SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the fiscal year ended December 31, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from _______ to _______.
Commission File Number 0-15760
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HARDINGE INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-0470200
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Hardinge Drive, Elmira, New York 14902-1507
- ---------------------------------------- -------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (607) 734-2281
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities pursuant to section 12(g) of the Act::
Common Stock with a par value of $.01 per share
Preferred Stock purchase rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 21, 1997:
Common Stock, $.01 par value - $111,362,636
The number of shares outstanding of the issuer's common stock as of February 21,
1997:
Common Stock, $.01 par value 6,499,338 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Hardinge Inc.'s Proxy Statement filed with the Commission on March
11, 1997 are incorporated by reference to Part III of this Form.
<PAGE>
PART I
ITEM 1. - BUSINESS
General
- -------
Hardinge Inc.'s principal executive offices are located at One Hardinge Drive,
Elmira, New York 14902-1507; telephone (607) 734-2281. The Company has five
wholly owned subsidiaries. Canadian Hardinge Machine Tools, Ltd. located near
Toronto, Ontario was established by Hardinge Inc. in 1958. Hardinge Machine
Tools, Ltd. was established in the United Kingdom in 1939 and became a wholly
owned subsidiary in 1981 when it redeemed the shares previously held by others.
Hardinge Brothers GmbH was established by the Company in Germany in 1987. In
November 1995, the Company acquired 100% of the outstanding stock of L.
Kellenberger & Co., AG of St. Gallen, Switzerland and its subsidiary,
Kellenberger, Inc. of Elmsford, New York (collectively referred to as
"Kellenberger").
The Company's headquarters is located in Chemung County, New York, which is on
the south-central border of upstate New York. The Company has manufacturing
facilities located in Chemung County, New York and in St. Gallen, Switzerland.
The Company manufactures the majority of the products it sells, purchasing a few
machine accessories from other manufacturers for resale.
References to Hardinge Inc., the "Company", or "Hardinge" are to Hardinge Inc.
and its predecessors and subsidiaries, unless the context indicates otherwise.
The Company changed its name in 1995 from Hardinge Brothers, Inc., to Hardinge
Inc.
Products
- --------
Hardinge Inc. has been a manufacturer of industrial-use Super-Precision(R) and
general precision turning machine tools since 1890. Turning machines, or lathes,
are power-driven machines used to remove material from a rough-formed part by
moving multiple cutting tools arranged on a turret assembly against the surface
of a part rotating at very high speeds in a spindle mechanism. The
multi-directional movement of the cutting tools allows the part to be shaped to
the desired dimensions. On parts produced on Hardinge machines, those dimensions
are often measured in millionths of inches. Hardinge considers itself to be a
leader in the field of producing machines capable of consistently and
cost-effectively producing parts to those dimensions.
In the late 1970's, Hardinge began to produce computer numerically controlled
("CNC") machines which use commands from an on-board computer to control the
movement of cutting tools and rotation speeds of the part being produced. The
computer control enables the operator to program operations such as part
rotation, tooling selection and tooling movement for a specific part and then
store that program in memory for future use. The machine is able to produce
parts while left unattended when connected to automatic bar-feeding or robotics
equipment designed to supply raw materials. Because of this ability, as well as
superior speed of operation, a CNC machine is able to produce the same amount of
work as several manually controlled machines, as well as reduce the number of
operators required. Since the introduction of CNC turning machines, continual
advances in computer control technology have allowed for easier programming and
additional machine capabilities.
In 1994, the Company expanded its machine tool line to include CNC vertical
turning machines and vertical machining centers, the first sales of which
occurred during the first quarter of 1995. Prior to that, all of the Company's
turning machines were horizontal which means that the spindle holding the
rotating part and the turret holding the cutting tools are arranged on a
horizontal plane. On a vertical turning machine, the spindle and turret are
aligned on a vertical plane, with the spindle on the bottom. A vertical turning
machine permits the customer to produce
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larger, heavier and more oddly shaped parts on a machine that uses less floor
space when compared to a traditional horizontal turning machine.
A vertical machining center cuts material differently than a turning machine.
These machines are designed to remove material from stationary, prismatic
(box-like) parts of various shapes with rotating tools that are capable of
milling, drilling, tapping, reaming and routing. Machining centers have
mechanisms that automatically change tools based on commands from a built-in
computer control without the assistance of an operator. Machining centers are
generally purchased by the same customers as turning machines and are being
marketed by the Company on the basis that a customer will be able to obtain
machining centers with the same quality and reliability as the Company's turning
machines and will be able to obtain its turning machines and machining centers
from a single supplier.
The Company has further extended its machine offerings into the grinding machine
sector of the metal-cutting machine tool industry with the acquisition of
Kellenberger. Grinding is a machining process where a surface is shaped to
closer tolerances with a rotating abrasive wheel or tool. Grinding machines can
be used to finish parts of various shapes and sizes.
The grinding machines of Kellenberger are used to grind the inside and outside
diameters of round, cylindrical parts. Such grinding machines are typically used
to provide for a more exact finish on a part which has been partially completed
on a lathe. The grinding machines of Kellenberger, which are manufactured in
both CNC and manually controlled models, are generally purchased by the same
type of customers as other Hardinge equipment and furthers the ability of the
Company to be a sole source supplier for its customers.
During 1996, the Company took yet another step to address a new market segment
with the introduction of its Cobra(TM)42 CNC lathe. A basic, no frills, yet very
reliable and accurate lathe, the Cobra provides a relatively inexpensive product
offering for potential customers with limited financial resources. Further
refining its ability to provide products aimed at particular types of customer
applications, Hardinge also introduced two new "long bed" lathes in 1996. These
machines are specially designed to manufacture parts of greater length than
would normally be possible using smaller, more conventional lathes.
Multiple options are available on the broad range of the Company's machines
which allow customers to customize their machines for the specific purpose and
cost objective they require. The Company produces machines for stock with
popular option combinations for immediate delivery, as well as machines made to
specific customer orders. In recent years, the Company has increasingly
emphasized the engineering of complete systems for customers who desire one or
more CNC machines to produce a specific part. In configuring complete systems,
the Company provides, in addition to its machines, the necessary computer
programming and tooling, as well as robotics and other parts handling equipment
manufactured by it or others.
All Hardinge machines can be used to produce parts from all of the standard
ferrous and non-ferrous metals, as well as plastics, composites and exotic
materials.
In addition, the Company offers the most extensive line available in the
industry of workholding and toolholding devices, which may be used on both its
turning machines and those produced by others. The Company considers itself to
be a worldwide leader in the design and manufacture of workholding and
toolholding devices. It also offers a complete line of six-foot and twelve-foot
bar feed systems for its CNC and manual turning machines, which hold the
workpiece steady and feed it into the turning machine. Also produced are a
variety of other optional equipment and accessories for its machines. During
1996 the Company further expanded its workholding products with the addition of
its Sure-Grip(TM) line of power jaw chucks.
The Company offers various warranties on its equipment and considers post-sales
support to be a critical element of its business. Services provided include
operation and maintenance training, maintenance, and in-field repair. The
Company's
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intent, where practical, is to provide readily available replacement parts
throughout the life of the machine.
Markets and Distribution
- ------------------------
Sales are principally in the United States and Western Europe. In addition,
sales are made to customers in Canada, China, Mexico, Japan, Australia and other
foreign countries.
The Company primarily markets its machine tools through its direct sales force
and through distributors and manufacturers' representatives in the United States
and abroad. The Company uses a similar system of employee sales personnel and
independent distributors in the United Kingdom and Canada. In other countries,
the Company primarily sells through distributors.
The Company's U.S. distributors have the exclusive right to distribute its
products in particular markets, although these markets are located in less
industrialized areas of the country.
The Company's sales personnel earn a fixed salary plus commission based upon a
percentage of net sales. Certain of the Company's distributors operate
independent businesses, purchase machine tools and non-machine products from the
Company and maintain inventories of these products and spare parts for their
customers, while other distributors merely sell machine tools on behalf of the
Company. The Company's commission schedule is adjusted to reflect the level of
aftermarket support offered by its distributors.
As is common in its industry, the Company provides long-term financing for the
purchase of its equipment by qualified customers. The Company regards this
program as an important part of its marketing efforts, particularly to
independent machine shops. Customer financing is offered for a term of up to
seven years, with the Company retaining a security interest in the equipment. In
response to competitive pressures, the Company occasionally offers this
financing at below market interest rates or with deferred payment terms. The
present value of the difference between the actual interest charged on customer
notes for periods during which finance charges are waived or reduced and the
estimated rate at which the notes could be sold to financial institutions is
accounted for as a reduction of the Company's net sales.
The Company's non-machine products mainly are sold in the United States through
telephone orders to a toll-free "800" telephone number, which is linked to an
on-line computer order entry system maintained by the Company at its Elmira
headquarters. In most cases, the Company is able to package and ship in-stock
tooling and repair parts within 24 hours of receiving orders. With more popular
items, the Company can package and ship within several hours.
The Company promotes recognition of its products in the marketplace through
advertising in trade publications and participation in industry trade shows. In
addition, the Company markets its non-machine products through publication of
general catalogue and other targeted catalogues, which it distributes to
existing and prospective customers.
A substantial portion of the Company's sales are to small and medium-sized
independent job shops, which in turn sell machined parts to their industrial
customers. Industries directly and indirectly served by the Company include
automotive, medical equipment, aerospace, defense, recreational equipment, farm
equipment, construction equipment, energy, and transportation. Sales to the
automobile industry accounted for 9% and 21% of the Company's net sales in 1996
and 1995, respectively. In 1994, no industry or customer accounted for more than
4% of the Company's net sales.
The Company operates in a single business segment, industrial machine tools.
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Competitive Conditions
- ----------------------
The primary competitive factors in the marketplace for the Company's machine
tools are reliability, price, delivery time, service and technological
characteristics. There are many manufacturers of machine tools in the world.
They can be categorized by the size of material their products can machine and
the precision level they can achieve. In the size and precision level the
Company addresses with its turning machines and machining centers, the primary
competition comes from several Japanese manufacturers. Several German
manufacturers also compete with the Company, primarily in Europe. The
Kellenberger machines compete with Japanese, German and other Swiss
manufacturers. Management considers its segment of the industry to be extremely
competitive. The Company believes that it brings superior quality, reliability,
value, availability, capability and support to its customers.
Sources and Availability of Raw Materials
- -----------------------------------------
The Company manufactures and assembles its lathes and machining centers and
related products at its Elmira, New York plant. The Kellenberger grinding
machines and related products are manufactured at its St. Gallen, Switzerland
plant. Products are manufactured by the Company from various raw materials,
including cast iron, sheet metal, bar steel and bearings. Although the Company's
operations are highly integrated, it purchases a number of components from
outside suppliers, including the computer and electronic components for its CNC
lathes and machining centers. There are multiple suppliers for virtually all of
the Company's raw material and components and the Company has not experienced a
supply interruption in recent years.
A major component of the Company's CNC machines is the computer and related
electronics package. The Company purchases these components for its lathes and
machining centers primarily from Fanuc Limited, a large Japanese electronics
company, except on occasions where a significant customer order specifies a
different control. While the Company believes that design changes could be made
to its machines to allow sourcing from several other existing suppliers, and
occasionally does so for these special orders, a disruption in the supply of the
Fanuc components could cause the Company to experience a substantial disruption
of its operations, depending on the circumstances at the time. Kellenberger
assembles an electronics package of its own design.
The Company utilizes several quality and process control programs, including
Total Quality Management. The Company believes that it operates its quality
system to the requirements of the ISO 9000 Quality System of the International
Standards Organization and is postured to obtain ISO 9000 certification if
required for marketing. The ISO 9000 Quality System is an internationally
accepted quality standard for commercial operations, such as product design
verification, reviewing the quality of suppliers, imperfection and testing
requirements and maintaining quality records. The Company believes that these
initiatives have helped it maintain the quality and reliability of its products.
Research and Development
- ------------------------
The Company's ongoing research and development program involves creating new
products and modifying existing products to meet market demands and redesigning
existing products to reduce the cost of manufacturing. The research and
development department is staffed with experienced design engineers with
technical through doctorate degrees.
The cost of research and development, all of which has been charged to
operations, amounted to $7,932,000, $5,713,000, and $5,218,000, in 1996, 1995
and 1994, respectively.
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Patents
- -------
Although the Company holds several patents with respect to certain of its
products, it does not believe that its business is dependent to any material
extent upon any single patent or group of patents.
Seasonal Trends and Working Capital Requirements
- ------------------------------------------------
The Company is not subject to significant seasonal trends. Its business, and
that of the machine tool industry in general, is cyclical. However, the
Company's quarterly results are subject to significant fluctuation based on the
timing of its shipments of machine tools, which are largely dependent upon
customer delivery requirements. Traditionally, the Company has experienced
reduced activity during the third quarter of the year, largely as a result of
vacations scheduled at its U.S. and European customers' plants and the Company's
policy of closing its facilities during the first two weeks of July. As a
result, the Company's third-quarter net sales, income from operations and net
income typically have been the lowest of any quarter during the year. During
1995 and 1994, shipments of certain large orders offset this historical pattern
in the third quarter
The ability to deliver products within a short period of time is an important
competitive criterion. Also, the Company feels it is important to provide
availability of replacement parts for a machine throughout its useful life.
These factors contribute to a requirement that the Company carry significant
amounts of inventory.
For many years, the Company has periodically sold a substantial portion of the
customer notes receivable generated by its customer financing program to various
financial institutions. While the Company's customer financing program has an
impact on its month-to-month borrowings, it has had little long-term impact on
its working capital requirements because of the sales of these notes.
Backlog
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The Company normally ships its machine products within two to three months after
order. The Company's order backlog at December 31, 1996 and 1995 was $71,400,000
and $54,335,000, respectively.
Orders are generally subject to cancellation by the customer prior to shipment.
The level of unfilled orders at any given date during the year may be materially
affected by the timing of the Company's receipt of orders and the speed with
which those orders are filled. Accordingly, the Company's backlog is not
necessarily indicative of actual shipments or sales for any future period, and
period-to-period comparisons may not be meaningful.
Governmental Regulations
- ------------------------
The Company believes that its current operations and its current uses of
property, plant and equipment conform in all material respects to applicable
laws and regulations.
Environmental Matters
- ---------------------
The Company's operations are subject to extensive federal and state legislation
and regulation relating to environmental matters. The Company believes it is
currently
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in material compliance with applicable environmental laws and regulations in
each of the countries in which it operates.
Future regulations, under the Clean Air Act and otherwise, are expected to
impose stricter emission requirements on the metal working industry. While the
Company believes that current pollution control measures at most of the emission
sources at its manufacturing facilities will meet these anticipated future
requirements, additional measures at some sources may be required. The Company
does not believe that these anticipated future requirements are likely to have a
material adverse effect upon its financial condition, results of operations or
competitive position.
Certain environmental laws can impose joint and several liability for releases
or threatened releases of hazardous substances upon certain statutorily defined
parties regardless of fault or the lawfulness of the original activity or
disposal. Activities at properties owned by the Company and on adjacent areas
have resulted in environmental impacts.
In particular, the Company's New York manufacturing facility is located within
the Kentucky Avenue Well Field on the National Priorities List of hazardous
waste sites designated for cleanup by the United States Environmental Protection
Agency ("EPA") because of groundwater contamination. The Kentucky Avenue Well
Field site encompasses an area of approximately three square miles which
includes sections of the Town of Horseheads and the Village of Elmira Heights in
Chemung County, New York. The Company, however, has never been named as a
potentially responsible party at the site or received any requests for
information from EPA concerning the site. Environmental sampling on the
Company's property within this site under supervision of regulatory authorities
has identified off-site sources for such groundwater contamination and has found
no evidence that the Company's property is contributing to the contamination.
Environmental sampling at the Company's former New York manufacturing facility
following the removal of an underground storage tank disclosed the presence of
hydrocarbon contamination in surrounding soils. An environmental consultant
retained by the Company prepared a site assessment and remedial action plan
which were adopted and approved by the New York State Department of
Environmental Conservation. Pursuant to the timetable set forth in the remedial
action plan, the Company completed the construction phase of the cleanup in the
first quarter of 1996 at a cost of approximately $400,000. The Company
anticipates that ongoing operation and maintenance expenses for the cleanup are
anticipated to be less than $100,000 annually.
Although the Company believes, based upon information currently available to
management, that it will not have material liabilities for environmental
remediation, there can be no assurance that future remedial requirements or
changes in the enforcement of existing laws and regulation, which are subject to
extensive regulatory discretion, will not result in material liabilities.
Employees
- ---------
As of December 31, 1996, the Company employed 1,415 persons, 1,175 of whom were
located in the United States. None of the Company's employees are covered by
collective bargaining agreements. Management believes that relations with the
Company's employees are good.
Foreign Operations and Export Sales
- -----------------------------------
Information related to foreign and domestic operations and sales is included in
Note 5 to consolidated financial statements contained in this Annual Report. The
Company believes that its subsidiaries operate in countries where the economic
climate is relatively stable.
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ITEM 2. - PROPERTIES
Pertinent information concerning the principal properties of the Company and its
subsidiaries is as follows:
<TABLE>
<CAPTION>
Acreage (Land)
Square Footage
Location Type of Facility (Building)
- ------------------------------------ ------------------------------------------- -------------------------
<S> <C> <C>
Owned Properties
Horseheads, New York Manufacturing, Engineering, Turnkey 80 acres
Systems, Marketing, Sales, Demonstration, 515,000 sq. ft.
Service and Administration
Elmira, New York Warehouse 12 acres
176,000 sq. ft.
St. Gallen Manufacturing, Engineering, Turnkey 8 acres
Switzerland Systems, Marketing, Sales, Demonstration, 155,000 sq. ft.
Service and Administration
</TABLE>
<TABLE>
<CAPTION>
Lease
Expiration
Location Type of Facility Square Footage Date
- ---------------------------------------- --------------------------------- ---------------------- -----------------
<S> <C> <C> <C>
Leased Properties
Exeter, England Sales, Marketing, Service, 20,000 sq. ft. 6/30/97
Turnkey System and
Administration
Krefeld, Germany Sales, Service 1,500 sq. ft. 12/31/97
Elmsford, New York Sales, Service 9,500 sq. ft. 5/31/97
Los Angeles, California Sales, Service 14,500 sq. ft. 10/31/97
Demonstration
Toronto, Canada Sales, Service 5,800 sq. ft. 6/5/2001
Charlotte, NC Sales, Service 6,400 sq. ft. 3/31/2006
Demonstration
</TABLE>
ITEM 3. - LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental to
its operations. None of the litigation in which the Company is currently
involved, individually or in the aggregate, is material to its financial
condition or results of operations.
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ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996, no matters were submitted to a vote of
security holders.
PART II
ITEM 5. - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to May of 1995, the Company's common stock was traded in a local,
over-the-counter market in small amounts and on an irregular basis. The Company
was aware that these and other transfers took place, but often was without
knowledge of whether the transfer was a sale, was without consideration or was
for re-registration. Valuation of the stock was made from time-to-time for tax
and other purposes and some of said valuations are known to the Company. For
example, the stock was valued quarterly by a qualified independent appraiser
retained by the Company during the first quarter of 1995, for purposes of
Employee Stock Ownership Plan administration. Also, First Albany Corporation had
supplied the Company with quarterly data of actual known trades.
For periods prior to the Company's May, 1995 public offering, the following
table reflects the highest and lowest values known to the Company from the
foregoing described sources. Since May 25, 1995, the Company has been traded on
the NASDAQ market under the symbol "HDNG". The table also includes dividends per
share, by quarter. The Company has paid five dividends in past years; in
January, March, June, September and December. In 1995, the Board of Directors
announced its intent to discontinue the special January dividend, therefore only
four dividends were paid in 1996.
<TABLE>
<CAPTION>
1996 1995
------------------------------------- --------------------------------
Values Values
------------------------------------- --------------------------------
High Low Dividends High Low Dividends
------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31 $28 1/2 $25 $ .17 $17 1/4 $12 1/4 $ .40
June 30 35 1/2 26 .17 20 1/4 17 1/4 .15
September 30 31 3/4 20 3/8 .17 26 1/2 19 1/8 .15
December 31 29 23 .19 26 3/4 23 3/8 .17
</TABLE>
At February 21, 1997, there were 1,450 holders of record of common stock.
Dividend amounts as well as high and low values have been restated for the first
quarter of 1995 to reflect the reclassification of stock, as explained in the
notes to the financial statements.
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ITEM 6. - SELECTED FINANCIAL DATA
The following selected financial data is derived from the audited consolidated
financial statements of the Company. The data should be read in conjunction with
the consolidated financial statements, related notes and other information
included herein (dollar amounts in thousands except per share data).
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales $ 220,295 $ 180,586 $ 117,336 $ 98,437 $ 84,797
Cost of sales 145,264 119,975 76,937 63,169 55,905
------------------------------------------------------------------
Gross profit 75,031 60,611 40,399 35,268 28,892
Selling, general and
administrative expenses 45,058 36,076 27,882 25,804 24,864
Restructuring costs (2) 1,086
------------------------------------------------------------------
Operating income 29,973 24,535 12,517 9,464 2,942
Interest expense 2,770 1,369 1,479 1,343 1,380
Interest (income) (889) (927) (453) (763) (1,160)
(Gain) on sale of assets (326) (442)
------------------------------------------------------------------
Income before income taxes 28,092 24,419 11,933 8,884 2,722
Income taxes 10,804 9,574 5,214 3,730 1,152
------------------------------------------------------------------
Income before cumulative effect of
changes in accounting methods 17,288 14,845 6,719 5,154 1,570
Cumulative effect of
changes in accounting methods(3) (2,754)
------------------------------------------------------------------
Net income (loss) $ 17,288 $ 14,845 $ 6,719 $ 5,154 $ (1,184)
==================================================================
Weighted average number of common
shares outstanding (1) 6,224 4,969 3,573 3,565 3,513
Per share data: (1)
Income before
cumulative effect of
changes in accounting
methods $2.78 $2.99 $1.88 $1.45 $ .45
Cumulative effect of
changes in accounting
methods (3) (.79)
------------------------------------------------------------------
Net income (loss) $2.78 $2.99 $1.88 $1.45 $(.34)
==================================================================
Cash dividends declared
per share $ .70 $ .62 $ .84 $ .79 $ .74
BALANCE SHEET DATA
Working capital $ 116,256 $ 99,780 $ 60,520 $ 58,455 $ 54,035
Long-term portion of notes
receivable 11,791 10,936 7,744 12,460 9,536
Total assets 229,162 211,582 121,726 111,169 98,461
Long-term debt 37,156 27,100 15,164 18,357 11,571
Shareholders' equity (3) 147,545 136,103 79,776 75,462 73,067
</TABLE>
(1) All share and per share data has been restated to reflect the
reclassification of stock in 1995, as explained in the notes to the
financial statements.
(2) During 1992, the Company significantly restructured its overhead
functions, primarily in its foreign subsidiaries. Nonrecurring costs of
statutorily required severance payments and other costs associated with
the restructuring totaled $1,086,000 ($641,000 after tax).
(3) The cumulative effect of changes in accounting principles for the year
ended December 31, 1992 represent the adoption, as of January 1, 1992, of
(a) FASB No. 106, "Employers' Accounting for Postretirement Benefits Other
than Pensions," resulting in a $2,867,000 decrease in net income (net of
income tax benefit of $1,683,000), and (b) FASB No. 109, "Accounting for
Income Taxes," resulting in a $113,000 increase in net income.
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ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following table sets forth the net sales by product line for the periods
indicated:
For the years ended December 31,
(in thousands)
1996 1995 1994
-----------------------------------------
Machine sales $ 144,725 $ 117,381 $ 65,829
Non-machine products and
services 75,570 63,205 51,507
-----------------------------------------
Total $ 220,295 $ 180,586 $ 117,336
=========================================
Results of Operations
1996 Compared to 1995
Net Sales: Net sales for the year 1996 increased by 22.0% or $39,709,000 to
$220,295,000 from $180,586,000 in 1995. Net sales in the European markets
increased by $30,846,000 or 121.5%, primarily as a result of inclusion of a full
year's sales volume of L. Kellenberger & Co. AG, the wholly owned subsidiary
purchased on November 29, 1995. European sales of other Hardinge products
increased as well, particularly in England and France. Sales in domestic U.S.
markets increased by $10,753,000 or 7.9%, where a decline in sales to the U.S.
automotive industry was more than offset by increased sales to other market
segments plus the very successful launch of the Company's new low cost lathe
product during the second half of 1996. Shipments to the automobile industry
accounted for 9% of the Company's 1996 sales compared to 21% in 1995.
The Company experienced a substantial increase in machine units sold during
1996. This increase is primarily a result of aggressive new product
introductions and the inclusion of a full year's sales of Kellenberger grinders.
Sales of non-machine products and services continue to represent a
significant revenue source for the Company. 1996 sales of these products and
services were $75,570,000, an increase of $12,365,000 over the prior year. The
growth of these sales in 1996 is primarily caused by increased levels of
customer activity plus sales of new products introduced during the year. Sales
of these products and services account for approximately 35% of total sales
dollars in both 1996 and 1995.
Gross Profit: Gross profit increased by $14,420,000 or 23.8% to $75,031,000
in 1996, primarily as a result of increased sales. Gross profit as a percentage
of sales improved to 34.1% in 1996 from 33.6% in 1995. The improvement resulted
in part from the Company's use of advanced technology to upgrade its
manufacturing efficiency. Another factor contributing to this increase was a
higher portion of sales through the Company's direct sales organizations,
relative to sales made to independent distributors, where discounts are
generally higher. Sales of non-machine products and services continue to
generate higher gross margins than machine sales. However, since both these
sales categories increased at about the same rate during 1996, the comparison of
gross profit between 1996 and 1995 was not effected by this mix. Increasing
sales volume and improvements in manufacturing processes at the Company's
Kellenberger subsidiary also contributed to the improvement in gross profit
during 1996.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses ("SG&A") as a percentage of net sales increased only
slightly during 1996, in spite of the large increase in volume and the inclusion
of a full year's expenses for the Kellenberger
10
<PAGE>
operation. 1996's SG&A expenses represented 20.5% of sales compared to 20.0% in
1995. 1996's expenses include increased costs for product sales promotion, both
for new product introductions and for the International Manufacturing Technology
Show held in Chicago in September. This show, held every two years, is a major
event for the industry.
Income from Operations: Income from operations increased by $5,438,000 to
$29,973,000 in 1996 compared to $24,535,000 in 1995. As a percentage of net
sales, income from operations remained constant at 13.6% during both years.
Interest Expense: Interest expense during 1996 totaled $2,770,000 compared
to $1,369,000 in 1995. Interest expense during 1995 benefited from a mid-year
paydown of debt as a result of the May, 1995 public offering of stock. 1996
interest cost increased as a result of higher average outstanding debt to fund
the Kellenberger acquisition and increased working capital requirements.
Interest Income: Interest income remained relatively constant during both
years. During 1995, interest income was unusually high as a result of the
temporary investment of cash received from the Company's public stock offering.
Normally, interest income is mainly attributable to financing of customer
purchases. During 1996 a significant increase in the volume of customer
financing transactions resulted in interest income being about equal to the
prior year.
Gain on Sale of Assets: 1995's income includes a gain of $326,000
(approximately $198,000 on an after-tax basis) resulting from the sale of a
branch office building.
Income Taxes: The provision for income taxes as a percentage of pre-tax
income was 38.5% and 39.2%, respectively, for 1996 and 1995. The 1996
consolidated tax rate was impacted favorably by a larger proportion of foreign
income which was taxed at rates slightly lower than in the United States.
Net Income: Net income for 1996 was $17,288,000 compared to $14,845,000 in
1995, an increase of 16.5%. The increase represents an accumulation of the
factors discussed above. Geographically, results of operations in Western Europe
have improved significantly on higher sales. Inclusion of a full year's results
of Kellenberger was a primary factor in this improvement. Performance in North
America continues to provide the large base of profitable operations.
1995 Compared to 1994
- ---------------------
Net Sales: Net sales for the year ended December 31, 1995, increased 53.9%
to $180,586,000 from $117,336,000 in 1994. Sales in the domestic U.S. markets
increased by $44,610,000 or 48.5%, reflecting positive economic conditions and
continued strength in machine tool purchases by the auto industry. Net sales in
the European markets increased by $13,076,000 or 106.1% with particular strength
from the UK and French markets as the economies there continued to expand. In
other worldwide marketplaces, sales increased by 42.9% led mainly by growth in
shipments to Asia. The acquisition of L. Kellenberger & Co. AG ("Kellenberger")
did not result in a material impact on the year's sales and net income figures
as only their results for the month of December were included in the Company's
1995 results.
11
<PAGE>
Unit volumes increased in substantially all of the Company's Computer
Numerically Controlled (CNC) machine lines. Shipments of the Company's newly
introduced vertical CNC lathes and vertical CNC machining centers exceeded
beginning of the year expectations. Shipments to the automobile industry of
those new models, as well as horizontal CNC lathes, contributed to increased
sales during the year with sales to the U.S. manufacturers accounting for 21% of
the Company's 1995 net sales compared to 4% in 1994.
Sales of non-machine products and services increased by 22.7% accounting for
$63,205,000 or 35.0% of total net sales for the 1995 year compared to
$51,507,000 or 43.9% of total sales for 1994. Sales in this product line
increased in all of the Company's predominant geographical markets. The positive
economic conditions in those areas contributed to increases in sales.
Gross Profit: Gross profit increased 50.0% to $60,611,000 in 1995, from
$40,399,000 in 1994. This increase was primarily the result of increased unit
volumes. Gross profit as a percentage of sales was 33.6% in 1995 compared to
34.4% in 1994. Sales in the lathe and other machine tool product group
traditionally have generated lower gross margins than the non-machine products
and services group. Therefore, overall gross margin as a percentage of sales is
negatively affected when sales in the lathe and other machine tool product group
account for a larger percentage of overall net sales. The 1995 gross profit
percentage was also affected by production start up costs for the Company's new
machine introductions. These negative impacts were partially offset by the
ability to spread fixed overhead costs over a larger number of units sold. The
decline of the dollar against the Japanese yen, particularly in the first half
of 1995, did not have a significant impact on year to year comparisons of gross
profit due to the Company's foreign currency arrangements and lower discounts
given.
Selling, General, and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses decreased as a percent of net sales to 20.0%
from 23.8% in 1994. This improvement indicates the success of the Company's cost
control strategy of holding increases in this category to a minimum during
periods of higher sales growth. Increases occurred primarily in the commission
and other volume based expenditures, and advertising and show expenses where
money was spent to promote new products.
Income from Operations: Income from operations increased 96.0% to
$24,535,000 in 1995 from $12,517,000 in 1994. Income from operations as a
percentage of net sales increased to 13.6% in 1995 from 10.7% in 1994.
Interest Expense: Interest expense in 1995 decreased by $110,000 from 1994.
This resulted from a decrease in average outstanding debt due to the pay down of
debt with the proceeds of the public offering in May, 1995. Additional
borrowings to fund working capital growth partially offset this benefit.
Interest Income: Interest income increased $474,000 in 1995 from 1994
primarily due to interest earned on cash from the public offering temporarily
placed in interest bearing accounts.
Income Taxes: The provision for income taxes as a percentage of income
before income taxes was 39.2% for 1995 as compared to 43.7% for
12
<PAGE>
1994. The 1995 consolidated tax rate was lower due to profits in the Company's
Western European operations for which no tax provision was recorded because of
tax credits available from net operating loss carryforwards which were fully
utilized in 1995.
Net Income: Net income for 1995 was $14,845,000, an increase of $8,126,000,
or 120.9% from 1994. Net income from operations in all geographic locations
increased. The largest dollar increase occurred in domestic operations while
Western European operations generated positive results after incurring losses in
1994.
Liquidity and Capital Resources: The Company's current ratio at December
31, 1996 was 4.20:1 compared to 3.47:1 at December 31, 1995. Current assets
increased by $12,423,000 during 1996, with inventory increasing by $14,938,000,
primarily in support of new product introductions and to meet customer delivery
requirements. Cash at December 31, 1996 decreased by $2,484,000 from the
previous year end.
Current liabilities decreased by $4,053,000, primarily as a result of a
reduction of $6,342,000 in accounts payable due to the timing of receipt and
payment of invoices.
Operating activities generated cash of $3,038,000 in 1996, compared to 1995 when
operations consumed cash of $9,409,000. This $12,447,000 increase in cash from
operating activities is a result of several factors. Higher earnings in 1996
provided $2,443,000 of the increase, while net increases in non-cash charges
added another $3,034,000. Finally, a slowing of the rapid working capital growth
experienced in 1995 was a primary contributor to a reduction of $6,970,000 in
the growth of net operating assets during 1996, which accounts for the remainder
of the improvement in cash generated by operating activities. The Company's
major investing and financing activities during 1996 consisted of an aggressive
program of capital investment and an increase in dividends.
As is common in its industry, the Company provides long-term financing for the
purchase of its equipment by qualified customers. The Company regards this
program as an important part of its marketing efforts, particularly to
independent machine shops. Customer financing is
13
<PAGE>
offered for a term of up to seven years, with the Company retaining a security
interest in the purchased equipment. In the event of a customer default and
foreclosure, it is the practice of the Company to recondition and resell the
equipment. It has been the Company's experience that such equipment resales have
realized the approximate remaining contract value.
In order to reduce debt and finance current operations, the Company periodically
sells a substantial portion of its underlying customer notes receivable to
various financial institutions. In 1996, the Company sold $27,255,000 of
customer notes compared to $12,955,000 sold during 1995 reflecting the increase
in notes available for sales as the number of shipments financed through the
Company's program have increased in 1996 compared to 1995. Although the Company
has no formal arrangements with financial institutions to purchase its customer
notes receivable, it has not experienced difficulty in arranging such sales.
While the Company's customer financing program has an impact on its
month-to-month borrowings from time-to-time, it has had little long-term impact
on its working capital because of the sales of the underlying customer notes
receivable. The amount of long-term customer notes receivable held by the
Company increased to $11,791,000 at December 31, 1996 from $10,936,000 at
December 31, 1995.
Total capital expenditures in 1996 were $12,734,000. The Company completed its
expansion project at the Elmira manufacturing facility which was begun in 1995
and all related equipment is now operational, accounting for the majority of
those expenditures. During 1996, the Company's United Kingdom subsidiary began
construction of a new building to house its operations which were formerly
located in leased facilities. Total 1996 capital expenditures for this project
were approximately $2,100,000. The project's total cost at completion during the
first quarter of 1997 is expected to be $2,700,000. Also during 1996, additional
demonstration equipment was placed at foreign locations as the Company's
marketing efforts continued to expand globally.
The Company paid total dividends of $4,332,000 during 1996. At its meeting in
October, 1996, the Board of Directors increased the quarterly dividend to $.19
per share, representing an 11.8% increase from the previous regular quarterly
dividend rate of $.17 per share.
The Company has revolving loan agreements with several U.S. banks providing for
unsecured borrowing up to $50,000,000 on a revolving basis, $30,000,000 through
August 1, 1997, and $20,000,000 through November 1, 1999. At those times, the
outstanding amounts convert, at the Company's option, to term loans payable
quarterly over four years through 2001 and 2003, respectively. As of December
31, 1996, total borrowings under these agreements were $18,691,000.
The Company's Kellenberger subsidiary maintains lines of credit with commercial
banks which permit borrowing in Swiss francs equivalent to approximately
$9,000,000. These lines are secured by Kellenberger's land and buildings. At
December 31, 1996, total borrowings under these agreements were $7,950,000.
These facilities, along with a $5,000,000 unsecured short term line with another
bank, provided for immediate access of up to $65,000,000 at December 31, 1996.
Outstanding borrowings under these arrangements totaled $29,641,000 at that
time.
14
<PAGE>
During the first quarter of 1996, the Company entered into a long-term borrowing
agreement for $17,750,000 with a syndication of banks. The proceeds were used to
repay revolving loan borrowing which had originally been used to finance the
acquisition of Kellenberger. Quarterly interest payments on this term loan began
during 1996, and principal repayments will commence in 1998. The agreement
contains financial and other covenants consistent with the revolving loan
agreements.
The annual report contains statements of a forward-looking nature relating to
the financial performance of Hardinge Inc. Such statements are based upon
information known to management at this time. The company cautions that such
statements necessarily involve risk, because actual results could differ
materially from those projected. Among the many factors that could cause actual
results to differ from those set forth in the forward-looking statements are
changes in general economic conditions in the U.S. or internationally, actions
taken by customers or competitors, the receipt of more or fewer orders than
expected, and changes in the cost of materials. The company undertakes no
obligation to revise its forward-looking statements if unanticipated events
alter their accuracy.
The Company currently intends to use its improved financial condition
to seek growth opportunities in new products, international markets, and
strategic acquisitions. Management believes that the currently available funds
and credit facilities, and internally generated funds, will provide sufficient
financial resources for its ongoing operations.
15
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HARDINGE INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
December 31, 1996
Audited Consolidated Financial Statements
Report of Independent Auditors .................................. 17
Consolidated Balance Sheets ..................................... 18
Consolidated Statements of Income ............................... 20
Consolidated Statements of Shareholders' Equity ................. 21
Consolidated Statements of Cash Flows ........................... 22
Notes to Consolidated Financial Statements ...................... 23
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
16
<PAGE>
Report of Independent Auditors
------------------------------
Board of Directors
Hardinge Inc.
We have audited the accompanying consolidated balance sheets of Hardinge Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hardinge Inc. and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Syracuse, New York
January 27, 1997
17
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
December 31
1996 1995
--------------------------
Assets
Current assets:
Cash $ 2,636 $ 5,120
Accounts receivable 41,150 41,095
Notes receivable 5,070 5,053
Inventories 99,906 84,968
Deferred income taxes 2,158 2,585
Prepaid expenses 1,656 1,332
--------------------------
Total current assets 152,576 140,153
Property, plant and equipment:
Land and buildings 40,468 38,653
Machinery, equipment and fixtures 72,736 66,676
Office furniture, equipment and vehicles 4,402 3,991
--------------------------
117,606 109,320
Less accumulated depreciation 53,716 49,716
--------------------------
63,890 59,604
Other assets:
Notes receivable 11,791 10,936
Deferred income taxes 651 726
Other 254 163
--------------------------
12,696 11,825
--------------------------
Total assets $ 229,162 $ 211,582
==========================
18
<PAGE>
December 31
1996 1995
------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 12,067 $ 18,409
Notes payable to bank 10,950 10,504
Accrued expenses 10,676 9,423
Accrued income taxes 1,017 1,323
Deferred income taxes 896
Current portion of long-term debt 714 714
------------------------
Total current liabilities 36,320 40,373
Other liabilities:
Long-term debt 37,156 27,100
Accrued pension plan expense 1,485 1,087
Deferred income taxes 1,657 1,926
Accrued postretirement benefits 4,999 4,993
------------------------
45,297 35,106
Shareholders' equity:
Preferred stock, Series A, par value $.01 per share;
authorized 2,000,000; issued - none
Common stocks, $.01 par value:
Authorized shares - 20,000,000
Issued shares - 6,476,703 at December 31, 1996;
6,457,703 at December 31, 1995 65 65
Additional paid-in capital 57,027 56,323
Retained earnings 99,622 86,666
Treasury shares (343) (2,599)
Cumulative foreign currency translation adjustment (3,731) (1,728)
Deferred employee benefits (5,095) (2,624)
------------------------
Total shareholders' equity 147,545 136,103
------------------------
Total liabilities and shareholders' equity $ 229,162 $ 211,582
========================
See accompanying notes.
19
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Net sales $ 220,295 $ 180,586 $ 117,336
Cost of sales 145,264 119,975 76,937
--------------------------------------
Gross profit 75,031 60,611 40,399
Selling, general and administrative expenses 45,058 36,076 27,882
--------------------------------------
Income from operations 29,973 24,535 12,517
Interest expense 2,770 1,369 1,479
Interest (income) (889) (927) (453)
(Gain) on sale of assets (326) (442)
--------------------------------------
Income before income taxes 28,092 24,419 11,933
Income taxes 10,804 9,574 5,214
--------------------------------------
Net income $ 17,288 $ 14,845 $ 6,719
======================================
Weighted average number of common shares
outstanding 6,224 4,969 3,573
======================================
Per share data:
Net income per share $ 2.78 $ 2.99 $ 1.88
======================================
Cash dividends declared per share $ .70 $ .62 $ .84
======================================
</TABLE>
See accompanying notes.
20
<PAGE>
Hardinge Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Cumulative
Foreign
Additional Currency Deferred Total
Common Paid-in Retained Treasury Translation Employee Shareholders'
Stock Capital Earnings Stock Adjustment Benefits Equity
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $9,444 $619 $71,206 ($565) ($1,866) ($3,376) $75,462
Net income 6,719 6,719
Dividends declared (3,072) (3,072)
Foreign currency translation adjustment (8) (8)
Amortization (long-term incentive plan) 810 810
Shares awarded pursuant to long-term
incentive plan 36 550 (575) 11
Payment on ESOP loan 200 200
Net purchase of treasury stock (346) (346)
----------------------------------------------------------------------------------
Balance at December 31, 1994 9,444 655 74,853 (361) (1,874) (2,941) 79,776
Net income 14,845 14,845
Dividends declared (3,032) (3,032)
Foreign currency translation adjustment 146 146
Reclassification Class A and B
to new Common Stock and change
in par value from $ 5.00 to $.01 (9,405) 9,405 0
Issuance of 2,540,000 common shares
in public offering 25 43,559 43,584
Issuance of 95,500 shares for long-term
incentive plan 1 1,377 (1,378) 0
Stock bonuses awarded 518 502 1,020
Amortization (long-term incentive plan) 1,345 1,345
Tax benefit from long-term incentive plan 802 802
Payment on ESOP loan 350 350
Net purchase of treasury stock 7 (2,740) (2,733)
----------------------------------------------------------------------------------
Balance at December 31, 1995 65 56,323 86,666 (2,599) (1,728) (2,624) 136,103
Net income 17,288 17,288
Dividends declared (4,332) (4,332)
Foreign currency translation adjustment (2,003) (2,003)
Shares awarded pursuant to long-term
incentive plan 259 2,779 (3,038) 0
Issuance of 18,000 shares for long-term
incentive plan 486 (486) 0
Amortization (long-term incentive plan) 1,053 1,053
Net purchase of treasury stock (41) (523) (564)
----------------------------------------------------------------------------------
Balance at December 31, 1996 $65 $57,027 $99,622 ($343) ($3,731) ($5,095) $147,545
==================================================================================
</TABLE>
See accompanying notes.
21
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 17,288 $ 14,845 $ 6,719
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,433 5,952 4,354
Provision for deferred income taxes 1,408 (642) (786)
(Gain) on sale of assets (326) (442)
Foreign currency transaction (gain) loss (556) 267 (147)
Changes in operating assets and liabilities:
Accounts receivable (387) (14,114) (4,340)
Notes receivable (882) (3,255) 5,467
Inventories (16,439) (21,248) (6,249)
Other assets (562) 1,060 109
Accounts payable (6,167) 7,240 2,603
Accrued expenses 1,896 657 3,922
Accrued postretirement benefits 6 155 80
--------------------------------------
Net cash provided by (used in) operating activities 3,038 (9,409) 11,290
Investing activities
Capital expenditures - net (12,734) (17,703) (8,046)
Proceeds from sale of assets 510 864
Acquisition of L. Kellenberger & Co. AG, net of
cash acquired (19,232)
--------------------------------------
Net cash (used in) investing activities (12,734) (36,425) (7,182)
Financing activities
Increase (decrease) in short-term notes
payable to bank 1,591 (2,730) 2,791
Increase (decrease) in long-term debt 10,478 11,936 (3,193)
(Purchase) of treasury stock, net of stock bonus (564) (1,713) (346)
Dividends paid (4,332) (3,993) (2,864)
Proceeds from stock offering 43,584
--------------------------------------
Net cash provided by (used in) financing activities 7,173 47,084 (3,612)
Effect of exchange rate changes on cash 39 87 (67)
--------------------------------------
Net (decrease) increase in cash (2,484) 1,337 429
Cash at beginning of year 5,120 3,783 3,354
--------------------------------------
Cash at end of year $ 2,636 $ 5,120 $ 3,783
======================================
</TABLE>
See accompanying notes.
22
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
1. Significant Accounting Policies
Nature of Business
Hardinge Inc. is a machine tool manufacturer, which designs, manufactures and
distributes metal cutting lathes, grinding machines, machining centers and
tooling and accessories related to metal cutting machines. Sales are principally
in the United States and Western Europe. Sales are also made to customers in
Canada, China, Mexico, Japan, Australia, and other foreign countries. A
substantial portion of the Company's sales are to small and medium - sized
independent job shops, which in turn sell machined parts to their industrial
customers. Industries directly and indirectly served by the Company include
automotive, medical equipment, aerospace, defense, recreational equipment, farm
equipment, construction equipment, energy and transportation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Property, Plant and Equipment
Property additions, including major renewals and betterments, are recorded at
cost and are depreciated over their estimated useful lives. Upon retirement or
disposal of an asset, the asset and related allowance for depreciation are
eliminated and any resultant gain or loss is credited or charged to income.
Depreciation is provided on the straight-line and sum of the years digits
methods. Total depreciation expense on property, plant and equipment was
$6,300,000, $4,538,000, and $3,388,000 for 1996, 1995 and 1994, respectively.
Income Taxes
The Company accounts for income taxes using the liability method according to
Financial Accounting Standards Board Statement No. 109. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Certain balance sheet amounts in 1995 were reclassified
to conform to 1996 presentation.
Foreign Currency Translation
In accordance with Financial Accounting Standards Board Statement No. 52, all
balance sheet accounts of foreign subsidiaries are translated at current
exchange rates and income statement items are translated at an average exchange
rate for the year. The gain or loss resulting from translating subsidiary
financial statements is recorded as a separate component of shareholders'
equity. Transaction gains and losses are recorded in operations.
23
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Foreign Exchange Contracts
Gains and losses on contracts designated as hedges of existing assets and
liabilities are accrued as exchange rates change and are recognized in income.
Gains and losses on contracts designated as hedges of net investments in foreign
subsidiaries are accrued as exchange rates change and are recognized in
Shareholders' Equity as foreign currency translation adjustment. Gains and
losses on contracts designated as hedges of identifiable foreign currency firm
commitments are deferred and included in the measurement of the related foreign
currency transaction.
Income Per Share
Income per share is computed using the weighted average number of shares of
common stock outstanding during the year including common stock equivalents
related to restricted stock. Restricted shares awarded under the Company's
long-term incentive stock plans are treated as issued shares at time of award
and are treated as outstanding in accordance with the treasury stock method over
the period of their vesting. The number of shares outstanding has been adjusted
to reflect the stock transactions as explained in Note 4 to the financial
statements.
Research and Development Costs
The cost of research and development, all of which has been charged to
operations, amounted to $7,932,000, $5,713,000, and $5,218,000 in 1996, 1995 and
1994, respectively.
Stock Based Compensation
The Company grants restricted shares of common stock to certain officers and
other key managers. The Company accounts for restricted share grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(see note 6).
Revenue Recognition
The Company recognizes revenue from product sales upon shipment of the product.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. They are summarized as follows:
December 31,
1996 1995
--------------------------
(in thousands)
Finished products $ 29,966 $ 29,231
Work-in-process 35,479 29,083
Raw materials and purchased components 34,461 26,654
--------------------------
$ 99,906 $ 84,968
==========================
24
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
2. Financing Arrangements
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31
1996 1995
--------------------------
(in thousands)
<S> <C> <C>
Note payable, due in annual installments of $714,000
through 1998, with interest payable quarterly at 9.38% $ 1,429 $ 2,143
Note payable, under revolving loan agreement, with
interest at 6.45% as of December 31, 1996 8,691 25,671
Note payable, under revolving loan agreement, with
interest at 6.21% as of December 31, 1996 10,000
Note payable, under term loan agreement, with an
effective interest rate of 4.49% at December 31, 1996 17,750
--------------------------
37,870 27,814
Less current portion 714 714
--------------------------
$ 37,156 $ 27,100
==========================
</TABLE>
The Company maintains an unsecured credit arrangement with two banks which
provides for borrowing in several currencies up to the equivalent of $30,000,000
on a revolving loan basis through August 1, 1997. The credit agreement provides
for repayment of the outstanding principal beginning September 30, 1997 in 16
consecutive equal quarterly installments. Interest charged on the debt is based
on London Interbank Offered Rates (LIBOR) plus a fixed percentage. A commitment
fee of 3/8 of 1% is payable on the unused portion of the facility. At December
31, 1996 total borrowings under the facility were $8,691,000. Approximately
$1,691,000 of the borrowing was denominated in British pounds sterling.
In November, 1996, the Company entered into an unsecured credit arrangement with
a bank which provides for borrowing in several currencies up to the equivalent
of $20,000,000 on a revolving loan basis through November 1, 1999. The credit
agreement provides for repayment of the then outstanding principal beginning
January 1, 2000 in 16 consecutive equal quarterly installments. Interest charged
on the debt is based on LIBOR plus a fixed percentage. A commitment fee of 3/8
of 1% is payable on the unused portion of the facility. At December 31, 1996,
total borrowings under this arrangement were $10,000,000.
All debt under both revolving credit arrangements has been classified as
long-term debt, as it is the Company's intention to maintain the principal
amounts outstanding either through the existing credit facilities or new
borrowing arrangements.
In February 1996, the Company entered into an unsecured term loan arrangement
with a syndication of banks for the purpose of financing its November, 1995
acquisition of L. Kellenberger & Co. AG. The loan provides for repayment of the
outstanding principal in twenty equal installments beginning May, 1998. Interest
is charged on the debt based on LIBOR plus a fixed percentage. The Company has
entered into a
25
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
2. Financing Arrangements (continued)
cross-currency interest rate swap agreement which effectively converts the
$17,750,000 term loan to a borrowing in 21,000,000 Swiss francs with an
effective interest rate of 4.49%. The swap agreement has been designated as a
hedge against the Company's net investment in its Kellenberger facility.
The Company also has a $5,000,000 unsecured short-term line of credit with a
bank with interest based on a fixed percent over the one-month LIBOR. As of
December 31, 1996, the $3,000,000 borrowed on this line carries an average
interest rate of 6.03%. The agreement is negotiated annually and requires no
commitment fee.
The Company's Kellenberger subsidiary maintains lines of credit with commercial
banks that permit borrowings in Swiss francs equivalent to approximately
$9,000,000. These lines provide for interest at a fixed percentage over LIBOR
and carry no commitment fees on unused funds. At December 31, 1996, total
borrowings under these lines were $7,950,000 with an average interest rate of
4.12%. The borrowings are secured by the land and buildings of Kellenberger with
a net book value of $9,421,000 at December 31, 1996 and terms are negotiated
annually.
The debt agreements require, among other things, that the Company maintain
specified levels of tangible net worth, working capital and indebtedness.
Interest paid in 1996, 1995, and 1994 totaled $2,799,000, $1,416,000, and
$1,477,000, respectively.
The Company conducts some of its sales and service operations from leased office
space with lease terms up to 15 years and uses certain data processing equipment
under lease agreements expiring at various dates during the next five years.
Rent expense under these leases totaled $1,378,000, $1,192,000, and $1,290,000
during the years ended December 31, 1996, 1995, and 1994, respectively. Future
minimum payments under noncancelable operating leases as of December 31, 1996
total $3,530,000, with payments over the next five years of $1,143,000,
$704,000, $509,000, $121,000, and $116,000, respectively.
The Company has provided financing terms of up to seven years for qualified
customers who purchase equipment. The Company may choose, when appropriate, to
sell underlying notes receivable contracts to financial institutions to reduce
debt and finance current operations. During 1996, 1995, and 1994, the Company
sold notes totaling $27,255,000, $12,955,000, and $30,000,000, respectively. The
remaining outstanding balance of all notes sold as of December 31, 1996 and 1995
was $50,724,000 and $44,220,000, respectively. Gains and losses from the sales
of notes receivable have not been material. Recourse against the Company from
default of any of the notes included in the sales is limited to 10% of the then
outstanding balance of the underlying notes.
26
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
3. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1996 and
1995, the Company had state investment tax credits expiring at various dates
through the year 2006, and foreign tax credit carryforwards expiring in 2001 for
which no benefit has been recognized in the financial statements. Significant
components of the Company's deferred tax assets and liabilities are as follows:
1996 1995
------------------------
(in thousands)
Deferred tax assets:
Federal and state tax credit carryforwards $ 4,571 $ 3,507
Foreign net operating loss carryforwards 1,147 1,542
Postretirement benefits 1,861 1,852
Inventory valuation 265
Deferred employee benefits 1,201 742
Accrued pension 590 437
Other 818 634
------------------------
10,188 8,979
Less valuation allowance 4,571 3,507
------------------------
Total deferred tax assets 5,617 5,472
Deferred tax liabilities:
Tax over book depreciation 3,976 3,512
Margin on installment sales 257 126
Other 1,128 449
------------------------
Total deferred tax liabilities 5,361 4,087
------------------------
Net deferred tax assets $ 256 $ 1,385
========================
Pretax income was $22,872,000, $21,554,000, and $11,709,000 from domestic
operations and $5,220,000, $2,865,000, and $224,000 from foreign operations for
1996, 1995, and 1994, respectively.
27
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
3. Income Taxes (continued)
Significant components of income tax expense (benefit) attributable to
continuing operations are as follows:
1996 1995 1994
-------------------------------------
(in thousands)
Current:
Federal $ 7,488 $ 7,885 $ 4,812
Foreign 788 1,117 414
State 1,006 1,214 782
-------------------------------------
Total current 9,282 10,216 6,008
-------------------------------------
Deferred:
Federal $ 468 $ (484) $ (739)
Foreign 991 (104) 53
State 63 (54) (108)
-------------------------------------
Total deferred 1,522 (642) (794)
-------------------------------------
$10,804 $ 9,574 $ 5,214
=====================================
Income tax payments totaled $9,467,000, $9,009,000, and $4,642,000 in 1996, 1995
and 1994, respectively.
The following is a reconciliation of income tax expense computed at the United
States statutory rate to amounts shown in the consolidated statements of income.
1996 1995 1994
-----------------------
Federal income taxes 34.0% 34.0% 34.0%
Tax differential on operations of foreign
subsidiaries (.4) .2 3.3
State income taxes 2.4 3.1 3.7
Other 2.5 1.9 2.7
-----------------------
38.5% 39.2% 43.7%
=======================
As a result of changes in U.S. tax law effective in 1994, earnings of a foreign
subsidiary were deemed distributed and U.S. federal taxes of $260,000 were
provided in 1994. The remaining undistributed earnings of the foreign
subsidiaries, which amounted to approximately $10,921,000 at December 31, 1996,
are considered to be indefinitely reinvested and, accordingly, no provision for
U.S. federal and state taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to both U.S. income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of the unrecognized deferred U.S. income tax
liability is not practicable because of the complexities associated with its
hypothetical calculation.
28
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
4. Shareholders' Equity
Treasury Shares
The number of shares of common stock in treasury were 12,365, 108,766, and
33,232 at December 31, 1996, 1995 and 1994, respectively. In 1996, the Company
purchased a net 28,570 treasury shares and issued 124,971 shares under the
long-term incentive plan from treasury. During 1995, the Company purchased a net
114,755 treasury shares and awarded 39,221 shares under the long-term incentive
plan from treasury. The Company purchased a net 31,236 shares for treasury and
awarded 46,750 shares under the long-term incentive stock plan from treasury
during 1994.
Stock Reclassification
At the annual meeting on May 16, 1995, shareholders approved amendments to the
Company's Certificate of Incorporation (a) converting each Class A common share
into 2.00 shares of a new single class of Common Stock, representing a 2-for-1
stock split and each Class B common share into 2.05 shares of the new single
class of Common Stock, representing a 2.05-for-1 stock split; (b) increasing the
number of shares of Common Stock the Company is authorized to issue from
6,000,000 to 20,000,000 shares and reducing the par value of all Common Stock
from $5 to $0.01 per share; and (c) authorizing a new class of Preferred Stock
consisting of 2,000,000 shares. All share and per share data appearing in the
financial statements and notes thereto have been restated giving effect to the
amendments discussed above.
Public Offering
In June 1995, the Company issued 2,540,000 shares of its common stock at $19.00
per share in a public common stock offering. Proceeds of the offering, net of
commissions and expenses, were $43,584,000. The proceeds were used to reduce the
Company's debt, fund building expansion, and fund working capital growth.
Preferred Stock Purchase Rights
Pursuant to the Shareholder Rights Plan adopted at the Annual Meeting in 1995,
each outstanding share of the Company's common stock carries with it the right
to purchase shares of Series A Preferred Stock. Each right entitles the holder
of the right to purchase one one-hundredth of a share of Series A Preferred
Stock (a "Unit") at a purchase price of $80.00 per Unit. The rights will become
exercisable ten business days after any person or group becomes the beneficial
owner of 20% or more of the common stock or commences a tender or exchange offer
upon consummation of which such person or group would, if successful, own 30% or
more of the common stock. The rights, which will expire ten years from the date
of issuance, may be redeemed by the Board of Directors, at $.01 per right, at
any time prior to the expiration of ten business days after the acquisition by a
person or group of affiliated or associated persons of beneficial ownership of
20% or more of the outstanding common stock.
29
<PAGE>
5. Industry Segment and Foreign Operations
The Company operates in one business segment - industrial machine tools.
Domestic and foreign operations consist of:
Year Ended December 31
1996 1995 1994
--------------------------------------
(in thousands)
Sales:
Gross sales:
United States $ 189,060 $ 168,679 $ 110,942
Western Europe 65,051 25,739 12,346
Other 16,654 18,544 12,980
--------------------------------------
Total 270,765 212,962 136,268
--------------------------------------
Less interarea transfers:
United States 41,670 32,042 18,915
Western Europe 8,800 334 17
--------------------------------------
Total 50,470 32,376 18,932
--------------------------------------
Net sales:
United States 147,390 136,637 92,027
Western Europe 56,251 25,405 12,329
Other 16,654 18,544 12,980
--------------------------------------
Total net sales $ 220,295 $ 180,586 $ 117,336
======================================
Operating income (loss):
United States $ 23,630 $ 20,998 $ 12,220
Western Europe 5,258 1,502 (875)
Other 1,085 2,361 1,614
--------------------------------------
Total operating income $ 29,973 $ 24,861 $ 12,959
======================================
Net income (loss):
United States $ 13,117 $ 12,418 $ 6,884
Western Europe 3,381 1,247 (1,039)
Other 790 1,180 874
--------------------------------------
Total net income $ 17,288 $ 14,845 $ 6,719
======================================
Identifiable assets:
United States $ 174,687 $ 155,733 $ 106,606
Western Europe 48,163 43,214 7,256
Other 6,312 12,635 7,864
--------------------------------------
Total identifiable assets $ 229,162 $ 211,582 $ 121,726
======================================
Interarea sales are accounted for at prices comparable to normal, unaffiliated
customer sales, reduced by estimated costs not incurred on these sales.
Operating income excludes interest income and interest expense directly
attributable to the related operations. The operating loss in Western Europe in
1994 includes a $540,000 charge for the write off of inventory that became
obsolete when the Company changed its distribution strategies there.
In 1996 and 1995, sales to one customer in the automotive industry represented
approximately 5% and 17%, respectively, of consolidated sales.
30
<PAGE>
6. Employee Benefits
Pension Plan
The Company provides a non-contributory defined benefit pension plan covering
all eligible domestic employees. The related benefits are generally based on
years of service and a percentage of the employee's average annual compensation.
The Company's practice is to fund all pension costs accrued and to contribute
annually amounts within the range allowed by the
Internal Revenue Service.
A summary of the components of net periodic pension cost is presented below.
Year Ended December 31
1996 1995 1994
-------------------------------------
(in thousands)
Service costs--benefits earned
during the year $ 1,321 $ 962 $ 1,126
Interest costs on projected benefit
obligation 3,425 3,186 3,055
Actual return on plan assets (6,008) (9,753) (1,538)
Net amortization and deferral 1,996 5,763 (2,065)
-------------------------------------
Net pension costs $ 734 $ 158 $ 578
=====================================
Actuarial assumptions used to determine pension costs include a discount rate of
8.00% at December 31, 1996 (7.75% and 8.75% as of December 31, 1995 and 1994,
respectively), expected long-term rate of return on assets of 9% for all three
years, and expected rate of increase in compensation levels of 5% for all three
years. Transition amounts, unrecognized prior service costs and unrecognized
gains or losses are amortized on a straight line basis over the future working
lifetime of those expected to receive benefits under the plan. The increase in
the discount rate in 1996 decreased the projected benefit obligation at the end
of the year by approximately $1,500,000. The decrease in the discount rate in
1995 increased the projected benefit obligation at the end of 1995 by
approximately $5,000,000.
31
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
A summary of the Plan's funded status and amounts recognized in the Company's
consolidated balance sheets is as follows:
1996 1995
----------------------------
(in thousands)
Plan assets at fair value $ 54,037 $ 50,496
Projected benefit obligation for services
rendered to date (47,053) (45,372)
----------------------------
Plan assets in excess of projected benefit
obligation 6,984 5,124
Unrecognized net (gain) (9,816) (7,436)
Unrecognized net (asset) from transition (2,091) (2,265)
Unrecognized prior service costs resulting
from Plan amendment 3,101 3,364
----------------------------
Net pension (liability) recognized in the
balance sheets $ (1,822) $ (1,213)
============================
Net pension liability consists of a long-term portion of $1,485,000 and
$1,087,000 as of December 31, 1996 and December 31, 1995, respectively. The
remaining balance is included in accrued expenses in the respective years.
The portion of the projected benefit obligation representing the accumulated
benefit obligation for the pension plan was $42,270,000 and $41,097,000 at the
end of 1996 and 1995, respectively. The vested benefit obligation included in
those numbers was $36,710,000 and $35,909,000 at the end of 1996 and 1995,
respectively.
Pension plan assets include 165,924 shares of the Company's common stock valued
at approximately $4,418,000 and $4,314,000 at December 31, 1996 and 1995,
respectively. Dividends paid on those shares were $116,000 and $103,000 in 1996
and 1995 respectively. The remaining plan assets consisted of United States
Government securities, corporate bonds and notes, other common stocks and an
insurance contract.
Postretirement Plans Other Than Pensions
The Company provides a contributory retiree health plan covering all eligible
domestic employees who retired at normal retirement age prior to January 1, 1993
and all retirees who will retire at normal retirement age after January 1, 1993
with at least 10 years of active service. Employees who elect early retirement
are eligible for the plan benefits if they have 15 years of active service at
retirement. Benefit obligations and funding policies are at the discretion of
the Company's management. Retiree contributions are adjusted annually and
contain other cost-sharing features such as deductibles and coinsurance, all of
which varies according to the retiree's date of retirement. The accounting for
the plan anticipates future cost-sharing changes to the written plan that are
consistent with the Company's
32
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
expressed intent to limit its contributions to 125% of the average aggregate
1993 claim cost. The Company also provides a non-contributory life insurance
plan to retirees. Because the amount of liability relative to this plan is
insignificant, it is combined with the health plan for purposes of this
disclosure.
The Company accounts for other postretirement benefit costs in accordance with
Financial Accounting Standards Board Statement No. 106. A summary of the
components of net periodic other postretirement benefit costs relating to the
plan is presented below.
1996 1995 1994
----------------------------
(in thousands)
Service cost--benefits earned during the year $114 $ 78 $ 97
Interest costs on projected benefit obligations 449 451 435
Amortization of actuarial losses 46 - 27
----------------------------
Amount recorded in operations $609 $529 $559
============================
Actuarial assumptions used to determine the liability for postretirement plans
other than pensions included a discount rate of 7.50%, 7.25% and 8.75% at
December 31, 1996, 1995 and 1994, respectively. The annual rate of increase in
the per capita cost of covered health care benefits (the health care cost trend)
was assumed to be 11% for 1996, and is assumed to decrease gradually to 6% by
the year 2005 and remain at that level thereafter.
The health care cost trend rate assumption does not have a significant effect on
the amounts reported due to the 125% cap on the Company's portion of the medical
plan claims. A one percentage point increase in the assumed health care cost
trend rates would increase the accumulated postretirement benefit obligation by
only $171,000 and increase the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for 1996 by $20,000.
The Company has not prefunded any of its postretirement health and life
insurance liabilities and, consequently, there are no expected returns on assets
anticipated in the calculation of expense.
A schedule reconciling the accumulated benefit obligation with the Company's
recorded liability follows:
1996 1995
---------------------------
(in thousands)
Accumulated postretirement benefit obligation:
Current retirees $ (3,039) $ (3,145)
Fully eligible active participants (1,676) (1,877)
Other active participants (1,308) (1,389)
---------------------------
Total (6,023) (6,411)
Unrecognized losses 1,024 1,418
---------------------------
Accrued postretirement benefit recognized in
balance sheet $ (4,999) $ (4,993)
===========================
33
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
Group Health Plan
The Company has a contributory group benefit plan which provides medical and
dental benefits to all of its domestic employees.
Savings Plan
The Company maintains a 401(k)plan which covers all domestic employees of the
Company subject to minimum employment period requirements. Provisions of the
plan allow employees to defer from 1% to 15% of their pre-tax salary to the
plan. Those contributions may be invested at the option of the employees in a
number of investment alternatives, one being Hardinge Inc. common stock. The
Company contributes to the plan on a matching formula of 25% of an employee's
contribution up to 5% of the employee's compensation. The Company's match is in
Hardinge Inc. common stock. The Company contributed $253,000 in 1996 for this
match. The Company may also contribute a discretionary contribution to the plan
to be distributed among all participants. In 1996, the Company contributed
$250,000 as a discretionary contribution.
The Company maintains an Employee Stock Ownership Plan for its domestic
employees. The approved Plan required establishment of an employee stock
ownership trust, which borrowed from a bank to purchase the Company's common
stock. The Company thereby effectively obligated itself to contribute to the
employee trust sufficient amounts to allow the trust to repay the loan and
related interest installments. During 1995, the Company made contributions to
the trust sufficient to allow payment of the remainder of the loan.
Contributions, including dividends, to the trust for the years ended December
31, 1995 and 1994 totaled $372,000 and $240,000, respectively. The interest
portion of those contributions was $22,000 and $40,000 in 1995 and 1994,
respectively. Approximately $29,000 and $41,000 of dividends on shares owned by
the ESOP were used to service debt requirements in 1995 and 1994, respectively.
Long-Term Incentive Plans
In 1996, the Board of Directors established an Incentive Stock Plan to assist in
attracting and retaining key employees. The Plan allows the Board to grant
restricted stock, performance share awards, stock options and stock appreciation
rights up to an aggregate of 300,000 shares of common stock to these employees.
During 1996, certain officers and other key managers were awarded a total of
134,650 restricted shares of common stock. During 1995 and 1994, shares of
restricted common stock were awarded totaling 95,500 and 46,750, respectively.
Restrictions on 10,250 shares expired in 1996. Restrictions on 177,750 shares of
common stock from similar 1993 and 1988 Incentive Stock Plans were released
during 1995.
As of December 31, 1996, a total of 448,700 restricted shares of common stock
were outstanding under the three plans. All shares of restricted stock are
subject to forfeiture and restrictions on transfer, and unconditional vesting
occurs upon the completion of a specified period ranging from three to eight
years from date of grant.
34
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
6. Employee Benefits (continued)
Deferred compensation associated with these grants is measured by the market
value of the stock on the date of grant and totaled $3,467,000, $1,377,500 and
$575,000 in 1996, 1995 and 1994, respectively. This deferred compensation is
being amortized on a straight-line basis over the specified service period. The
unamortized deferred compensation at December 31, 1996, 1995 and 1994, totaled
$5,095,000,$2,624,000, and $2,591,000, respectively, and is included along with
Employee Stock Ownership Benefits as a reduction of shareholders' equity.
Foreign Operations
The Company also has employees in certain foreign countries that are covered by
defined contribution and benefit pension plans and other employee benefit plans.
Related obligations and costs charged to operations are not material.
7. Financial Instruments
At December 31, 1996 and 1995, the carrying value of financial instruments such
as cash, accounts receivable, accounts payable and short-term debt approximated
their fair values, based on the short-term maturities of these instruments. The
carrying amounts of debt under the revolving agreements classified as long-term
debt approximate fair value as the underlying instruments are comprised of notes
that are repriced on a short-term basis.
In addition, the carrying amount of the term loan dated February, 1996
approximates its fair value as the underlying interest rate is variable. Related
to this term loan, the Company entered into a seven year cross-currency interest
rate swap agreement (see Note 2). The fair value of the instrument at December
31, 1996 was $1,241,000 based on current settlement value as determined by a
financial institution.
The fair value of notes receivable, short-term and long-term, was determined
using a discounted cash flow analysis based on the rate at which the Company
could sell those notes at year end under standard terms experienced on recent
sales (a fixed percentage over U.S. Treasury notes). At December 31, 1996 and
1995, the carrying value of these notes approximated the
fair value.
The fair value of other long-term debt was determined based on rates obtained
from financial institutions on funds available for terms approximating the
remaining term of that debt. At December 31, 1996, the fair value of that debt
with carrying value of $1,429,000 was $1,480,000.
The Company regularly enters into foreign currency contracts to manage its
exposure to fluctuations in foreign currency exchange rates on purchases of
materials used in production and cash settlements of intercompany sales. Any
gains or losses from these contracts have not been material. At December 31,
1996 and 1995, the Company had notional principal amounts of approximately
$10,621,000 and $1,931,000 in contracts to purchase currency in the future from
major commercial banks. The fair value of these contracts is not material.
Concentration of Credit Risk
The Company sells products to companies in diversified industries, with a
substantial majority of sales occurring in North America and Western Europe. The
Company performs periodic credit evaluations of the financial condition of its
customers. The Company offers financing terms of up to seven years for its
35
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
7. Financial Instruments (continued)
customers in the United States and Canada and files a lien against the equipment
purchased under those terms. No collateral is required for sales made on open
account terms with payment due within thirty days. As of December 31, 1996 and
1995, 22% and 18%, respectively, of the accounts receivable were from the three
major U.S. automobile manufacturers, with receivables from one representing 10%
at December 31, 1996 and 14% at December 31, 1995 of the consolidated accounts
receivable.
In addition, at December 31, 1996, receivables from one of the Company's
distributors totaled 8% of the consolidated accounts receivable.
8. Acquisition
On November 29, 1995, the Company completed the acquisition of 100% of the
outstanding stock of L. Kellenberger & Co. AG and subsidiary, a St. Gallen,
Switzerland based manufacturer of grinding machines ("Kellenberger"). The
Company paid $19,232,000 including acquisition expenses. In connection with the
acquisition, approximately $1,800,000 was placed in an escrow account to cover
potential purchase price adjustments. This escrow is scheduled to be released in
1997 and the Company is not aware of any purchase price adjustment at this time.
The acquisition cost was funded with an unsecured term loan arrangement with two
banks.
The acquisition has been accounted for as a purchase. Results of operations of
Kellenberger have been included in the consolidated financial statements of the
Company from the date of acquisition. The purchase price was allocated based on
the estimated fair values of assets and liabilities as of the date of
acquisition resulting in no goodwill.
On the basis of an unaudited proforma consolidation of the results of operations
as if the acquisition had taken place as of January 1, 1994, consolidated net
sales for the combined companies would have been $213,127,000 and $141,703,000
for the years ended December 31, 1995 and 1994, respectively. Consolidated net
income would have been $13,430,000 and $4,422,000 and earnings per share would
have been $2.70 and $1.24 for the years of 1995 and 1994, respectively. The
results reflect additional depreciation on the step-up in basis of certain fixed
assets acquired, interest expense that would have been incurred to finance the
purchase, and savings which would have resulted if cost cutting measures taken
at the time of acquisition had taken place at the beginning of 1994. The
proforma amounts are not necessarily indicative of what the actual consolidated
results of operations might have been if the acquisition had been effective at
the beginning of 1994 or of future results of operations of the consolidated
entities.
36
<PAGE>
HARDINGE INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
9. Quarterly Financial Information (Unaudited)
Summarized quarterly financial information for 1996 and 1995 is as follows:
Quarter
First Second Third Fourth
-----------------------------------------
(in thousands, except per share data)
1996
----
Net sales $ 59,622 $ 55,266 $ 47,577 $ 57,830
Gross profit 19,332 18,477 17,103 20,119
Income from operations 7,762 7,531 6,254 8,426
Net income 4,470 4,320 3,435 5,063
Net income per share .72 .69 .56 .82
Weighted average shares outstanding 6,199 6,228 6,189 6,204
1995
----
Net sales $ 40,687 $ 41,501 $ 42,217 $ 56,181
Gross profit 13,913 14,207 14,439 18,052
Income from operations 5,498 5,801 4,949 8,287
Net income 3,304 3,275 3,182 5,084
Net income per share .92 .75 .52 .82
Weighted average shares outstanding 3,584 4,349 6,176 6,217
Earnings per share amounts are based on the weighted average shares outstanding
for each period presented. As a result of the changes in outstanding shares from
quarter to quarter, the total of the four quarters for 1996 and 1995 does not
equal the annual earnings per share for each of the years.
37
<PAGE>
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
38
<PAGE>
PART III
ITEM 10. - DIRECTORS AND OFFICERS OF THE REGISTRANT
Certain information required by this item is incorporated by reference from the
Registrant's proxy statement filed with the Commission on March 11, 1997.
Additional information required to be furnished by Item 401 of Regulation S-K is
as follows:
<TABLE>
<CAPTION>
List of Executive Officers of the Registrant
- ---------------------------------------------------------------------------------------------------------------------
Executive
Officer
Name Age Since Positions and Offices Held
- ------------------------------ ------ --------------- -------------------------------------------------------
<S> <C> <C> <C>
Robert E. Agan 58 1978 Chairman of the Board and Chief Executive Officer
since October, 1996; Chairman of the Board,
President and Chief Executive Officer in 1996;
President and Chief Executive Officer 1984-1995;
President and Chief Operating Officer in 1983;
Executive Vice President and Chief Operating Officer
1980-1982; Vice President - Employee Relations
1978-1979; member of Board of Directors of the
Company since 1980.
J. Allan Krul 54 1988 President and Chief Operating Officer since October,
1996; Executive Vice President and Chief Operating
Officer in 1996; Senior Vice President and Chief
Operating Officer 1995-1996; Vice President - General
Manager Machine Operations 1991-1994; Vice President -
Engineering 1988-1990; member of Board of Directors
of the Company since November, 1996.
Malcolm L. Gibson 56 1983 Executive Vice President and Chief Financial Officer,
and Assistant Secretary since October, 1996. Senior
Vice President, Chief Financial Officer and Assistant
Secretary 1995-1996; Vice President-Finance,
Treasurer and Assistant Secretary 1985-1994; Vice
President - Finance and Assistant Secretary
1983-1984; Treasurer 1972-1982.
Joseph T. Colvin 53 1996 Vice President - Manufacturing since October, 1996;
General Manager, Workholding Operations in 1996;
Manufacturing Director, Machine Operations 1994-
1996; Formerly Vice President Operations, General
Manager, Inertial Guidance Test Equipment and
Original Equipment Manufacturing, Contraves, Inc.,
1994; President and CEO, Modern Manufacturing, 1993;
President, Inland Motor Division, Kollmorgen Corp.,
1987-1992.
39
<PAGE>
List of Executive Officers of the Registrant
- ---------------------------------------------------------------------------------------------------------------------
Executive
Officer
Name Age Since Positions and Offices Held
- ------------------------------ ------ --------------- -------------------------------------------------------
J. Patrick Ervin 39 1996 Vice President - Sales & Marketing since October,
1996; General Manager, Machine Tool Division in 1996;
Director, Sales & Marketing 1992-1996; Director of
Materials & Purchasing 1990-1992; Superintendent,
Machine Division 1989-1990, Various other Company
positions 1978-1989.
Douglas A. Greenlee 49 1992 Vice President - Business Development since 1993;
Secretary in 1992; Formerly attorney, Hazel & Thomas,
P.C., Law Firm; member of Board of Directors of the
Company since 1979.
Richard L. Simons 41 1996 Vice President - Finance since October, 1996;
Controller 1987-1996; Assistant Treasurer 1985-1987;
Manager Financial Accounting 1983-1984.
Daniel P. Soroka 48 1996 Vice President - Engineering since October, 1996;
Director of Research & Engineering 1992-1996; Manager
of Mechanical Design and Analysis 1989-1992.
Douglas C. Tifft 42 1988 Vice President - Employee Relations since 1988.
Various other Company positions 1978-1988.
Thomas T. Connelly 49 1984 Treasurer since 1995; Senior Vice President-General
Manager Workholding Operations 1991 - 1994; Senior
Vice President 1987 - 1990; Vice President and
Assistant to the President 1985 - 1986; Treasurer and
Assistant to the President in 1984; Treasurer in
1983; Assistant Treasurer in 1982.
</TABLE>
40
<PAGE>
ITEM 11. - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Registrant's proxy statement filed with the Commission on March 11, 1997.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Registrant's proxy statement filed with the Commission on March 11, 1997.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
Registrant's proxy statement filed with the Commission on March 11, 1997.
41
<PAGE>
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements of the Registrant listed in ITEM 8. of this
Report are incorporated herein by reference.
(2) The financial statement schedules of the Registrant listed in ITEM 8.
of this Report are incorporated herein by reference.
(3) Exhibits filed as part of this Report: See (c) below.
(b) Reports on Form 8-K filed by the Registrant during the last quarter of the
period covered by this report: None.
(c) Exhibits required by Item 601 of Regulation S-K filed as a part of this
Report on Form 10-K:
Item Description
- ---- -----------
4.1 - Restated Certificate of Incorporation of Hardinge Inc. filed with
the Secretary of State of the State of New York on May 24, 1995,
incorporated by reference from the Registrant's Form 8-A, filed
with the Securities and Exchange Commission on May 19, 1995.
4.2 - By-Laws of Hardinge Inc. as amended November 19, 1996.
4.3 - Section 719 through 726 of the New York Business Corporation Law,
incorporated by reference from the Registrant's Form 10, effective
June 29, 1987.
4.4 - Specimen of certificate for shares of Common Stock, par value
$.01 per share, of Hardinge Inc., incorporated by reference from
the Registrant's Form 8-A, filed with the Securities and Exchange
Commission on May 19, 1995.
4.5 - Form of Rights Agreement, dated as of May 16, 1995, between
Hardinge Inc. and American Stock Transfer and Trust Company,
incorporated by reference from the Registrant's Form 8-A, filed
with the Securities and Exchange Commission on May 23, 1995.
10.1 - Credit Agreement dated as of November 18, 1996 between Hardinge
Inc. and Marine Midland Bank.
10.2 - Credit Agreement dated as of February 28, 1996 among Hardinge Inc.
and the Banks signatory thereto and The Chase Manhattan Bank as
Agent, incorporated by reference from the Registrant's Form 10-Q
for the quarter ended March 31, 1996.
10.3 - $5,000,000 Master Note among Hardinge Inc. and Chemung Canal Trust
Company dated July 23, 1996.
10.4 - Credit Agreement dated as of August 1, 1994 among Hardinge Inc.,
the Banks signatory thereto and The Chase Manhattan Bank,
incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
10.5 - Amendment Number One dated February 29, 1996 to Credit Agreement
dated as of August 1, 1994 among Hardinge Inc., the Banks
signatory thereto and The Chase Manhattan Bank.
42
<PAGE>
10.6 - Stock Purchase Agreement dated as of November 15, 1995 between
Hardinge Inc. and L. Kellenberger & Co. AG, incorporated by
reference from the Registrant's Form 8-K, as amended, dated
November 29, 1995.
10.7 - Note Agreement dated August 29, 1991 between Hardinge Inc. and
AEtna Life Insurance Company, relating to the issuance by Hardinge
Inc. of $5,000,000 principal amount of its 9.38% notes due 1998,
incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.8 - The 1996 Hardinge Inc. Incentive Stock Plan as adopted by
shareholders at the April 23, 1996 annual meeting, incorporated by
reference from the Registrant's Form 10-Q for the quarter
ended June 30, 1996.
*10.9 - Hardinge Inc. Savings Plan, incorporated by reference from the
Registrant's Registration Statement on Form S-8 (No. 33-65049).
*10.10 - Employment Agreement with Robert E. Agan dated as of April 1,
1995, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.11 - Employment Agreement with J. Allan Krul dated as of April 1, 1995,
incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.12 - Employment Agreement with Malcolm L. Gibson dated as of April 1,
1995, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.13 - Employment Agreement with Douglas A. Greenlee dated as of April 1,
1995, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.14 - Employment Agreement with Douglas C. Tifft dated as of April 1,
1995, incorporated by reference from the Registrant's Registration
Statement on Form S-2 (No. 33-91644).
*10.15 - Hardinge Inc. 1993 Incentive Stock Plan, incorporated by reference
from the Registrant's Form 10-K for the year ended December 31,
1993.
*10.16 - The 1988 Hardinge Inc. Incentive Stock Plan, as adopted by
shareholders at the annual meeting of shareholders held on
May 17, 1988, incorporated by reference from the Registrant's Form
10-Q for the quarter ended June 30, 1988.
*10.17 - First Amendment to Hardinge Inc. 1988 Incentive Stock Plan,
incorporated by reference from the Registrant's Form 10-K for the
year ended December 31, 1993.
*10.18 - Hardinge Inc. Executive Supplemental Pension Plan, incorporated by
reference from the Registrant's Form 10-K for the year ended
December 31, 1993.
*10.19 - Form of Deferred Directors Fee Plan, incorporated by reference
from the Registrant's Registration Statement on Form S-2
(No. 33-91644).
*10.20 - Description of Incentive Cash Bonus Program, incorporated by
reference from the Registrant's Registration Statement on Form S-2
(No. 33-91644).
21 - Subsidiaries of the Company.
23 - Consent of Ernst & Young LLP, Independent Auditors.
27 - Financial Data Schedule.
- -------------------------------
*Management contract or compensatory plan or arrangement.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HARDINGE INC.
-----------------------------------------------------
(Registrant)
February 25, 1997 /s/ Robert E. Agan
- ---------------------- -----------------------------------------------------
Robert E. Agan
Chairman of the Board, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
February 25, 1997 /s/ J. Allan Krul
- ---------------------- -----------------------------------------------------
J. Allan Krul
President, Chief Operating Officer and Director
February 25, 1997 /s/ Malcolm L. Gibson
- ---------------------- -----------------------------------------------------
Malcolm L. Gibson
Executive Vice President/Chief Financial Officer
and Assistant Secretary (Principal Financial Officer)
February 25, 1997 /s/ John W. Bennett
- ---------------------- -----------------------------------------------------
John W. Bennett
Director
February 25, 1997 /s/ Richard J. Cole
- ---------------------- -----------------------------------------------------
Richard J. Cole
Director
February 25, 1997
- ---------------------- -----------------------------------------------------
James L. Flynn
Director
February 25, 1997 /s/ E. Martin Gibson
- ---------------------- ---------------------------------------------------
E. Martin Gibson
Director
44
<PAGE>
February 25, 1997 /s/ Douglas A. Greenlee
- --------------------- ---------------------------------------------------
Douglas A. Greenlee
Vice President and Director
February 25, 1997 /s/ J. Philip Hunter
- --------------------- ---------------------------------------------------
J. Philip Hunter
Director and Secretary
February 25, 1997 /s/ Dr. Eve L. Menger
- --------------------- ---------------------------------------------------
Dr. Eve L. Menger
Director
February 25, 1997 /s/ Richard L. Simons
- --------------------- ---------------------------------------------------
Richard L. Simons
Vice President - Finance (Principal
Accounting Officer)
45
Item 4.2
BY-LAWS
-of-
HARDINGE INC.
ARTICLE I
Offices.
--------
SECTION 1. Principal Office.
- -----------------------------
The principal office of the corporation shall be located in
the County of Chemung and State of New York.
SECTION 2. Other Offices.
- --------------------------
The corporation may also have such other offices, either within or
without the State of New York, as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
Shareholders.
-------------
SECTION 1. Place of Meetings of Shareholders.
- ----------------------------------------------
Meetings of shareholders may be held at such place, within or
without the State of New York, as may be fixed by the Board of Directors.
SECTION 2. Annual Meeting of Shareholders.
- -------------------------------------------
A meeting of shareholders shall be held annually on such date and at
such place and time as may be fixed by the Board of Directors for the election
of directors and the transaction of other business.
SECTION 3. Special Meetings of Shareholders.
- ---------------------------------------------
Special meetings of the shareholders may be called by the Board of
Directors or by the Chairman of the Board or by the President. Such call shall
state the purpose or purposes of the proposed meeting. Business transacted at
any special meeting shall be confined to the purpose or purposes for which the
meeting is called.
<PAGE>
-2-
SECTION 4. Fixing Record Date.
- -------------------------------
The Board of Directors may fix, in advance, a date as the record
date for purpose of determining the shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof, or to express
consent to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action. Such date shall
be not more than fifty (50) nor less than ten (10) days before the date of such
meeting nor more than 50 days before any other action. If no record date is
fixed, the record date for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which notice is given and for all
other purposes shall be at the close of business on the day on which the
resolution of the Board of Directors relating thereto is adopted.
SECTION 5. Notice of Meetings of Shareholders.
- -----------------------------------------------
Written notice of every meeting of shareholders shall state the
place, date and hour of the meeting and unless it is the annual meeting indicate
that it is being issued by or at the direction of the person or persons calling
the meeting. Notice of a special meeting shall also state the purpose or
purposes for which the meeting is called. If, at any meeting, action is proposed
to be taken which would, if taken, entitle shareholders fulfilling the statutory
requirements to receive payment for their shares, the notice of such meeting
shall include a statement of that purpose and to that effect. A copy of the
notice of any meeting shall be given, personally or by mail, not less than ten
(10) nor more than fifty (50) days before the date of the meeting, to each
shareholder entitled to vote at such meeting. If mailed, such notice shall be
deemed given when deposited in the United States mail, with postage thereon
prepaid, directed to the shareholder at his address as it appears on the record
of shareholders, or, if he shall have filed with the secretary of the
corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address.
SECTION 6. Adjourned Meetings.
- -------------------------------
When a determination of shareholders entitled to notice of or to
vote at any meeting of shareholders has been made, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date for the adjourned meeting. When a meeting is adjourned to another
time or place, it shall not be necessary to give any notice of the adjourned
meeting if the time and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken, and at
<PAGE>
-3-
the adjourned meeting the corporation may transact any business that might have
been transacted on the original date of the meeting. However, if after the
adjournment the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each shareholder of
record on the new record date entitled to notice.
SECTION 7. List of Shareholders at Meeting.
- --------------------------------------------
A list of shareholders as of the record date, certified by the
secretary or by the transfer agent, shall be produced at any meeting of
shareholders upon the request thereat or prior thereto of any shareholder. If
the right to vote at any meeting is challenged, the inspectors of election, or
person presiding thereat, shall require such list of shareholders to be produced
as evidence of the right of the persons challenged to vote at such meetings, and
all persons who appear from such list to be shareholders entitled to vote
thereat may vote at such meeting.
SECTION 8. Quorum of Shareholders.
- -----------------------------------
The holders of a majority of the shares entitled to vote thereat
shall constitute a quorum at a meeting of shareholders for the transaction of
any business. When a quorum is once present to organize a meeting, it is not
broken by the subsequent withdrawal of any shareholders. Despite the absence of
a quorum, the shareholders present may adjourn the meeting.
SECTION 9. Proxies.
- --------------------
Every shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy. Every proxy must be signed by the shareholder
or his attorney-in-fact. No proxy shall be valid after the expiration of eleven
(11) months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
in those cases where an irrevocable proxy is provided by law.
SECTION 10. Inspectors at Shareholders' Meetings.
- --------------------------------------------------
The Board of Directors, in advance of any shareholders' meeting, may
appoint one or more inspectors to act at the meeting or any adjournment thereof.
If inspectors are not so appointed the person presiding at a shareholders'
meeting may, and on the request of any shareholder entitled to vote thereat
shall, appoint inspectors. If appointed on the request of one or more
shareholders, the holders of a majority of shares present and entitled to vote
thereat shall determine the number of inspectors to be appointed. In case any
person appointed fails to appear or
<PAGE>
-4-
act, the vacancy may be filled by appointment made by the Board of Directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum, the validity
and effect of proxies, and shall receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with fairness to
all shareholders. On request of the person presiding at the meeting or any
shareholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them. A report or certificate made by them
shall be prima facie evidence of the facts stated and of the vote as certified
by them.
SECTION 11. Qualifications of Voters.
- --------------------------------------
Every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every share standing in his name on the record of
shareholders.
Neither treasury shares nor shares held by another domestic or
foreign corporation of any type or kind, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held by the
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares.
Shares held by an administrator, executor, guardian, conservator,
committee, or other fiduciary, except a trustee, may be voted by him, either in
person or by proxy, without transfer of such shares into his name. Shares held
by a trustee may be voted by him, either in person or by proxy, only after the
shares have been transferred into his name as trustee or into the name of his
nominee.
Shares held by or under the control of a receiver may be voted by
him without the transfer thereof into his name if authority so to do is
contained in an order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
or a nominee of the pledgee.
<PAGE>
-5-
Shares standing in the name of another domestic or foreign
corporation of any type or kind may be voted by such officer, agent or proxy as
the By-Laws of such corporation may provide, or, in the absence of such
provision, as the Board of Directors of such corporation may determine.
SECTION 12. Vote of Shareholders.
- ----------------------------------
Directors shall, except as otherwise required by law, be elected by
a plurality of the votes cast at a meeting of shareholders by the holders of
shares entitled to vote in the election. Any other corporate action by vote of
the shareholders shall, except as otherwise required by law, these By-Laws or
the certificate of incorporation, be authorized by a majority of the votes cast
at a meeting of shareholders by the holders of shares entitled to vote thereon.
SECTION 13. Conduct of Shareholders' Meetings.
- -----------------------------------------------
The Officer presiding over the shareholders' meeting may establish
such rules and regulations for the conduct of the meeting as the presiding
Officer may deem to be reasonably necessary or desirable for the orderly and
expeditious conduct of the meeting.
SECTION 14. Shareholder Proposals.
- -----------------------------------
No shareholder shall be entitled to submit a proposal to a meeting
of shareholders unless at the time of submitting the proposal, the shareholder
shall be a record or beneficial owner of at least 1% or $1,000 in market value
of shares entitled to be voted at the meeting, and shall have held such shares
for at least one year and shall continue to own such shares through the date on
which the meeting is held. A shareholder meeting the above requirements shall
deliver to the secretary of the corporation not later than 120 days prior to the
date on which the corporation's proxy statement was mailed to stockholders in
connection with the previous year's annual meeting, the text of any proposal
which he intends to propose at an annual meeting of shareholders and a notice of
the intention of the shareholder to present such proposal at the meeting. A
proposal to be presented at any meeting of shareholders other than an annual
meeting shall be delivered to the Secretary a reasonable time before the mailing
of the corporation's proxy material.
<PAGE>
-6-
ARTICLE III
Directors.
----------
SECTION 1. Board of Directors.
- -------------------------------
The business of the corporation shall be managed under the direction
of its Board of Directors.
SECTION 2. Qualifications of Directors.
- ----------------------------------------
Each director shall be at least 18 years of age.
SECTION 3. Number of Directors.
- --------------------------------
The number of directors constituting the entire Board shall be nine
(9). This number may be increased or decreased from time to time by amendment of
these By-Laws, provided, however, that the number may not be decreased to less
than three (3). No decrease in the number of directors shall shorten the term of
any incumbent director.
SECTION 4. Election and Term of Directors.
- -------------------------------------------
The number of directors constituting the Board shall be nine (9)
subject to increase or decrease from time to time as provided herein. The
directors shall be classified, with respect to the period for which they shall
severally hold office, into three classes as nearly equal in number as possible,
each holding office, subject to the transitional provisions described below, for
a period expiring at the third annual meeting of stockholders following the
first annual meeting of stockholders of the Corporation at which directors of
such class have been elected. For transitional purposes the directorships held
by the nine directors holding office following the 1995 annual meeting shall be
classified as follows:
Class I Directorships - Messrs. Agan, Cole and Gibson will be considered to
hold Class I Directorships. The Class I Directorships
held by Messrs. Agan and Cole will expire at the
Annual Meeting of Stockholders in 1996 and 1998 and at
the Annual Meetings held in every third year
thereafter and the Class I Directorship held by Mr.
Gibson will expire at the Annual Meeting of
Stockholders in 1995, 1997 and 1998 and at the Annual
Meetings held in every third year thereafter.
<PAGE>
-7-
Class II Directorships - Dr. Menger and Messrs. Powers and Hunter will be
considered to hold Class II Directorships. The Class
II Directorships held by Dr. Menger and Mr. Hunter
will expire at the Annual Meeting of Stockholders in
1995, 1997 and 1999 and at the Annual Meetings held in
every third year thereafter and the Class II
Directorship held by Mr. Powers will expire at the
Annual Meeting of Stockholders held in 1996, 1997 and
1999 and at the Annual Meetings held in every third
year thereafter; and
Class III Directorships - Messrs. Bennett, Flynn and Greenlee will be considered
to hold Class III Directorships. The Class III
Directorships held by Messrs. Bennett and Flynn will
expire at the Annual Meeting of Stockholders in 1995
and 1997 and at the Annual Meetings of Stockholders
held in every third year thereafter and the Class III
Directorship held by Mr. Greenlee will expire at the
Annual 0 Meeting of Stockholders held in 1996 and 1997
and at the Annual Meetings held in every third year
thereafter.
SECTION 5. Nominations for Directors.
- --------------------------------------
Nominations of candidates for election as directors of the
corporation at any meeting of stockholders called for the election of directors
may be made by the Board of Directors or by any stockholder entitled to vote at
such meeting. Nominations made by the Board of Directors shall be made at a
meeting of the Board of Directors, or by written consent of directors in lieu of
a meeting, not later than sixty days prior to the date of any meeting of
stockholders called for the election of directors. The Secretary of the
corporation shall request that each such proposed nominee provide the
corporation with such information concerning himself as is required, under the
rules of the Securities and Exchange Commission, to be included in the
corporation's proxy statement soliciting proxies for his election as a director.
Any stockholder who intends to make a nomination at any annual meeting of
stockholders shall deliver to the Secretary of the corporation not later than
120 days prior to the date on which the corporation's proxy statement was mailed
to stockholders in connection with the previous year's annual meeting, or if
such nomination is to be made at a meeting of shareholders other than an annual
meeting, a reasonable time before the mailing of the corporation's proxy
material, a notice setting forth (i) the name,
<PAGE>
-8-
age, business address and residence of each nominee proposed in such notice,
(ii) the principal occupation or employment of each such nominee, (iii) the
number of shares of capital stock of the corporation which are owned of record
and beneficially by each such nominee and (iv) such other information concerning
each such nominee as would be required, under the rules of the Securities and
Exchange Commission, in a proxy statement soliciting proxies for the election of
such nominees. Such notice shall include a signed consent of such nominee to
serve as a director of the corporation, if elected. In the event that a person
is validly designated as a nominee in accordance with the provisions of this
section and shall thereafter become unable or unwilling to stand for election to
the Board of Directors, the Board of Directors or the stockholder who proposed
such nominee, as the case may be, may designate a substitute nominee. If the
Secretary of the meeting of stockholders called for the election of directors
determines that a nomination was not made in accordance with the foregoing
procedures, such nomination shall be void.
SECTION 6. Newly Created Directorships and Vacancies.
- ------------------------------------------------------
Newly created directorships resulting from an increase in the number
of directors and vacancies occurring in the Board of Directors for any reason
may be filled by vote of a majority of the directors then in office, although
less than a quorum exists. A director elected to fill a newly created
directorship or a vacancy shall be elected to hold office until the next meeting
of shareholders at which the election of directors is in the regular order of
business, and until his successor has been elected and qualified.
SECTION 7. Removal of Directors.
- ---------------------------------
Any director, an entire class of directors or the entire board of
directors may be removed from office, only for cause, and only by the
affirmative vote of the holders of at least 75% of the outstanding shares of
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
SECTION 8. Quorum of Directors.
- --------------------------------
One-third (1/3) of the entire Board of Directors shall constitute a
quorum for the transaction of business or of any specified item of business.
SECTION 9. Action by the Board of Directors.
- ---------------------------------------------
The vote of the majority of the directors present at a meeting of
the Board of Directors at the time of the vote, if a quorum is present at such
time, shall, except as otherwise provided
<PAGE>
-9-
by law, these By-Laws or the certificate of incorporation, be the
act of the Board of Directors.
SECTION 10. Written Consent of Directors Without a Meeting.
- ------------------------------------------------------------
Any action required or permitted to be taken by the Board of
Directors or a committee thereof may be taken without a meeting if all members
of the Board or the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the Board or committee shall be filed with the minutes of the
proceedings of the Board or committee.
SECTION 11. Place and Time of Meetings of Board of Directors.
- --------------------------------------------------------------
Meetings of the Board of Directors, regular or special, may be held
at any place, within or without the State of New York and at any time, fixed by
the Board of Directors or by the person or persons calling the meeting. Such
meetings may be held by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time.
SECTION 12. Notice of Meetings of the Board of Directors.
- ----------------------------------------------------------
Regular meetings of the Board of Directors may be held without
notice if the time and place of such meetings are fixed by the Board of
Directors. Special meetings of the Board of Directors shall be held upon notice
to the directors and may be called by the Chairman of the Board or the
President, or any two directors. The notice shall be given personally including
by telephone or mail, telegram, cable or other public instrumentality. If given
personally or by telephone, such notice shall be given not less than 48 hours
before the meeting to each director. If given by mail, cable telegram or other
public instrumentality, such notice shall be given not less than five (5) days
before the date of the meeting, to each director. Such notice shall be deemed
given, if mailed, when deposited in the United States mail, with postage thereon
prepaid, or, if telegraphed, cabled or sent by other public instrumentality,
when given to the telegraph company, cable company, or other public
instrumentality, directed to the director at his business address, or, if he
shall have filed with the secretary of the corporation a written request that
notices to him be mailed or telegraphed, cabled or sent to some other address,
then directed to him at such other address. The notice need not specify the
purpose of any regular or special meeting of the Board of Directors.
<PAGE>
-10-
SECTION 13. Interested Directors.
- ----------------------------------
No contract or other transaction between the corporation and one or
more of its directors, or between the corporation and any other corporation,
firm, association or other entity in which one or more of its directors or
officers are directors, or have a substantial financial interest, shall be
either void or voidable for this reason alone or by reason alone that such
director or directors are present at the meeting of the Board, or of a committee
thereof, which approves such contract or transaction, or that his or their votes
are counted for such purpose:
(1) If the material facts as to such director's
interest in such contract or transaction and as to any such common
directorship, officership or financial interest are disclosed in
good faith or known to the Board or committee, and the Board or
committee approves such contract or transaction by a vote
sufficient for such purpose without counting the vote of such
interested director or, if the votes of the disinterested directors
are insufficient to constitute an act of the Board as defined in
Section 9 of this Article, by unanimous vote of the disinterested
directors; or
(2) If the material facts as to such director's
interest in such contract or transaction and as to any such common
directorship, officership or financial interest are disclosed in
good faith or known to the shareholders entitled to vote thereon,
and such contract or transaction is approved by vote of such
shareholders; or
(3) If the contract or transaction is affirmatively
established by the party or parties thereto to be fair and
reasonable as to the corporation at the time it was approved by the
Board, a committee thereof, or the shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or a committee thereof which
approves such contract or transaction.
The Board of Directors shall have authority to fix the compensation
of Directors for services in any capacity.
A loan shall not be made by the corporation to any director unless
it is authorized by vote of the shareholders. For this purpose, the shares of
the director who would be the borrower shall not be shares entitled to vote.
SECTION 14. Reimbursement and Compensation of Directors.
- ---------------------------------------------------------
The directors may be paid their expenses of attendance at each
meeting of the Board of Directors and may be paid a fixed sum
<PAGE>
-11-
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of the executive committee or other committees may be allowed similar
reimbursement and compensation for their services as such.
SECTION 15. Executive Committee and Other Committees.
- ------------------------------------------------------
The Board of Directors by resolution adopted by a majority of the
entire board, may designate from among its members an executive committee and
other committees, each consisting of three or more directors. Except as to
matters listed below and except as otherwise provided by the Board of Directors,
the executive committee, during the interim between meetings of the board of
directors, shall possess and may exercise all of the powers of the Board of
Directors in the management and direction of the business and conduct of the
affairs of the corporation, and shall have power to authorize the seal of the
corporation to be affixed to all papers which may be required. Each other
committee shall have and may exercise such powers as shall be conferred or
authorized by the resolution appointing it.
No such committee shall have authority as to the following matters:
(1) The submission to shareholders of any action that
needs shareholders' approval;
(2) The filling of vacancies in the Board of Directors
or in any committee;
(3) The fixing of compensation of the directors for
serving on the Board of Directors or on any committee;
(4) The amendment or repeal of the by-laws or the
adoption of new by-laws;
(5) The amendment or repeal of any resolution of the
Board of Directors.
Each such committee shall serve at the pleasure of the board. The
Board of Directors shall have the power at any time to fill vacancies in, to
change the size or membership of, and to discharge any such committee.
A majority of any such committee may determine its action and may
fix the time and place of its meetings, unless provided otherwise by the Board
of Directors. Each such committee shall keep a written record of its acts and
proceedings and shall submit such record to the Board of Directors at each
regular meeting
<PAGE>
-12-
thereof and at such other times as requested by the Board of Directors. Failure
to submit such record, or failure of the Board to approve any action indicated
therein will not, however, invalidate such action to the extent it has been
carried out by the Corporation prior to the time the record of such action was,
or should have been, submitted to the Board of Directors as herein provided.
ARTICLE IV
Officers.
---------
SECTION 1. Officers.
- ---------------------
The Board of Directors may elect from its members a Chairman of the
Board and shall elect a President, a Chairman of the Executive Committee, one or
more Executive Vice Presidents, one or more Senior Vice Presidents and Vice
Presidents, a Secretary, a Treasurer and a Controller. The Board of Directors
may also at any time elect one or more Assistant Secretaries and/or Assistant
Treasurers. Any two or more offices may be combined and conferred upon one
person except the offices of President and Secretary.
The Board of Directors shall appoint either the Chairman of the
Board, if any, or the President, the Chief Executive Officer of the Corporation
("the CEO"), who, subject to the control of the Board of Directors, shall direct
and control all the business and affairs of the Corporation. The Board of
Directors may appoint an Executive Vice President or a Senior Vice President as
the Chief Operating Officer of the Corporation ("the COO") who shall be subject
to the control of, and perform such duties as may be assigned by, the Chairman
of the Board, the President or the Board of Directors. The Board of Directors
may appoint an Executive Vice President or a Senior Vice President as the Chief
Financial Officer of the Corporation ("the CFO") who shall be responsible for
all the fiscal affairs of the Corporation and who shall be subject to the
control of, and perform such duties as may be assigned by, the Chairman of the
Board, the President or the Board of Directors.
SECTION 2. Election and Term of Office.
- ----------------------------------------
The officers of the Corporation shall be elected by a majority vote
of the entire Board of Directors at its first meeting held after the annual
meeting of the stockholders. In the event of the failure of the Board to elect
such officers at such meeting or in the event of a vacancy then such election
may be made at any subsequent regular or special meeting of the Board. The
President, the Chairman of the Board and the Chairman of the Executive Committee
shall be, but the other officers need not be, directors of the Corporation. All
officers shall serve under the direction
<PAGE>
-13-
of and at the pleasure of the Board of Directors. Any vacancy occurring in any
office may be filled by the Board of Directors.
SECTION 3. Powers and Duties of Officers.
- ------------------------------------------
(a) Chairman of the Board of Directors. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders and at all meetings
of the Board of Directors, and shall perform such other duties as may be
assigned to him from time to time by the Board.
(b) Chairman of the Executive Committee. The Chairman of the
Executive Committee shall preside at all meetings of the Executive Committee,
and in the absence of the Chairman of the Board of Directors and the President
shall preside at all meetings of stockholders and at all meetings of the Board
of Directors. He shall have such other and further powers and shall perform such
other and further duties as may be assigned to him by the Board of Directors.
(c) President. The President shall perform the duties of the
Chairman of the Board of Directors in his absence or during his inability to
act. Any action taken by the President in the performance of the duties of the
Chairman of the Board of Directors shall be conclusive evidence of the absence
or inability to act of the Chairman of the Board of Directors at the time such
action was taken. He shall also have such other and further powers and shall
perform such other and further duties as may be assigned to him by the Board of
Directors.
(d) Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents. Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents shall perform such duties as may be assigned to them by the Chairman
of the Board of Directors or by the President or by the Board of Directors. The
Board of Directors may designate any one or more of said Executive Vice
Presidents or Senior Vice Presidents as the Chief Operating Officer or the Chief
Financial Officer.
(e) Treasurer. The Treasurer shall have the care and custody of the
corporate funds and securities. He shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse the funds of the
Corporation in the manner ordered by the Board. He shall upon request render an
account of all his transactions as Treasurer to the Board of Directors. He
shall, at all reasonable hours, exhibit his books and accounts to any director
upon application. He or an Assistant Treasurer or such other officers, directors
or agents as may be designated by the Board of Directors shall endorse checks,
notes or drafts payable to the order of the corporation and sign and
<PAGE>
-14-
countersign checks, drafts, and orders for the payment or withdrawal of moneys
or securities on deposit in the corporate accounts in such manner as the Board
may direct. He shall perform such other duties as shall be assigned to him by
the Board of Directors or by the Chairman of the Board of Directors or by the
President.
(f) Secretary. The Secretary shall keep the minutes of all meetings
of the Board of Directors, and the stockholders, unless another person be
appointed for that purpose by the stockholders, and also, unless another person
be appointed for that purpose by the Executive Committee, the minutes of the
Executive Committee, in books provided for that purpose. He shall give or cause
to be given all notices required by these by-laws or by resolution of the Board
of Directors. He shall have charge of the stock certificate books, stock
transfer books and stock ledgers, all of which shall at all reasonable hours be
open to the examination of any director; he shall have custody of the seal of
the Corporation; and he shall in general perform all the duties usually incident
to the office of Secretary, subject to the control of the Board of Directors.
The Secretary or an Assistant Secretary shall also certify all resolutions and
proceedings of the stockholders, directors and Executive Committee.
(g) Controller. The Controller shall be the chief accounting officer
of the corporation, and shall be responsible for and have active control of all
matters pertaining to the accounts of the corporation. He shall audit all
payrolls and vouchers and shall direct the manner of certifying the same; shall
supervise the manner of keeping all vouchers for payments and all other
documents relating to such payments; shall receive and audit all operating and
financial statements of the corporation and its subsidiaries; shall have the
care, custody and supervision of the books of account of the corporation, their
arrangement and classification and shall supervise the accounting and auditing
practices of the corporation. He shall, at all reasonable hours, exhibit his
books and accounts to any director upon application. He shall, upon request,
render an account of the financial condition of the corporation to the Board of
Directors. He shall perform such other duties as shall be assigned to him by the
Board of Directors or by the Chairman of the Board of Directors or the
President.
(h) Assistant Officers. The Assistant Secretary or Secretaries and
the Assistant Treasurer or Treasurers shall perform the duties of the Secretary
and of the Treasurer, respectively, in the absence of those officers and shall
have such further powers and perform such other duties as may be assigned to
them respectively by the Board of Directors.
(i) Removal. Any officer (other than a director) may be removed,
either with or without cause, by a vote of a majority of
<PAGE>
-15-
the whole Board of Directors at a special meeting of the Board called for that
purpose, or by any committee or superior officer upon whom such power of removal
may be conferred by the Board of Directors.
(j) Bond. Any officer of the Corporation shall give a bond for the
faithful discharge of his duties, in such sum, when and as shall be required by
the Board of Directors.
(k) Compensation. The compensation of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be prevented
from receiving such compensation by reason of the fact that he is also a
director of the corporation.
SECTION 4.
The Chairman of the Board, President, Secretary, or any other
officer designated by the Board of Directors, is hereby empowered to endorse or
execute and deliver any instrument of transfer of any certificate for shares of
stock, or bond, or other security owned by or standing in the name of the
Corporation.
ARTICLE V
Contracts, Checks and Deposits.
-------------------------------
SECTION 1. Contracts.
- ----------- ----------
The Board of Directors may authorize any officer or officers, agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation and such authority may be general
or confined to specific instances.
SECTION 2. Checks, Drafts, etc.
- --------------------------------
All checks, drafts or other orders for the payment of money, notes
or other evidences of indebtedness issued in the name of the corporation, shall
be signed by such officer or officers, agent or agents of the corporation and in
such manner as shall from time to time be determined by resolution of the Board
of Directors.
SECTION 3. Deposits.
- ---------------------
All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the Board of Directors may select.
<PAGE>
-16-
ARTICLE VI
Certificates Representing Shares, Record
of Shareholders, Transfer of Shares.
------------------------------------
SECTION 1. Issuance of Shares.
- -------------------------------
No shares of any class of the corporation or any obligations or
other securities convertible into or carrying options to purchase any such
shares of the corporation, or any options or rights to purchase any such shares
or securities of the corporation, shall be issued or sold unless such issuance
or sale is approved by the affirmative vote of at least a majority of the entire
Board of Directors.
SECTION 2. Certificates Representing Shares.
- ---------------------------------------------
The shares of the corporation shall be represented by certificates
which shall be in such form as shall be determined by the Board of Directors.
All such certificates shall be consecutively numbered or otherwise identified.
Such certificates shall be signed by the Chairman of the Board or the President
or a Vice-President and the Secretary or an Assistant Secretary or the Treasurer
or an Assistant Treasurer, and may, but need not, be sealed with the seal of the
corporation or a facsimile thereof. The signature of the officers upon the
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or an assistant transfer agent, or registered by a registrar other than
the corporation itself or its employee. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of
issue. Each certificate shall state upon the face thereof; (1) that the
corporation is formed under the laws of New York; (2) the name of the person or
persons to whom issued; (3) the number and class of shares and the par value of
each share represented by such certificate.
SECTION 3. Lost, Destroyed or Wrongfully Taken Certificates.
- -------------------------------------------------------------
The Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the corporation, alleged to have been lost, apparently destroyed or wrongfully
taken upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, apparently destroyed or wrongfully taken. When
authorizing such issue of a new certificate or certificates, the Board of
Directors, may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, apparently destroyed or wrongfully
taken certificate or
<PAGE>
-17-
certificates, or his legal representative to advertise the same in such manner
as it shall require and/or give the corporation a bond in such sum and with
such surety or sureties as it may direct as indemnity against any claim that
may be made against the corporation with respect to the certificate alleged to
have been lost, apparently destroyed or wrongfully taken.
SECTION 4. Record of Shareholders.
- -----------------------------------
The corporation shall keep at its principal office, or at the office
of its transfer agent in the State of New York, a record containing the names
and addresses of all shareholders, the number and class of shares held by each
and the dates when they respectively became the owners of record thereof. The
corporation shall be protected in treating the persons in whose names shares
stand on the record of shareholders as the owners thereof for all purposes.
SECTION 5. Transfer of Shares.
- -------------------------------
Upon surrender to the corporation or the transfer agent of the
corporation of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate. Every such transfer of shares shall be
entered on the record of shareholders of the corporation.
ARTICLE VII
Fiscal Year.
------------
The fiscal year of the corporation shall be the calendar year.
ARTICLE VIII
Dividends.
----------
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its certificate of incorporation.
<PAGE>
-18-
ARTICLE IX
Seal.
-----
The seal of the corporation shall be circular in form and contain
the name of the corporation, the year when it was formed, and the words "New
York". The corporation may use the seal causing it or a facsimile to be affixed
or impressed or reproduced in any other manner.
ARTICLE X
Waiver of Notice.
-----------------
SECTION 1. Waiver of Notice to Shareholders.
- ---------------------------------------------
Notice of meeting need not be given to any shareholder who signed a
waiver of notice, in person or by proxy, whether before or after the meeting.
The attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
SECTION 2. Waiver of Notice to Director.
- -----------------------------------------
Notice of meeting need not be given to any director who signs a
waiver of notice whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice to
him. A waiver of notice need not specify the purpose of any regular or special
meeting of the Board of Directors.
SECTION 3. Notice Dispensed with When Delivery Prohibited.
- -----------------------------------------------------------
Whenever communication to any shareholder or any director is
unlawful under any statute of the State of New York or of the United States or
any regulation, proclamation or order issued under said statutes, the giving of
any notice to such shareholder or such director shall not be required and there
shall be no duty to apply for license or other permission to so do.
ARTICLE XI
Indemnification.
----------------
To the fullest extent permitted by law, either directly or by the
purchase of insurance or in part directly and in part by the purchase of
insurance, the corporation shall indemnify each natural person, or if deceased,
his personal representative made or
<PAGE>
-19-
threatened to be made a party to any action or proceeding civil or criminal,
including an appeal therein against the reasonable expenses, attorneys' fees,
judgments, fines and amounts paid in settlement if such person is made or
threatened to be made a party by reason of the fact that he or his testator or
intestate is or was: (1) an officer, director or employee of the corporation or
(2) an officer, director or employee of or served in any capacity in any other
corporation, partnership, joint venture, trust or other enterprise, at the
request of this corporation, provided that in the case of a person serving as an
employee or in any other capacity in any other corporation, partnership, joint
venture, trust or other enterprises, that such person was at the time he was so
designated to serve by this corporation, an employee of this corporation, or (3)
the occupant of a position or a member of a committee or board or a person
having responsibilities under federal or state law, including but not limited to
responsibilities under the Employee Retirement Income Security Act of 1974, who
was appointed to such position or to such committee or board by the Board of
this corporation or by an officer of this corporation or who served in such
position or on such committee or board at the request or direction of the Board
of this corporation or of an officer of this corporation or who assumed such
responsibilities at the request or direction of the Board of this corporation or
of any officer of this corporation, provided only that such person acted in good
faith for a purpose which he reasonably believed would be in the best interest
of the corporation or in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to the best interests of the corporation, and in criminal
proceedings had no reasonable cause to believe that his conduct was unlawful.
The corporation's obligations under this Article shall be reduced by
the amount of any insurance which is available to any such person whether such
insurance is purchased by the corporation or otherwise. The right of indemnity
created herein shall be personal to the officer, director, employee or other
person and their respective legal representatives and in no case shall any
insurance carrier be entitled to be subrogated to any rights created herein.
Nothing contained herein shall obligate the corporation to indemnify
any person against any claim arising out of personal injuries, bodily injuries
or property damage.
<PAGE>
-20-
ARTICLE XII
Employee Benefits.
------------------
The Board may from time to time make such provision for the
establishment, funding, and carrying out of pension, profit sharing, share
bonus, share purchase, share option, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions for any and all of its
employees and officers, as in its discretion the Board may deem advisable and
the Board may from time to time adopt and carry out any such plan or plans of
providing such benefits or modify, discontinue or terminate any such plan as may
then be in force. If any such benefit plan entitles members of the Board to
participate as employees of the company, every member of the Board shall be
entitled to vote upon any matter relating to the adoption, administration,
carrying out, modification, discontinuance or termination of any such plan. The
Board shall have power to appropriate funds including cash, stock, and other
property of the company to defray, in whole or in part, the cost of providing
any such benefits which may be based upon services rendered by employees prior
to the date of establishment or modification of such plan and upon services to
be rendered thereafter prior to the retirement or other payment date provided
therein and may obligate the company to make payments toward defraying any such
expenses over a period of years, subject always to the power of the Board in its
discretion to modify, discontinue and terminate any such benefit plan to the
extent then permitted in existing tax or other laws. The Board shall have full
power in its discretion to provide for the administration of any such benefit
plan and the investment and reinvestment of funds therein by an insurance
company, trustees (who may be directors, officers or employees of the company),
or other agency under such terms and conditions as the Board may deem advisable
or to provide for the administration of such plan and the investment and
reinvestment of the funds therein by the company. The Board shall have full
power in its discretion to delegate to such committees, individuals (who may be
directors, officers or employees of the company) or independent consultants such
part of the carrying out of any such plan as in its discretion it may deem
advisable.
ARTICLE XIII
Amendment and Repeal.
---------------------
SECTION 1. Amendment and Repeal by the Shareholders.
- -----------------------------------------------------
These By-Laws may be amended or repealed by the affirmative vote of
holders of at least 75% of the outstanding shares of stock of the Corporation
entitled to vote generally in
<PAGE>
-21-
the election of directors, provided that the notice of meeting states such
purpose.
SECTION 2. Amendment and Repeal by the Board of Directors.
- -----------------------------------------------------------
These By-Laws may also be amended or repealed by the affirmative
vote of at least 75% of the entire Board of Directors.
CLOSING DOCUMENTS
-----------------
CREDIT AGREEMENT
between
HARDINGE INC.
(the "Borrower")
and
MARINE MIDLAND BANK
(the "Bank")
Dated as of November 18, 1996
<PAGE>
HARDINGE/MARINE MIDLAND
Closing List
- ------------
1. Credit Agreement dated 11/18/96
2. Authorization Letter on Hardinge letterhead
3. Certificate of Incumbency
4. Certified Resolution
5. Officer's Certificate
6. Opinion of Counsel as to Execution and Delivery of Documents
(Cushman, Darby & Cushman, LLP opinion letter attached)
7. Certificate of Good Standing
8. Promissory Note
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of November 18, 1996 between HARDINGE INC., a
corporation organized under the laws of New York (the "Borrower"), and MARINE
MIDLAND BANK, a banking corporation organized under the laws of New York (the
"Bank").
The Borrower desires that the Bank extend credit as provided herein and the
Bank is prepared to extend such credit. Accordingly, the Borrower and the Bank
agree as follows:
ARTICLE 1. DEFINITIONS; ACCOUNTING TERMS.
Section 1.01. Definitions. As used in this Agreement the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa):
"Affiliate" means any Person: (a) which directly or indirectly controls,
or is controlled by, or is under common control with, the Borrower or any of its
Subsidiaries; (b) which directly or indirectly beneficially owns or holds 5 % or
more of any class of voting stock of the Borrower or any such Subsidiary; (c) 5%
or more of the voting stock of which is directly or indirectly beneficially
owned or held by the Borrower or such Subsidiary; or (d) which is a partnership
in which the Borrower or any of its Subsidiaries is a general partner. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Aggregate Consideration" shall mean (i) in the case of a purchase of a
company's equity securities, the total consideration paid for such securities
(including amounts paid to holders of options, warrants and convertible
securities) plus the principal amount of all indebtedness for borrowed money as
set forth on the most recent consolidated balance sheet of the company being
acquired prior to consummation of such sale, exchange or purchase, and (ii) in
the case of a purchase of assets, the total consideration paid for such assets
plus the principal amount of all indebtedness for borrowed money assumed by the
Borrower.
"Agreement" means this Credit Agreement, as amended or supplemented from
time to time. References to Articles, Sections, Exhibits, schedules and the like
refer to the Articles, Sections,
<PAGE>
-2-
Exhibits, schedules and the like of this Agreement unless otherwise indicated.
"Alternative Currency" shall mean at any time any of Canadian Dollars,
Deutsche Marks, French Francs, Pounds Sterling, Swiss Francs, and Yen, so long
as at such time (a) such Currency is dealt with in the London interbank deposit
market, (b) such Currency is freely transferrable and convertible into Dollars
in the London foreign exchange market, and (c) no central bank or other
governmental authorization in the country of issue of such Currency is required
to permit use of such Currency by any Bank for making any Loan hereunder and/or
to permit the Borrower to borrow and repay the principal thereof and to pay the
interest thereon, unless such authorization has been obtained. As of the date of
this Agreement, each Alternative Currency is dealt with in the London interbank
deposit market, each Alternative Currency is freely transferable and convertible
into Dollars in the London foreign exchange markets and no central bank or other
governmental authorization in the country of issue of such Alternative Currency
is required to permit the use of such currency by the Bank for making any Loan
hereunder and/or to permit the Borrower to borrow and repay the principal
thereof and to pay interest thereon.
"Amortization Date" means the first day of each calendar quarter,
commencing on the first such day occurring after the Revolving Credit
Termination Date, up to (and including) the Termination Date, provided that if
any such day is not a Banking Day, such day shall be the next succeeding Banking
Day (or, if such next succeeding Banking Day falls in the next calendar month,
the next preceding Banking Day).
"Authorization Letter" means the letter agreement executed by the Borrower
in the form of Exhibit B.
"Banking Day" means (a) any day on which commercial banks are not
authorized or required to close in New York City, and (b) whenever such day
relates to a Eurodollar Loan or notice with respect to any Eurodollar Loan, a
day on which foreign exchange trading is carried out in the London interbank
market in the Currency in which such Eurodollar Rate Loan is denominated.
"Basis Point" means one one-hundredth of one percent.
"Canadian Dollars" and the sign "C$" means the lawful currency of Canada.
"Capital Lease" means any lease which has been or should be capitalized on
the books of the lessee in accordance with GAAP.
"Closing Date" means November 18, 1996, the date this Agreement has been
executed by the Borrower and the Bank.
<PAGE>
-3-
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" means the obligation of the Bank to make Loans under this
Agreement in the aggregate principal amount of $20,000,000.00, as such amount
may be reduced or otherwise modified from time to time.
"Commitment Period" means the period from and including the date of this
Agreement to but excluding the first Amortization Date and thereafter each
period from and including an Amortization Date to but excluding the next
succeeding Amortization Date.
"Consolidated Capital Expenditures" means for any period, the Dollar amount
of gross expenditures (including obligations under Capital Leases) made for
fixed assets, real property, plant and equipment, and all renewals, improvements
and replacements thereto, (but not repairs thereof) incurred during such period
for the Borrower and its Consolidated Subsidiaries, as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Current Assets" means all assets of the Borrower and its
Consolidated Subsidiaries, treated as current assets in accordance with GAAP.
"Consolidated Current Liabilities" means all liabilities of the Borrower
and its Consolidated Subsidiaries, treated as current liabilities in accordance
with GAAP, including without limitation (a) all obligations payable on demand or
within one (1) year after the date in which the determination is made, and (b)
installment and sinking fund payments required to be made within one (1) year
after the date on which determination is made, but excluding any such
indebtedness renewable or extendable at the option of the obligor under, or
payable from the proceeds of other indebtedness which may be incurred pursuant
to the provisions of any revolving credit agreements or other similar agreement.
"Consolidated Net Income" means for any period the net income of Borrower
and its Consolidated Subsidiaries for such period determined on a consolidated
basis without duplication, in accordance with GAAP.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or are
required to be consolidated with the accounts of the Borrower in accordance with
GAAP.
"Consolidated Tangible Net Worth" means Tangible Net Worth of the Borrower
and its Consolidated Subsidiaries, as determined on a consolidated basis in
accordance with GAAP.
<PAGE>
-4-
"Consolidated Total Unsubordinated Liabilities" means all items on a
consolidated basis, in accordance with GAAP consistently applied, which would
properly be included (a) on the liability side of the balance sheet (other than
Subordinated Debt, capital stock, capital Surplus and retained earnings), or (b)
as obligations under direct or indirect guarantees or obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise assure a creditor
against loss in respect of, indebtedness or obligations of others; provided,
however, excluded therefrom shall be all but 10% of the obligations resulting
from the sale, pledge or discount of customer notes by Borrower and its
Subsidiaries.
"Controlled Group" shall have the meaning assigned to such term in Section
6.02(e) hereof.
"Currency" means Dollars or any Alternative Currency.
"Debt" means, with respect to any Person: (a) indebtedness of such Person
for borrowed money; (b) obligations of such Person as lessee under Capital
Leases, (c) obligations under direct or indirect guarantees in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clause (a) and (b) above, (not
otherwise reserved for) and (d) defined benefit pension liabilities in respect
of unfunded vested benefits under plans covered by ERISA calculated consistently
with GAAP. Excluded from the term Debt shall be an amount equal to 90% of the
obligations of the Borrower and its Subsidiaries arising from the sale, pledge,
or discounting of customer notes.
"Default" means any event which with the giving of notice or lapse of time,
or both, would become an Event of Default.
"Default Rate" means, with respect to the principal of any Loan and, to the
extent permitted by law, any other amount payable by the Borrower under this
Agreement or any Note that is not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum during the period from and
including the due date, to, but excluding the date on which such amount is paid
in full equal to 2% above the Variable Rate as in effect from time to time plus
the Margin (if any) (provided that, if the amount so in default is principal of
a Eurodollar Loan and the due date thereof is a day other than the last day of
the Interest period therefor, the "Default Rate" for such principal shall be,
for the period from and including the due date and to but excluding the last day
of the Interest period therefor, 2% above the interest rate for such Loan as
provided in section 2.10 hereof and, thereafter, the rate provided for above in
this definition).
<PAGE>
-5-
"Deutsche Marks" and the sign "DM" means the lawful currency of the Federal
Republic of Germany.
"Dollar Equivalent" means with respect to any Loan denominated in an
Alternative Currency as at any date of determination thereof, the amount of
Dollars that would be required to purchase the amount of the Alternative
Currency of such Loan on the date two Business Days prior to the date of such
Loan, based on the arithmetic mean (rounded upwards, if necessary. to the
nearest one-one hundredth of one percent) of the spot selling rate at which the
Bank offers to sell such Alternative Currency for Dollars in the London foreign
exchange market at approximately 11:00 a.m. London time for delivery on the date
of such Loan.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Domestic Subsidiaries" means any Subsidiary formed and currently existing
under the laws of the United States of America or a State thereof.
"Earnings Before Interest and Taxes" means the net income of the Borrower
and its Consolidated Subsidiaries prior to the deduction of interest expense and
prior to the deduction for federal, state or foreign corporate income and
corporate franchise taxes.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including any rules and regulations promulgated
thereunder.
"Eurodollar Loan" means any Loan when and to the extent the interest rate
therefor is determined on the basis of the definition "LIBO Base Rate."
<PAGE>
-6-
"Eurodollar Note" means the promissory note provided for in Section 2.02(b)
hereof and all promissory notes delivered in substitution or exchange therefor,
in each case as the same shall be modified and supplemented and in effect from
time to time.
"Event of Default" has the meaning given such term in Section 9.01.
"Facility Documents" means this Agreement, the Notes, and the Authorization
Letter.
"Federal Funds Rate" means, for any day, the rate per annum equal to the
weighted average of the rates on overnight federal funds transactions as
published by the Federal Reserve Bank of New York for such day (or for any day
that is not a Banking Day, for the immediately preceding Banking Day).
"Forfeiture Proceeding" means any action, proceeding or investigation
affecting the Borrower or any of its Subsidiaries or Affiliates before any
court, governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or the receipt of notice by any such party
that any of them is a suspect in or a target of any governmental inquiry or
investigation, which may result in an indictment of any of them or the seizure
or forfeiture of any of their property.
"French Francs" and the sign "Ffr" means the lawful currency of the
Republic of France.
"Funded Debt" means, with respect to any Person, all Debt of such Person
for borrowed money.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, applied on a basis consistent with
those used in the preparation of the financial statements referred to in Section
5.05 (except for changes concurred in by the Borrower's independent public
accountants).
"Hazardous Materials" means any substance regulated under any Environmental
Laws.
"Interest Period" means the period commencing on the date a Loan is made
and ending, as the Borrower may select pursuant to Section 2.06: (a) in the case
of Variable Rate Loans, the period commencing on the date such Variable Rate
Loan is made and ending on the Quarterly Date next succeeding such date; (b) in
the case of Eurodollar Loans, on the numerically corresponding day in the first,
second, third, or sixth calendar month thereafter, provided that each such
Interest Period which commences on the last Banking Day of a calendar month (or
on any day for which
<PAGE>
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there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Banking Day of the appropriate calendar month.
"Lending Office" means for each type of Loan, the lending office of the
Bank (or of an affiliate of the Bank) designated as such for such type of Loan
on its signature page hereof or such other office of the Bank (or of an
affiliate of the Bank) as it may from time to time specify to the Borrower as
the office by which its Loans of such type are to be made and maintained.
"Liens" shall have the meaning assigned to such term in Section 7.01
hereof.
"LIBO Base Rate" means with respect to any Eurodollar Loan the arithmetic
mean of the respective rates per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) quoted at approximately 11:00 a.m. London time by the
principal branch of the Bank two Banking Days prior to the first day of the
Interest Period for such Loan for the offering to leading banks in the London
interbank market of deposits in the Currency of the Eurodollar Loan in
immediately available funds, for a period, and in an amount, comparable to such
Interest Period and principal amount of the Eurodollar Loan. If the Bank is no
longer quoting on the London interbank market, the LIBO Base Rate shall be
determined by the Bank on the basis of quotes from a bank selected by the Bank
and approved by Borrower.
"LIBO Rate" means, for any Eurodollar Loan, a rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the sum of the
quotient of (a) the LIBO Base Rate for such Loan for the Interest Period
therefor, divided by (b) one minus the Reserve Requirement for such Loan for
such Interest Period.
"Loan" means a Revolving Credit Loan or a Term Loan or both, as the context
requires.
"Margin" means for each Variable Rate Loan and Eurodollar Loan the lowest
applicable margin on the table next following, computed as of each Quarterly
Date based upon Borrower's financial statements for the immediately preceding
four Quarterly Dates for income statement items and the most recent Quarterly
Date for balance sheet items.
<PAGE>
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================================================================================
(a) Ratio of Funded Debt to Variable Rate Loans Eurodollar Loans
Earnings Before Interest & Taxes
- --------------------------------------------------------------------------------
Equal to or less than 1.0 0 Basis Points 45 Basis Points
- --------------------------------------------------------------------------------
Greater than 1.0 and less than or 0 Basis Points 55 Basis Points
equal to 2.0
- --------------------------------------------------------------------------------
Greater than 2.0 and less than or 0 Basis Points 65 Basis Points
equal to 3.0
- --------------------------------------------------------------------------------
Greater than 3.0 0 Basis Points 75 Basis Points
================================================================================
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of ERISA
to which contributions have been made by the Borrower or any ERISA Affiliate and
which is covered by Title IV of ERISA.
"Net Worth" means, at any date of determination thereof, the sum for the
Borrower and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) of (a) the amount of common stock; plus (b)
the amount of any preferred stock that does not have any requirement for the
Borrower to purchase, redeem, retire or otherwise acquire the same; plus (c) the
amount of additional paid-in-capital and retained earnings (or, in the case of
an additional paid-in-capital or retained earnings deficit, minus the amount of
such deficit); plus (d) cumulative pension liability adjustments (or, in the
case of negative adjustments, minus the amount of such adjustments); plus (e)
cumulative foreign currency translation adjustments (or, in the case of negative
adjustments, minus the amount of such adjustments); plus (f) any other items
which under GAAP are included in shareholders equity (or, in the case of items
excluded from shareholders equity, minus such items); and minus (g) the cost of
treasury stock.
"Note" means collectively the Eurodollar Note and Variable Rate Note of the
Borrower in the form of Exhibit A-1 and A-2 hereto evidencing the Loans made by
the Bank hereunder.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
<PAGE>
-9-
"Plan" shall have the meaning assigned to such term in Section 6.02 (e)
hereof.
"Pounds Sterling" and the sign "(pound)" means the lawful currency of the
United Kingdom.
"Prime Rate" means that rate of interest from time to time announced by the
Bank at its principal office as its prime commercial lending rate.
"Principal Office" means the principal office of the Bank, located at One
Marine Midland Plaza, Binghamton, New York 13902.
"Quarterly Dates" shall mean the last day of March, June, September and
December in each year, the first of which shall be the first such day after the
date of this Agreement.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means, with respect to the Bank, any change after the
date of this Agreement in United States federal, state, municipal or foreign
laws or regulations (including without limitation Regulation D) or the adoption
or making after such date of any interpretations, directives or requests
applying to a class of banks including the Bank of or under any United States,
federal, state, municipal or foreign laws or regulations (whether or not having
the force of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof.
"Reserve Requirement" means, for any Interest Period for any Eurodollar
Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during the
Interest Period for such Loan under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding $1,000,000,000.00
against in the case of Eurodollar Loans, "Eurocurrency liabilities" (as such
term is used in Regulation D). Without limiting the effect of the foregoing, the
Reserve Requirement shall also reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against (i)
any category of liabilities which includes deposits by reference to which the
LIBO Base Rate for Eurodollar Loans is to be determined as provided in the
definition of "LIBO Base Rate" in this Section
<PAGE>
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1.01 or (ii) any category of extensions of credit or other assets which include
Eurodollar Loans.
"Revolving Credit Loan" means any loan made pursuant to Section 2.01(a).
"Revolving Credit Termination Date" means November 1, 1999; provided that
if such date is not a Banking Day, such date shall be the next succeeding
Banking Day (or, if such next succeeding Banking Day falls in the next calendar
month, the next preceding Banking Day).
"Subordinated Debt" means Debt subordinated to the Bank on terms and
conditions satisfactory to the Bank.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which at least a majority of the securities or other ownership
interests having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by such Person.
"Swiss Francs" and the sign "Sfr" means the lawful currency of Switzerland.
"Tangible Net Worth" shall have the meaning assigned to such term in
Section 8.02 hereof.
"Term Loan" means the loan made by the Bank pursuant to Section 2.01(d).
"Term Note" means the promissory note provided for in Section 2.02(c)
hereof and all promissory notes delivered in substitution or exchange therefor,
in each case as the same shall be modified and supplemented and in effect from
time to time.
"Termination Date" means October 1, 2003; provided that if such date is not
a Banking Day, the Termination Date shall be the next succeeding Banking Day
(or, if such next succeeding Banking Day falls in the next calendar month, the
next preceding Banking Day).
"Unfunded Benefit Liabilities" means, with respect to any Plan, the amount
(if any) by which the present value of all benefit liabilities (within the
meaning of section 4001(a)(16) of ERISA) under the Plan exceeds the fair market
value of all Plan assets allocable to such benefit liabilities, as determined on
the most recent valuation date of the Plan and in accordance with the provisions
of ERISA for calculating the potential liability of the Borrower or any ERISA
Affiliate under Title IV of ERISA.
"Variable Rate" means, for any day, the higher of (a) the Federal Funds
Rate for such day plus fifty (50) Basis Points, and (b) the Prime Rate for such
day.
<PAGE>
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"Variable Rate Loan" means any Loan when and to the extent the interest
rate for such Loan is determined in relation to the Variable Rate.
"Variable Rate Note" means the promissory note provided for in Section
2.02(a) hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"Yen" and the sign "(Y)" means the lawful currency of Japan.
Section 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data required to be delivered hereunder shall be prepared in accordance with
GAAP.
ARTICLE 2. THE CREDIT.
Section 2.01. The Loans. (a) Subject to the terms and conditions of this
Agreement, the Borrower may borrow, repay and reborrow the aggregate amount of
the Bank's Commitment by means of Variable Rate Loans in Dollars and Eurodollar
Loans in any Currency and, the Bank agrees to make loans (the "Revolving Credit
Loans") to the Borrower from time to time from and including the date hereof to
but excluding the Revolving Credit Termination Date up to but not exceeding the
amount of its Commitment. The Revolving Credit Loans may be outstanding as
Variable Rate Loans or Eurodollar Loans (each a "type" of Loan). The Revolving
Credit Loans of each type, shall be made and maintained at the Bank's Lending
Office.
(b) Each Revolving Credit Loan shall be due and payable on the last day of
the Interest Period thereof and on the Revolving Credit Termination Date.
(c) For purposes of determining at the time of any borrowing whether the
amount of the borrowing would, together with all other outstanding Loans, exceed
the aggregate amount of the Bank's Commitment, and for purposes of determining
the unused portion of the Commitment, the amount of each Eurodollar Loan in an
Alternative Currency shall be deemed to be the Dollar Equivalent of the amount
of the Alternative Currency of such Eurodollar Loan on the date such
determination is made.
(d) The Bank agrees on the terms and conditions set forth in this Agreement
to make a loan (the "Term Loan") to the
<PAGE>
-12-
Borrower on the Revolving Credit Termination Date in a principal amount up to
but not exceeding the amount of the Commitment, as such amount may be reduced
pursuant to Section 2.07. The Term Loan may be outstanding as a Variable Rate
Loan, a Eurodollar Loan or a Fixed Rate Loan as provided in Section 2.10(c). The
Term Loan shall be repaid in 16 consecutive quarterly installments, each in an
amount equal to 1/16 of the original principal amount of the Term Loan. The
first such installment shall be due on the first Amortization Date.
Section 2.02. The Notes. (a) The Variable Rate Loans of the Bank shall be
evidenced by a single promissory note in favor of the Bank substantially in the
form of Exhibit A-1 hereto, dated the date of this Agreement, payable to the
order of the Bank and otherwise duly completed and executed by the Borrower.
(b) The Eurodollar Loans of the Bank shall be evidenced by a single
promissory note in favor of the Bank, substantially in the form of Exhibit A-2
hereto, dated the date of this Agreement, payable to the order of the Bank and
otherwise duly completed and executed by the Borrower.
(c) The Term Loan of the Bank shall be evidenced by a single promissory
note in favor of the Bank in the form of Exhibit A-3 hereto, dated the Revolving
Credit Termination Date, payable to the order of the Bank and otherwise duly
completed and executed by the Borrower.
(d) The date, amount, Currency (in the case of Eurodollar Loans), interest
rate and duration of Interest Period for each Loan made by the Bank to the
Borrower and each payment made on account of the principal thereof, shall be
recorded by the Bank on its books and, on the schedule attached to each Note or
any continuation thereof; provided, however, that the failure of the Bank to
make, or any error in making, any such recordation shall not affect the
obligations of Borrower to make a payment when due of any amount owing hereunder
or under such Note in respect of the Loans evidenced by such Note.
Section 2.03. Purpose. The Borrower shall use the proceeds of the Loans for
general corporate purposes and import/export letters of credit and foreign
exchange transactions. Subject to the limitations contained in Section 7.05,
proceeds of Loans to a maximum aggregate principal of $15,000,000.00 may be used
by the Borrower as Aggregate Consideration for acquisitions. Proceeds of Loans
to a maximum aggregate principal of $15,000,000.00 may be used by the Borrower
to repurchase shares of its common stock. Provided, however, and notwithstanding
any provision herein to the contrary, such proceeds shall not be used
<PAGE>
-13-
for the purpose, whether immediate, incidental or ultimate, of buying or
carrying "margin stock" within the meaning of Regulation U.
Section 2.04. Borrowing Procedures. The Borrower shall give the Bank notice
of each borrowing to be made hereunder as provided in Section 2.08. Not later
than 2:00 p.m. New York time on the date of such borrowing, the Bank shall,
through its Lending Office and subject to the conditions of this Agreement, make
the amount of the Loan to be made by it on such day available to the Bank at the
Principal Office and in immediately available funds for the account of the
Borrower. The amount so received by the Bank shall, subject to the conditions of
this Agreement, be made available to the Borrower, in immediately available
funds, by the Bank crediting an account of the Borrower designated by the
Borrower and maintained with the Bank at the Principal Office.
Section 2.05. Prepayments. The Borrower shall have the right to prepay
Loans at any time or from time to time in multiples of $150,000.00 to be applied
to principal in inverse order of maturity; provided that: (a) the Borrower shall
give the Bank notice of each such prepayment as provided in Section 2.08; (b)
Eurodollar Loans may not be prepaid, except that, if after the giving effect to
any reduction or termination of the Commitments pursuant to Section 2.07, the
outstanding aggregate principal amount of the Loans exceeds the aggregate amount
of the Commitments, the Borrower shall pay or repay the Loans on the date of
such reduction or termination in an aggregate principal amount equal to the
excess, together with interest thereon accrued to the date of such payment or
repayment and any amounts payable pursuant to Section 3.05 in connection
therewith; and (c) in the event the outstanding aggregate principal balance of
the Loans payable in Dollars and the Dollar Equivalent of all Loans payable in
Alternative Currency exceeds the aggregate amount of the Commitment, Borrower
shall pay the Loans in an aggregate principal amount equal to the excess,
together with interest thereon accrued to the date of payment.
Section 2.06. Interest Periods. In the case of each Loan, the Borrower
shall select an Interest Period of any duration in accordance with the
definition of Interest Period in Section 1.01, subject to the following
limitations: (a) no Interest Period may extend beyond an Amortization Date
unless, after giving effect thereto, the aggregate principal amount of
Eurodollar Loans having Interest Periods which end after such Amortization Date
shall be equal to or less than the principal amount to be outstanding hereunder
after such Amortization Date: (b) notwithstanding clause (a) above, no Interest
Period for a Eurodollar Loan shall have a
<PAGE>
-14-
duration less than one month and if any such proposed Interest Period would
otherwise be for a shorter period, such Interest Period shall not be available;
(c) if an Interest Period would end on a day which is not a Banking Day, such
Interest Period shall be extended to the next Banking Day, unless, in the case
of a Eurodollar Loan, such Banking Day would fall in the next calendar month in
which event such Interest Period shall end on the immediately preceding Banking
Day; and (d) up to the Revolving Credit Termination Date, no more than ten
Eurodollar Loans of the Bank may be outstanding at any one time.
Section 2.07. Changes of Commitment. (a) Unless theretofore reduced to such
amount pursuant to subsections (b) or (c) or (d) below, the amount of the
Commitments shall automatically reduce on each Amortization Date by an amount
equal to one-sixteenth (1/16th) of the outstanding principal balance of the
Loans on the Revolving Credit Termination Date. The amount of the Commitment
shall be reduced to zero on the Termination Date.
(b) The Borrower shall have the right to reduce or terminate the amount of
the Commitment at any time or from time to time, provided that: (i) the Borrower
shall give notice of each such reduction or termination to the Bank as provided
in Section 2.08, and (ii) each partial reduction shall be in an aggregate amount
at least equal to $1,000,000.00.
(c) On any day on or after the Revolving Credit Termination Date on which
the amount of the Commitment is greater than the principal amount of the Loan
outstanding on such day, the amount of the Commitment shall automatically reduce
to an amount equal to such outstanding principal amount.
(d) Each reduction of the amount of the Commitment pursuant to subsection
(b) or (c) above during any Commitment Period shall result in an automatic and
simultaneous reduction of the amount of the Commitment in an equal amount for
each subsequent Commitment Period.
(e) The Commitment once reduced or terminated may not be reinstated.
Section 2.08. Certain Notices. Notices by the Borrower to the Bank of each
borrowing pursuant to Section 2.04, each prepayment pursuant to Section 2.05 and
each reduction or termination of the Commitments pursuant to Section 2.07(b)
shall be irrevocable and shall be effective only if received by the Bank (a) in
the case of borrowings and (in the case of Variable Rate Loans) prepayments of,
(i) Variable Rate Loans, given before 10:00 a.m. New York time on the day of
borrowing; (ii) Eurodollar Loans
<PAGE>
-15-
in Dollars, given before 12:00 noon New York time three Banking Days prior
thereto; (iii) Eurodollar Loans in an Alternative Currency, given before 12:00
noon New York time four banking days prior thereto, and (b) in the case of
reductions or termination of the Commitment, given before 12:00 noon New York
time three Banking Days prior thereto. Each such notice shall specify the Loans
to be borrowed or prepaid, (subject to Section 2.09) the amount in Dollars (or,
in the case of Loans in Alternative Currencies, the Dollar Equivalent) and type
of the Loans to be borrowed or prepaid and the date of borrowing or prepayment
(which shall be a Banking Day), and, in the case of Eurodollar Loans, the
Currency or Currencies in which such Loans are to be made and, if required by
the Bank, the account of the Borrower maintained with a commercial bank in the
country in whose Currency such Eurodollar Loans are denominated. Each notice of
reduction or termination shall specify the amount of the Commitment to be
reduced or terminated.
Section 2.09. Minimum Amounts. Except for borrowings which exhaust the full
remaining amount of the Commitments, and prepayments (in the case of Variable
Rate Loans) which result in the prepayment of all Loans, each borrowing and
prepayment of principal shall be in an amount at least equal to $1,000,000.00
and shall be in incremental multiples of $500,000.00.
Section 2.10. Interest. (a) During each Interest Period, interest shall
accrue on the outstanding and unpaid principal amount of each Loan for the
period from and including the date of such Loan to but excluding the Revolving
Credit Termination Date at the following rates per annum: (i) for a Variable
Rate Loan, at a variable rate per annum equal to the Variable Rate plus any
Margin, and (ii) for a Eurodollar Loan, at a fixed rate equal to the LIBO Rate
plus the Margin. If the principal amount of any Loan and any other amount
payable by the Borrower hereunder or under a Note shall not be paid when due (at
stated maturity, by acceleration or otherwise), interest shall accrue at the
Default Rate on such amount to the full extent permitted by law from and
including such due date to but excluding the date such amount is paid in full.
(b) The interest rate on each Variable Rate Loan shall change when the
Variable Rate changes and interest on each such Loan shall be calculated on the
basis of a year of 365 days for the actual number of days elapsed. Interest on
each Eurodollar Loan shall be calculated on the basis of a year of 360 days for
the actual number of days elapsed. Promptly after the determination of any
interest rate provided for herein or any change therein, the Bank shall notify
the Borrower.
<PAGE>
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(c) On and after the Revolving Credit Termination Date to and including the
Termination Date, interest shall accrue on the outstanding and unpaid principal
amount of the Term Loan at one of the following rates as selected by the
Borrower from time to time: (i) the variable rate described in Section
2.10(a)(i); or (ii) the fixed rate described in Section 2.10(a)(ii); or (iii) a
fixed rate equal to one percent (1.0%) above the yield on United States Treasury
Obligations for the interest period selected (in such case, a "Fixed Rate
Loan"); or (iv) such other rate as the Bank may offer from time to time.
(d) Accrued interest shall be due and payable in arrears upon any payment
of principal and on the last day of the Interest Period with respect thereto
and, in the case of an Interest Period greater than three months or 90 days, at
three-month (in the case of a Eurodollar Loan) intervals after the first day of
such Interest Period; provided that interest accruing at the Default Rate shall
be due and payable from time to time on demand of the Bank.
Section 2.11. Fees. The Borrower shall pay to the Bank a commitment fee on
the daily average unused Commitment of the Bank for the period from and
including the date hereof to the earlier of the date the Commitment is
terminated or the Revolving Credit Termination Date at a rate per annum equal to
three-eighths of one percent (.375%), calculated on the basis of a year of 360
days for the actual number of days elapsed. The accrued commitment fee shall be
due and payable in arrears upon any reduction or termination of the Commitments
and on each Quarterly Date commencing on the first such date after the Closing
Date.
Section 2.12. Payments Generally. Except to the extent otherwise provided
herein, all payments of principal of and interest on Loans made in Dollars, and
other amounts (other than the principal of and interest on Eurodollar Loans made
in an Alternative Currency) payable by the Borrower under this Agreement and the
Notes shall be made in Dollars, and all payments of principal of and interest on
Eurodollar Loans made in an Alternative Currency shall be made in such
Alternative Currency, in immediately available funds not later than 1:00 p.m.
New York time on the date on which such payments shall become due (each such
payment made after such time on such due date to be deemed to have made on the
next succeeding Banking Day; provided that, when a new Loan is to be made by the
Bank on a date the Borrower is to repay any principal of an outstanding Loan in
the same Currency, the Bank shall apply the proceeds thereof to the payment of
the principal to be repaid and only an amount equal to the difference between
the principal to be borrowed and the principal to be repaid shall be made
available by the Bank to the Borrower as provided in Section 2.04 or paid by the
Borrower to the Bank
<PAGE>
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pursuant to this Section 2.12, as the case may be. The Bank may (but shall not
be obligated to) debit the amount of any such payment which is not made by such
time to any ordinary deposit account of the Borrower with the Bank. The Borrower
shall, at the time of making each payment under this Agreement or the Notes,
specify to the Bank the principal or other amount payable by the Borrower under
this Agreement or the Notes to which such payment is to be applied (and in the
event that it fails to so specify, or if a Default or Event of Default has
occurred and is continuing, the Bank may apply such payment as it may elect in
its sole discretion (subject to Section 10. 16)). If the due date of any payment
under this Agreement or the Notes would otherwise fall on a day which is not a
Banking Day, such date shall be extended to the next succeeding Banking Day and
interest shall be payable for any principal so extended for the period of such
extension. Each payment received by the Bank hereunder or under any Note for the
account of the Bank shall be paid promptly to the Bank, in immediately available
funds, for the account of the Bank's Lending Office.
ARTICLE 3. YIELD PROTECTION; ILLEGALITY; ETC.
Section 3.01. Additional Costs. (a) The Borrower shall pay directly to the
Bank from time to time on demand such amounts as the Bank may reasonably
determine to be necessary to compensate it for any costs which the Bank
determines are attributable to its making or maintaining any Eurodollar Loans
under this Agreement or its Note or its obligation to make any such Loans
hereunder, or any reduction in any amount receivable by the Bank hereunder in
respect of any such Loans or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change, or any Reserve Requirement for any such
Loans attributable to the Bank not maintaining a Lending Office in the country
of an Alternative Currency, which: (i) changes the basis of taxation of any
amounts payable to the Bank under this Agreement or its Note(s) in respect of
any of such Loans (other than taxes imposed on the overall net income of the
Bank or of its Lending Office for any of such Loans by the jurisdiction in which
the Bank has its principal office or such Lending Office); or (ii) imposes or
modifies any reserve, special deposit, deposit insurance or assessment, minimum
capital, capital ratio or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of, the
Bank (including any of such Loans or any deposits referred to in the definition
of "LIBO Base Rate" in Section 1.01); or (iii) imposes any other condition
affecting this Agreement or its Note (or any of such extensions of credit or
liabilities). The Bank will notify the Borrower of any event occurring after the
date of this Agreement which will entitle the Bank to compensation pursuant to
<PAGE>
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this Section 3.01(a) as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. The amount payable to the
Bank shall be computed from the date of the occurrence giving rise to Additional
Cost, or the date that is 120 days prior to the date of demand by the Bank,
whichever is later. If the Bank requests compensation from the Borrower under
this section 3.01(a), or under section 3.01(c), the Borrower may, by notice to
the Bank, suspend the obligation of the Bank to make Loans of the type with
respect to which such compensation is requested (in which case the provisions of
section 3.04 shall be applicable). As of the date hereof there are no Additional
Costs due to the Bank attributable to the Bank's not maintaining a Lending
Office in the country of an Alternative Currency.
(b) Without limiting the effect of the foregoing provisions of this Section
3.01, in the event that, by reason of any Regulatory Change, the Bank either (i)
incurs Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of the Bank
which includes deposits by reference to which the interest rate on Eurodollar
Loans is determined as provided in this Agreement or a category of extensions of
credit or other assets of the Bank which includes Eurodollar Loans or (ii)
becomes subject to restrictions on the amount of such a category of liabilities
or assets which it may hold, then, if the Bank so elects by notice to the
Borrower, the obligation of the Bank to make Loans of such type hereunder shall
be suspended until the date such Regulatory Change ceases to be in effect (in
which case the provisions of Section 3.04 shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this Section
3.01 (but without duplication), the Borrower shall pay directly to the Bank from
time to time on request such amounts as the Bank may reasonably determine to be
necessary to compensate the Bank for any costs which it determines are
attributable to the maintenance of capital by it or any of its Affiliates
pursuant to any future law or regulation of any jurisdiction or any
interpretation, directive or request (whether or not having the force of law and
whether in effect on the date of this Agreement or thereafter) of any court or
governmental or monetary authority in respect of its Loans hereunder or its
obligation to make Loans hereunder (such compensation to include, without
limitation, an amount equal to any reduction in return on assets or equity of
the Bank to a level below that which it could have achieved but for such law,
regulation, interpretation, directive or request). The Bank will notify the
Borrower if it is entitled to compensation pursuant to this Section 3.01(c) as
promptly as practicable after it determines to request such compensation. The
amount payable to the Bank shall be computed from the date of the occurrence
entitling the Bank to
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compensation, or the date that is one hundred twenty (120) days prior to the
date of demand by the Bank, whichever is later.
(d) Determinations and allocations by the Bank for purposes of this Section
3.01 of the effect of any Regulatory Change pursuant to subsections (a) or (b),
or of the effect of capital maintained pursuant to subsection (c), on its costs
of making or maintaining Loans or its obligation to make Loans, or on amounts
receivable by, or the rate of return to, it in respect of Loans or such
obligation, and of the additional amounts required to compensate the Bank under
this Section 3.01, shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis.
Section 3.02. Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if:
(a) the Bank determines (which determination shall be conclusive) that
quotations of interest rates for the relevant deposits referred to in the
definition of "LIBO Rate" in Section 1.01 are not being provided in the relevant
amounts or for the relevant maturities for purposes of determining the rate of
interest for any type of Eurodollar Loans as provided in this Agreement; or
(b) the Bank determines (which determination shall be conclusive) and
notifies the Borrower (which notice shall include the Bank's calculation of
cost) that the relevant rates of interest referred to in the definition of "LIBO
Base Rate" in Section 1.01 upon the basis of which the rate of interest for any
type of Eurodollar Loans is to be determined do not adequately cover the cost to
the Bank of making or maintaining such Loans;
then the Bank shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Bank shall be under no obligation to make
Loans of such type.
Section 3.03. Illegality. Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for the Bank or its Lending
Office to honor its obligation to make or maintain Eurodollar Loans hereunder,
then the Bank shall promptly notify the Borrower thereof and the Bank's
obligation to make or maintain Eurodollar Loans hereunder shall be suspended
until such time as the Bank may again make and maintain such affected Loans (in
which case the provisions of Section 3.04 shall be applicable).
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Section 3.04. Certain Variable Rate Loans pursuant to Sections 3.01 and
3.03. If the obligations of the Bank to make Loans of a particular type (Loans
of such type being herein called "Affected Loans" and such type being herein
called the "Affected Type") shall be suspended pursuant to Section 3.01 or 3.03,
all Loans which would otherwise be made by the Bank as Loans of the Affected
Type shall be made instead as Variable Rate Loans and, if an event referred to
in Section 3.01(b) or 3.03 has occurred and the Bank so requests by notice to
the Borrower , all Affected Loans of the Bank then outstanding shall be
automatically converted into Variable Rate Loans on the date specified by the
Bank in such notice, and, to the extent that Affected Loans are so made as (or
converted into) Variable Rate Loans, all payments of principal which would
otherwise be applied to the Bank's Affected Loans shall be applied instead to
its Variable Rate Loans.
Section 3.05. Certain Compensation. The Borrower shall pay to the Bank,
upon the request of the Bank, such amount or amounts as shall be sufficient (in
the reasonable opinion of the Bank) to compensate it for any loss, cost or
expense which the Bank reasonably determines is attributable to:
(a) any payment to the Bank of a Eurodollar Loan made by the Bank on a date
other than the last day of an Interest Period for such Loan (whether by reason
of acceleration or otherwise); or
(b) any failure by the Borrower to borrow a Eurodollar Loan to be made by
the Bank on the date specified therefor in the relevant notice under Section
2.04.
Without limiting the foregoing, such compensation shall include an amount
equal to the excess, if any, of: (i) the amount of interest which otherwise
would have accrued on the principal amount so paid or not borrowed for the
period from and including the date of such payment or failure to borrow to but
excluding the last day of the Interest Period for such Loan (or, in the case of
a failure to borrow, to but excluding the last day of the Interest Period for
such Loan which would have commenced on the date specified therefor in the
relevant notice) at the applicable rate of interest for such Loan provided for
herein; over (ii) the amount of interest (as reasonably determined by the Bank)
the Bank would have bid in the London interbank market (if such Loan is a
Eurodollar Loan) for deposits in the applicable Currency for amounts comparable
to such principal amount and maturities comparable to such period.
In addition, the Borrower shall pay to the Bank such amount as shall be
sufficient (in the reasonable opinion of the
<PAGE>
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Bank) to compensate it for any loss, cost or expense arising as a result of any
prepayment of the fixed rate portion of a Term Loan.
ARTICLE 4. CONDITIONS PRECEDENT.
Section 4.01. Documentary Conditions Precedent. The obligations of the Bank
to make the Loans constituting the initial borrowing are subject to the
condition precedent that the Bank shall have received on or before the date of
such Loans each of the following, in form and substance satisfactory to the Bank
and its counsel:
(a) the Notes duly executed by the Borrower;
(b) the Authorization Letter duly executed by the Borrower;
(c) a certificate of the Secretary or Assistant Secretary of the Borrower,
dated the closing Date, attesting to all corporate action taken by the Borrower,
including resolutions of its Board of Directors authorizing the execution,
delivery and performance of the Facility Documents to which it is a party and
each other document to be delivered pursuant to this Agreement;
(d) a certificate of the Secretary or Assistant Secretary of the Borrower,
dated the Closing Date, certifying the names and true signatures of the officers
of the Borrower authorized to sign the Facility Documents and the other
documents to be delivered by the Borrower under this Agreement;
(e) a certificate of a duly authorized officer of the Borrower, dated the
Closing Date, stating that the representations and warranties in Article 5 are
true and correct on such date as though made on and as of such date and that no
event has occurred and is continuing which constitutes a Default or Event of
Default;
(f) a favorable opinion of counsel for the Borrower, dated the Closing
Date, in substantially the form of Exhibit C and as to such other matters as the
Bank may reasonably request; (g) a recently dated certificate of the Secretary
of State of the State of Borrower's formation as to its good standing.
Section 4.02. Additional Conditions Precedent. The obligations of the Bank
to make any Loan (including the initial Loan) shall be subject to the further
conditions precedent that on the date of such Loan:
<PAGE>
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(a) the following statements shall be true: (i) the representations and
warranties contained in Article 5 are true and correct on and as of the date of
such Loan as though made on and as of such date; and (ii) no Default or Event of
Default has occurred and is continuing, or would result from such Loan; and
(b) the Bank shall have received such approvals, opinions or documents as
the Bank may reasonably request.
Section 4.03. Deemed Representations. Each notice of a Loan and acceptance
by the Borrower of the proceeds thereof shall constitute a representation and
warranty that the statements contained in Section 4.02(a) are true and correct
both on the date of such notice and, unless the Borrower otherwise notifies the
Bank prior to such borrowing, as of the date of such Loan.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants that:
Section 5.01. Incorporation, Good Standing and Due Qualification. The
Borrower and each of its Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of its
incorporation, has all power and authority to carry on its business as now being
conducted and to own its properties and is duly licensed or qualified and in
good standing or a foreign corporation in each other jurisdiction in which its
properties are located or in which failure to qualify would materially and
adversely affect the conduct of its business or the enforceability of
contractual rights of the Borrower.
Section 5.02. Corporate Power and Authority: No Conflicts. The execution,
delivery and performance by the Borrower of the Facility Documents are within
the Borrower's corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene (a) the Borrower's charter or by-laws,or
(b) any law or any contractual restriction or provision binding on or affecting
the Borrower.
Section 5.03. Governmental Approval. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Borrower of the Facility Documents to which the Borrower is a party.
<PAGE>
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Section 5.04. Legally Enforceable Agreements. Each Facility Document to
which Borrower is a party is, or when delivered hereunder will be, legal, valid
and binding obligations of the Borrower enforceable against the Borrower in
accordance with their respective terms.
Section 5.05. Financial Statements. The balance sheets of the Borrower and
its Subsidiaries as at December 31, 1995, and the related statements of income
and retained earnings of the Borrower and its Subsidiaries for the fiscal year
then ended, and the unaudited balance sheets of the Borrower and its
Subsidiaries as at September 30, 1996 and the related statements of income and
retained earnings, copies of which have been furnished to the Bank, fairly
present the financial condition of the Borrower and its Subsidiaries at such
date and the results of the operations of the Borrower and its subsidiaries for
the period ended on such date, all in accordance with GAAP, and since September
30, 1996, there has been no material adverse change in such condition or
operations.
Section 5.06. Litigation. There is no pending or threatened action or
proceeding affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator, which may materially adversely affect the
financial condition or operations of the Borrower or any Subsidiary.
Section 5.07. Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System).
Section 5.08. Use of Loan Proceeds. No part of the proceeds of the Loans
will be used, whether directly or indirectly, and whether immediately,
incidentally or ultimately, (a) to purchase or to carry margin stock or to
extend credit to others for the purpose of purchasing or carrying margin stock,
or to refund indebtedness originally incurred for such purpose, or (b) for any
purpose which violates or is inconsistent with the provisions of the Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System.
Section 5.09. Tax Returns. Each of the Borrower and its Subsidiaries has
filed (or has obtained extensions of the time by which it is required to file)
all United States federal income tax returns and all other material tax returns
required to be
<PAGE>
-24-
filed by it and has paid all taxes shown due on the returns so filed as well as
all other taxes, assessments and governmental charges which have become due,
except such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided.
Section 5.10. ERISA. Each member of the Controlled Group has fulfilled its
obligations under the minimum funding standards of ERISA and the Code with
respect to each Plan subject to the provisions thereof and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Code, and has not incurred any liability to the PBGC or a Plan under Title IV of
ERISA.
Section 5.11. Subsidiaries. The Borrower has no Subsidiaries other than
those set forth on Schedule I attached hereto as amended from time to time.
Section 5.12. Ownership and Liens. Each of the Borrower and its
Subsidiaries has good and marketable title to its material properties and assets
reflected on the balance sheet referred to in Section 5.05 hereof, except for
such properties and assets as have been disposed of since the date of such
balance sheet as no longer used or useful in the conduct of its business or as
have been disposed of in the ordinary course of business, and all such
properties and facets are free and clear of mortgages, pledges, liens, charges
and other encumbrances, except for mortgages on real estate located in
Switzerland in the approximate amount of 7,000,000 Swiss Francs and liens
incurred in the ordinary course of business, any encumbrances that do not
materially interfere with the use or operation of such property or assets and
except as required or permitted by the provisions hereof or as disclosed in the
balance sheet referred to in Section 5.05 hereof or otherwise disclosed to the
Bank.
Section 5.13. Hazardous Materials. Except as set forth in Schedule II
hereof, and qualified in each instance whereby a breach of this representation
set forth in this Section 5.13 would materially and adversely affect the
business, operations, assets or financial condition of the Borrower: the
Borrower is in compliance in all material respects with all Environmental Laws
governing Hazardous Materials and the Borrower has not used Hazardous Materials
on, from, or affecting any property now owned or occupied or hereafter owned or
occupied by the Borrower in any manner which violates Federal, state or local
laws, ordinances, rules, regulations, or policies governing the use, storage,
treatment, transportation, manufacture, refinement, handling,
<PAGE>
-25-
production or disposal of Hazardous Materials, and that, to the best of the
Borrower's knowledge, no prior owner of any such property or any tenant,
subtenant, prior tenant or prior subtenant have used Hazardous Materials on,
from, or affecting such property in any manner which violates Federal, state or
local laws, ordinances, rules, regulations, or policies governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials, without limiting the foregoing,
the Borrower shall not cause or permit any property owned or occupied by it to
be used to generate, manufacture, refine, transport, treat, store, handle,
dispose, transfer, produce or process Hazardous Materials, except in compliance
with all applicable Federal, state and local laws or regulations, nor shall the
Borrower cause or permit, as a result of any intentional or unintentional act or
omission on its part or any tenant or subtenant, a release of Hazardous
Materials onto any property owned or occupied by the Borrower or onto any other
property, the Borrower shall comply with and ensure compliance by all tenants
and subtenants with all applicable Environmental Laws, whenever and by whomever
triggered, and shall obtain and comply with any and all approvals, registrations
or permits required thereunder.
Section 5.14. No Default on Other Agreements. Neither the Borrower or any
of its Subsidiaries is in default in any manner which would materially and
adversely affect the business, properties or assets, operations or condition
(financial or otherwise) of the Borrower in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument to which it is a party.
Section 5.15. Partnerships. Except as set forth on Schedule III, neither
the Borrower nor any of its Subsidiaries is a partner in any partnership.
Section 5.16. No Forfeiture. Neither the Borrower nor any of its
Subsidiaries or Affiliates is engaged in or proposes to be engaged in the
conduct of any business or activity which could result in a Forfeiture
Proceeding and no Forfeiture Proceeding against any of them is pending or
threatened, which would individually or in the aggregate materially and
adversely affect the business, operations, assets or financial condition of the
Borrower or any of its Subsidiaries.
Section 5.17. Solvency. (a) The present fair saleable value of the assets
of the Borrower after giving effect to all the transactions contemplated by the
Facility Documents and the
<PAGE>
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funding of all Commitments hereunder exceeds the amount that will be required to
be paid on or in respect of the existing debts and other liabilities (including
contingent liabilities) of the Borrower and its Subsidiaries as they mature.
(b) The property of the Borrower does not constitute unreasonably small
capital for the Borrower to carry out its business as now conducted and as
proposed to be conducted including the capital needs of the Borrower.
(c) The Borrower does not intend to, nor does it believe that it will,
incur debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be received by the Borrower, and of
amounts to be payable on or in respect of debt of the Borrower). The cash
available to the Borrower after taking into account all other anticipated uses
of the cash of the Borrower, is anticipated to be sufficient to pay all such
amounts on or in respect of debt of the Borrower when such amounts are required
to be paid.
(d) The Borrower does not believe that final judgments against it in
actions for money damages will be rendered at a time when, or in an amount such
that, the Borrower will be unable to satisfy any such judgments promptly in
accordance with their terms (taking into account the maximum reasonable amount
of such judgments in any such actions and the earliest reasonable time at which
such judgments might be rendered). The cash available to the Borrower after
taking into account all other anticipated uses of the cash of the Borrower
(including the payments on or in respect of debt referred to in paragraph (c) of
this Section 5.17), is anticipated to be sufficient to pay all such judgments
promptly in accordance with their terms.
ARTICLE 6. AFFIRMATIVE COVENANTS.
So long as any of the Notes shall remain unpaid or any Bank shall have any
Commitment under this Agreement, the Borrower shall, unless the Bank shall
otherwise consent in writing:
Section 6.01. Compliance with Laws, Corporate Existence. (a) Comply, and
cause each of its Subsidiaries to comply, in all material respects with all
applicable laws, rules, regulations and orders of any governmental authority,
the breach of which would materially and adversely affect the business,
operations, prospects or assets or the financial condition or otherwise of the
Borrower. Such compliance shall include, without limitation, paying before the
same become delinquent all taxes, assessments and governmental charges or levies
imposed upon it or on its income or profits or upon its property except to the
extent (i) such payment is being contested in good faith and by proper
<PAGE>
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proceedings, and (ii) adequate reserves are being maintained with respect
thereto; and (b) do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights, franchises, trade
names and preserve all of its property used or useful in the conduct of its
business and keep same in good repair and working condition except for property
it deems no longer useful.
Section 6.02. Reporting Requirements. Furnish directly to the Bank:
(a) as soon as available and in any event within 45 days after the end of
each of the first three quarters of each fiscal year of the Borrower,
consolidated balance sheets of the Borrower and its Subsidiaries as of the end
of such quarter and statements of income and retained earnings and changes in
financial position of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end of
such quarter, with a certification by the chief financial officer of the
Borrower that such financial statements fairly present the financial condition
and results Of operations of the Borrower in accordance with GAAP, at the dates
and for the periods set forth therein;
(b) as soon as available and in any event within 90 days after the end of
each fiscal year of the Borrower, a copy of the annual report for such year for
the Borrower and its Subsidiaries, containing consolidated and consolidating
financial statements for such year certified in a manner acceptable to the Bank
by Ernst & Young or other independent public accountants acceptable to the Bank;
(c) with the statements submitted under subsections (c) and (b) above, a
certificate signed by the chief financial officer of the Borrower or the
certified public accountants, as the case may be, stating (i) the requirements
of Section 4.02 hereof and (ii) the calculation of all financial covenants and
ratios required under Article 8 hereof;
(d) promptly after the sending or filing thereof, copies of all reports
which the Borrower sends to any of its security holders, and copies of all
reports and registration statements which the Borrower or any Subsidiary files
with the Securities and Exchange Commission or any national securities exchange;
(e) promptly after the filing or receiving thereof, if and when the
Borrower or any member of the Controlled Group (as defined below) (i) gives or
is required to give notice to the PBGC of any "reportable event" (as defined in
Section 4043 of ERISA)
<PAGE>
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with respect to any Plan (as defined below) under Title IV of ERISA, or knows
that the plan administrator of any Plan has given or is required to give notice
of any such reportable event, a copy of the notice of such reportable event
given or required to be given to PBGC; (ii) receives notice of complete or
partial withdrawal liability under Title IV of ERISA, promptly followed by a
copy of such notice to the Bank; or (iii) receives notice from the PBGC under
Title IV of ERISA of an intent to terminate or appoint a trustee to administer
any Plan, promptly followed by a copy of such notice to the Bank.
As used in this Subsection 6.02(e), "Controlled Group" means all members of
a control group of corporations and all trades or businesses (whether or not
incorporated) under common control, which together with the Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code of 1954,
and "Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or is subject to the minimum funding standards under
Section 412 of the Code and is either (x) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group, or (xx) maintained pursuant to a collective bargaining
agreement or similar arrangement under which more than one employer makes
contributions and to which the Borrower or any member of the Controlled Group is
then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions,
(f) prior to the end of each fiscal year of the Borrower, a budget (in
format satisfactory to the Bank) for the succeeding fiscal year of the Borrower,
plus from time to time any revisions or modifications to such budget within 15
days of the adoption of such revision or modification; and
(g) such other information respecting the condition or operations,
financial or otherwise, of the Borrower or any of its subsidiaries as the Bank
may from time to time reasonably request.
Section 6.03. Notice of Proceedings. Promptly give notice in writing to the
Bank of all litigation, arbitral proceedings, regulatory proceedings and
Forfeiture Proceedings affecting the Borrower or any Subsidiary, except
litigation or proceedings which, if adversely determined, could not materially
and adversely affect the consolidated financial condition or the business taken
as a whole of the Borrower and its Subsidiaries.
Section 6.04. Insurance. The Borrower will, and will cause each Subsidiary
to, maintain insurance with insurance companies or associations rated "A-" or
better by A.M. Best &
<PAGE>
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Company or a comparable rating agency in such amounts and against such risks as
is usually carried by owners of similar businesses and properties in the same
general areas in which the Borrower and its subsidiaries operate.
Section 6.05. Environmental Laws. Comply in all material respects with all
Environmental Laws and provide to the Bank all documentation in connection with
such compliance that the Bank may reasonably request.
Section 6.06. Access to Premises and Records. At any reasonable time and
from time to time, but only to the extent relevant to the loan transaction
hereunder and the Borrower's ability to perform under the Credit Agreement, upon
reasonable notice and during normal business hours, the Borrower shall permit
the Bank or any agent or representative thereof to examine the records and books
of account and visit the properties of the Borrower or its subsidiaries and to
discuss the affairs, finances and accounts of the Borrower and any Consolidated
Subsidiary with any of the Borrower's officers and directors.
Section 6.07. Notice of Default. In the event any financial officer of the
Borrower knows of any default or event of default under any agreement to which
the Borrower is a party or any Event of Default which shall have occurred or
knows of the occurrence of any event which, upon notice or lapse of time or
both, would constitute an Event of Default, promptly furnish to the Bank a
written statement as to such occurrence specifying the nature and extent thereof
and the action (if any) which is proposed to be taken with respect thereto.
Section 6.08. Subsidiaries. Give the Bank prompt written notice of the
creation, establishment or acquisition, in any manner, of any Subsidiary not
existing on the date hereof and will cause each newly formed or acquired
Domestic Subsidiary whose assets equal or exceed by amount 10% of the assets of
the Borrower, to jointly, severally and unconditionally guaranty payment of the
Loans and performance of all of the obligations of the Borrower created by this
Agreement.
Section 6.09. Material Adverse Changes. The Borrower shall promptly notify
the Bank of any litigation matter, investigation, audit, business development or
change in financial condition, which has resulted in, or which the Borrower or
its Subsidiaries reasonably believes will result in an Event of Default.
<PAGE>
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ARTICLE 7. NEGATIVE COVENANTS.
So long as any of the Notes shall remain unpaid or the Bank shall have any
Commitment under this Agreement, the Borrower shall not without the written
consent of the Bank:
Section 7.01. Liens, Etc. Create or suffer to exist, or permit any of its
subsidiaries to create or suffer to exist, any Lien, or any other type of
preferential arrangement, upon or with respect to any of its properties, whether
now owned or hereafter acquired, or assign, or permit any of its subsidiaries to
assign, any right to receive income, in each case to secure any Debt of any
person or entity, other than:
(a) Liens securing the payment of taxes, assessments or governmental
charges or levies or the demands of suppliers, mechanics, carriers, warehousers,
landlords and other like Persons, provided that (i) they do not in the aggregate
materially reduce the value of any properties subject to the Liens or materially
interfere with their use in the ordinary conduct of the owning business, and
(ii) all claims which the Liens secure are being actively contested in good
faith and by appropriate proceedings;
(b) Liens incurred or deposits made in the ordinary course of business (i)
in connection with worker's compensation, unemployment insurance, social
security and other like laws, or (ii) to secure the performance of letters of
credit, bids, tenders, sales contract, leases, statutory obligations, surety,
appeal and performance bonds and other similar obligations, in each case not
incurred in connection with the borrowing of money, the obtaining of advances or
the payment of the deferred purchase price of property;
(c) attachment, judgment and other similar Liens arising in connection with
court proceedings provided that (i) execution and other enforcement are
effectively stayed, and (ii) all claims which the Liens secure are being
actively contested in good faith and by appropriate proceedings;
(d) Liens on property of a Subsidiary provided that they secure only
obligations owing to the Borrower or another Subsidiary;
(e) Liens related to lease obligations, and within the limitations,
described in Section 7.02;
(f) Liens against customer notes, which are created in connection with the
sale, pledge or discounting of such customer notes, provided that immediately
after giving effect thereto, the
<PAGE>
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Borrower's aggregate liabilities on account of such Debt secured by such Liens
does not exceed $11,000,000.00; and
(g) Liens against property leased pursuant to Capital Leases, provided that
the aggregate amount of Debt secured by such Liens does not exceed
$3,000,000.00.
For the purposes of this Agreement, the term "Lien" shall mean any interest
in property securing any Debt or obligation owed to, or a claim by, a Person
other than the owner of the property, whether the interest is based on common
law, statute or contract (including the security interest or lien arising from a
mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes). The term "Lien" shall not
include minor reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions and other minor title exceptions affecting
property, provided that they do not constitute security for a monetary
obligation. For the purposes of this Agreement, the Borrower or a Subsidiary
shall be deemed to be the owner of any property which it has acquired or holds
subject to a conditional sale agreement, Capital Lease or other arrangement
pursuant to which title to the property has been retained by or vested in some
other Person for security purposes, and such retention or vesting shall be
deemed to be a Lien. In connection with any sale, pledge or discounting of
Borrower's or its subsidiaries' customer notes, a "Lien" or "Liens" shall be
deemed to exist to the extent of (i) the amount of any sums withheld from the
Borrower or any Subsidiary in any such transaction, plus (ii) the amount of any
obligation of the Borrower or any Subsidiary resulting from the non-payment of
any customer notes involved in any such transaction.
Section 7.02. Lease Obligations. Create or suffer to exist, or permit any
of its subsidiaries to create or suffer to exist, any obligations for the
payment of rental for any property under leases or agreements to lease other
than Capital Leases which would cause the liabilities of the Borrower and its
subsidiaries, on a consolidated basis, in respect of all such obligations to
exceed Five Million and 00/100ths Dollars ($5,000,000.00) payable in any period
of twelve (12) months.
Section 7.03. Prohibited Transactions. Use the proceeds of any Loan to
acquire any security in any transaction which is subject to Sections 13 and 14
of the Securities Exchange Act of 1934 or use the proceeds of any Loan to
otherwise acquire any public company other than on a friendly basis.
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Section 7.04. Margin Stock. Use the proceeds of any Loan to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
Section 7.05. Consolidations, Mergers, Acquisitions and Sales of Assets.
Consolidate or merge with or into, or sell, lease or otherwise dispose of any of
its assets to, any Person, or acquire all or any substantial portion of the
properties, assets or shares of stock of any other organization or permit any
Subsidiary to do any of the above (any of the above being an "Acquisition"),
unless the Borrower is the surviving entity, the transaction is on a friendly
basis and immediately thereafter the Borrower is in compliance with all terms
and provisions of this Agreement and except that:
(a) any Subsidiary may consolidate or merge with the Borrower or any
wholly-owned subsidiary of the Borrower;
(b) the Borrower or any Subsidiary may sell, lease or otherwise dispose of
any of its inventory in the ordinary course of business and any of its assets
which are obsolete, excess or unserviceable;
(c) the Borrower or any Subsidiary may sell, pledge or discount customer
notes,
(d) the Borrower or any Subsidiary may sell, lease or otherwise dispose of
any of its assets (other than as permitted by clauses (a) to (c) inclusive),
provided that the aggregate net book value of all assets of the Borrower and its
Subsidiaries sold, leased or otherwise disposed of during any fiscal year of the
Borrower pursuant to this clause (d) shall not exceed 5% of the Consolidated
Tangible Net Worth of the Borrower and its Subsidiaries at the end of the
preceding fiscal year.
All sales, leases or dispositions of assets pursuant to clause (b), (c) or
(d) shall be at fair market value.
Notwithstanding the foregoing, the total amount of Aggregate Consideration
paid by the Borrower for Acquisitions (net of amounts paid for with the
Borrower's stock) permitted under this section from and after February 29, 1996
shall not be greater than $10,000,000.00 in any consecutive twenty-four (24)
month period without the prior written consent of the Bank.
Section 7.06. Affiliate Transactions. Enter into or permit any Subsidiary
to enter into any transaction (including the purchase, sale or exchange of
Property or the rendering of any service) with any Affiliate except upon fair
and reasonable terms
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which are at least as favorable to the Borrower or the Subsidiary as would be
obtained in a comparable arms-length transaction with a non-Affiliate.
Section 7.07. Loans and Advances. Make or permit to exist any loans or
advances to any Person, except that loans or advances incurred in the normal
course of business, including employee advances and customer notes, are
permitted.
Section 7.08. Guaranties. Become or permit any Subsidiary to become liable
for or permit any of its Property to become subject to any guaranty except
guaranties under which the maximum aggregate amount of indebtedness, dividend or
other obligation being guarantied can be mathematically determined at the time
of issuance. Each guaranty permitted by this Section 7.08 must comply with the
requirements of Section 8.01 (if it is included among Consolidated Current
Liabilities) and with the requirement of Sections 8.03 and 8.05.
Section 7.09. No Activities Leading to Forfeiture. Neither the Borrower nor
any of its Subsidiaries or Affiliates shall engage in or propose to be engaged
in the conduct of any business or activity which could result in a Forfeiture
Proceeding, which would, individually or in the aggregate, materially and
adversely affect the business, operations, assets or financial condition of the
Borrower or any of its Subsidiaries.
ARTICLE 8. FINANCIAL COVENANTS.
So long as any of the Notes shall remain unpaid or the Bank shall have any
Commitment under this Agreement:
Section 8.01. Working Capital. The Borrower shall maintain at all times an
excess of Consolidated Current Assets over Consolidated Current Liabilities of
not less than $50,000,000.00. Consolidated Current Liabilities shall not include
the current portion of the indebtedness evidenced by the Notes or of any other
indebtedness maturing more than one year after the date of its creation.
Section 8.02. Net Worth. The Borrower shall maintain a Consolidated
Tangible Net Worth, at all times during each fiscal year of not less than the
amount set forth below opposite such fiscal year:
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Fiscal Year Ending
December 31 Amount
----------- ------
1996 $128,000,000
1997 $131,000,000
1998 $134,000,000
1999 $137,000,000
2000 $140,000,000
2001 $143,000,000
2002 $146,000,000
The term "Consolidated Tangible Net Worth" shall mean the total
shareholders' equity prior to any cumulative foreign currency translation
adjustments, minus intangible assets.
Section 8.03. Debt. The Borrower shall not create or suffer to exist, or
permit any of its Subsidiaries to create or suffer to exist, any Debt if,
immediately after giving effect to such Debt and the receipt and application of
any proceeds thereof, the aggregate amount of Debt of the Borrower and its
Subsidiaries, on a consolidated basis, would exceed 60% of the Consolidated
Tangible Net Worth of the Borrower and its Subsidiaries.
Section 8.04. Cash Flow. The Borrower shall maintain a Cash Flow Ratio at
all times of not less than 2.0 to 1.0.
"Cash Flow Ratio" means the ratio at each Quarterly Date equal to (a) the
sum of Consolidated Net Income plus depreciation, amortization and other noncash
expenses for the previous four consecutive fiscal quarters divided by (b) the
current portion (i.e., due within one (1) year) of long term Debt.
Section 8.05. Total Liabilities to Tangible Net Worth. The Borrower shall
not permit the ratio of Consolidated Total Unsubordinated Liabilities to
Consolidated Tangible Net Worth to be greater than .75 to 1.0 at any time.
ARTICLE 9. EVENTS OF DEFAULT.
Section 9.01. Events of Default. Any of the following events shall be an
"Event of Default":
(a) The Borrower shall fail to pay when due any Commitment fee due under
Section 2.11 or any installment of principal of, or interest on, any Note; or
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(b) Any representation or warranty made by the Borrower herein or in any
other Facility Document, or by the Borrower (or any of its officers) in
connection with this Agreement, or any other agreement to which the Bank and the
Borrower are parties, shall prove to have been incorrect in any material respect
when made; or
(c) The Borrower shall fail to perform or observe any other term, covenant
or agreement contained in this Agreement or in any other Facility Document on
its part to be performed or observed and any such failure shall remain
unremedied for 10 days after written notice thereof shall have been given to the
Borrower by the Bank; or
(d) The Borrower or any of its Subsidiaries shall fail to pay any Debt (but
excluding Debt evidenced by the Notes) of the Borrower or such Subsidiary as the
case may be, or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Debt; or any other default under
any agreement or instrument relating to any such Debt, or any other event, shall
occur and shall continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Debt, or any
such Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; or
(e) The Borrower or any of its Subsidiaries shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or other
similar official for it or for any substantial part of its property; or the
Borrower or any of its Subsidiaries shall take any corporate action to authorize
any of the actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of Two Million
Five Hundred Thousand Dollars ($2,500,000.00) shall be rendered against the
Borrower or any of its Subsidiaries, and either (i) enforcement proceedings
shall
<PAGE>
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have been commenced by any creditor upon such judgment or order, or (ii) there
shall be any period of 10 consecutive days during which a state of enforcement
of such judgment or order, by reason of the pending appeal or otherwise, shall
not be in effect; or
(g) Any member of the Controlled Group shall fail to pay when due an amount
or amounts aggregating in excess of $250,000.00 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA, or notice of
intent to terminate a Plan or Plans having aggregate Unfunded Benefit
Liabilities in such amount or amounts which would at such time create a
liability in excess of liabilities of such Plan or Plans recognized prior
thereto on the Borrower's financial statements and which liability would cause a
violation of any of the covenants under Article 7 (collectively, a "Material
Plan") shall be filed under Title IV of ERISA by any member of the Controlled
Group, any plan administrator or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any Material Plan or a proceeding shall be
instituted by a fiduciary of any Material Plan against any member of the
Controlled Group to enforce Section 515 of ERISA and such proceeding shall not
have been dismissed within 30 days thereafter; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a decree adjudicating that
any Material Plan must be terminated;
(h) Any Forfeiture Proceeding shall have been commenced or the Borrower
shall have given the Bank written notice of the commencement of any Forfeiture
Proceeding, which would individually or in the aggregate, materially and
adversely affect the business, operations, assets or financial condition of the
Borrower or any of its Subsidiaries, or any Bank has a good faith basis to
believe that a Forfeiture Proceeding has been threatened or commenced, which
would, individually or in the aggregate, materially and adversely affect the
business, operations, assets or financial condition of the Borrower or any of
its subsidiaries.
Section 9.02. Remedies. If any Event of Default shall occur and be
continuing, the Bank may, by notice to the Borrower, (a) declare the Commitment
to be terminated, whereupon the same shall forthwith terminate, and (b) declare
the outstanding principal of the Notes, all interest thereon and all other
amounts payable under this Agreement and the Notes to be forthwith due and
payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided that, in the case of an Event of Default referred to in
Section 9.01(e) or Section 9.01(h) above, the Commitment shall be immediately
terminated, and the Notes, all interest thereon and all other
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amounts payable under this Agreement shall be immediately due and payable
without notice, presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
ARTICLE 10. MISCELLANEOUS.
Section 10.01. Amendments and Waivers. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement may be amended or
modified only by an instrument in writing signed by the Borrower and the Bank,
and any provision of this Agreement may be waived by the Bank; provided that no
amendment, modification or waiver shall, unless by an instrument signed by the
Bank: (a) increase or extend the term, or extend the time or waive any
requirement for the reduction or termination, of the Commitment, (b) extend the
date fixed for the payment of principal of or interest on any Loan or any fee
payable hereunder, (c) reduce the amount of any payment of principal thereof or
the rate at which interest is payable thereon or any fee payable hereunder, (d)
alter the terms of this Section 10.01, or (e) waive any of the documentary
conditions precedent set forth in Section 4.01 hereof. No failure on the part of
the Bank to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof or preclude any other or further exercise thereof or
the exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
Section 10.02. Usury. Anything herein to the contrary notwithstanding, the
obligations of the Borrower under this Agreement and the Notes shall be subject
to the limitation that payments of interest shall not be required to the extent
that receipt thereof would be contrary to provisions of law applicable to the
Bank limiting rates of interest which may be charged or collected by the Bank.
Section 10.03. Expenses and Indemnification. In addition to the fees set
forth in Section 2.11 hereof, the Borrower shall reimburse the Bank on demand
for all costs, expenses, and charges (including, without limitation, fees and
charges of external legal counsel for the Bank and costs allocated by its
internal legal departments) incurred by the Bank in connection with the
enforcement of this Agreement or the Notes by reason of any Event of Default or
any event which, after the giving of notice or passage of time, or both, would
constitute an Event of Default. The Borrower agrees to indemnify and hold
harmless the Bank from and against any and all claims, damages, liabilities and
expenses (including, without limitation, fees and
<PAGE>
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disbursements of counsel) (each an "Indemnified Liability") which may be
incurred by or asserted against the Bank in connection with or arising out of
any threatened or actual litigation, or proceeding related to any acquisition or
proposed acquisition by the Borrower, or by any Subsidiary, of all or any
portion of the stock of substantially all the assets of any Person whether or
not the Bank is a party thereto. The Borrower agrees that any Indemnified
Liability will be promptly paid to the Bank upon the written demand of the Bank.
Section 10.04. Survival. The obligations of the Borrower under Sections
3.01, 3.05 and 10.03 shall survive the repayment of the Loans and the
termination of the Commitments.
Section 10.05. Assignment, Participations.
(a) This Agreement shall be binding upon, and shall inure to the benefit
of, the Borrower, the Bank and their respective successors and assigns, except
that the Borrower may not assign or transfer its rights or obligations
hereunder.
(b) The Bank may, with the consent of the Borrower (which consent will not
be unreasonably withheld or delayed) assign all or any part of its Commitments,
its Note or Loans to another bank or other Person. Upon execution and delivery
by the assignee to the Borrower of an instrument in writing pursuant to which
such assignee agrees to become a "Bank" hereunder having the Commitment and
Loans specified in such instrument, and upon consent thereto by the Borrower, to
the extent required above, the assignee shall have, to the extent of such
assignment (unless otherwise provided in such assignment with the consent of the
Borrower), the obligations, rights and benefits of the Bank and the Bank shall,
to the extent of assignment, be released from the Commitment (or portion
thereof) so assigned.
(c) The Bank may sell or agree to sell to one or more banks or
other Persons a participation in all or any part of any Loans held by it, or in
its Commitment, in which event each purchaser of a participation (a
"Participant") shall not have any rights or benefits under this Agreement or any
Note (the participant's rights against the Bank in respect of such participation
to be those set forth in the agreements executed by the Bank in favor of the
Participant). All amounts payable by the Borrower to the Bank under Section 2
hereof in respect of Loans held by it and its Commitment, shall be determined as
if the Bank had not sold or agreed to sell any participations in such Loan and
Commitment, and as if the Bank were funding each of such Loan and Commitment in
the same way that it is funding the portion of such Loan and Commitment in which
no participations have been sold.
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The agreement executed by the Bank in favor of the Participant shall not give
the Participant the right to require the Bank to take or omit to take any action
hereunder except action directly relating to (i) the extension of the
Termination Date, (ii) the extension of a payment date with respect to any fees
payable hereunder or any portion of the principal of or interest on any amount
outstanding hereunder allocated to such participant, (iii) the reduction of the
principal amount outstanding hereunder, or (iv) the reduction of the rate of
interest payable on such amount or any amount of fees payable hereunder to a
rate or amount, as the case may be, below that which the Participant is entitled
to receive under its agreement with the Bank.
(d) In addition to the assignments and participations permitted under
paragraphs (b) and (c) above, the Bank may assign and pledge all or any portion
of its Loans and Note to (i) any affiliate of such Bank, or (ii) any Federal
Reserve Bank as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any operating circular issued by
such Federal Reserve Bank. No such assignment shall release the Bank from its
obligations hereunder.
(e) The Bank may furnish any information concerning the Borrower or any of
its Subsidiaries in the possession of the Bank from time to time to assignees
and participants (including prospective assignees and participants), provided
that the Bank shall require any assignee or participant (prospective or
otherwise) to agree in writing to maintain the confidentiality of such
information.
Section 10.06. Notices. Except as provided in Section 2.08 with respect to
the timing of certain notices required hereunder, all notices, requests and
other communications provided for herein (including, and not by way of
limitation, any modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including and not by way of
limitation by telecopy), or, with respect to notices given pursuant to Section
2.04 hereof, by telephone confirmed in writing by telex, telecopier or other
writing by the close of business on the day notice is given, delivered (or
telephoned, as the case may be) to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof); or, as to any
party, at such other address as shall be designated by such party in a notice to
each other party. Except as otherwise provided in this Agreement, notices to the
Bank and to the Borrower shall be given by telecopy, commercial overnight
courier service, ordinary mail, or telex addressed to such party at its address
on the signature page of this Agreement. Notices shall be effective: (i) if
given by mail, three (3) days after deposit in the mails with first class
postage prepaid, addressed as
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aforesaid; (ii) if given by telex, when the telex is transmitted to the telex
number as aforesaid, and (iii) in all other cases when delivered or received.
Provided, however, that notices to the Bank shall be effective upon receipt.
Section 10.07. Setoff. The Borrower agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim the
Bank may otherwise have, the Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of the Borrower at any of the Bank's offices, in Dollars or in
any other currency, against any amount payable by the Borrower to the Bank under
this Agreement or the Bank's Note which is not paid when due (regardless of
whether such balances are then due to the Borrower), in which case it shall
promptly notify the Borrower; provided that the Bank's failure to give such
notice shall not affect the validity thereof. Payments by the Borrower hereunder
shall be made without setoff or counterclaim.
SECTION 10.08. JURISDICTION; IMMUNITIES. (a) THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES
FEDERAL COURT OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE NOTES, AND THE BORROWER IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW
YORK STATE OR FEDERAL COURT. THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF
ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF
SUCH PROCESS TO THE BORROWER AT ITS ADDRESS SPECIFIED IN SECTION 10.06. THE
BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. THE BORROWER FURTHER WAIVES ANY OBJECTION
TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH
STATE ON THE BASIS OF FORUM NON CONVENIENS. THE BORROWER WAIVES ANY RIGHT IT MAY
HAVE TO JURY TRIAL.
(b) Nothing in this Section 10.08 shall affect the right of the Bank to
serve legal process in any other manner permitted by law or affect the right of
the Bank to bring any action or proceeding against the Borrower or its property
in the courts of any other jurisdictions.
(c) To the extent that the Borrower has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether from service or notice, attachment prior to judgment, attachment in aid
of execution, execution or otherwise) with respect to itself or its property,
the Borrower
<PAGE>
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hereby irrevocably waives such immunity in respect of its obligations under
this Agreement and the Notes.
Section 10.09. Table of Contents; Headings. Any table of contents and the
headings and captions hereunder are for convenience only and shall not affect
the interpretation or construction of this Agreement.
Section 10.10. Severability. The provisions of this Agreement are intended
to be severable. If for any reason any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
Section 10.11. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any party hereto may execute this Agreement by signing any such
counterpart.
Section 10.12. Integration. The Facility Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and supersede any prior oral or written statements or agreements with
respect to such transactions.
SECTION 10.13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT EXCLUDING
ALL OTHER CONFLICT-OF-LAW RULES.
Section 10.14. Confidentiality. The Bank agrees (on behalf of itself and
each of its affiliates, directors, officers, employees and representatives) to
use reasonable precautions to keep confidential, in accordance with safe and
sound banking practices, any non-public information supplied to it by the
Borrower pursuant to this Agreement which is identified by the Borrower as being
confidential at the time the same is delivered to the Bank, provided that
nothing herein shall limit the disclosure of any such information (a) to the
extent required by statute, rule, regulation or judicial process, (b) to counsel
for
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the Bank, (c) to bank examiners, auditors or accountants, (d) in connection
with any litigation to which the Bank is a party or (e) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and delivers
to the Bank a Confidentiality Agreement in substantially the form of Exhibit D
hereto; and provided finally that in no event shall the Bank be obligated or
required to return any materials furnished by the Borrower.
Section 10.15. Treatment of Certain Information. The Borrower (a)
acknowledges that services may be offered or provided to it (in connection with
this Agreement or otherwise) by the Bank or by one or more of its subsidiaries
or affiliates and (b) acknowledges that any information delivered to the Bank or
its subsidiaries or affiliates regarding the Borrower may be shared among the
Bank and such subsidiaries and affiliates. This Section 10.15 shall survive the
repayment of the Loans and the termination of the Commitment.
Section 10.16. Judgment Currency. This is an international loan transaction
in which the specification of Dollars or an Alternative Currency as the case may
be (the "Specified Currency"), any payment in New York City or the country of
the Specified Currency, as the case may be (the "Specified Place"), is of the
essence, and the Specified Currency shall be the currency of account in all
events relating to the Loans denominated in the Specified Currency. The payment
obligations of the Borrower under this Agreement and the Notes shall not be
discharged by an amount paid in another Currency or in another place, whether
pursuant to a judgment or otherwise, to the extent that the amount so paid on
conversion to the Specified Currency and transferred to the Specified Place
under normal banking procedures does not yield the amount of the Specified
Currency at the Specified Place due hereunder. If for the purpose of obtaining a
judgment in any court it is necessary to convert a sum due hereunder in the
Specified Currency into another Currency (the "Second Currency"), the rate of
exchange which shall be applied shall be that at which in accordance with the
normal banking procedures the Bank could purchase the Specified Currency with
the Second Currency on the Business Day next preceding that on which such
judgment is rendered. The obligation of the Borrower in respect of any sum due
from it to the Bank hereunder (an "Entitled Person") shall, notwithstanding the
rate of exchange actually applied in rendering such judgment, be discharged only
to the extent that on the Business Day following receipt by such Entitled Person
of any sum adjudged to be due hereunder or under the Notes in the Second
Currency, such Entitled Person may in accordance with normal banking procedures
purchase and transfer to the
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Specified Place the Specified Currency with the amount of the Second Currency so
adjudged to be due; and the Borrower hereby, as a separate obligation and
notwithstanding any judgment, agrees to indemnify such Entitled Person against,
and to pay such Entitled Person on demand in the Specified Currency, any
difference between the sum originally due to such Entitled Person in the
Specified Currency in the amount of the Specified Currency so purchased and
transferred.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
HARDINGE INC.
By /s/ Robert E. Agan
-------------------------------
Robert E. Agan, Chairman of the
Board and CEO
Address for Notices:
1 Hardinge Drive
Elmira, NY 14902
Telephone No.: (607) 734-2281
Telecopier No.: (607) 734-5517
MARINE MIDLAND BANK
By /s/ Ronald W. Lesch
--------------------------------
Name: Ronald W. Lesch
Title: Vice President
Address for Notices:
One Marine Midland Plaza
Binghamton, NY 13902
Telephone No.: (607)
Telecopier No.: (607)
<PAGE>
EXHIBIT A-1
[Form of Variable Rate Loan Note]
PROMISS0RY NOTE
November 18, 1996
Elmira, New York
HARDINGE INC. (the "Borrower"), a corporation organized under
the laws of New York, for value received, hereby promises to pay to the order of
Marine Midland Bank (the "Bank") at its principal office at One Marine Midland
Plaza, Binghamton, New York 13902 or at such other place as required by the
Credit Agreement referred to below, the aggregate unpaid principal amount of the
Variable Rate Loans made by the Bank to the Borrower, in lawful money of the
United States of America or such other Currency as required by said Credit
Agreement and in immediately available funds on the dates and in the principal
amounts provided in the Credit Agreement. The Borrower also promises to pay
interest on the unpaid principal amount of each such Variable Rate Loan, in like
money and funds, for the period such balance is outstanding, at said principal
office at the rates of interest provided in the Credit Agreement and on the
dates and in the manner provided in said Credit Agreement.
The date and amount of each Variable Rate Loan made by the
Bank to the Borrower under the Credit Agreement referred to below, maturity date
and each payment of principal thereof shall be recorded by the Bank on its books
and, prior to any transfer of this Note (or, at the discretion of the Bank, at
any other time), endorsed by the Bank on the schedule attached hereto or any
continuation thereof; provided, however, the failure of the Bank to make any
such recordation or endorsement shall not affect the obligations of the Borrower
to make payment when due of any amount owing under the Credit Agreement or
hereunder in respect to the Variable Rate Loans made by the Bank.
This is one of the Variable Rate Notes referred to in that
certain Credit Agreement (as amended from time to time, the "Credit Agreement")
dated as of November 18, 1996 between the Borrower and the Bank and evidences
the Loans made by the Bank thereunder. All terms not defined herein shall have
the meanings given to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of certain Events of Default and for
prepayment on the terms and conditions specified therein.
<PAGE>
-2-
The Borrower waives presentment, notice of dishonor, protest
and any other notice or formality with respect to this Note. The Borrower waives
to the full extent permitted by applicable law the right to trial by jury in any
legal proceedings arising out of or relating to this Note.
This Note shall be governed by, and interpreted and construed
in accordance with, the laws of the State of New York, including Section 5-1401
of the New York General Obligations Law (or any similar successor provision
thereto) but excluding all other conflict-of-law rules.
HARDINGE INC.
By
----------------------
Robert E. Agan
Chairman of the Board
<PAGE>
SCHEDULE OF VARIABLE RATE LOANS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Date Amount Currency Interest Duration Amount of Balance Notation
of Loan Rate of Balance Outstanding By
Interest
Period
</TABLE>
<PAGE>
EXHIBIT A-2
[Form of Eurodollar Loan Note]
PROMISS0RY NOTE
November 18, 1996
Elmira, New York
HARDINGE INC. (the "Borrower"), a corporation organized under
the laws of New York, for value received, hereby promises to pay to the order of
Marine Midland Bank (the "Bank") at its principal office at One Marine Midland
Plaza, Binghamton, New York 13902 or at such other place as required by the
Credit Agreement referred to below, the aggregate unpaid principal amount of the
Eurodollar Loans made by the Bank to the Borrower, in lawful money of the United
States of America or such other Currency as required by said Credit Agreement
and in immediately available funds on the dates and in the principal amounts
provided in the Credit Agreement. The Borrower also promises to pay interest on
the unpaid principal amount of each such Eurodollar Loan, in like money and
funds, for the period such balance is outstanding, at said principal office at
the rates of interest provided in the Credit Agreement and on the dates and in
the manner provided in said Credit Aqreement.
The date and amount of each Eurodollar Loan made by the Bank
to the Borrower under the Credit Agreement referred to below, maturity date and
each payment of principal thereof shall be recorded by the Bank on its books
and, prior to any transfer of this Note (or, at the discretion of the Bank, at
any other time), endorsed by the Bank on the schedule attached hereto or any
continuation thereof; provided, however, the failure of the Bank to make any
such recordation or endorsement shall not affect the obligations of the Borrower
to make payment when due of any amount owing under the Credit Agreement or
hereunder in respect to the Eurodollar Loans made by the Bank.
This is one of the Eurodollar Notes referred to in that
certain Credit Agreement (as amended from time to time, the "Credit Agreement")
dated as of November 18, 1996 between the Borrower and the Bank and evidences
the Loans made by the Bank thereunder. All terms not defined herein shall have
the meanings given to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of certain Events of Default and for
prepayment on the terms and conditions specified therein.
<PAGE>
-2-
The Borrower waives presentment, notice of dishonor, protest
and any other notice or formality with respect to this Note. The Borrower waives
to the full extent permitted by applicable law the right to trial by jury in any
lega1 proceedings arising out of or relating to this Note.
This Note shall be governed by, and interpreted and construed
in accordance with, the laws of the State of New York, including Section 5-1401
of the New York General Obligations Law (or any similar successor provision
thereto) but excluding all other conflict-of-law rules.
HARDINGE INC.
By
---------------------
Robert E. Agan
Chairman of the Board
<PAGE>
SCHEDULE OF EURODOLLAR LOANB
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Date Amount Currency Interest Duration Amount of Balance Notation
of Loan Rate of Balance Outstanding By
Interest
Period
</TABLE>
<PAGE>
EXHIBIT A-3
[Form of Term Loan Note]
TERM NOTE
---------- ----,-------
Elmira, New York
HARDINGE INC. (the "Borrower"), a corporation organized under
the laws of New York, for value received, hereby promises to pay to the order of
Marine Midland Bank (the "Bank") at its principal office at One Marine Midland
Plaza, Binghamton, New York 13902 or at such other place as required by the
Credit Agreement referred to below, the aggregate unpaid principal amount of the
Term Loan made by the Bank to the Borrower on the Revolving Credit Termination
Date, in sixteen (16) consecutive quarterly installments as provided in the
Credit Agreement. The Borrower also promises to pay interest on the unpaid
principal amount of such Term Loan, in like money and funds, for the period such
balance is outstanding, at said principal office at the rates of interest
provided in the Credit Agreement and on the dates and in the manner provided in
said Credit Agreement. Any amount of principal hereof which is not paid when
due, whether at stated maturity, by acceleration, or otherwise, shall bear
interest from the date when due until said principal amount is paid in full,
payable on demand, at a rate per annum equal at all times to the Default Rate
provided in said Credit Agreement. Any change in the interest rate resulting
from a change in the Bank's Prime Rate shall be effective at the beginning of
the day on which such change in the Bank's Prime Rate becomes effective.
This Term Note is the Term Note referred to in that certain
Credit Agreement (as amended from time to time, the "Credit Agreement") dated as
of November 18, 1996 between the Borrower and the Bank and evidences the Term
Loan made by the Bank thereunder. All capitalized terms not defined herein shall
have the meanings given to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of certain Events of Default and for
prepayment on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest
and any other notice or formality with respect to this Note. The Borrower waives
to the full extent permitted by applicable law the right to trial by jury in any
legal proceedings arisinq out of or relating to this Note.
<PAGE>
-2-
This Note shall be governed by, and interpreted and construed
in accordance with, the laws of the State of New York, including Section 5-1401
of the New York General Obligations Law (or any similar successor provision
thereto) but excluding all other conflict-of-law rules.
HARDINGE INC.
By----------------------
Robert E. Agan
Chairman of the Roard
<PAGE>
EXHIBIT B
[Form of Authorization Letter]
_______ __, 1996
Re: Credit Agreement dated as of November 18, 1996
(the"Credit Agreement") between Hardinge Inc.
and Marine Midland Bank
-----------------------
Marine Midland Bank
One Marine Midland Plaza
Binghamton, NY 13902
Ladies and Gentlemen:
In connection with the captioned Credit Agreement, we hereby
designate any one of the following persons to give to you instructions,
including notices required pursuant to the Agreement, orally or by telephone or
teleprocess:
NAME
----
Robert E. Agan, Chairman of the Board
Malcolm L. Gibson, Executive Vice President and Chief Financial Officer
Thomas T. Connelly, Treasurer
Richard L. Simons, Vice President - Finance
Ann Kuntz, Assistant Treasurer
Instructions may be honored on the oral, telephonic or
teleprocess instructions of anyone purporting to be any one of the
above-designated persons even if the instructions are for the benefit of the
person delivering them. We will furnish you with confirmation of each such
instruction either by telex (whether tested or untested) or in writing signed by
any person designated above (including any telecopy which appears to bear the
signature of any person designated above) on the same day that the instruction
is provided to you but your responsibility with respect to any instruction shall
not be affected by your failure to receive such confirmation or by its contents.
<PAGE>
You shall be fully protected in, and shall incur no liability
to us for, acting upon any instructions which you in good faith believe to have
been given by any person designated above, and in no event shall you be liable
for special, consequential or punitive damages. In addition, we agree to hold
you and your agents harmless from any and all liability, loss and expense
arising directly or indirectly out of instructions that we provide to you in
connection with the Credit Agreement except for liability, loss or expense
occasioned by the gross negligence or willful misconduct of you or your agents.
Upon notice to us, you may, at your option, refuse to execute
any instruction, or part hereof, without incurring any responsibility for any
loss, liability or expense arising out of such refusal if you in good faith
believe that the person delivering the instruction is not one of the persons
designated above or if the instruction is not accompanied by an authentication
method that we have agreed to in writing.
We will promptly notify you in writing of any change in the
persons designated above and, until you have actually received such written
notice and have had a reasonable opportunity to act upon it, you are authorized
to act upon instructions, even though the person delivering them may no longer
be authorized.
Very truly yours,
HARDINGE INC.
By
--------------------
Robert E. Agan,
Chairman of the Board
<PAGE>
EXHIBIT C
[Letterhead of counsel to the Borrower]
[Closing Date]
Marine Midland Bank
One Marine Midland Plaza
Binghamton, NY 13902
Ladies and Gentlemen:
We have acted as counsel to Hardinge Inc. ("the Borrower") in
connection with the execution and delivery of that certain Credit Agreement (the
"Credit Agreement") dated as of November 18, 1996 between the Borrower and
Marine Midland Bank, as Bank. Except as otherwise defined herein, all terms used
herein and defined in the Credit Agreement or any agreement delivered thereunder
shall have the meanings assigned to them therein.
In connection with the preparation of this Opinion, we have
examined originals or counterparts, executed on behalf of the Borrower, of the
Facility Documents and the exhibits attached thereto in originals or copies,
certified to our satisfaction, of such records, certificates and documents as we
deemed relevant and necessary as a basis for renderinq this Opinion.
Based upon the foregoing, and having regard to such legal
considerations as we deem relevant, we are of the opinion that:
1. The Borrower and, to the best of our knowledge, each of
its Subsidiaries, is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has all
power and authority to carry on its business as presently being conducted and to
own its properties, and is duly licensed or qualified and in good standing as a
foreign corporation in each other jurisdiction in which its properties are
located or in which failure to qualify would materially and adversely affect
either the conduct of its business or the enforceability of contractual rights
of the Borrower.
<PAGE>
-2-
2. The execution, delivery and performance by the Borrower of
the Facility Documents to which it is a party have been duly authorized by all
necessary corporate action and do not and will not: (a) require any consent or
approval of its stockholders; (b) contravene its charter or by-laws; (c)
contravene any law or, to the best of our knowledge, contractual restriction or
provision binding on or affecting the Borrower.
3. No authorization or approval or other action by, and no
notice to or filing with any governmental authority or requlatory body is
required for the due execution, delivery and performance by the Borrower of the
Facility Documents.
4. The Credit Agreement is, and the other Facility Documents
when executed thereunder will be, legal, valid and binding obligations
enforceable in accordance with their respective terms, except that (a) the
availability of equitable remedies may be limited by principles of equity, and
(b) enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of the rights of creditors generally.
5. Each Facility Document to which the Borrower is a party
is, or when delivered under the Credit Agreement will be, a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting the enforcement of
the rights of creditors generally.
6. Except as described in Schedule II to the Credit
Agreement, there is no pending, or to our knowledge threatened actions, suits or
proceedings against or affecting the Borrower or any of its Subsidiaries before
any court, governmental agency or arbitrator, which may, in any one case or in
the aggregate, materially adversely affect the financial condition or operations
of the Borrower or of any such Subsidiary, or the ability of the Borrower to
perform its obligations under the Facility Documents to which it is a party. We
do not address herein those matters described in Cushman, Darby & Cushman, LLP
letter dated November 15, 1996 attached hereto.
Yours very truly,
SAYLES, EVANS, BRAYTON, PALMER & TIFFT
By
----------------------------
J. Philip Hunter, A Partner.
<PAGE>
EXHIBIT D
CONFIDENTIALITY AGREEMENT
[Date]
Re: Credit Agreement dated as of
November 18, 1996 between
Hardinqe Inc. and Marine Midland Bank
-------------------------------------
[Insert Name and
Address of Prospective
Participant or Assignee]
Dear
-------------------
As a Bank, party to the above-referenced Credit Agreement (the
"Credit Agreement"), we have agreed with Hardinge Inc. (the "Borrower") pursuant
to Section 10.14 of the Credit Agreement to use reasonable precautions to keep
confidential, except as otherwise provided therein, all non-public information
identified by the Borrower as being confidential at the time the same is
delivered to us pursuant to the Credit Agreement.
As provided in said Section 10.14, we are permitted to provide
you, as a prospective [holder of a participation in the Loans (as defined in the
Credit Agreement)] [assignee Bank], with certain of such non-public information
subject to the execution and delivery by you, prior to receiving such non-public
information, of a Confidentiality Agreement in this form. Such information will
not be made available to you until your execution and return to us of this
Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on
behalf of yourself and each of your affiliates, directors, officers, employees,
and representatives) that (A) such information will not be used by you except in
connection with the proposed [participation] [assignment] mentioned above and
(B) you shall use reasonable precautions, in accordance with your customary
procedures for handling confidential information and in accordance with safe and
sound bankinq Practices. to keep such
<PAGE>
information confidential, provided that nothing herein shall limit the
disclosure of any such information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to your counsel or to counsel for any of
the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv)
in connection with any litigation to which you or any one or more of the Banks
is a party; or (v) to the extent such information becomes publicly available
other than as a result of disclosure other than as a result of disclosure by a
Bank. Provided further, that, unless specifically prohibited by applicable law
or court order, you agree, prior to disclosure thereof, to notify the Borrower
of any request for disclosure of any such non-public information (x) by any
governmental agency or representative thereof (other than any such request in
connection with an examination of your financial condition by such governmental
agency) or (y) pursuant to legal process; and provided finally that in no event
shall you be obligated to return any materials furnished to you pursuant to this
Confidentiality Agreement.
Would you please indicate your agreement to the foregoing, by
signing at the place provided below the enclosed copy of this Confidentiality
Aqreement.
Very truly yours,
[Insert Name of Bankl
By:_________________________
The foregoing is agreed to
as of the date of this letter.
[Insert name of prospective
participant or assignee]
By:________________________
<PAGE>
SCHELDULE I
Subsidiaries of Borrowrer
<TABLE>
<CAPTION>
Jurisdiction Percentage
Name and Address of Incorporation of Ownership
- ---------------- ---------------- ------------
<S> <C> <C>
Hardinge Credlt Co., Inc.
One Hardinge Drive
Elmira, NY 14902 New York 100%
Hardinge Technologies Systems Inc.
One Hardinge Drive
Elmira, NY 14902 New York 100%
Morrison Machine Products, Inc.
One Hardinge Drive
Elmira, NY 14902 New York 100%
Canadian Hardinge Machine
Tools, Ltd.
Toronto, Canada Canada 100%
Hardinge Machine Tools, Ltd.
Exeter, England United Kingdom 100%
Hardinge Brothers GmbH Federal Republic
Krefeld, Germany of Germany 100%
L. Kellenberger & Co., AG
St. Gallen Switzerland 100%
Kellenberger Incorporated
200 Clearbrook Road
Elmsford, NY 10523 New York 100%
Hardinge Shanghai Company, Ltd.
Shanghai China 100%
</TABLE>
<PAGE>
SCHEDULE II
Hazardous Materials
In December, 1992, Hardinge removed an underground waste oil tank at
its College Avenue facility. Environmental sampling following the removal of the
tank disclosed the presence of hydrocarbon contamination in surrounding soils.
An environmental consultant retained by Hardinge prepared a site assessment and
an action plan for on-site remediation which were adopted and approved by the
New York State Department of Environmental Conservation. The project is on site.
Remediation commenced in the Fall of 1995.
<PAGE>
SCHEDULE III
Partnerships of Borrower
Egret Aviation Co. Ownership of airplane with three
Box 228 other companies
Elmira, NY 14902
<PAGE>
[Hardinge Logo]
From the Office of
Robert E. Agan
President/Chief Executive Officer
November 18, 1996
Re: Credit Agreement dated as of November 18, 1996
(the "Credit Agreement") between Hardinge Inc.
and Marine Midland Bank
-----------------------
Marine Midland Bank
One Marine Midland Plaza
Binghamton, NY 13902
Ladies and Gentlemen:
In connection with the captioned Credit Agreement, we hereby
designate any one of the following persons to give to you instructions,
including notices required pursuant to the Agreement, orally or by telephone or
teleprocess:
NAME
----
Robert E. Agan, Chairman of the Board
Malcolm L. Gibson, Executive Vice President
and Chief Financial Officer
Thomas T. Connelly, Treasurer
Richard L. Simons, Vice President - Finance
Ann Kuntz, Assistant Treasurer
Instructions may be honored on the oral, telephonic or
teleprocess instructions of anyone purporting to be any one of the
above-designated persons even if the instructions are for the benefit of the
person delivering them. We will furnish you with confirmation of each such
instruction either by telex (whether tested or untested) or in writing signed by
any person designated above (including any telecopy which appears to bear the
signature of any person designated above) on the same day that the instruction
is provided to you but your responsibility with respect to any instruction shall
not be affected by your failure to receive such confirmation or by its contents.
<PAGE>
You shall be fully protected in, and shall incur no liability
to us for, acting upon any instructions which you in good faith believe to have
been given by any person designated above, and in no event shall you be liable
for special, consequential or punitive damages. In addition, we agree to hold
you and your agents harmless from any and all liability, loss and expense
arising directly or indirectly out of instructions that we provide to you in
connection with the Credit Agreement except for liability, loss or expense
occasioned by the gross negligence or willful misconduct of you or your agents.
Upon notice to us, you may, at your option, refuse to execute
any instruction, or part hereof, without incurring any responsibility for any
loss, liability or expense arising out of such refusal if you in good faith
believe that the person delivering the instruction is not one of the persons
designated above or if the instruction is not accompanied by an authentication
method that we have agreed to in writing.
We will promptly notify you in writing of any change in the
persons designated above and, until you have actually received such written
notice and have had a reasonable opportunity to act upon it, you are authorized
to act upon instructions, even though the person delivering them may no longer
be authorized.
Very truly yours,
HARDINGE INC.
By /s/ Robert E. Agan
----------------------
Robert E. Agan,
Chairman of the Board
<PAGE>
HARDINGE INC.
I, J. Philip Hunter, do hereby certify that I am the duly
elected and acting Secretary of Hardinge Inc., and that the following named
persons have been duly elected to the offices set forth opposite their
respective names and are now serving and acting as such officers and that the
signature opposite their respective names is the specimen signature of each such
person.
Robert E. Agan Chairman of the Board
Chief Executive Officer /s/ Robert E. Agan
------------------
Malcolm L. Gibson Executive Vice President,
Chief Financial Officer and
Assistant Secretary /s/ Malcolm L. Gibson
---------------------
Thomas T. Connelly Treasurer /s/ Thomas T. Connelly
----------------------
Richard L. Simons Vice President, Finance /s/ Richard L. Simons
---------------------
J. Philip Hunter Secretary /s/ J. Philip Hunter
--------------------
IN WITNESS WHEREOF, I have hereunto set my hand and
the seal of Hardinge Inc. this 18th day of November, 1996.
/s/ J. Philip Hunter
--------------------
J.PHILIP HUNTER
<PAGE>
HARDINGE INC.
Certified Resolution.
THIS IS TO CERTIFY that I, J. Philip Hunter, am the duly
elected and acting Secretary of Hardinge Inc., a New York corporation with
offices at One Hardinge Drive, P.O. Box 1507, Elmira, New York; that at a
meeting of the Board of Directors of said Corporation duly called and held on
October 22, 1996 at which a quorum was present and voting throughout, the
following resolutions were duly and unanimously adopted and have not been
amended or revoked at the date hereof.
RESOLVED that this Corporation borrow from Marine Midland Bank from
time to time on a revolving credit basis and otherwise an aggregate amount not
to exceed at any time outstanding $20,000,000 under and pursuant to a proposed
Commitment Letter from Marine Midland Bank dated September 18, 1996, copy of
which Commitment Letter shall be filed with the records of this meeting, and be
it further
RESOLVED that the form, terms and provisions of:
(a) said proposed Credit Agreement between this Corporation
and Marine Midland Bank, providing, among other things,
for the making by Marine Midland Bank to this
Corporation from time to time of advances (the
"Advances") in an aggregate amount not to exceed at any
time outstanding $20,000,000 upon the terms and
conditions therein set forth, which terms and
conditions are substantially similar to the present
Revolving Credit Agreement with The Chase Manhattan
Bank (National Association), and for the payment by
this Corporation of costs and expenses as therein
provided; and
(b) promissory notes (the "Notes") to be issued by this
Corporation to Marine Midland Bank pursuant to the
terms and conditions of said proposed Credit Agreement
to be entered into with Marine Midland Bank, a single
Note issued to the order of Marine Midland Bank
evidencing the indebtedness of this Corporation
resulting from each of the Advances made by Marine
Midland Bank to this Corporation and providing, among
other things, for
<PAGE>
-2-
the repayment of such Advances, and payment of interest
thereon, as set forth above with respect thereto:
be, and the same hereby are, in all respects approved, and that the Chief
Executive Officer, Chief Financial Officer, Vice President - Finance, or
Treasurer of this Corporation be, and each of them hereby is, authorized, in the
name and on behalf of this Corporation, to execute and deliver said Credit
Agreement with Marine Midland Bank and said Notes, each in the form or
substantially in the form thereof as above described, with such additional
changes, additions and modifications thereto as the officer of this Corporation
executing the same shall approve, such approval to be conclusively evidenced by
his execution and delivery thereof; and be it further
RESOLVED that said Credit Agreement with Marine Midland Bank, as the
same is or may be amended or changed as above provided, together with a copy of
the Notes, be filed by the Secretary of this Corporation with the minutes of the
meetings of the Board of Directors of this Corporation; and be it further
RESOLVED that the Chief Executive Officer, Chief Financial Officer,
Vice President - Finance, Treasurer, the Secretary and Assistant Secretary of
this Corporation be, and each of them hereby is, authorized and empowered (any
one of them acting alone) to do or cause to be done all such acts or things and
to sign and deliver, or cause to be signed and delivered, all such documents,
instruments and certificates (including, without limitation, all notices and
certificates required or permitted to be given or made under the terms of the
Credit Agreement), in the name and on behalf of this Corporation or otherwise,
as such officer of this Corporation may deem necessary, advisable or appropriate
to effectuate or carry out the purposes and intent of the foregoing resolutions
and to perform the obligations of this Corporation under the agreements and
instruments referred to therein.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed
the seal of the Corporation this 18th day of November, 1996.
/s/ J.Philip Hunter
-------------------
J. Philip Hunter
(SEAL)
<PAGE>
HARDINGE INC.
Officer's Certificate
The undersigned, being the duly elected Chairman of the Board
of Hardinge Inc., a corporation duly organized and existing under the laws of
the State of New York (the "Company") does hereby certify pursuant to Section
4.01 of the Credit Agreement between the Company and Marine Midland Bank, dated
as of November 18, 1996 (the "Credit Agreement") that the representations and
warranties contained in Article 5 of the Credit Agreement are true and correct
on the date hereof as though made on this date and that no event has occurred
and it is continuing which constitutes a Default, or Event of Default, as
defined under the Credit Agreement.
IN WITNESS WHEREOF, this Certificate has been duly executed
this 18th day of November, 1996.
/s/ Robert E. Agan
---------------------
Robert E. Agan,
Chairman of the Board
<PAGE>
[letterhead of Sayles,Evans, Brayton, Palmer & Tifft]
November 18, 1996
Marine Midland Bank
One Marine Midland Plaza
Binghamton, NY 13902
Ladies and Gentlemen:
We have acted as counsel to Hardinge Inc. ("the Borrower") in
connection with the execution and delivery of that certain Credit Agreement (the
"Credit Agreement") dated as of November 18, 1996 between the Borrower and
Marine Midland Bank, as Bank. Except as otherwise defined herein, all terms used
herein and defined in the Credit Agreement or any agreement delivered thereunder
shall have the meanings assigned to them therein.
In connection with the preparation of this Opinion, we have
examined originals or counterparts, executed on behalf of the Borrower, of the
Facility Documents and the exhibits attached thereto in originals or copies,
certified to our satisfaction, of such records, certificates and documents as we
deemed relevant and necessary as a basis for renderinq this Opinion.
Based upon the foregoing, and having regard to such legal
considerations as we deem relevant, we are of the opinion that:
1. The Borrower and, to the best of our knowledge, each of
its Subsidiaries, is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has all
power and authority to carry on its business as presently being conducted and to
own its properties, and is duly licensed or qualified and in good standing as a
foreign corporation in each other jurisdiction in which its properties are
located or in which failure to qualify would materially and adversely affect
either the conduct of its business or the enforceability of contractual rights
of the Borrower.
<PAGE>
2. The execution, delivery and performance by the Borrower of
the Facility Documents to which it is a party have been duly authorized by all
necessary corporate action and do not and will not: (a) require any consent or
approval of its stockholders; (b) contravene its charter or by-laws; (c)
contravene any law or, to the best of our knowledge, contractual restriction or
provision binding on or affecting the Borrower.
3. No authorization or approval or other action by, and no
notice to or filing with any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Borrower of the
Facility Documents.
4. The Credit Agreement is, and the other Facility Documents
when executed thereunder will be, legal, valid and binding obligations
enforceable in accordance with their respective terms, except that (a) the
availability of equitable remedies may be limited by principles of equity, and
(b) enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of the rights of creditors generally.
5. Each Facility Document to which the Borrower is a party
is, or when delivered under the Credit Agreement will be, a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting the enforcement of
the rights of creditors qenerally.
6. Except as described in Schedule II to the Credit
Agreement, there is no pending, or to our knowledge threatened actions, suits or
proceedings against or affecting the Borrower or any of its Subsidiaries before
any court, governmental agency or arbitrator, which may, in any one case or in
the aggregate, materially adversely affect the financial condition or operations
of the Borrower or of any such Subsidiary, or the ability of the Borrower to
perform its obligations under the Facility Documents to which it is a party. We
do not address herein those matters described in Cushman, Darby & Cushman, LLP
letter dated November 15, 1996 attached hereto.
Yours very truly,
SAYLES, EVANS, BRAYTON, PALMER & TIFFT
By /s/ J. Philip Hunter
-----------------------------------------
J. Philip Hunter, A Partner.
<PAGE>
[Letterhead of Cushman Darby & Cushman Intellectual Property Group]
November 15, 1996
VIA FACSIMILE
J. Philip Hunter, Esq.
SAYLES, EVANS, BRAYTON,
PALMER & TIFFT
One West Church Street
Elmira, New York 14901
Re: Loan Disclosure
Our Ref: WWT/50377-226058
Dear Phil:
This will confirm our telephone conversation of today in which we
discussed the above matter and the requirement for disclosure in connection with
a loan application and closing.
To summarize, our review of the indemnity provision granted Hardinge,
Inc. by G.E.-Fanuc is sufficient to cover any significant potential liability
for sales that have occurred to the present time by G.E.-Fanuc to Hardinge, Inc.
We are also aware of the fact that IMS, a potential plaintiff, has granted at
least one patent license to a company situated relative to the market in a
position similar to Hardinge, Inc. In view of these facts, we do not believe
that there is any significant potential liability which need be disclosed on a
loan application at the present time since the potential for litigation over the
IMS patents against Hardinge, Inc. does not appear reasonably likely in the
foreseeable future.
In the event such a claim were made, there is the possibility that any
liability in the future can be avoided simply by purchasing the relevant
equipment from a licensed source.
I understand that Mr. Allan Krul is endeavoring to determine the terms
of such licenses that are available. Based on my discussion with Allan and Mr.
Soroka in Elmira, it appears that the cost of such a license will add only an
insignificant amount to the overall cost of the machines.
In view of all of the foregoing, we do not believe tbat an adverse
statement need be made on a loan application as to any potential llability
arising out of the controversy that G.E.-Fanuc is now engaged in.
<PAGE>
J. Philip Hunter, Esq. Page 2
SAYLES, EVANS, BRAYTON,
PALMER & TIFFT
November 15, 1996
Please don't hesitate to call should there be any questions.
Very truly yours,
/s/ W. Warren Taltavull
W. Warren Taltavull
WWT/lfb
<PAGE>
State of New York
Department of State SS:
I hereby certify, that HARDINGE INC. was formed by consolidation on 12/24/1937,
under the name of HARDINGE BROTHERS, INC., fixing the duration as perpetual, and
that a diligent examination has been made of the index of corporation papers
filed in this Department for a certificate, order, or record of a dissolution,
and upon such examination, no such certificate, order or record has been found,
and that so far as indicated by the records of this Department, such corporation
is a subsisting corporation. I further certify the following:
A Certificate of Amendment HARDINGE BROTHERS, INC., changing name to HARDINGE
INC., was filed 05/19/1995.
Restated Certificate was filed on 05/24/1995.
I further certify, that no other certificates have been filed by such
corporation.
[Seal of New York Department of State]
Witness my hand and the official seal
of Department of State at the City
of Albany, this 15th day of November
one thousand nine hundred and
ninety six
/S/ Special Deputy Secretary of State
-------------------------------------
Special Deputy Secretary of State
199611180080 36
<PAGE>
PROMISSORY NOTE
November 18, 1996
Elmira, New York
HARDINGE INC. (the "Borrower"), a corporation organized under
the laws of New York, for value received, hereby promises to pay to the order of
Marine Midland Bank (the "Bank") at its principal office at One Marine Midland
Plaza, Binghamton, New York 13902 or at such other place as required by the
Credit Agreement referred to below, the aggregate unpaid principal amount of the
Variable Rate Loans made by the Bank to the Borrower, in lawful money of the
United States of America or such other Currency as required by said Credit
Agreement and in immediately available funds on the dates and in the principal
amounts provided in the Credit Agreement. The Borrower also promises to pay
interest on the unpaid principal amount of each such Variable Rate Loan, in like
money and funds, for the period such balance is outstanding, at said principal
office at the rates of interest provided in the Credit Agreement and on the
dates and in the manner provided in said Credit Agreement.
The date and amount of each Variable Rate Loan made by the
Bank to the Borrower under the Credit Agreement referred below, maturity date
and each payment of principal thereof shall be recorded by the Bank on its books
and, prior to any transfer of this Note (or, at the discretion of the Bank, at
any other time), endorsed by the Bank on the schedule attached hereto or any
continuation thereof; provided, however, the failure of the Bank to make any
such recordation or endorsement shall not affect the obligations of the Borrower
to make payment when due of any amount owing under the Credit Agreement or
hereunder in respect to the Variable Rate Loans made by the Bank.
This is one of the Variable Rate Notes referred to in that
certain Credit Agreement (as amended from time to time, the "Credit Agreement")
dated as of November 18, 1996 between the Borrower and the Bank and evidences
the Loans made by the Bank thereunder. All terms not defined herein shall have
the meanings given to them in the Credit Aqreement.
The Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of certain Events of Default and for
prepayment on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest
and any other notice or formality with respect to this Note. The Borrower waives
to the full extent permitted by applicable law the right to trial by jury in any
legal proceedings arising out of or relating to this Note.
<PAGE>
-2-
This Note shall be governed by, and interpreted and construed
in accordance with, the laws of the State of New York, including Section 5-1401
of the New York General Obligations Law (or any similar successor provision
thereto) but excluding all other conflict-of-law rules.
HARDINGE INC.
By /s/ Robert E. Agan
-----------------------
Robert E. Agan
Chairman of the Board
<PAGE>
SCHEDULE OF VARIABLE RATE LOANS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Date Amount Currency Interest Duration Amount of Balance Notation
of Loan Rate of Payment Outstanding By
Interest
Period
</TABLE>
<PAGE>
PROMISSORY NOTE
November 18, 1996
Elmira, New York
HARDINGE INC. (the "Borrower"), a corporation organized under
the laws of New York, for value received, hereby promises to pay to the order of
Marine Midland Bank (the "Bank") at its principal office at One Marine Midland
Plaza, Binghamton, New York 13902 or at such other place as required by the
Credit Agreement referred to below, the aggregate unpaid principal amount of the
Eurodollar Loans made by the Bank to the Borrower, in lawful money of the United
States of America or such other Currency as required by said Credit Agreement
and in immediately available funds on the dates and in the principal amounts
provided in the Credit Agreement. The Borrower also promises to pay interest on
the unpaid principal amount of each such Eurodollar Loan, in like money and
funds, for the period such balance is outstanding, at said principal office at
the rates of interest provided in the Credit Agreement and on the dates and in
the manner provided in said Credit Agreement.
The date and amount of each Eurodollar Loan made by the Bank
to the Borrower under the Credit Agreement referred below, maturity date and
each payment of principal thereof shall be recorded by the Bank on its books
and, prior to any transfer of this Note (or, at the discretion of the Bank, at
any other time), endorsed by the Bank on the schedule attached hereto or any
continuation thereof; provided, however, the failure of the Bank to make any
such recordation or endorsement shall not affect the obligations of the Borrower
to make payment when due of any amount owing under the Credit Agreement or
hereunder in respect to the Eurodollar Loans made by the Bank.
This is one of the Eurodollar Notes referred to in that
certain Credit Agreement (as amended from time to time, the "Credit Agreement")
dated as of November 18, 1996 between the Borrower and the Bank and evidences
the Loans made by the Bank thereunder. All terms not defined herein shall have
the meanings given to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of principal upon the occurrence of certain Events of Default and for
prepayment on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor, protest
and any other notice or formality with respect to this Note. The Borrower waives
to the full extent permitted by applicable law the right to trial by jury in any
legal proceedings arising out of or relating to this Note.
<PAGE>
-2-
This Note shall be governed by, and interpreted and construed
in accordance with, the laws of the State of New York, including Section 5-1401
of the New York General Obligations Law (or any similar successor provision
thereto) but excluding all other conflict-of-law rules.
HARDINGE INC.
By /s/Robert E. Agan
-----------------------
Robert E. Agan
Chairman of the Board
<PAGE>
SCHEDULE OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Date Amount Currency Interest Duration Amount of Balance Notation
of Loan Rate of Payment Outstanding By
Interest
Period
</TABLE>
CHEMUNG CANAL TRUST COMPANY
Master Note
$5,000,000.00 Elmira, New York
July 23, 1996
For value received, the undersigned, HARDINGE, INC., ("Borrower") promises to
pay to the order of Chemung Canal Trust Company ("Lender"), on demand or when
due as provided herein, at its office at One Chemung Canal Plaza, Elmira, New
York, or at any other office designated by Lender, the principal sum of Five
Million and NO/100 ($5,000,000.00) Dollars or so much thereof as shall equal the
unpaid principal amount of all advances made by Lender to Borrower, plus
interest on the principal amount outstanding from time to time.
This note shall be evidence of Indebtedness and shall constitute the terms of
payment by the Borrower to the Lender of principal which may be borrowed,
repaid, and reborrowed from time to time, it being understood that the Lender
may, in its sole discretion, decline in whole or in part to make any advance
requested by Borrower. The excess of borrowing over repayments shall be the
principal balance due hereunder from time to time and at any time.
The Lender may, in its sole discretion, make an advance to the Borrower upon
oral request. Each oral request shall be conclusively presumed to have been made
by a person authorized by Borrower to do so, and any credit by the Lender of any
advance to or for the account of the Borrower shall establish the Borrower's
obligation to repay the same in accordance with the terms of this note. The
Lender shall incur no liability to any party by reason of making an advance upon
an oral request. The Lender will endeavor (but shall be under no obligation) to
send to the Borrower written confirmation of the date and amount of such
advance, but its failure to do so will not relieve the Borrower of its
obligations hereunder, including its obligation to repay the advance when due.
Each advance made to Borrower shall be deposited in Borrower's account at
Chemung Canal Trust Company, identified below.
Advances in excess of $500,000.00 shall accrue interest at a rate equal to the
sum of the one month London Interbank Offered Rate (LIBOR) in effect from time
to time plus .50% per annum. The LIBOR rate as used herein shall mean the annual
rate of interest announced in the Wall Street Journal. All advances will carry
the LIBOR rate fixed for one month. All advances under $500,000.00 and any
advance paid prior to the one month maturity will have its interest rate revert
to the Chase Manhattan Bank Prime Rate. All interest will be calculated for the
actual number of days on a 360-day year basis.
Interest will be payable monthly and it shall be due on the same day of each
month until the principal amount is paid in full; provided, however, that if
demand is made for payment of the entire principal balance, all interest due
shall be payable at the same time, and if all or any part of the principal
balance is paid at any time, all interest accrued and unpaid to the date of the
payment will be due with such payment.
Lender may, at its sole option, declare the entire balance of principal and
accrued interest due and payable at any time, and in that event, the Borrower
will immediately pay the entire balance in full.
All or any part of the indebtedness evidenced by this note may be paid without
penalty at any time.
Any payment not received within ten (10) business days after it becomes due may,
at the option of the
<PAGE>
Lender, be subject to a late charge equal to 2.0% thereof or $25, whichever is
greater.
All payments shall be made in lawful money of the United States in immediately
available funds.
If the Lender demands and accepts partial payments, such demand or acceptance
shall not be construed as a waiver of the right to demand the entire unpaid
balance due hereunder at any time in accordance with the terms thereof. Any
delay by the Lender in exercising any rights hereunder shall not operate as a
waiver of such rights.
To secure payment of the indebtedness evidenced by this note from time to time,
the Borrower has transferred, pledged, and delivered to the Lender and has
granted to the Lender a security interest or mortgage in the following property:
not applicable, together with all proceeds thereof and all dividends and other
distributions of any kind with respect thereto and all substitutions and
exchanges therefor and additions thereto.
The provisions of any separate Security Agreement or mortgage executed by the
Borrower shall become a part of the terms of this Master Note.
If this item is checked ___, notwithstanding any other provision of this note,
the Borrower agrees that for a period of___ consecutive days during each of the
Borrower's fiscal years, there shall be no principal balance and accrued
interest outstanding under this Master Note.
Borrower, and endorsers and guarantors hereof, waive any demand, presentment for
payment, protest and notice or protest for non-payment of this note. This note
shall be governed by the laws of the State of New York.
Borrower agrees to pay all reasonable costs and expenses, including attorneys'
fees and disbursements incurred by Lender in enforcing this note.
HARDINGE, INC.
By: /s/ Robert E. Agan
------------------------- By: Hardinge, Inc.
Its Chairman of the Board One Hardinge Drive
President/CEO Elmira, New York 14902-1507
GUARANTY
The Undersigned, jointly and severally if more than one, hereby
unconditionally (i) guarantee the full and prompt payment of the indebtedness
evidenced by this Master Note when due whether by acceleration or otherwise;
(ii) agree to all the terms and conditions of this note; (iii) consent that
from time to time without notice to the undersigned and without affecting any
liability of the undersigned, any collateral may be exchanged, released,
surrendered, sold, applied or otherwise dealt with; (iv) agree that at the
election of the holder, and without affecting the liability of the
undersigned, any time of payment may be extended or accelerated in whole or in
part and that this note may be renewed in whole or in part.
Dated: ,19 . ---------------------------------
----------------- ---
---------------------------------
Item 10.5
AMENDMENT NUMBER ONE
This Amendment Number One (the "Amendment") is to the Credit Agreement
among HARDINGE BROTHERS, INC. (now known as Hardinge Inc.) (the "Borrower") the
Banks signatory thereto, and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) as
Agent, dated as of August 1, 1994 (the "Agreement"). Terms used but not
otherwise defined herein shall have the same meaning set forth in the Agreement.
1. The definition of "Margin" as set forth in Section 1.01 of the Agreement
shall be modified in its entirety as follows:
"Margin" means for each Variable Rate Loan and Eurodollar Loan the lowest
applicable margin on the table next following, computed as of each Quarterly
Date based upon Borrower's financial statements for the immediately preceding
four Quarterly Dates for income statement items and the most recent Quarterly
Date for balance sheet items.
================================================================================
(a) Ratio of Funded Debt to Earnings Variable Rate Loans Eurodollar Loans
Before Interest & Taxes
- --------------------------------------------------------------------------------
Equal to or less than 1.0 0 Basis Points 45 Basis Points
- --------------------------------------------------------------------------------
Greater than 1.0 and less than 0 Basis Points 65 Basis Points
or equal to 2.0
- --------------------------------------------------------------------------------
Greater than 2.0 and less than 0 Basis Points 85 Basis Points
or equal to 3.0
- --------------------------------------------------------------------------------
Greater than 3.0 0 Basis Points 100 Basis Points
================================================================================
2. Section 7.01(f) of the Agreement shall be modified in its entirety as
follows:
(f) Liens against customer notes, which are created in connection with the
sale, pledge or discounting of such customer notes, provided that immediately
after giving effect thereto, the Borrower's aggregate liabilities on account of
such Debt secured by such Liens does not exceed $11,000,000.00; and
3. Section 7.02 of the Agreement shall be modified in its entirety as
follows:
Section 7.02 Lease Obligations. Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any obligations for the payment
of rental for any property under leases or agreements to lease other than
Capital Leases which would cause the liabilities of the Borrower and its
Subsidiaries, on a consolidated basis, in respect of all such obligations to
exceed Five Million and 00/100 Dollars ($5,000,000.00) payable in any period of
twelve (12) months.
4. Section 7.05(d) of the Agreement shall be modified in its entirety as
follows:
(d) The Borrower or any Subsidiary may sell, lease or otherwise dispose of
any of its assets (other than as permitted by clauses (a) to (c) inclusive),
provided that the
<PAGE>
-2-
aggregate net book value of all assets of the Borrower and its Subsidiaries
sold, leased or otherwise disposed of during any fiscal year of the Borrower
pursuant to this clause (d) should not exceed 5% of the Consolidated Tangible
Net Worth of the Borrower and its Subsidiaries at the end of the preceding
fiscal year.
All sales, leases or dispositions of assets pursuant to clause (b), (c) or
(d) shall be at fair market value.
Notwithstanding the foregoing, the aggregate amount of acquisitions (net of
amounts paid for with the Borrower's stock) permitted under this section from
and after February 29, 1996 shall not be greater than $10,000,000.00 in any
consecutive twenty-four (24) month period without the prior written consent of
the Required Banks.
5. Section 8.02 of the Agreement shall be modified in its entirety as
follows:
Section 8.02 Net Worth. The Borrower shall maintain a Consolidated Tangible
Net Worth, at al1 times during each fiscal year of not less than an amount set
forth below opposite such fiscal year:
Fiscal Year Ending
December 31 Amount
----------- ------
1995 $125,000,000
1996 $128,000,000
1997 $131,000,000
1998 $134,000,000
1999 $137,000,000
2000 $140,000,000
2001 $143,000,000
2002 $146,00O,OOO
The term "Consolidated Tangible Net Worth" shall mean the total
shareholders' equity prior to any cumulative foreign currency translation
adjustments, minus intangible assets.
6. Section 8.04 of the Agreement shall be modified in its entirety as
follows:
Section 8.04 Cash Flow. The Borrower shall maintain a Cash Flow Ratio at
all times of not less than 2.0 to l.0.
"Cash Flow Ratio" means the ratio at each Quarterly Date equal to (a) the
sum of Consolidated Net Income plus depreciation, amortization and other noncash
expenses for the previous four consecutive quarters divided by (b) the current
portion (i.e. due within one (1) year) of long term Debt.
<PAGE>
-3-
"Consolidated Net Income" means for any period the net income of Borrower
and its Consolidated Subsidiaries for such period determined on a consolidated
basis without duplication, in accordance with GAAP.
7. Section 9.01(f) of the Agreement shall be modified in its entirety as
follows:
(f) Any judgment or order for the payment of money in excess of Two Million
Five Hundred Thousand Dollars ($2,500,000.00) shall be rendered against the
Borrower or any of its Subsidiaries, and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order, or (ii)
there shall be any period of 10 consecutive days during which a state of
enforcement of such judgment or order, by reason of the pending appeal or
otherwise, shall not be in effect; or
8. The effective date of this Amendment Number One shall be February 29,
1996.
9. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any party
hereto may execute this Amendment by signing any such counterpart.
10. Except as expressly set forth herein, this Amendment shall not, by
implication or otherwise, limit, constitute a waiver of, or otherwise affect the
rights and remedies of the Agent or the Banks, nor except to the extent
expressly set forth herein, alter, modify, amend, or in any way affect the
terms, conditions, obligations, covenants or agreements contained in the
Agreement, all of which shall otherwise continue in full force and effect in
accordance with their respective terms.
IN WITNESS WHEREOF, the parties have caused this Amendment Number One to be
duly executed.
HARDINGE INC.
By: /s/ Robert E. Agan
-----------------------------
Robert E. Agan, President and
Chief Executive Officer
<PAGE>
-4-
AGENT:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By: /s/ Michelle Benedict-Jones
----------------------------------------
Michelle Benedict-Jones, Vice President
BANKS:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By: /s/ Michelle Benedict-Jones
----------------------------------------
Michelle Benedict-Jones, Vice President
<PAGE>
-5-
CHEMICAL BANK
By: /s/ Christine McLeod
--------------------------------
Christine McLeod, Vice President
<PAGE>
-6-
NATWEST BANIC, N.A., (formerly
National Westminster Bank, USA)
By: /s/ Michael Dwyer
-----------------------------
Michael Dwyer, Vice President
Item 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction of
Company Incorporation or Organization
------- -------------------------------
Canadian Hardinge Machine Tools, ltd. Canada
Hardinge Machine Tools, ltd. United Kingdom
Hardinge Brothers GmbH Federal Republic
of Germany
L. Kellenberger & Co., AG Switzerland
Kellenberger Incorporated New York
Hardinge Shanghai Company, Ltd. China
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33- 65049) pertarning to the Hardinge Inc. Savings Plan of our report
dated January 27, 1997, with respect to the consolidated financial statements of
Hardinge Inc. and subsidiaries included in the Annual Report (Form 10-K) for the
year ended December 31, 1996.
/s/ Ernst & Young LLP
Syracuse, New York
March 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,636
<SECURITIES> 0
<RECEIVABLES> 58,011
<ALLOWANCES> 0
<INVENTORY> 99,906
<CURRENT-ASSETS> 152,576
<PP&E> 117,606
<DEPRECIATION> 53,716
<TOTAL-ASSETS> 229,162
<CURRENT-LIABILITIES> 36,320
<BONDS> 37,156
0
0
<COMMON> 65
<OTHER-SE> 147,480
<TOTAL-LIABILITY-AND-EQUITY> 229,162
<SALES> 220,295
<TOTAL-REVENUES> 220,295
<CGS> 145,264
<TOTAL-COSTS> 45,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,770
<INCOME-PRETAX> 28,092
<INCOME-TAX> 10,804
<INCOME-CONTINUING> 17,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,288
<EPS-PRIMARY> 2.78
<EPS-DILUTED> 2.78
</TABLE>
