service has transferred to the customer. Transfer of control is generally determined based on the shipping terms of the contract, with most of our sales recognized F.O.B. shipping point, as that is the time we have a present right to payment, the customer takes possession of the goods, and the customer has the risks and reward of ownership. For most of our contracts, the customer takes legal title upon shipment; however, under the terms of our contract with certain international distributors, title does not transfer until we are paid for the goods. We retain title solely to maintain a security interest in the assets and have concluded that such right is protective in nature and that control transfers at the time of shipment based on the other control indicators. Generally, there is no-post shipment obligation on product sold other than standard assurance-type warranty obligations in the normal and ordinary course of business, typically a twelve to eighteen-month warranty period. Payment terms range from 0-60 days for domestic sales and 0-180 days for international sales.

Provisions for sales program incentives (such as wholesale subsidies, retail subsidies and customer cash), product returns, and discounts and allowances are variable consideration and are accounted for as a reduction of revenue and establishment of a liability (or contra asset receivable as appropriate) using the expected value method. The Company considers historical data in determining its best estimates of variable consideration. These estimates are reviewed regularly for appropriateness, considering also whether the estimates should be constrained in order to avoid a significant reversal of revenue recognition in a future period. Typically, all qualifying machine sales to distributors or dealers provide for program incentives that are accrued at the time of sales. If updated information or actual amounts are different from previous estimates of variable consideration, the revisions are included in the results for the period in which they become known through a cumulative effect adjustment to revenue. In addition, the Company’s contracts with customers generally do not include significant financing components or noncash consideration. The Company expenses incremental costs of obtaining a contract (primarily sales commissions) as selling, general and administrative expense in the Condensed Statements of Operations, because the amortization period would be less than one year.

The Company disaggregates revenue from contracts with customers by geographic location and major customer (see Concentrations of Business and Credit Risk) as we believe this best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Accrued Warranties

The Company records accruals for potential warranty claims based on its claim experience. The Company’s products are typically sold with a standard warranty covering defects that arise during a fixed period.

A liability for estimated warranty claims is accrued at the time of sale. The liability is established using historical warranty claim experience for each product sold. Historical claim experience may be adjusted for known design improvements or for the impact of unusual product quality issues. Warranty reserves are reviewed quarterly to ensure critical assumptions are updated for known events that may affect the potential warranty liability.

Litigation Claims

In determining whether liabilities should be recorded for pending litigation claims, the Company must assess the allegations and the likelihood that it will successfully defend itself. When the Company believes it is probable that it will not prevail in a particular matter, it will then record an estimate of the amount of liability based, in part, on advice of outside legal counsel.

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Income Taxes

The Company’s provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary.

The Company is estimating an annual effective tax rate of 18.9% (excluding discrete items) for the year ending December 31, 2019. Our effective tax rate is affected by recurring items such as state and local taxes, a reduced federal tax rate for foreign derived intangible income and federal research and development credits.

For the three months ended June 30, 2019, the Company recorded no income tax expense on its pre-tax loss of $(223) pursuant to the authoritative accounting literature prescribed in ASC 740-27-30-30 through 33 as the Company has a year-to-date loss of $(960) through June 30, 2019.

For the three months ended June 30, 2018, the Company recorded an income tax expense of $89, which consists of a federal and state income tax benefit on its pre-tax income of $408.

At June 30, 2019, the Company did not have any uncertain tax positions. The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the accompanying Statement of Income.

Concentrations of Business and Credit Risk

Caterpillar Inc., an OEM customer, and CEG Distributions PTY Ltd., the Company’s Australian master distributor, accounted for 15% and 26% of the Company’s Net Sales for the three months ended June 30, 2019 and 2018 respectively, as well as 44% of the Company’s Accounts Receivable at June 30, 2019. Caterpillar Inc. and CEG Distributions PTY Ltd accounted for 19% and 25% of the Company’s Net Sales for the six months ended June 30, 2019 and 2018 respectively, as well as 71% of the Company’s accounts receivable at December 31, 2018.

Sales by major customer consisted of the following for the three and six months ended June 30, 2019 and 2018:

Any disruptions to these two customer relationships could have adverse effects on the Company’s financial results. The Company manages dealer and OEM concentration risk by evaluating in advance the financial condition and creditworthiness of its dealers and OEM customers. The Company establishes an allowance for doubtful accounts receivable, if needed, based upon expected

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collectability.  Any reserves established for doubtful accounts is re-evaluated on a case-by-case basis when it is believed the payment of specific amounts owed to us is unlikely to occur. The Company has secured a credit insurance poli cy for certain accounts with a policy limit of liability of not more than $8,600.

Revenue by geographic area consisted of the following for the three and six months ended June 30, 2019 and 2018:

Intangible assets, net comprised the following as of December 31, 2018:

Amortization of other intangible assets for the six months ended June 30, 2019 and 2018 was $1,273.

Note 5. Accrued Warranties

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The following table provides the changes in the Company’s product warranties:

Note 6 . Debt

Loan Facilities

On March 28, 2019, the Company entered into a Second Amendment (the “Second Amendment”) to the Amended and Restated Credit Agreement with PNC Bank, National Association, as administrative agent (“PNC”). The principal modification to the Amended and Restated Credit Agreement resulting from the Second Amendment replaces the maximum leverage ratio requirements for 2019 with a minimum EBITDA covenant and beginning in March of 2020, removes the minimum EBITDA covenant and reverts to a leverage ratio requirement of 2.75 to 1.00, which shall step down to 2.25 to 1.00 by September 30, 2020. In addition, the applicable margin for each advance under the credit agreement was increased by 50 basis points for the period from March 28, 2019 until the first business day following receipt by PNC of the Company’s certificate of compliance with the applicable leverage ratio for the quarter ended March 31, 2020 and the inventory sub-limit was increased to $18 million.

Revolving Loan Facility with PNC

The Company’s $35,000 revolving loan facility with PNC includes two sub-facilities: (i) a $2,000 letter of credit sub-facility, and (ii) a $3,500 swing loan sub-facility, each of which is fully reserved against availability under the revolving loan facility. The facility matures on December 27, 2022.

The $35,000 revolving loan facility is a secured financing facility under which borrowing availability is limited to existing collateral as defined in the agreement.  The maximum amount available is limited to (i) the sum of (a) up to 85% of Eligible Receivables, plus (b) 90% of Eligible Insured Foreign Receivables, plus (c) the lesser of (I) 95% of Eligible CAT Receivables, or $8,600 plus (ii) the lesser of (A) the sum of (I) up to 65% of the value of the Eligible Inventory (other than Eligible Inventory consisting of finished goods machines and service parts that are current), plus (II) 80% of the value of Eligible inventory consisting of finished goods machines, plus (III) 75% of the value of Eligible Inventory consisting of service parts that are current) or, (B) up to 90% of the appraised net orderly liquidation value of Eligible Inventory. Inventory collateral is capped at $18,000 less outstanding letters of credit and any reasonable reserves as established by the bank.  At June 30, 2019, the maximum the Company could borrow based on available collateral was capped at $21,789.  

At June 30, 2019, the Company had drawn $18,315 under the $35,000 revolving loan facility. The Company can opt to pay interest on the revolving credit facility at either a domestic rate plus a spread, or a LIBOR rate plus a spread.  The domestic rate spread is initially fixed at 1.00% for revolving loan advances until delivery of certain reporting documents with respect to fiscal quarter ending March 31, 2018, at which point it ranges from 1.00% to 1.5% depending on the Average Undrawn Availability (as defined in the Amended and Restated Credit Agreement).  The LIBOR spread is initially fixed at 2.00% for revolving loan advances until delivery of the same reporting documents, at which point it ranges from 2.00% to 2.5% depending on the Average Undrawn Availability.   Funds borrowed under the LIBOR options can set the borrowing rate for periods of one, two, or three months. The weighted average interest rate for the six-month period ended June 30, 2019 was 5.2%.  Additionally, the bank assesses a 0.25% unused line fee that is payable quarterly.

Term Loan C with PNC

On December 27, 2017 the Company entered into a $15,000 term loan (“Term Loan C”) facility, with PNC as the administrative agent.

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At June 30, 2019, the Company had an outstanding balance of $11,021, less $283 debt issuance costs, for net term loan debt of $10,738.  The Company can opt to pay interest on the Term Loan C facility at either a domestic rate plus a spread, or a LIBOR rate plus a spread.  For term loan advances the domestic rate spread is fixed at 3.75%, and the LIBOR spread is fixed at 4.75%.  Funds borrowed under the LIBOR options can set the borrowing rate for periods of one, two, or three months. The weighted average interest rate for the six-month period ending June 30, 2019 was 7.7%.

The Company is obligated to make quarterly principal payments of $500, which commenced on January 1, 2018. If the term loan is prepaid in full or in part prior to the maturity date, the Company will be required to pay a prepayment penalty.  If paid prior to December 27, 2019 the prepayment penalty will be equal to 2.0% of the prepayment.  The prepayment penalty percentage reduces to 1% on or after December 27, 2020, and no penalty if on or after the December 27, 2021.  There will be no prepayment obligation in the event that the prepayment of the obligation in full is funded in connection with a refinancing for which PNC is the administrative agent. Any unpaid principal is due on maturity, which is December 27, 2022.   Interest is payable monthly beginning on January 1, 2018.

Loan Agreements with State Agencies

In October 2017, the Company entered into two loan agreements with the State of Minnesota related to the establishment of a new parts distribution center in Grand Rapids, Minnesota.  The first loan agreement is a $300 loan with a ten-year term at an interest rate of 3%, with loan forgiveness if certain criteria is met. The lender will forgive $150 of principal and all accrued interest should the Company attain and maintain agreed upon employment levels on the fifth anniversary date of the loan (and not otherwise be in default) and will forgive the remaining $150 of principal and all accrued interest should the Company attain and maintain employment levels at the tenth anniversary of the loan. Should the Company not attain or maintain the agreed upon levels of employment, $150 in principal plus accrued interest will be due on the fifth anniversary of the closing date with the remaining balance being due and payable on the due date of the loan. The second loan agreement is a $125 no interest loan with a seventy-five-month term that includes partial forgiveness if certain criteria are met. The lender will forgive up to $50 of the $125 loan should ASV attain and maintain job creation goals and wage level commitments. The zero-interest loan is to be paid back through monthly payments over the term of the loan. The establishment of the parts distribution center was completed, and loan proceeds disbursed during 2018.

Covenants

The Company’s indebtedness is collateralized by substantially all of the Company’s assets. The facilities contain customary limitations including, but not limited to, limitations on additional indebtedness, acquisitions, and payment of dividends. The Company is also required to comply with certain financial covenants as defined in the Amended and Restated Credit Agreement. The Company is limited to capital expenditures not to exceed $2,000 in any fiscal year. The revolving credit facility and the term loans require the Company to maintain a Minimum Fixed Charge Coverage ratio of not less than 1.20 to 1.0.  Additionally, the term loans require, as per the Second Amendment, as described above, the Company attains a minimum EBITDA covenant. The Company was in compliance with all covenants when required to be measured during the quarter ended June 30, 2019.

Note 7. Equity

2017 Equity Incentive Plan

On May 11, 2017, the Company adopted the ASV Holdings, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The maximum number of shares of common stock reserved for issuance under the 2017 Plan is 1,250 shares. The total number of shares reserved for issuance however, can be adjusted to reflect certain corporate transactions or changes in the Company’s capital structure. The Company’s employees and members of the board of directors who are not the Company’s employees or employees of the Company’s affliliates are eligible to participate in the 2017 Plan. The 2017 Plan is administered by the compensation committee of the Company’s board of directors. The 2017 Plan provides that the committee has the authority to, among other things, select plan participants, determine the type and amount of rewards, determine the award terms, fix all other conditions of any awards, interpret the plan and any plan awards. Under the 2017 Plan, the committee can grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units. The 2017 Plan requires that the exercise price for stock options and stock appreciation rights be not less then fair market value of the Company’s common stock on date of grant.

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The Company awarded a total of 1 0 0 restricted stock units to directors and employees under the 2017 Plan on March 11, 2019 . The restricted stock units are subject to the same conditions as the restricted stock awards except the restricted stock units will not have voting rights and the common stock will not be issued until the vesting criteria are satisfied.  

The following table contains information regarding restricted stock units:

On January 10, 2019, the Company granted an aggregate of 60 restricted stock units to employees pursuant to the 2017 Plan. Restricted stock units of 20, 20, and 20 vest in 2020, 2021 and 2022, respectively.

On March 11, 2019, the Company granted 39 restricted stock units to directors pursuant to the 2017 Plan. These stock units immediately vested.

On March 11, 2019, the Company granted an aggregate of 1 restricted stock unit to employees pursuant to the 2017 Plan. This stock unit immediately vested.

The value of the restricted stock is being charged to compensation expense over the vesting period and the Company has elected to account for foreitures as they occur. Compensation expense includes expense related to restricted stock units of $129 and $102 for the three months and $265 and $251 for the six months ended June 30, 2019 and 2018, respectively. Unrecognized compensation expense related to non-vested restricted stock units will be recognized as follows: $182, $238, and $62 for the remainder of 2019, 2020, and 2021, respectively.

Note 8. Commitments and Contingencies

The Company is involved in various legal proceedings, including product liability, general liability, workers’ compensation liability, and employment litigation, which have arisen in the normal course of operations. The Company is insured for product liability, general liability, workers’ compensation, employer’s liability, property damage and other insurable risk required by law or contract, with retained liability or deductibles. The Company has recorded and maintains an estimated liability in the amount of management’s estimate of the Company’s aggregate exposure for such retained liabilities and deductibles. For such retained liabilities and deductibles, the Company determines its exposure based on probable loss estimations, which requires such losses to be both probable and the amount or range of probable loss to be estimable. The Company believes it has made appropriate and adequate reserves and accruals for its current contingencies.

Note 9. Leases

The Company has operating leases for its distribution center, research and development facilities, automobiles, and certain equipment. The leases have remaining lease terms of 1 year to 16 years, some of which include options to extend the leases for up to 6 years. The distribution center lease agreement includes both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which can be accounted for as a single lease component. The Company has not elected the practical expedient to group lease and non-lease components for applicable leases.

Leases may include one or more options to renew. The exercise of lease renewal options is typically at our sole discretion. Renewals to extend the lease terms for the distribution center are included in our Right of Use (“ROU”) operating lease assets and lease liabilities as they are reasonably certain of exercise. The renewal options are evaluated with each lease and when they are reasonably certain of exercise, the renewal period is included in our lease term.

As most of our leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments.

Certain operating leases for vehicles contain residual value guarantee provisions which would generally become due at the expiration of the operating lease agreement if the fair value of the leased vehicles is less than the guaranteed residual value. The aggregate residual value guarantee related to these leases was approximately $81. We believe the likelihood of funding the guarantee obligation under any provision of the operating lease agreements is remote. To the extent our fleet contains vehicles we estimate will settle at a gain, such gains on these vehicles will be recognized when we sell the vehicle.

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The components of lease expense were as follow s :

Maturities for all operating lease liabilities are as follows:

The weighted average remaining lease terms and discount rates for all operating lease were as follows as of June 30, 2019:

Supplemental cash flow information related to the Company’s operating leases was as follows:

The Company (Lessor) has entered into an agreement with a rental company for a rental share program of certain models of its Compact Track Loaders (CTLs). The term of the agreement is three years. The Lessor will continue to own the equipment in which Lessee will have no interest in the equipment other than the right to possess, insure and use the equipment described in the agreement. Monies received from Lessee are based on rental monies received by the Lessee from a customer for the rental of equipment before deductions. Since the lessee’s payments are not probable, lease income shall be limited to the lesser of the income that would be recognized in accordance with ASC 842-30-25-11(a) through (b) or the lease payments, including variable lease payments, that have been collected from the lessee. The agreement also states that the Lessee has the option to purchase the equipment at the end of the term based on a calculated rate referenced in the agreements. Currently, it is not reasonably certain the Lessee plans to exercise. Based on these criteria, this is considered an operating lease.

Lease income was as follows:

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Note 10. Related Party Transactions

Included in the Company’s Condensed Statements of Operations are sales to Terex of $21 and $28 for the three months ended and $48 and $59 for the six months ended June 30, 2019 and 2018, respectively.  Also included are sales to Manitex of $9 and $0 for the three months ended and $10 and $0 for the six months ended June 30, 2019 and 2018, respectively. The Company recorded purchases from Terex of $222 and $1,802 for the three months and $1,764 and $3,984 for the six months ended June 30, 2019 and 2018, respectively, which are primarily for shared freight services. The Company also expensed $319 and $175 under a Terex Cross Marketing Agreement and Terex Services Agreement respectively, for the six-month period ended June 30, 2018.

Receivables from affiliates include $17 due from Terex and $8 due from Manitex at June 30, 2019, and $5 due from Terex and $2 due from Manitex at December 31, 2018.  

At June 30, 2019, there were no payables to affiliates. At December 31, 2018, payables of $480 were due to Terex.

Note 11. Recent Accounting Pronouncements

Effective January 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition, which we elected. As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease right-of-use (“ROU”) assets of $1.0 million and lease liabilities of $1.0 million. The adoption of ASC 842 had an immaterial impact on our Condensed Statements of Operations and Condensed Statements of Cash Flows for the six-month period ended June 30, 2019. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard which allowed us to carry forward the historical lease classification.

Additional information and disclosures required by the new standard are contained in Note 9, Leases.

January 1, 2019, the Company adopted the FASB ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments (Topic 230): Statement of Cash Flows” (“ASU 2016-15”), which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. ASU 2016-15 also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. ASU 2016-15 is effective for fiscal years and interim periods beginning after December 15, 2018, for emerging growth companies. This had no effect on the Company’s financial statements.

January 1, 2019, the Company adopted the FASB ASU No. 2017-09, “Compensation – Stock Compensation: Scope of Modification Accounting.”  This ASU is intended to provide guidance about which changes to the terms or conditions on a share-based payment award require an entity to apply modification accounting.   This new standard is effective for reporting periods beginning after December 15, 2018, and interim periods within that reporting period, for emerging growth companies, with early adoption permitted.  This had no effect on the Company’s financial statements.