-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Elq2DJblXXEv9e+at2kKMbhC8mIAt+CVfjQBj/otixXUp3qkIXmK92QAu23+hD8S A2bB2BHrXiPL/vNQDjqcWA== 0000912057-02-019864.txt : 20020513 0000912057-02-019864.hdr.sgml : 20020513 ACCESSION NUMBER: 0000912057-02-019864 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARDINGE INC CENTRAL INDEX KEY: 0000313716 STANDARD INDUSTRIAL CLASSIFICATION: MACHINE TOOLS, METAL CUTTING TYPES [3541] IRS NUMBER: 160470200 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15760 FILM NUMBER: 02643569 BUSINESS ADDRESS: STREET 1: ONE HARDING DRIVE CITY: ELMIRA STATE: NY ZIP: 14902 BUSINESS PHONE: 6077342281 MAIL ADDRESS: STREET 1: ONE HARDINGE DRIVE CITY: ELMIRA STATE: NY ZIP: 14902 FORMER COMPANY: FORMER CONFORMED NAME: HARDINGE BROTHERS INC DATE OF NAME CHANGE: 19920703 10-Q 1 a2079822z10-q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 OR |_| 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: 000-15760 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.) Hardinge Inc. One Hardinge Drive Elmira, NY 14902 (Address of principal executive offices) (Zip code) (607) 734-2281 (Registrant's telephone number including area code) 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 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 / / As of March 31, 2002 there were 8,802,593 shares of Common Stock of the Registrant outstanding. HARDINGE INC. AND SUBSIDIARIES INDEX
Part I Financial Information Page Item 1. Financial Statements Consolidated Balance Sheets at March 31, 2002 and December 31, 2001. 2 Consolidated Statements of Income and Retained Earnings for the three months ended March 31, 2002 and 2001. 4 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001. 5 Notes to Consolidated Financial Statements. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 11 Item 3. Quantitative and Qualitative Disclosures About Market Risks 15 Part II Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 3. Default upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 17
1 PART I, ITEM 1 HARDINGE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
March 31, Dec. 31, 2002 2001 ------------------------ (Unaudited) Assets Current assets: Cash $ 3,966 $ 4,608 Accounts receivable 37,209 38,562 Notes receivable 6,763 6,961 Inventories 81,409 84,084 Deferred income taxes 8,436 9,558 Income tax receivables 4,648 Prepaid expenses 4,411 4,381 ------------------------ Total current assets 142,194 152,802 Property, plant and equipment: Property, plant and equipment 148,267 149,714 Less accumulated depreciation 81,289 79,490 ------------------------ 66,978 70,224 Other assets: Notes receivable 10,936 10,394 Deferred income taxes 3,338 3,659 Goodwill 13,479 13,660 Other 3,420 3,752 ------------------------ 31,173 31,465 ------------------------ Total assets $240,345 $254,491 ========================
See accompanying notes. 2 HARDINGE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--CONTINUED (IN THOUSANDS)
March 31, Dec. 31, 2002 2001 --------------------------- (Unaudited) Liabilities and shareholders' equity Current liabilities: Accounts payable $ 12,999 $ 12,757 Notes payable to bank 232 464 Accrued expenses 14,274 17,612 Accrued income taxes 1,109 1,889 Deferred income taxes 2,703 2,623 Current portion long-term debt 5,018 55,620 --------------------------- Total current liabilities 36,335 90,965 Other liabilities: Long-term debt 45,601 4,474 Accrued pension plan expense 6,205 6,113 Deferred income taxes 1,861 1,810 Accrued postretirement benefits 5,799 5,795 Other liabilities 2,263 2,251 --------------------------- 61,729 20,443 Equity of minority interest 2,008 1,868 Shareholders' equity: Preferred stock, Series A, par value $.01: Authorized - 2,000,000; issued - none Common stock, $.01 par value: Authorized shares - 20,000,000 Issued shares - 9,919,992 at March 31, 2002 and December 31, 2001 99 99 Additional paid-in capital 61,172 61,328 Retained earnings 104,048 104,480 Treasury shares (14,831) (14,934) Accumulated other comprehensive income (8,352) (7,799) Deferred employee benefits (1,863) (1,959) --------------------------- Total shareholders' equity 140,273 141,215 --------------------------- Total liabilities and shareholders' equity $ 240,345 $ 254,491 ===========================
See accompanying notes. 3 HARDINGE INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended March 31, 2002 2001 --------------------------- (Unaudited) (Unaudited) Net Sales $ 43,753 $ 58,433 Cost of sales 31,170 39,221 --------------------------- Gross profit 12,583 19,212 Selling, general and administrative expenses 11,548 15,118 Provision for doubtful accounts 180 195 --------------------------- Income from operations 855 3,899 Interest expense 880 862 Interest (income) (118) (129) --------------------------- Income before income taxes and minority interest in consolidated subsidiary and investment of equity company 93 3,166 Income taxes (140) 958 Minority interest in (profit) of consolidated subsidiary (140) (152) (Loss) profit in investment of equity company (4) 137 --------------------------- Net income 89 2,193 Retained earnings at beginning of period 104,480 130,955 Less dividends declared 521 1,221 --------------------------- Retained earnings at end of period $ 104,048 $ 131,927 =========================== Per share data: Basic earnings per share $ .01 $ .25 =========================== Weighted average number of common shares outstanding 8,660 8,705 =========================== Diluted earnings per share $ .01 $ .25 =========================== Weighted average number of common shares outstanding 8,667 8,711 =========================== Cash Dividends Declared $ .06 $ .14 ===========================
See accompanying notes. 4 HARDINGE INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Three Months Ended March 31, 2002 2001 -------------------------- (Unaudited) (Unaudited) Net cash provided by operating activities $ 9,723 $ 149 Investing activities: Capital expenditures (391) (1,893) Investment in Hardinge EMAG 4 (137) -------------------------- Net cash (used in) investing activities (387) (2,030) Financing activities: (Decrease) increase in short-term notes payable to bank (228) 2,652 Additional long-term debt 1,000 (Payments) on long-term debt (10,238) (514) Sale (purchase) of treasury stock (99) (338) Dividends paid (521) (1,221) Funds provided by minority interest 140 152 -------------------------- Net cash (used in) provided by financing activities (9,946) 731 Effect of exchange rate changes on cash (32) (64) -------------------------- Net (decrease) in cash ($ 642) ($ 1,214) ==========================
See accompanying notes 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2002 NOTE A--BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2002, are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report for the year ended December 31, 2001. The Company operates in only one business segment - industrial machine tools. NOTE B--REALIGNMENT CHARGE 2001's third quarter included a one-time charge of $37,956,000 ($26,455,000 after tax or $3.05 per basic and diluted share at date of charge). This charge was in response to the recession that is impacting the machine tool industry and market changes which required the Company to realign its U.S. based manufacturing operations in Elmira, New York. This realignment charge was designed to improve the Company's profitability, strengthen its financial position and enhance its competitive advantages. The realignment charge included:
Tax Net of Realignment charge: Pre-Tax Benefit Taxes ------------------------------- (in thousands) Inventory write-off related to under-performing product lines which have been discontinued $27,237 $ 9,156 $18,081 Goodwill write-off 3,542 3,542 Reserve for uncollectable accounts and notes receivable 5,200 1,820 3,380 A write-down of underutilized assets that have been offered for sale, and other charges 1,977 525 1,452 ------------------------------- $37,956 $11,501 $26,455 ===============================
The activity in the realignment reserve for the quarter ended March 31, 2002 is as follows:
January 1, Charges, Reclas- March 31, 2002 Additions Net sification 2002 --------------------------------------------------------------------- Inventory write- off $ 11,391 $ 0 $ 2,123 $ 0 $ 9,268 Reserve for uncollectable accounts and notes receivable 4,894 129 4,765 Write-down of under-utilized assets and other charges 821 19 802 --------------------------------------------------------------------- Pre-tax realignment charge 17,106 2,271 14,835 Tax benefit (6,332) (568) (5,764) --------------------------------------------------------------------- Realignment net of taxes $ 10,774 $ 0 $ 1,703 $ 0 $ 9,071 =====================================================================
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2002 NOTE B--REALIGNMENT CHARGE (CONTINUED) The above balance of $14,835,000 at March 31, 2002 primarily represents inventories that have been identified but not yet physically discarded through sale or other disposition, accounts receivable that have not been written off and other assets that have not been sold or abandoned. NOTE C--INVENTORIES Inventories are summarized as follows (dollars in thousands):
March 31, December 31, 2002 2001 ---------------------- Finished products $25,463 $32,494 Work-in-process 32,294 27,431 Raw materials and purchased components 23,652 24,159 ------- ------- $81,409 $84,084 ======= =======
NOTE D--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. As of March 31, 2002, the Company has recorded a U.S. net deferred tax asset of approximately $11.8 million. To the extent that deductible temporary differences reverse over the next three quarters, the Company has sufficient taxable income in the carryback period, as a result of the recent tax law change, to realize a recoverable tax benefit. For deductible temporary differences that remain at December 31, 2002, the Company will be relying on future U.S. taxable income. Given the Company's trend of earnings during past cycles in the industry and expected upturns based on external market analysis, it believes that it will be able to generate taxable income sufficient to realize the value of this net deferred tax asset. NOTE E--COMPANY STOCK REPURCHASE PROGRAM On April 9, 1999 Hardinge announced a stock repurchase program. The Board of Directors authorized the repurchase of up to 1.0 million shares of the Company's common stock, or approximately 10% of the total shares outstanding. The Company purchased 900,351 shares under the program through July 25, 2000. On July 26, 2000, the Board of Directors expanded the Company's stock buyback program by authorizing a plan to repurchase up to an additional 1.0 million shares of stock. No shares have been purchased under the new plan. Treasury stock purchases in the quarters ended March 31, 2002 and 2001 were related to transactions involving employees as part of the Company's Incentive Stock Plan. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2002 NOTE F--EARNINGS PER SHARE AND WEIGHTED AVERAGE SHARES OUTSTANDING Earnings per share are computed in accordance with Statement of Financial Accounting Standards No. 128 EARNINGS PER SHARE. Basic earnings per share are computed using the weighted average number of shares of common stock outstanding during the period. For diluted earnings per share, the weighted average number of shares includes common stock equivalents related primarily to restricted stock. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations required by Statement No. 128:
Three months ended March 31, ---------------------- 2002 2001 ---------------------- (dollars in thousands) Numerator: Net income $ 89 $2,193 Numerator for basic earnings per share 89 2,193 Numerator for diluted earnings per share 89 2,193 Denominator: Denominator for basic earnings per share -weighted average shares (in thousands) 8,660 8,705 Effect of diluted securities: Restricted stock and stock options (in thousands) 7 6 ---------------------- Denominator for diluted earnings per share -adjusted weighted average shares (in thousands) 8,667 8,711 Basic earnings per share $ .01 $ .25 ====================== Diluted earnings per share $ .01 $ .25 ======================
NOTE G-- DERIVATIVE FINANCIAL INSTRUMENTS The Company adopted Financial Accounting Standards Board Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, on January 1, 2001. The statement requires companies to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. The adoption of Statement 133 on January 1, 2001, resulted in a cumulative effect of an accounting change recognized as a credit of $25,000 in other comprehensive income in the first quarter of 2001. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2002 NOTE H--REPORTING COMPREHENSIVE INCOME During the three months ended March 31, 2002 and 2001, the components of total comprehensive income consisted of the following (dollars in thousands):
Three months ended March 31, 2002 2001 ------- ------- Net Income $ 89 $ 2,193 Other Comprehensive (Loss) Income: Foreign currency translation adjustments (815) (3,482) Cumulative effect of accounting change 25 Unrealized gain (loss) on derivatives, net of tax: Cash flow hedges 265 (668) Net investment hedges (3) 1,120 ------- ------- Other comprehensive (loss) (553) (3,005) ------- ------- Total Comprehensive (Loss) Income $ (464) $ (812) ======= =======
Accumulated balances of the components of other comprehensive income consisted of the following at March 31, 2002 and December 31, 2001 (dollars in thousands):
Accumulated balances March 31, Dec. 31, 2002 2001 -------- -------- Other Comprehensive (Loss) Income: Foreign currency translation adjustments $(11,002) $(10,187) Cumulative effect of accounting change, net of tax 25 25 Unrealized gain (loss) on derivatives, net of tax: Cash flow hedges (714) (979) Net investment hedges 3,339 3,342 -------- -------- Other Comprehensive (Loss) $ (8,352) $ (7,799) ======== ========
NOTE I--GOODWILL AND OTHER INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2002 NOTE I--GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) The Company adopted Financial Accounting Standards No. 142 on January 1, 2002. The following table shows the impact of goodwill amortization on net income and earnings per share for the first quarter of 2001. (dollars in thousands, except for per share data)
Three months ended March 31, 2002 2001 --------- --------- Reported net income $ 89 $ 2,193 Add back goodwill amortization 218 --------- --------- Adjusted net income $ 89 $ 2,411 ========= ========= Basic earnings per share: Reported earnings per share $ .01 $ .25 Goodwill amortization .03 --------- --------- Adjusted earnings per share $ .01 $ .28 ========= ========= Weighted average number of common shares outstanding 8,660 8,705 Diluted earnings per share: Reported earnings per share $ .01 $ .25 Goodwill amortization .03 --------- --------- Adjusted earnings per share $ .01 $ .28 ========= ========= Weighted average number of common shares outstanding 8,667 8,711 ========= =========
The Company has performed the first of the required impairment tests of goodwill and indefinite lived intangible assets as of March 31, 2002 and has determined that there is no impact on the earnings and financial position of the Company, at this time. NOTE J--NEW ACCOUNTING PRONOUNCEMENT In August 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, effective for fiscal years beginning after December 15, 2001. Under the new rules, the criteria for classifying an asset as held-for-sale are significantly changed from prior treatment. Assets which are to be disposed of are stated at the lower of their fair values or carrying amounts and depreciation is no longer recognized. The Company adopted this statement as of January 1, 2002. The Company has determined that implementation of this new rule does not impact the financial position of the Company at this time. 10 PART I, ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following are management's comments relating to Hardinge's results of operations for the three month periods ended March 31, 2002 and 2001 and in the Company's financial condition at March 31, 2002. RESULTS OF OPERATIONS NET SALES. Net sales for the quarter ended March 31, 2002 were $43,753,000 compared to $58,433,000 for the first quarter of 2001, for a reduction of $14,680,000, or 25.1%. Sales in the U.S. market were $18,781,000 in the quarter ended March 31, 2002, down 31.5% or $8,645,000 from the $27,426,000 reported during the same three months of 2001. This was directly due to the continued reduced levels of North American manufacturing which has resulted in an ongoing industry-wide decline in machine tool sales. Sales to European customers for the first quarter of 2002 remained relatively flat compared to one year ago, at $18,891,000 compared to $18,744,000. Other international sales, primarily to customers in Asia, declined significantly, from $12,263,000 for the first quarter of 2001 when sales to customers in the Peoples Republic of China were particularly high, to $6,081,000 for the first quarter of 2002, for a reduction of $6,182,000, or 50.4%. Machine sales accounted for 65.8% of revenues for the quarter ended March 31, 2002 compared to 68.2% for the same period last year. Sales of non-machine products and services made up the balance. The Company's order rate declined similar to its sales levels, from $62,078,000 for the quarter ended March 31, 2001 to $39,351,000 for the first quarter of 2002, for a reduction of 36.6%. The Company's backlog at March 31, 2002 was $46,801,000 compared to $68,446,000 one year earlier and $51,202,000 at December 31, 2001. GROSS PROFIT. Expressed as a percentage of net sales, gross margin for the three months ended March 31, 2002 was 28.8% compared to 32.9% for the comparable quarter of 2001. Competitive price discounting continued during this quarter, especially in the depressed North American market. Lower recovery of fixed manufacturing overhead continued to be a factor in reduced margins during the first quarter of 2002, as the Company continued to operate its manufacturing facilities at reduced levels. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and administrative ("SG&A") expenses were $11,548,000, or 26.4% of sales, during the first quarter of 2002 compared to $15,118,000, or 25.9% of sales, one year earlier. During the first quarter of 2002, the Company continued to make significant efforts to reduce expenses in all areas of its operations. INCOME FROM OPERATIONS. Income from operations for the quarter ended March 31, 2002 was $855,000, or 2.0% of sales, compared to $3,899,000, or 6.6% of sales for the same quarter of 2001. The reduction was primarily caused by the reduced sales and manufacturing levels previously discussed. INTEREST EXPENSE AND INCOME. Interest expense for the quarter ended March 31, 2002 was $880,000 compared to $862,000 a year earlier. While average outstanding borrowings during the first quarter of 2002 were somewhat lower than during the previous year's first quarter, interest rate spreads were increased as a result of renegotiating borrowing arrangements during the third quarter of 2001 and first quarter of 2002. Interest income totaled $118,000 during the quarter ended March 31, 2002 compared to $129,000 a year earlier. 11 INCOME TAXES. The provision for income taxes was 30.3% of pre-tax income for the quarter ended March 31, 2001. For the first quarter of 2002, a tax benefit of $140,000 was reported on pre-tax income of $93,000. This negative tax expense is the result of pre-tax losses in high tax rate jurisdictions while achieving higher pre-tax profits in countries with lower tax rates. MINORITY INTEREST IN (PROFIT) OF CONSOLIDATED SUBSIDIARY. The Company has a 51% interest in Hardinge Taiwan Precision Machinery Limited, an entity that is recorded as a consolidated subsidiary. For the quarters ended March 31, 2002 and 2001, respectively, reductions in net income of $140,000 and $152,000 represented the minority stockholders' 49% share in the joint venture's net income. PROFIT (LOSS) IN INVESTMENT OF EQUITY COMPANY. During the quarters ended March 31, 2002 and 2001, respectively, Hardinge EMAG GmbH generated ($4,000) and $137,000 for Hardinge's 50% interest in this joint venture. NET INCOME. Net income for the first quarter of 2002 was $89,000, or $.01 per share, compared to $2,193,000, or $.25 per share, in the first quarter of 2001. The reduction in earnings was the result of the factors discussed above. QUARTERLY INFORMATION The following table sets forth certain quarterly financial data for each of the periods indicated.
Three Months Ended Mar. 31, June 30, Sept. 30, Dec. 31, 2002 2002 2002 2002 ------------------------------------------------------------ (in thousands, except per share data) ------------------------------------------------------------ Net Sales $ 43,753 Gross Profit 12,583 Income from operations 855 Net income 89 Diluted earnings per share .01 Weighted average shares outstanding 8,667 Three Months Ended Mar. 31, June 30, Sept. 30, Dec. 31, 2001 2001 2001 2001 ------------------------------------------------------------ (in thousands, except per share data) ------------------------------------------------------------ Net Sales $ 58,433 $ 55,872 $ 47,703 $ 47,514 Gross Profit 19,212 17,021 (13,761) 14,305 Income from operations 3,899 3,239 (37,588) 1,823 Net income 2,193 1,782 (26,390) 562 Diluted earnings per share .25 .20 (3.04) .06 Weighted average shares outstanding 8,711 8,724 8,690 8,695
12 LIQUIDITY AND CAPITAL RESOURCES Operating activities for the three months ended March 31, 2002 generated cash of $9,723,000, compared to generating $149,000 during the same three months of 2001, for an increase in cash generation of $9,574,000. The Company reduced its inventories by $4,283,000 during the first quarter of 2002, compared to increasing its inventories by $5,934,000 during the first quarter of 2001, which resulted in $10,217,000 of the improvement in cash generation between the two periods. Additionally, during the first quarter of 2002, the Company filed and received a net operating loss carryback claim of $4,648,000 based on its operations for the year 2001. Partially offsetting these items was a reduction in cash generation of $2,104,000 resulting from lower net income during the first quarter of 2002 ($89,000 compared to $2,193,000 during the previous year). Additionally, an increase in accounts payable of only $28,000 for the first quarter of 2002 compared to an increase of $3,639,000 during the same period of the previous year further offset the generation of additional cash by $3,611,000. Investing activities, consisting primarily of capital expenditures, for the first three months of 2002 used $387,000 compared to $2,030,000 for the same period of 2001. Capital expenditures during the first quarter of 2002 have been minimized in order to generate cash for debt reduction. Financing activities used $9,946,000 in the first three months of 2002, compared to generating $731,000 in cash during the same three months of 2001. The primary use of cash during the first quarter of 2002 was for debt reduction totaling $9,466,000. Hardinge's current ratio at March 31, 2002 was 3.91:1 compared to 1.68:1 at December 31, 2001. The significant improvement resulted from the Company's returning the classification of its revolver and term debt to long-term status at March 31, 2002 compared to classification of those items as currently payable at December 31, 2001, as discussed later in this analysis. 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. As of March 31, 2002, the Company has recorded a U.S. net deferred tax asset of approximately $11.8 million. To the extent that deductible temporary differences reverse over the next three quarters, the Company has sufficient taxable income in the carryback period, as a result of the recent tax law change, to realize a recoverable tax benefit. For deductible temporary differences that remain at December 31, 2002, the Company will be relying on future U.S. taxable income. Given the Company's trend of earnings during past cycles in the industry and expected upturns based on external market analysis, it believes that it will be able to generate taxable income sufficient to realize the value of this net deferred tax asset. Hardinge provides long-term financing for the purchase of its equipment by qualified customers. The Company periodically sells portfolios of customer notes to financial institutions in order to reduce debt and finance current operations. Our customer financing program has an impact on our month-to-month borrowings, but it has had little long-term impact on our working capital because of the ability to sell the underlying notes. Hardinge sold no customer notes during the first quarter of 2002, compared to selling $6,024,000 of customer notes during the first three months of 2001. Hardinge maintains a revolving loan agreement with several U.S. banks. On April 5, 2002 the agreement was amended to extend its termination date by one year to August 1, 2003. The amended agreement provides for borrowing of up to $40,000,000 secured by substantially all of the Company's domestic assets other than real estate and by a pledge of two-thirds of its investment in its Canadian and European subsidiaries. The amendment also provides for revised financial covenants commensurate with the Company's current business levels. The extension of the maturity date of this agreement beyond one year from the balance sheet date has allowed the Company to classify this debt as long-term at March 31, 2002. At December 31, 2001, the outstanding debt under this agreement had been reclassified entirely as currently payable based on the agreement's original termination date of August 1, 2002. These facilities, along with other short term credit agreements, provide for immediate access of up to $58,236,000. At 13 March 31, 2002, outstanding borrowings under these arrangements totaled $18,662,000. On April 5, 2002 the Company's two term loan agreements were amended to provide substantially the same security and financial covenants as provided under the revolving loan agreement described in the previous paragraph. As a result the portions of these two term loans due on a date more than twelve months past the balance sheet date ($22,800,000 at March 31, 2002) have been reclassified as long-term liabilities. At December 31, 2001, the entire balances of these two loans had been reported as currently payable. Also on that date, the Company entered into a new unsecured loan agreement for $1,000,000 due in one payment on September 30, 2003. We believe that the currently available funds and credit facilities, along with internally generated funds, will provide sufficient financial resources for ongoing operations. NEW ACCOUNTING STANDARDS The Company adopted Statement of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS as of January 1, 2002. The Company adopted Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED Assets as of January 1, 2002. The implementation of this new standard has not had an impact on the Company's financial statements. THIS 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 UNCERTAINTIES AND RISK AND DEAL WITH MATTERS BEYOND THE COMPANY'S ABILITY TO CONTROL, AND IN MANY CASES THE COMPANY CANNOT PREDICT WHAT FACTORS WOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED. AMONG THE MANY FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS ARE FLUCTUATIONS IN THE MACHINE TOOL BUSINESS CYCLES, CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE U.S. OR INTERNATIONALLY, THE MIX OF PRODUCTS SOLD AND THE PROFIT MARGINS THEREON, THE RELATIVE SUCCESS OF THE COMPANY'S ENTRY INTO NEW PRODUCT AND GEOGRAPHIC MARKETS, THE COMPANY'S ABILITY TO MANAGE ITS OPERATING COSTS, THE COMPANY'S ABILITY TO GENERATE SUFFICIENT U.S. TAXABLE INCOME TO REALIZE DEFERRED TAX ASSETS, ACTIONS TAKEN BY CUSTOMERS SUCH AS ORDER CANCELLATIONS OR REDUCED BOOKINGS BY CUSTOMERS OR DISTRIBUTORS, COMPETITORS' ACTIONS SUCH AS PRICE DISCOUNTING OR NEW PRODUCT INTRODUCTIONS, GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS, CHANGES IN THE AVAILABILITY AND COST OF MATERIALS AND SUPPLIES, THE IMPLEMENTATION OF NEW TECHNOLOGIES AND CURRENCY FLUCTUATIONS. ANY FORWARD-LOOKING STATEMENT SHOULD BE CONSIDERED IN LIGHT OF THESE FACTORS. THE COMPANY UNDERTAKES NO OBLIGATION TO REVISE ITS FORWARD-LOOKING STATEMENTS IF UNANTICIPATED EVENTS ALTER THEIR ACCURACY. 14 PART I. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULT UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits 10.1 Amendment Number Two dated March 20, 2002 to the Term Loan Agreement dated as of March 20, 2001 and amended October 1, 2001 among Hardinge Inc. and KeyBank National Association. 10.2 Amendment Number Three dated April 5, 2002 to the Term Loan Agreement dated as of March 20, 2001 and amended October 1, 2001 and March 20, 2002 among Hardinge Inc. and KeyBank National Association. 10.3 Amendment Number Four dated April 5, 2002 to the Credit Agreement dated as of August 1, 1997 and amended December 11, 2000, February 5, 2001 and September 20, 2001 among Hardinge Inc. and the Bank's signatory thereto and the Chase Manhattan Bank as Agent. 10.4 Amendment Number Five dated April 5, 2002 to the Credit Agreement dated as of February 28, 1996 and amended August 1, 1997, December 11, 2000, February 5, 2001 and September 20, 2001 among Hardinge Inc. and the Bank's signatory thereto and the Chase Manhattan Bank as Agent. 10.5 $1,000,000 Promissory Note among Hardinge Inc. and Chemung Canal Trust Company dated April 5, 2002. 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) B. Reports on 8-K 1. Current Report on Form 8-K, filed February 14, 2002 in connection with a February 7, 2002 press release announcing the Company's fourth quarter earnings. 2. Current Report on Form 8-K, filed February 14, 2002 in connection with a February 12, 2002 press release announcing a dividend. 16 SIGNATURES Pursuant to the requirements 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. May 13, 2002 By: /s/ J. Patrick Ervin - ----------------- --------------------------------------- Date J. Patrick Ervin President/CEO May 13, 2002 By: /s/ Richard L. Simons - ----------------- --------------------------------------- Date Richard L. Simons Executive Vice President/CFO (Principal Financial Officer) May 13, 2002 By: /s/ Richard B. Hendrick - ----------------- --------------------------------------- Date Richard B. Hendrick Vice President and Controller (Principal Accounting Officer) 17 EX-10.1 3 a2079822zex-10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 SECOND AMENDMENT TO TERM LOAN AGREEMENT THIS SECOND AMENDMENT (the "Amendment"), dated as of March 20, 2002, is made to that certain Term Loan Agreement, dated as of March 20, 2001, as the same was amended by that certain First Amendment to Term Loan Agreement, dated as of October 1, 2001 (collectively, the "Original Loan Agreement"), by and between HARDINGE INC., a New York corporation (the "Borrower') and KEYBANK NATIONAL ASSOCIATION, a national banking association (the "Lender"). RECITALS: WHEREAS, the Borrower has requested that certain changes and modifications be made to the Original Loan Agreement, including a certain financial covenant therein contained, and the Lender is agreeable to making the same in accordance with the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, the receipt and sufficiency of which are hereby mutually acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS. All capitalized terms used and not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Loan Agreement. 2. CERTAIN DEFINITIONS The definition of "Fixed Charges" set forth in Section 1.01 of the Original Loan Agreement is hereby amended in its entirety to read as follows: "Fixed Charges" means the sum of interest expense, current maturities of long-term debt (excluding (i) as of December 31, 2001 any debt outstanding under that certain $50,000,000 Credit Agreement, dated as of August 1, 1997, by and among the Borrower, the banks signatory thereto, and The Chase Manhattan Bank as Agent ("Chase"), most recently amended by Amendment Number Three, dated as of September 20, 2001 (collectively, the "Line of Credit") and the entire principal amount of the Loan, and (ii) as of March 31, 2003, any debt outstanding under the Line of Credit and $22,800,000 of the principal amount of the Loan) and current maturities of Capital Leases (all calculated for the period of measurement of the financial covenant contained herein)." 3. MISCELLANEOUS. This Amendment is entered into pursuant to and in accordance with SECTION 9.03 of the Original Loan Agreement. This Amendment may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. Except as expressly modified or amended herein, the Original Loan Agreement and each of the other Loan Documents to which the Borrower is a party is hereby restated, ratified and confirmed and shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have caused this Second Amendment to Term Loan Agreement to be duly executed and delivered as of the date first above written. HARDINGE INC. By: /s/ Thomas T. Connelly ---------------------- Thomas T. Connelly Title: Treasurer KEYBANK NATIONAL ASSOCIATION By: /s/ Albert G. White, III ------------------------ Albert G. White, III Title: Senior Vice President 2 EX-10.2 4 a2079822zex-10_2.txt EXHIBIT 10.2 EXHIBIT 10.2 THIRD AMENDMENT TO TERM LOAN AGREEMENT THIS THIRD AMENDMENT (the "Amendment"), dated as of April 5, 2002, is made to that certain Term Loan Agreement, dated as of March 20, 2001, as the same was amended by (i) that certain First Amendment to Term Loan Agreement, dated as of October 1, 2001, and (ii) that certain Second Amendment to Term Loan Agreement, dated as of March 20, 2002 (all of the foregoing being collectively referred to herein as, the "Original Loan Agreement"), by and between HARDINGE INC., a New York corporation (the "Borrower'), and KEYBANK NATIONAL ASSOCIATION, a national banking association, (the "Lender"). RECITALS: WHEREAS, the Lender has advised the Borrower that the Borrower may become in violation of certain of the terms, covenants and conditions of the Original Loan Agreement; and WHEREAS, the Borrower has requested that the Lender modify the Original Loan Agreement in order to avoid any such violations and the Lender is agreeable to doing the same provided that (i) the "Loan" (as such term is defined in the Original Loan Agreement) is restructured on terms and conditions satisfactory to the Lender, (ii) the Borrower grant to the Lender a prior perfected security interest in and to certain property of the Borrower, and (iii) certain changes and modifications be made to the Original Loan Agreement, including, but not limited to, a reduction in the principal amount of the Loan and certain modifications to certain definitions and covenants therein contained, all as more fully set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, the receipt and sufficiency of which are hereby mutually acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: 1. DEFINITIONS. All capitalized terms used and not otherwise defined in this Amendment shall have the meanings ascribed to such terms in the Original Loan Agreement. The Original Loan Agreement and the Amendment are sometimes collectively referred to herein as the "Loan Agreement". 2. CERTAIN DEFINITIONS. (a) SECTION 1.01 of the Original Loan Agreement is amended in part by either amending and restating certain definitions or adding certain definitions, as follows: "Banks" shall mean the banks signatory to the Line of Credit and the 1996 Agreement from time to time. "Collateral" means all property which is, or may in the future be, subject to the lien granted to the Lender by the Security Documents. "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 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. "Fixed LIBOR Rate" shall mean with respect to each day during each Interest Period pertaining to the Loan, a rate per annum (based on a year of 360 days and actual days elapsed) determined for the first day of each such Interest Period in accordance with the following formula rounded upward to the nearest 1/16 of 1% plus three hundred (300) Basis Points: LIBOR Base Rate ---------------------------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Floating Rate" shall mean a rate per annum (computed on the basis of a year of 360 days and actual days elapsed) for each day equal to the Prime Rate for such day as computed prior to 12:00 noon eastern time plus fifty (50) Basis Points, such interest rate to change automatically from time to time effective as of the effective date of each change in the Prime Rate. "Intercreditor Agreement" shall mean that certain Intercreditor Agreement, dated as of April 5, 2002, by and among JP Morgan, as Agent, the Lender and the Borrower, as the same may hereafter be amended, modified, restated or supplemented from time to time hereafter, wherein the parties thereto agree among other things that, notwithstanding the date, time, manner or order of perfection of any security interests, attachments, judgments 2 and/or liens granted to and/or obtained by the Lender or JPMorgan, as Agent (or any of the Banks) in and to any of the Collateral, the Lender and JPMorgan (and the Banks) agree that, as between themselves, their respective claims to and interests in the Collateral shall be equivalent and of equal priority, and that any proceeds derived from the Collateral and/or from any attachments, judgments dispositions and/or liens in Collateral shall be shared pari passu, with neither the Lender, JPMorgan nor any of the Banks having any priority over the other. "JPMorgan" shall mean JPMorgan Chase Bank f/k/a The Chase Manhattan Bank, successor by merger to The Chase Manhattan Bank (National Association), and any successor thereto or assignee thereof. "Line of Credit" shall mean that certain Credit Agreement, dated as of August 1, 1997, by and among the Borrower, the Banks, and JPMorgan as Agent, most recently amended by Amendment Number Four, dated as of April 5, 2002. "Line of Credit Commitment" shall mean the "Commitment" as such term is defined in the Line of Credit. "Loan Documents" shall mean the Loan Agreement, the Note, the Security Documents, any Guarantees and the other agreements and instruments extending, renewing, refinancing or refunding any indebtedness, obligation or liability arising under any of the foregoing, in each case as the same may be amended, modified, restated or supplemented from time to time hereafter. "1996 Agreement" shall mean the Credit Agreement among the Borrower, the Banks and The Chase Manhattan Bank (National Association) as Agent dated as of February 28, 1996 and most recently amended by Amendment Number Five dated as of April 5, 2002. "Note" shall mean the Term Loan Promissory Note of the Borrower to the order of the Lender, dated March 20, 2001, in the principal amount of $24,000,000.00, as the same is amended and restated by that certain Amended and Restated Term Loan Promissory Note of the Borrower to the order of the Lender, dated April 5, 2002, in the principal amount of $23,000,000.00. "Restructuring Fee" shall have the meaning set forth in Section 7 of the Amendment. "Security Agreement" shall mean that certain Security Agreement of the Borrower, dated as of April 5, 2002 and executed and delivered pursuant to the Amendment. "Security Documents" shall mean, collectively, the Security Agreement, any stock powers or other ancillary documents executed and delivered in connection with the foregoing and any and all financing statements filed in connection therewith, as each of the same may be amended, continued, modified, restated or supplemented from time to time hereafter. 3 "Tangible Net Worth" shall mean the total shareholders' equity prior to any cumulative foreign currency translation adjustments minus intangible assets. "Term Loan Maturity Date" shall mean the date specified in Section 2.01 (e) of the Loan Agreement as hereinafter set forth. (b) SECTION 1.01 of the Original Loan Agreement is further amended in part by deleting therefrom the following terms and definitions: in their respective entireties: "Acquisition Agreement"; "Acquisition Date"; "Applicable Margin Ratio"; and "Arrangement Fee". 3. TERM LOAN. (a) Subsection (a) of Section 2.01 of the Original Loan Agreement is amended in its entirety as follows: "Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Lender agrees (such agreement being herein called the Lender's "Term Loan Commitment") to make a loan (the "Term Loan") to the Borrower on the date hereof in the aggregate principal amount of $23,000,000.00." (b) Subsection (c) of SECTION 2.01 of the Original Loan Agreement is amended in its entirety as follows: "The Term Loan made by the Lender shall be evidenced by the Note, in substantially the form attached hereto as EXHIBIT A with the blanks appropriately completed, payable to the order of the Lender in the principal amount equal to $23,000,000.00." (c) SECTION 2.01 of the Original Loan Agreement is amended by adding thereto a new subsection (e) as follows: "(e) TERM LOAN MATURITY DATE. The Term Loan Maturity Date shall be March 1, 2008; provided, however, that if the Borrower does not extend, renew or replace the Line of Credit by no later than March 31, 2003 on terms and conditions satisfactory and acceptable to the Lender in its sole and absolute discretion then, in such event, the Term Loan Maturity Date shall automatically and without notice or further action on the part of the Lender be August 1, 2003. Nothing contained herein shall constitute or be deemed to constitute a covenant, promise or agreement of any kind or character, express or implied, on the part of the Lender to consent or agree to any such extension, renewal or replacement, or the terms and conditions thereof. 4. INTEREST RATE. SECTION 2.02 of the Original Loan Agreement is amended in its entirety as follows: "FIXED LIBOR RATE. The unpaid principal amount of the Term Loan shall bear interest for each day until due at the Fixed LIBOR Rate for the Interest Period determined 4 as of March 20, 2002 initially, and thereafter as of each subsequent Regular Payment Date, commencing on June 20, 2002." 5. MANDATORY PREPAYMENT. SECTION 2.07 of the Original Loan Agreement is amended in its entirety as follows: "2.07 MANDATORY PREPAYMENTS. (a) PREPAYMENTS FROM MORTGAGE PROCEEDS. In the event that after the date of the Amendment the Borrower, any Subsidiary or Affiliate incurs Indebtedness secured, in whole or in part, by any mortgage, deed of trust, deed to secure debt, deed in lieu of a mortgage or security interest, security interest, lien, assignment, pledge, grant, transfer, conveyance (including, but not limited to, land contract), hypothecation, encumbrance, restriction (including, but not limited to, any negative pledge agreement) or equivalent, of any kind, character or description, on any real property and/or any right, title or interest therein owned or held by the Borrower or any Subsidiary or Affiliate then, in any such event, the Borrower shall simultaneously apply all of the proceeds of such financing or debt placement, as the case may be (net of reasonable and customary out-of-pocket costs and expenses) as follows: sixty-three and one-half percent (63.5%) of such net proceeds shall be applied to the payment of the outstanding principal under the Line of Credit and the corresponding permanent reduction of the Line of Credit Commitment, and thirty-six and one-half percent (36.5%) of such net proceeds shall be applied to the prepayment of the outstanding principal balance of the Loan. At such time, if any, as the outstanding principal under Line of Credit has been paid in full and the Line of Credit Commitment has been permanently reduced and eliminated in its entirety, the entire amount of any such net proceeds shall be applied to the prepayment of the outstanding principal balance of the Loan. (b) PROVISIONS OF LOAN AGREEMENT APPLICABLE TO MANDATORY PREPAYMENTS. Prepayments required by this SECTION 2.07 are subject to all of the terms and conditions applicable to prepayments generally pursuant to SECTION 2.05 and SECTION 2.10(B) hereof and to all of the terms and conditions applicable to optional prepayments pursuant to SECTION 2.06. If the Borrower is required to give notice of a prepayment but for any reason fails to give a notice in accordance with the provisions of this Agreement, the amount as to which the Borrower is required to have given notice of prepayment shall nevertheless be deemed due and payable as of the date on which it was required to have been prepaid (for purposes of calculating interest on such amounts pursuant to SECTION 2.09(C) hereof and otherwise)." 6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby restates, ratifies and confirms with respect to this Amendment, as of the date hereof, each of the representations and warranties set forth in Article III of the Original Loan Agreement as if each of the same was set forth fully herein. 7. CONDITIONS TO ENTERING INTO AMENDMENT. The obligation of the Lender to enter into this Amendment and to restructure the Loan as of the date hereof in accordance with the terms and conditions hereof is subject to the satisfaction of the following conditions: 5 (a) AGREEMENT; NOTE. The Lender shall have received an executed counterpart of this Amendment, duly executed by the Borrower, and an executed original Term Loan Note conforming to the requirements hereof, duly executed by the Borrower. (b) CORPORATE PROCEEDINGS. The Lender shall have received a certificate by the Secretary of the Borrower, dated as of or prior to the date hereof as to (i) true copies of the certificate of incorporation and by-laws (or other constituent documents) of the Borrower in effect on such date (which, in the case of the certificate of incorporation or other constituent documents filed or required to be filed with the Secretary of State or other Governmental Authority in its jurisdiction of incorporation, shall be certified to be true, correct and complete by such Secretary of the Borrower as of the date hereof), (ii) true copies of all corporate (and, when necessary, shareholder) action taken by the Borrower relative to this Amendment and the other Loan Documents to which its is a party, and (iii) the incumbency and signature of the respective officers of the Borrower executing this Amendment and the other Loan Documents to which it is a party, together with satisfactory evidence of the incumbency of each such officer. The Lender shall have received certificates from the appropriate Secretaries of State or other applicable Governmental Authorities dated not more than thirty (30) days before the date hereof showing the good standing of the Borrower in its state of organization. (c) INSURANCE. The Lender shall have received a certificate setting forth all casualty and liability policies of insurance in force with respect to the Borrower, issued by an insurance agent reasonably acceptable to the Lender, and from an insurance carrier rated "A-" or better by A.M. Best & Company or a comparable rating agency, and reasonably satisfactory in form, amounts, covered risks and substance to the Lender. (d) LEGAL OPINION OF COUNSEL TO BORROWER. The Lender shall have received an opinion addressed to the Lender, dated the date hereof, of Sayles & Evans, Elmira, New York, counsel to the Borrower, as to such matters as may be requested by the Lender and in form and substance reasonably satisfactory to the Lender. (e) FEES, EXPENSES, ETC. All fees and other compensation to be paid to the Lender pursuant hereto or pursuant to any other written agreement on or prior to the date hereof shall have been paid or received, and all invoiced expenses incurred by the Lender pursuant hereto shall have been paid, including, but not limited to, the Lender's Restructuring Fee in the amount of $48,000. (f) REPRESENTATIONS AND WARRANTIES. Except with respect to the representations and warranties expressly deemed made as of an earlier date, each of the representations and warranties made by the Borrower in this Amendment and in ARTICLE III of the Original Loan Agreement shall be true and correct in all material respects on and as of such date as if made on and as of such date, both before and after giving effect to the Loan and the Lender shall have received a certificate by a Responsible Officer of the Borrower, dated as of or prior to the date hereof to such effect. 6 (g) NO DEFAULTS. No Event of Default or Potential Default shall have occurred and be continuing on such date or after giving effect to the Loan. (h) NO VIOLATIONS OF LAW, ETC. The restructuring of the Loan as herein contemplated and the entering into of this Amendment shall not cause the Borrower to violate or conflict with any Law in any material respect. (i) NO MATERIAL ADVERSE CHANGE. There shall not have occurred a material adverse change in the business, operations, assets or condition (financial or otherwise) of the Borrower or any of its Subsidiaries since March 31, 2002. There shall not have occurred any other event, act or condition that is likely to have a Material Adverse Effect. (j) LINE OF CREDIT AMENDMENTS. The Borrower shall have entered into and closed the Fourth Amendment to, and constituting a portion of, the Line of Credit on terms, covenants and conditions satisfactory to the Lender in its sole and absolute discretion (including, but not limited to, the terms, covenants and conditions of any and all instruments, documents, agreements, certifications, affidavits and opinions evidencing, securing, guaranteeing or otherwise delivered in connection with such amendment). In addition to the foregoing, the Borrower shall deliver or cause to have delivered to the Lender for its review and approval complete and accurate copies of all drafts of such amendment documents as well as copies of each of the final documents delivered and fully executed by the parties thereto. (k) INTERCREDITOR AGREEMENT. The Lender and JPMorgan shall have executed and delivered the Intercreditor Agreement containing such terms, covenants and conditions satisfactory to the Lender in its sole and absolute discretion. (l) PREPAYMENT OF LOAN. Effective March 20, 2002, the Borrower shall have prepaid One Million and No/100 Dollars ($1,000,000.00) of the principal amount of the "Loan", as such term was defined in the Original Loan Agreement, such prepayment to be made from the proceeds of an unsecured term loan by Chemung Canal Trust Company to the Borrower in such principal amount (which loan shall provide for the payment of interest only until September 30, 2003, at which time the entire unpaid principal amount thereof, together with all accrued unpaid interest thereon and all other sums due thereunder, shall be paid in full). (m) ADDITIONAL MATTERS. The Lender shall have received such other certificates, opinions, documents and instruments as may reasonably be requested by the Lender. All corporate and other proceedings, and all other documents, instruments and other matters in connection with the transactions contemplated by this Amendment and the other Loan Documents shall be satisfactory in form and substance to the Lender in its commercially reasonable judgment. Borrower's execution and delivery of this Amendment shall constitute a representation and warranty by the Borrower that the conditions set forth in this SECTION 7 have been satisfied in all material respects as of the date hereof. 7 8. CERTAIN AFFIRMATIVE COVENANTS. (a) SECTION 5.02 of the Original Loan Agreement is amended by adding the following after the last sentence thereof: "Such insurance shall include, but not be limited to, insurance against the risks of product liability, personal injury, property damage, and workers' compensation. Without limiting the generality of the foregoing, the insurance required to be maintained by the Borrower and its domestic Subsidiaries on their respective properties shall be in an amount equal to the full replacement cost thereof, except to the extent, if any, limited by applicable insurance law. Such insurance shall include coverage against risks of fire and all other risks as fall within "extended coverage" as that term is generally understood in the insurance industry. Such insurance shall name the Lender as an additional insured (excluding property insurance, where such insurance shall name Lender as loss payee). (b) The Original Loan Agreement is amended by adding thereto the following sections under Article IV thereof ("Affirmative Covenants"): "5.11 MAINTENANCE OF PROPERTIES AND SECURITY INTEREST IN COLLATERAL. The Borrower shall keep all property used, useful or necessary in its business (including, but not limited to, the Collateral) in good working order, condition and repair and shall execute such documentation and take such steps as the Lender may, in its sole discretion, deem reasonable or necessary from time to time to protect its security interests, in whole or in part, in and to any of the Collateral. Without limiting the generality of the foregoing, the Borrower hereby grants the Lender as agent the right to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements, continuation statements and amendments thereto that indicate any of the Collateral. 5.12 LANDLORD WAIVERS. The Borrower will furnish the Lender within thirty (30) days following the date of the Amendment fully completed and executed landlord waivers and consents, substantially in the form set forth in EXHIBIT B hereto, from all landlords at locations leased by the Borrower and all domestic Subsidiaries as set forth on SCHEDULE 1 hereto. Borrower represents and warrants to Lender that all locations set forth on SCHEDULE 1 are the only actively operating leased locations of Borrower and all such domestic Subsidiaries. In the event the Borrower or any Subsidiary enters into any leases after the date of the Amendment, the Borrower shall deliver to the Lender, simultaneously with the execution and delivery of any such lease, waivers and consents from each landlord, substantially in the form set forth in EXHIBIT B hereto. 5.13 L. KELLENBERGER & CO. AG AUTHORIZATION. Within thirty (30) days after the date hereof, Borrower shall furnish to Lender evidence reasonably satisfactory to Lender that L. Kellenberger & Co. AG 8 ("Kellenberger") was duly authorized to execute and deliver the Security Agreement and impose the lien thereunder on all Patents identified therein and held by Kellenberger, and that such agreement constitutes the legal, valid and binding obligation of Kellenberger, or in lieu thereof, an opinion letter of Swiss Counsel, in form and substance reasonably satisfactory to the Lender, confirming (i) the due formation, organization and good standing of Kellenberger under the laws of Switzerland, and (ii) that the execution and deliver of the Security Agreement and the imposition of the lien thereunder on the Patents held by Kellenberger were duly authorized by all necessary corporate action, required no consent of any third party, do not violate the provisions of any law or any agreements to which Kellenberger is subject and constitute the legal valued and binding obligation of Kellenberger. 5.14 ADDITIONAL GUARANTORS. If at any time during the term hereof, Borrower shall create or acquire a domestic subsidiary, or if any domestic subsidiary of Borrower existing as of the date hereof shall acquire, have assigned to it or otherwise possess any assets, then, in any such event, Borrower shall, within ten (10) days thereafter and without demand therefor, cause each such subsidiary to execute and deliver to Lender a guaranty of payment, in form and substance reasonably satisfactory to Lender, together with a security agreement in form and substance similar to the Security Agreement. 9. CERTAIN NEGATIVE COVENANTS. (a) SECTION 6.01 of the Original Loan Agreement is amended in its entirety to read as follows: "6.01 FINANCIAL COVENANTS. During the term hereof, the Borrower on a consolidated basis shall not: (a) Permit the ratio of Funded Debt to EBITDA measured as of the last day of each fiscal quarter for the immediately preceding twelve (12) months to be greater than (A) 3.75 to 1.0 for the fiscal quarter ending March 31, 2002, (B) 4.0 to 1.0 for the fiscal quarters ending June 30, 2002 and September 30, 2002, and (C) 4.2 to 1.0 for the fiscal quarter ending December 31, 2002, (D) 4.0 to 1.0 for the fiscal quarter ending March 31,2003; (E) 3.75 to 1.0 for the fiscal quarter ending June 30, 2003 and (F) 2.5 to 1.0 thereafter. (b) Permit the ratio of EBITDA to Interest, measured as of the last day of each fiscal quarter for the immediately preceding twelve (12) months, to be less than (A) 4.0 to 1.0 for the fiscal quarter ending March 31, 2002, (B) 3.0 to 1.0 for the fiscal quarter ending June 30, 2002, (C) 2.5 to 1.0 for the fiscal quarter ending September 30, 2002, (D) 3.0 to 1.0 for the fiscal quarters ending December 31, 2002 and March 31, 2003 and (E) 3.25 to 1.0 for the fiscal quarter ending June 30, 2003. (c) Permit the working capital of the Borrower (i.e. the excess of Consolidated Current Assets over Consolidated Current Liabilities) to be less than $85,000,000.00 at any time through August 31, 2003 (in calculating working 9 capital for the purposes of this covenant, the Lender shall include in its calculation of Consolidated Current Liabilities as of the following dates the following amounts of principal indebtedness due and payable by the Borrower in accordance with the terms and conditions of the Note: from March 31, 2002 to and including June 29, 2002- $1,200,000; from June 30, 2002 to and including September 29, 2002- $2, 400,000; from September 30, 2002 to and including December 30, 2002- $3,600,000 and from December 31, 2002 and at all times thereafter $4,800,000. No other principal portion of the Loan shall be included in the Lender's calculation of Consolidated Current Liabilities except to the extent, if any, that such other principal portion, or any part thereof, may be classified for accounting purposes as a current liability by virtue of an event of default under the Loan). (d) Permit the Consolidated Tangible Net Worth of the Borrower to be less than $130,000,000 at any time through December 31, 2002 and less than $132,000,000 at any time through August 31, 2003. (e) Permit the Fixed Charge Coverage Ratio of the Borrower to be less than 1.50 to 1.00 as of the fiscal quarter ending September 30, 2003 and as at the end of each fiscal quarter of the Borrower thereafter, measured quarterly as of the period of the four (4) then most recently completed quarters of the Borrower." (b) SECTION 6.02 of the Original Loan Agreement is amended by deleting from the first paragraph thereof the word "Debt" and inserting in its place the word "Indebtedness". SECTION 6.02(D) of the Original Loan Agreement is amended by deleting therefrom the following clause: "Except as provided in (h) below,". (c) SECTION 6.02(H) of the Original Loan Agreement is amended in its entirety to read as follows: "Liens now or hereafter granted to JPMorgan, as Agent, to securer the Line of Credit, the 1996 Agreement, and any derivative and/or foreign currency exchange exposure or liability of JPMorgan, provided, however, that in each and every instance the Intercreditor Agreement (or any amendments or supplements thereto or agreements in addition thereto, as the case may be), containing such terms and conditions as the Lender shall require in its sole and absolute discretion, has been executed and delivered by and to the Lender;". (d) SECTION 6.02 of the Original Loan Agreement is amended by adding thereto the following additional subsections: "(i) Liens granted to or in favor of the Lender; and (j) Liens created in favor of any Person by or pursuant to any mortgage, deed of trust, deed to secure debt, deed in lieu of a mortgage or security interest, security interest, lien, assignment, pledge, grant, transfer, conveyance (including, but not limited to, land contract), hypothecation, encumbrance, restriction (including, 10 but not limited to, any negative pledge agreement) or equivalent, of any kind, character or description, on any real property and/or any right, title or interest therein owned or held by the Borrower or any Subsidiary or Affiliate provided, however, that the Borrower complies fully with the requirements of SECTION 2.07(A) of the Loan Agreement." (e) SECTION 6.08 of the Original Loan Agreement is amended in its entirety to read as follows: Section 6.08 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 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 in accordance with the terms of the Pledge Agreement (Customer Notes) (as defined below); d) the Borrower or any Subsidiary may sell, lease or otherwise dispose of any of its assets (other than as permitted by clauses (a)-(c) inclusive), provided that the aggregate net value of all assets of the Borrower and its Subsidiary sold, leased, or otherwise disposed of during any fiscal year of the Borrower pursuant to this clause (d) shall not exceed five percent (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 disposition of assets pursuant to clause (b), (c) or (d) shall be at fair market value. (f) The Original Loan Agreement is amended by adding thereto the following section under Article VI thereof ("Negative Covenants"): "6.10 AMENDMENT TO LINE OF CREDIT AND CERTAIN OTHER DOCUMENTS. The Borrower will not in any manner, express or implied, amend, modify, waive, renew, extend, restate, replace or supplement the Line of Credit or the 1996 Agreement (or cause or permit any of the same to be done) or grant any further or additional Liens to or in favor of JPMorgan or the Banks except on such terms, covenants and conditions as the Lender may 11 approve in writing, which approval the Lender may grant, condition or withhold in its sole and absolute discretion." 10. CERTAIN EVENTS OF DEFAULT. (a) SECTION 7.01(d) of the Original Loan Agreement is amended by adding after the last sentence thereof the following: "Without limiting the generality of the foregoing, any default or event of default that occurs under and pursuant to the terms of the Line of Credit or the 1996 Agreement shall constitute an event of default hereunder." (b) SECTION 7.01 of the Original Loan Agreement is amended by adding thereto the following subsections: "(i) The Borrower shall fail to maintain or cause to be maintained any insurance required under the Loan Agreement or any other Loan Document. (j) The Borrower or any Subsidiary shall, except in the ordinary course of business, sell, transfer, convey or assign any of the Collateral, or any right, title or interest (legal or equitable) therein without the prior written consent of the Lender (which may be withheld, conditioned or delayed by the Lender in its sole and absolute discretion. (k) The commencement of a foreclosure or forfeiture action or proceeding, whether civil or criminal, at law or in equity, including, but not limited to, any non-judicial power of sale, or the occurrence of any other event, which, in the Lender's sole and absolute discretion, could result in the foreclosure, forfeiture or loss of any of the Collateral or otherwise materially impair the Liens, or the priority thereof, in favor of the Lender in and to any of the Collateral." 11. MISCELLANEOUS. This Amendment is entered into pursuant to and in accordance with SECTION 9.03 of the Original Loan Agreement. This Amendment may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. The Borrower agrees to pay or cause to be paid and to save the Lender harmless against liability for the payment of all reasonable out-of-pocket costs and expenses (including, but not limited to, reasonable fees and expense of counsel, including local counsel, in-house counsel, auditors, consulting engineers, appraisers and all other professional, accounting, evaluation and consulting costs) incurred by the Lender from time to time arising out of or relating to the (i) the negotiation, preparation, execution and delivery of the Loan Agreement and the other Loan Documents; (ii) the administration and performance of the Loan Agreement and the other Loan Documents, (iii) any requested amendments, modifications, supplements, waivers or consents (whether or not ultimately entered into or granted) to the Loan Agreement or any Loan Document, and (iv) the enforcement or preservation of rights under the Loan Agreement or any Loan Document (including, but not limited to, any such costs or expenses arising from or relating to (A) collection or enforcement of an outstanding Loan or any other amount owing hereunder or thereunder by the Lender, and (B) any litigation, proceeding, dispute, work-out, restructuring or rescheduling related in any way to the Loan Agreement or the Loan Documents), and (c) enforcement of any Guaranties or any Security Document. The Amendment shall be governed by, construed and enforced in accordance with the laws of the 12 State of New York, without regard or reference to its choice of law principles. Except as expressly modified or amended herein, the Original Loan Agreement and each of the other Loan Documents to which the Borrower is a party is hereby restated, ratified and confirmed and shall remain in full force and effect. 13 IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have caused this Third Amendment to Term Loan Agreement to be duly executed and delivered as of the date first above written. HARDINGE INC. By: /s/ Thomas T. Connelly -------------------------------------- Thomas T. Connelly Title: Treasurer Address for Notices: Hardinge Inc. One Hardinge Drive Elmira, New York 14902 Attn: Treasurer Telephone: (607) 734-2281 Telecopier: (607) 734-5517 with a copy to: Sayles & Evans One West Church Street Elmira, New York 14901 Attn: J. Philip Hunter, Esq. Telephone: (607) 734-2271 Telecopier: (607) 734-1754 KEYBANK NATIONAL ASSOCIATION By: /s/ Albert G. White, III -------------------------------------- Albert G. White, III Title: Senior Vice President Address for Notices: 1200 Bausch & Lomb Plaza Rochester, New York 14604 Attn: Albert G. White III Senior Vice President, Corporate Banking and Finance Group Telephone: (716) 238-4143 Telecopier: (716) 238-4142 14 with a copy to: Boylan, Brown, Code, Vigdor & Wilson, LLP 2400 Chase Square Rochester, New York 14604 Attn: Corporate Banking Group Telephone: (716) 232-5300 Telecopier: (716) 232-3528 Term Loan Committed Amount: $23,000,000 15 EX-10.3 5 a2079822zex-10_3.txt EXHIBIT 10.3 Exhibit 10.3 AMENDMENT NUMBER FOUR This Amendment Number Four is dated as of April 5, 2002 and is to the Credit Agreement among Hardinge Inc., the Banks signatory thereto and The Chase Manhattan Bank (now JPMorgan Chase Bank) as Agent, dated as of August 1, 1997 and amended by Amendment Number One dated as of December 11, 2000, Amendment Number Two dated as of February 5, 2001 and Amendment Number Three dated as of September 20, 2001 (as amended, the "Agreement"). Terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Agreement. The Borrower has requested, and upon the terms and conditions set forth herein the Banks have agreed, to certain modifications to the Agreement. For good and valuable consideration, receipt of which is hereby severally acknowledged, the parties agree as follows: A. AMENDMENTS: Effective upon satisfaction of each of the conditions in Section B hereof, each Bank, Agent and Borrower agree that the Agreement shall be amended in the following respects (the "Amendments"): 1. The definition of "Commitment" as set forth in Section 1.01 of the Agreement shall be amended in its entirety to read as follows: "Commitment" means, with respect to each Bank, the obligation of such Bank to make a Loan under this Agreement in the aggregate principal amount following, as such amount may be modified from time to time: JPMorgan Chase Bank $16,000,000.00 Fleet National Bank $16,000,000.00 Manufacturers and Traders Trust Company $ 8,000,000.00 -------------- Total $40,000,000.00 ==============
2. The definition of "Margin" as set forth in Section 1.01 of the Agreement shall be amended in its entirety to read as follows: "Margin" means for each Variable Rate Loan fifty (50) Basis Points and for each Eurodollar Loan three hundred (300) Basis Points. 3. The definition of "Notes" as set forth in Section 1.01 of the Agreement shall be amended so that the phrase ", as modified, renewed or replaced from time to time" is added immediately following the phrase "Banks hereunder" contained therein. 4. The definition of "Termination Date" as set forth in Section 1.01 of the Agreement shall be amended in its entirety to read as follows: "Termination Date" means August 1, 2003. 5. Subsection 2.11(a) of the Agreement shall be amended in its entirety to read as follows: (a) The Borrower shall pay to the Agent for the account of each Bank a Commitment Fee on the daily average unused Commitment of such Bank for the period from and including the date hereof to the earlier of the date the Commitments are terminated or the Termination Date at a rate per annum equal to 100 basis points. The accrued Commitment Fee shall be due and payable in arrears upon any reduction or termination of the Commitments and on each Quarterly Due Date commencing on the first such date after the effective date of Amendment Number Four to this Agreement, and shall be calculated on the basis of a year of 360 for the actual number of days elapsed. 6. Article 6 of the Agreement shall be amended by adding Section 6.11 as follows: Section 6.11 DOMESTIC SUBSIDIARIES. Within ten (10) days of the creation or acquisition of any new domestic Subsidiary or the acquisi- tion of assets by or the transfer of assets to any existing domestic Subsidiary, deliver or cause to be delivered to the Agent a guaranty from such domestic Subsidiary in form and substance acceptable to Agent and a security agreement in substantially the same form as the Security Agreement (as defined below) by such domestic Subsidiary; provided, however, nothing contained in this provision shall be deemed to be consent by the Agent or any Bank of such creation, acquisition or transfer. 7. Section 7.01(h) of the Agreement shall be amended so that the last sentence thereof is amended in its entirety to read as follows: Notwithstanding the foregoing, and subject to and upon the closing of the transactions governed by the Acquisition Agreement, (i) the amount of the Liens against property other than inventory and receivables shall not exceed the principal amount of such Liens outstanding as of the date of Amendment Number Four to this Agreement plus any amount of the mortgage Liens permitted pursuant to subsection 7.01(i) below, and (ii) Liens against receivables of HTT Hauser Tripet Tschudin AG shall be permitted. 8. Section 7.01 of the Agreement shall be further amended so that the following provisions are added as a new subsections (i) and (j) thereof: -2- (i) mortgage Liens on the Borrower's or any Subsidiary's real property provided 63.5% of the net proceeds from such mortgage financing are used to pay the outstanding principal of the Loans under this Agreement and/or any modification, renewal, extension, restatement or replacement thereof or supplement thereto, whether by the Agent or any other lender, and 36.5% of such net proceeds are used to pay principal under the KeyBank Loan (as defined in the Intercreditor Agreement). All sums received in reduction of the Loans pursuant to this Subsection shall, on a dollar for dollar basis, reduce the Commitments and each Bank's Commitment shall be permanently reduced on a pro rata basis. (j) provided the Intercreditor Agreement (as defined below) is in full force and effect, Liens in favor of KeyBank (as defined below) on property in which the Agent has been granted a security interest. 9. Section 7.05 of the Agreement shall be amended in its entirety to read as follows: 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 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 in accordance with the terms of the Pledge Agreement (Customer Notes) (as defined below); (d) the Borrower or any Subsidiary may sell, lease or otherwise dispose of any of its assets (other than as permitted by clauses (a)-(c) inclusive), PROVIDED that the aggregate net value of all assets of the Borrower and its Subsidiary sold, leased, or otherwise disposed of during any fiscal year of the Borrower pursuant to this clause (d) shall not exceed five percent (5%) -3- of the Consolidated Tangible Net Worth of the Borrower and its Subsidiaries at the end of the preceding fiscal year. All sales, leases or disposition of assets pursuant to clause (b), (c) or (d) shall be at fair market value. 10. Section 8.01 of the Agreement shall be amended so that the following phrase is inserted immediately following the end thereof: Consolidated Current Liabilities shall not include for the calculations as of September 30, 2002 and December 31, 2002, that portion of the KeyBank Loan (as defined in the Intercreditor Agreement) which would otherwise not be classified as current, except for the accounting treatment due to the possibility of early maturity on August 1, 2003 if this Agreement is not replaced or renewed. 11. Section 8.02 of the Agreement shall be amended to require that the Borrower shall maintain a minimum Consolidated Tangible Net Worth of at least One Hundred Thirty Million Dollars ($130,000,000.00) at all times through December 31, 2002 and One Hundred Thirty-two Million Dollars ($132,000,000.00) thereafter. 12. Section 8.03 of the Agreement shall be amended in its entirety to read as follows: 8.03 FUNDED DEBT. Borrower shall maintain a ratio of Funded Debt to Earnings Before Interest, Taxes, Depreciation and Amortization, as measured as of the last day of each fiscal quarter for the immediately preceding twelve (12) months of not greater than (i) 3.75 to 1 for the fiscal quarter ending March 31, 2002, (ii) 4.0 to 1 for the fiscal quarters ending June 30, 2002 and September 30, 2002, (iii) 4.2 to 1 for fiscal quarter ending December 31, 2002, (iv) 4.0 to 1 for fiscal quarter ending March 31, 2003, (v) 3.75 to 1 for the fiscal quarter ending June 30, 2003, and (vi) 2.5 to 1 for each fiscal quarter thereafter. 13. Section 8.04 of the Agreement shall be amended in its entirety to read as follows: 8.04 EARNINGS. Borrower shall maintain a ratio of Earnings Before Interest, Taxes, Depreciation and Amortization to Interest measured as of the last day of each fiscal quarter for the immediately preceding twelve (12) months, of not less than (i) 4.0 to 1 for the fiscal quarter ending March 31, 2002, (ii) 3.0 to 1 for the fiscal quarter ending June 30, 2002, (iii) 2.5 to 1 for the fiscal quarter ending September 30, 2002, (iv) 3.0 to 1 for fiscal quarters ending December 31, 2002 and -4- March 31, 2003, and (v) 3.25 to 1 for the fiscal quarter ending June 30, 2003 and each fiscal quarter thereafter. 14. Section 9.01 of the Agreement shall be amended so that the following provisions are added as new subsections (j)-(l) thereof: (j) KeyBank National Association or its successors and assigns ("KeyBank") shall fail to perform or observe any term, covenant or agreement contained within the Intercreditor Agreement between the Agent and KeyBank National Association dated as of April 5, 2002, as the same may be amended or modified from time to time (the "Intercreditor Agreement"); or (k) The Borrower shall fail to perform or observe any other term, covenant or agreement executed and/or delivered in connection with the KeyBank Loan (as defined in the Intercreditor Agreement) and effect of such failure is to accelerate or permit the acceleration of the KeyBank Loan prior to the stated maturity thereof; or (l) There shall occur an event of default under (i) the Security Agreement by Borrower in favor of Agent dated as of April 5, 2002 as the same may be amended from time to time (the "Security Agreement"), (ii) the Pledge Security Agreement (Customer Notes) by Borrower in favor of Agent dated as of April 5, 2002 as the same may be amended or modified from time to time (the "Pledge Agreement (Customer Notes)"), or (iii) the Pledge Security Agreement (Stock of Canadian and European Subsidiaries) by Borrower in favor of Agent dated as of April 5, 2002, as the same may be amended from time to time (collectively, the "Security Documents"), or any other notices or filings executed or delivered in connection with such Security Documents. B. CONDITIONS TO AMENDMENTS. The Amendments shall become effective upon satisfaction of each of the following terms and conditions: 1. The Borrower, each Bank, and the Agent shall have executed and delivered this Agreement to the Agent. 2. The Borrower shall have executed and delivered to each Bank a replacement note ,in form and substance acceptable to the Agent and the Banks. 3. The Borrower shall have executed and delivered the Security Documents to the Agent and shall have delivered to the Agent or its bailee all of the original stock certificates, executed stock -5- powers, customer notes and notices as required by each of the Security Documents, or as otherwise requested by the Agent, all in form and substance satisfactory to the Agent and the Banks. 4. KeyBank National Association shall have executed and delivered to the Agent the Intercreditor Agreement, in form and substance satisfactory to the Agent and the Banks. 5. Each of JPMorgan Chase Bank, HSBC Bank USA, Manufacturers and Traders Trust Company, and Fleet National Bank shall have executed and delivered to the Agent an agreement with respect to the distribution of proceeds in connection with their respective credit facilities with JPMorgan Chase Bank, as agent, in form and substance satisfactory to the Agent and the Banks. 6. The Borrower shall have delivered to JPMorgan Chase Bank, as Agent an Amendment Number Five to a certain Credit Agreement between the Borrower, JPMorgan Chase Bank, as agent and lender, and HSBC Bank USA, in form and substance satisfactory to the Agent and the Banks. 7. The Borrower shall have delivered to Agent satisfactory evidence of casualty and liability insurance. 8. The Borrower shall have delivered to the Agent evidence of all proper corporate action taken to authorize the granting of the security under the Security Documents. 9. The Borrower shall have caused its counsel to deliver to the Agent its opinion in form and substance satisfactory to the Agent and the Banks. 10. The Borrower shall have delivered to the Agent the final execution versions of all documentation with KeyBank National Association in connection with its amendment to the KeyBank Loan (as such is defined in the Intercreditor Agreement), all in form and content satisfactory to the Agent. 11. The Borrower shall have delivered to the Agent evidence satisfactory to the Agent in its sole discretion that the One Million Dollar ($1,000,000.00) prepayment of the KeyBank Loan (as defined in the Intercreditor Agreement) has been funded solely by the proceeds of an unsecured term loan by Chemung Canal Trust Company to Borrower in the original principal amount of One Million Dollars ($1,000,000.00), and the terms of such loan shall provide for payment of interest only until September 30, 2003, at which time the entire unpaid principal amount thereof shall be due and payable and other such terms and conditions which shall be acceptable to the Agent in its sole discretion. C. RATIFICATION. Except as expressly modified herein, Borrower hereby ratifies and reaffirms the Agreement, the documents executed in connection therewith and acknowledges and agrees that the terms and conditions of the Agreement are in full force and effect and that the Loans and other Debt thereunder is owing without defense or offset, and is not subject to any counterclaim and that all representations and warranties contained therein are true and correct on the date hereof as though made on this date and that no event has occurred and is continuing which constitutes a Default or event -6- of Default thereunder. All of the Agent's and Banks' rights and remedies under the Agreement are expressly preserved and reserved. D. EXPENSES. Borrower agrees to pay on demand by Agent all reasonable expenses of Agent, including without limitation, fees and disbursement of counsel for the Agent in connection with the transactions contemplated by this Amendment Number Four, the Agreement or the Security Documents, the negotiations for and preparation of this Amendment Number Four, the Agreement and the Security Documents and the enforcement of the rights of Agent under any such documents, including without limitation, all recording fees, title search and taxes. E. MISCELLANEOUS. 1. This Amendment Number Four may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any parties hereto may execute this Amendment Number Four by signing any such counterpart. 2. This Amendment Number Four constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersedes and take the place of any other instrument purporting to be an agreement of the parties hereto relating to the transaction hereby. This Amendment Number Four may not be changed orally, but only by an agreement in writing signed by a duly authorized officer of the Banks and Agent or by the Borrower, to the extent any such parties are to be bound thereby. 3. The provisions of this Amendment Number Four, whether express or implied shall not give any third party (other than permitted successors and assigns of the parties permitted under the Agreement) any benefit of any equitable or legal right, remedy or claim under applicable law. 4. By signing below, the Borrower, for good and valuable consideration and by these presents does for itself, its representatives, successors and assigns, remise, release and forever discharge JPMorgan Chase Bank, Fleet National Bank and Manufacturers and Traders Trust Company, in any capacity, their predecessors, successors, assigns, directors, officers, shareholders, employees, attorneys and agents (collectively, the "Releasees") of and from all, and all matter of action and actions, cause and causes of actions, suits, debts, dues, sums of money, accounts, reckoning, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law or in equity, which against such Releasees or any of them or more of them, it ever had, now has or which it, or its heirs, representatives, successors or assigns hereafter can, shall or may claim to have for or by reason of any cause, matter or thing whatsoever, arising from the beginning of time to the date hereof. 5. This Amendment Number Four shall be governed by and construed under the internal laws of the State of New York, as the same may, from time to time, be in effect without regard to principles of conflicts of law. -7- IN WITNESS WHEREOF, the parties have caused this Amendment Number Four to be executed by their duly authorized officers as of the day and year first above written. HARDINGE INC. By: /s/ Thomas T. Connelly -------------------------------------- Thomas T. Connelly, Treasurer AGENT: JPMORGAN CHASE BANK formerly The Chase Manhattan Bank By: /s/ Christine M. McLeod -------------------------------------- Christine M. McLeod, Vice President -8- BANKS: JPMORGAN CHASE BANK, formerly The Chase Manhattan Bank By: /s/ Christine M. McLeod -------------------------------------- Christine M. McLeod, Vice President FLEET NATIONAL BANK successor to Fleet Bank By: /s/ Vito Caraccio -------------------------------------- Vito Caraccio, Vice President MANUFACTURERS AND TRADERS TRUST COMPANY By: /s/ Glenn R. Small -------------------------------------- Glenn R. Small, Regional President -9- EX-10.4 6 a2079822zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 AMENDMENT NUMBER FIVE This Amendment Number Five is dated as of April 5, 2002 and is to the Credit Agreement among Hardinge Inc., the Banks signatory thereto and The Chase Manhattan Bank (National Association) (now JPMorgan Chase Bank) as Agent, dated as of February 28, 1996 and amended by Amendment Number One dated as of August 1, 1997, Amendment Number Two dated as of December 11, 2000, Amendment Number Three dated as of February 5, 2001 and Amendment Number Four dated as of September 20, 2001 (as amended, the "Agreement"). Terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Agreement. The Borrower has requested, and upon the terms and conditions set forth herein the Banks have agreed, to certain modifications to the Agreement. For good and valuable consideration, receipt of which is hereby severally acknowledged, the parties agree as follows: A. AMENDMENTS: Effective upon satisfaction of each of the conditions in Section B hereof, each Bank, Agent and Borrower agree that the Agreement shall be amended in the following respects (the "Amendments"): 1. The definition of "Margin" as set forth in Section 1.01 of the Agreement shall be amended in its entirety to read as follows: "Margin" means for each Variable Rate Loan fifty (50) Basis Points and for each Eurodollar Loan three hundred (300) Basis Points. 2. Article 6 of the Agreement shall be amended by adding Section 6.11 as follows: Section 6.11 DOMESTIC SUBSIDIARIES. Within ten (10) days of the creation or acquisition of any new domestic Subsidiary or the acquisi- tion of assets by or the transfer of assets to any existing domestic Subsidiary, deliver or cause to be delivered to the Agent a guaranty from such domestic Subsidiary in form and substance acceptable to Agent and a security agreement in substantially the same form as the Security Agreement (as defined below) by such domestic Subsidiary; provided, however, nothing contained in this provision shall be deemed to be consent by the Agent or any Bank of such creation, acquisition or transfer. 3. Section 7.01(h) of the Agreement shall be amended so that the last sentence thereof is amended in its entirety to read as follows: Notwithstanding the foregoing, and subject to and upon the closing of the transactions governed by the Acquisition Agreement, (i) the amount of the Liens against property other than inventory and receivables shall not exceed the principal amount of such Liens outstanding as of the date of Amendment Number Five to this Agreement plus any amount of the mortgage Liens permitted pursuant to subsection 7.01(i) below, and (ii) Liens against receivables of HTT Hauser Tripet Tschudin AG shall be permitted. 4. Section 7.01 of the Agreement shall be further amended so that the following provisions are added as a new subsections (i) and (j) thereof: (i) mortgage Liens on the Borrower's or any Subsidiary's real property provided 63.5% of the net proceeds from such mortgage financing are used to pay the outstanding principal under the 1997 Agreement (as defined in the Intercreditor Agreement) and/or any modification, renewal, extension, restatement or replacement thereof or supplement thereto, whether by the Agent or any other lender, and 36.5% of such net proceeds are used to pay principal under the KeyBank Loan (as defined in the Intercreditor Agreement). (j) provided the Intercreditor Agreement (as defined below) is in full force and effect, Liens in favor of KeyBank (as defined below) on property in which the Agent has been granted a security interest. 5. Section 7.05 of the Agreement shall be amended in its entirety to read as follows: 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 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 in accordance with the terms of the Pledge Agreement (Customer Notes) (as defined below); (d) the Borrower or any Subsidiary may sell, lease or otherwise dispose of any of its assets (other than as permitted by clauses (a)-(c) inclusive), PROVIDED that the aggregate net value of all 2 assets of the Borrower and its Subsidiary sold, leased, or otherwise disposed of during any fiscal year of the Borrower pursuant to this clause (d) shall not exceed five percent (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 disposition of assets pursuant to clause (b), (c) or (d) shall be at fair market value. 6. Section 8.01 of the Agreement shall be amended so that the following phrase is inserted immediately following the end thereof: Consolidated Current Liabilities shall not include for the calculations as of September 30, 2002 and December 31, 2002, that portion of the KeyBank Loan (as defined in the Intercreditor Agreement) which would otherwise not be classified as current, except for the accounting treatment due to the possibility of early maturity on August 1, 2003 if the 1997 Agreement (as defined in the Intercreditor Agreement) is not replaced or renewed. 7. Section 8.02 of the Agreement shall be amended to require that the Borrower shall maintain a minimum Consolidated Tangible Net Worth of at least One Hundred Thirty Million Dollars ($130,000,000.00) at all times through December 31, 2002 and One Hundred Thirty-two Million Dollars ($132,000,000.00) thereafter. 8. Section 8.03 of the Agreement shall be amended in its entirety to read as follows: 8.03 FUNDED DEBT. Borrower shall maintain a ratio of Funded Debt to Earnings Before Interest, Taxes, Depreciation and Amortization, as measured as of the last day of each fiscal quarter for the immediately preceding twelve (12) months of not greater than (i) 3.75 to 1 for the fiscal quarter ending March 31, 2002, (ii) 4.0 to 1 for the fiscal quarters ending June 30, 2002 and September 30, 2002, (iii) 4.2 to 1 for fiscal quarter ending December 31, 2002, (iv) 4.0 to 1 for fiscal quarter ending March 31, 2003, (v) 3.75 to 1 for the fiscal quarter ending June 30, 2003, and (vi) 2.5 to 1 for each fiscal quarter thereafter. 9. Section 8.04 of the Agreement shall be amended in its entirety to read as follows: 8.04 EARNINGS. Borrower shall maintain a ratio of Earnings Before Interest, Taxes, Depreciation and Amortization to Interest measured as of the last day of each fiscal quarter for the immediately preceding twelve (12) months, of not less than (i) 4.0 to 1 for the fiscal quarter ending March 31, 2002, (ii) 3.0 to 1 for the fiscal quarter ending June 3 30, 2002, (iii) 2.5 to 1 for the fiscal quarter ending September 30, 2002, (iv) 3.0 to 1 for fiscal quarters ending December 31, 2002 and March 31, 2003, and (v) 3.25 to 1 for the fiscal quarter ending June 30, 2003 and each fiscal quarter thereafter. 10. Section 9.01 of the Agreement shall be amended so that the following provisions are added as new subsections (j)-(l) thereof: (j) KeyBank National Association or its successors and assigns ("KeyBank") shall fail to perform or observe any term, covenant or agreement contained within the Intercreditor Agreement between the Agent and KeyBank National Association dated as of April 5, 2002, as the same may be amended or modified from time to time (the "Intercreditor Agreement"); or (k) The Borrower shall fail to perform or observe any other term, covenant or agreement executed and/or delivered in connection with the KeyBank Loan (as defined in the Intercreditor Agreement) and effect of such failure is to accelerate or permit the acceleration of the KeyBank Loan prior to the stated maturity thereof; or (l) There shall occur an event of default under (i) the Security Agreement by Borrower in favor of Agent dated as of April 5, 2002 as the same may be amended from time to time (the "Security Agreement"), (ii) the Pledge Security Agreement (Customer Notes) by Borrower in favor of Agent dated as of April 5, 2002 as the same may be amended or modified from time to time (the "Pledge Agreement (Customer Notes)"), or (iii) the Pledge Security Agreement (Stock of Canadian and European Subsidiaries) by Borrower in favor of Agent dated as of April 5, 2002, as the same may be amended from time to time (collectively, the "Security Documents"), or any other notices or filings executed or delivered in connection with such Security Documents. B. CONDITIONS TO AMENDMENTS. The Amendments shall become effective upon satisfaction of each of the following terms and conditions: 1. The Borrower, each Bank, and the Agent shall have executed and delivered this Agreement to the Agent. 2. The Borrower shall have executed and delivered the Security Documents to the Agent and shall have delivered to the Agent or its bailee all of the original stock certificates, executed stock powers, customer notes and notices as required by each of the Security Documents, or as otherwise requested by the Agent, all in form and substance satisfactory to the Agent and the Banks. 4 3. KeyBank National Association shall have executed and delivered to the Agent the Intercreditor Agreement, in form and substance satisfactory to the Agent and the Banks. 4. Each of JPMorgan Chase Bank, HSBC Bank USA, Manufacturers and Traders Trust Company, and Fleet National Bank shall have executed and delivered to the Agent an agreement with respect to the distribution of proceeds in connection with their respective credit facilities with JPMorgan Chase Bank, as agent, in form and substance satisfactory to the Agent and the Banks. 5. The Borrower shall have delivered to JPMorgan Chase Bank, as Agent an Amendment Number Four to a certain Credit Agreement between the Borrower, JPMorgan Chase Bank, as agent and lender, Fleet National Bank, and Manufacturers and Traders Trust Company, in form and substance satisfactory to the Agent and the Banks. 6. The Borrower shall have delivered to Agent satisfactory evidence of casualty and liability insurance. 7. The Borrower shall have delivered to the Agent evidence of all proper corporate action taken to authorize the granting of the security under the Security Documents. 8. The Borrower shall have caused its counsel to deliver to the Agent its opinion in form and substance satisfactory to the Agent and the Banks. 9. The Borrower shall have delivered to the Agent the final execution versions of all documentation with KeyBank National Association in connection with its amendment to the KeyBank Loan (as such is defined in the Intercreditor Agreement), all in form and content satisfactory to the Agent. 10. The Borrower shall have delivered to the Agent evidence satisfactory to the Agent in its sole discretion that the One Million Dollar ($1,000,000.00) prepayment of the KeyBank Loan (as defined in the Intercreditor Agreement) has been funded solely by the proceeds of an unsecured term loan by Chemung Canal Trust Company to Borrower in the original principal amount of One Million Dollars ($1,000,000.00), and the terms of such loan shall provide for payment of interest only until September 30, 2003, at which time the entire unpaid principal amount thereof shall be due and payable and other such terms and conditions which shall be acceptable to the Agent in its sole discretion. C. RATIFICATION. Except as expressly modified herein, Borrower hereby ratifies and reaffirms the Agreement, the documents executed in connection therewith and acknowledges and agrees that the terms and conditions of the Agreement are in full force and effect and that all of the Debt thereunder is owing without defense or offset, and is not subject to any counterclaim and that all representations and warranties contained therein are true and correct on the date hereof as though made on this date and that no event has occurred and is continuing which constitutes a Default or event of Default thereunder. All of the Agent's and Banks' rights and remedies under the Agreement are expressly preserved and reserved. 5 D. EXPENSES. Borrower agrees to pay on demand by Agent, all reasonable expenses of Agent, including without limitation, fees and disbursement of counsel in connection with the transactions contemplated by this Amendment Number Five, the Agreement or the Security Documents, the negotiations for and preparation of this Amendment Number Five, the Agreement and the Security Documents and the enforcement of the rights of Agent under any such documents, including without limitation, all recording fees, title search and taxes. E. MISCELLANEOUS. 1. This Amendment Number Five may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any parties hereto may execute this Amendment Number Five by signing any such counterpart. 2. This Amendment Number Five constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and shall supersedes and take the place of any other instrument purporting to be an agreement of the parties hereto relating to the transaction hereby. This Amendment Number Five may not be changed orally, but only by an agreement in writing signed by a duly authorized officer of the Banks and Agent or by the Borrower, to the extent any such parties are to be bound thereby. 3. The provisions of this Amendment Number Five, whether express or implied shall not give any third party (other than permitted successors and assigns of the parties permitted under the Agreement) any benefit of any equitable or legal right, remedy or claim under applicable law. 4. By signing below, the Borrower, for good and valuable consideration and by these presents does for itself, its representatives, successors and assigns, remise, release and forever discharge JPMorgan Chase Bank, and HSBC Bank USA, in any capacity, their predecessors, successors, assigns, directors, officers, shareholders, employees, attorneys and agents (collectively, the "Releasees") of and from all, and all matter of action and actions, cause and causes of actions, suits, debts, dues, sums of money, accounts, reckoning, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law or in equity, which against such Releasees or any of them or more of them, it ever had, now has or which it, or its heirs, representatives, successors or assigns hereafter can, shall or may claim to have for or by reason of any cause, matter or thing whatsoever, arising from the beginning of time to the date hereof. 5. This Amendment Number Five shall be governed by and construed under the internal laws of the State of New York, as the same may, from time to time, be in effect without regard to principles of conflicts of law. 6 IN WITNESS WHEREOF, the parties have caused this Amendment Number Five to be executed by their duly authorized officers as of the day and year first above written. [Signature Pages Follow] 7 HARDINGE INC. By: /s/ Thomas T. Connelly -------------------------------------- Thomas T. Connelly, Treasurer AGENT: JPMORGAN CHASE BANK Successor by merger to The Chase Manhattan Bank (National Association) By: /s/ Christine M. McLeod -------------------------------------- Christine M. McLeod, Vice President 8 BANKS: JPMORGAN CHASE BANK, Successor by merger to The Chase Manhattan Bank (National Association) By: /s/ Christine M. McLeod ---------------------------------------- Christine M. McLeod, Vice President JPMORGAN CHASE BANK f/k/a Chemical Bank By: /s/ Christine M. McLeod ---------------------------------------- Christine M. McLeod, Vice President HSBC BANK USA f/k/a/ Marine Midland Bank By: /s/ Kelly E. O'Brien ---------------------------------------- Kelly E. O'Brien, Vice President 9 EX-10.5 7 a2079822zex-10_5.txt EXHIBIT 10.5 Exhibit 10.5 Page 1 of 1 [LOGO OMITTED] CHEMUNG CANAL TRUST COMPANY One Chemung Canal Plaza Elmira, New York 14901 (607) 737-3711 "LENDER" BORROWER Hardinge Inc. ADDRESS 1 HARDINGE DRIVE- PO BOX 1507 Elmira, NY 14902-1507 TELEPHONE NO. IDENTIFICATION NO. 607-734-2281 VARIABLE RATE COMMERCIAL PROMISSORY NOTE OFFICER INITIALS JPM INTEREST RATE VARIABLE PRINCIPAL AMOUNT $1,000,000.00 FUNDING DATE 03/26/02 MATURITY DATE 09/30/03 CUSTOMER NUMBER LOAN NUMBER PROMISE TO PAY For value received, Borrower promises to pay to the order of Lender indicated above the principal amount of ONE MILLION AND NO/100 Dollars ($1,000,000.00 ) plus interest on the unpaid principal balance at the rate and in the manner described below, until all amounts owing under this Note are paid in full. All amounts received by Lender shall be applied first to accrued unpaid interest, then to unpaid principal, and then to any late charges or expenses or in any other order as determined by Lender, in Lenders sole discretion, as permitted by law. INTEREST RATE: This Note has a variable interest rate feature. The interest rate on this Note may change from time to time if the Index Rate identified below changes. Interest shall be computed on the basis of 360 DAYS AND THE ACTUAL NUMBER OF DAYS per year. So long as there is no default under this Note, interest on this Note shall be calculated at a variable rate equal to NO/1000 percent (0.000%) per annum over the Index Rate. The initial Index Rate is FOUR AND 750/1000 percent (4.750%) per annum. The initial interest rate on this Note shall be FOUR AND 750/1000 percent (4.750%) per annum. Any change in the interest rate resulting from a change in the Index Rate will be effective on THE DAY THAT THE PRIME RATE CHANGES. INDEX RATE: The Index Rate for this Note shall be THE PRIME RATE AS PUBLISHED IN THE WALL ST. JOURNAL MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be N/A percent (N/A%) per annum. The maximum interest rate on this Note shall not exceed SIXTEEN AND NO/1000 percent (16.000%) per annum, or if less, or if a maximum rate is not indicated, the maximum interest rate Lender is permitted to charge by law. DEFAULT RATE: In the event of any default under this Note, the Lender may, in its discretion, determine that all amounts owed to Lender shall bear interest at the lesser of: Or the maximum interest rate Lender is permitted to charge by law. PAYMENT SCHEDULE: borrower shall pay the principal and interest according to the following schedule: 17 INTEREST ONLY PAYMENTS BEGINNING APRIL 10, 2002 AND CONTINUING AT MONTHLY TIME INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON SEPTEMBER 30, 2003. All payments will be made to lender at its address described above, or at any other address so designated by lender, and in lawful currency of the United States of America. RENEWAL: If checked. /_/ this Note is a renewal of Loan Number SECURITY: To secure the payment and performance of obligations incurred under this Note, Borrower grants lender a security interest in, and pledges and assigns to Lender, all of Borrower's rights, title, and interest, in all monies, instruments, savings, checking and other deposit accounts of Borrower's. (excluding IRA, Keogh and trust accounts and deposits subject to tax penalties if so assigned) that are now or in the future in Lender's custody or control. /_/ If checked, the obligations under this note are also secured by a lien on and/or security interest in the property described in the documents executed in connection with this Note as well as any other property designated as security now or in the future. PREPAYMENT: This Note may be prepaid in part or in full on or before its maturity date. If this Note contains more than one installment, any partial prepayment will not affect the due date or the amount of any subsequent installment, unless agreed to, in writing by Borrower and lender. If this Note is prepaid in full there will be /X/ No minimum finance charge or prepayment penalty /_/ A minimum finance charge of $ /_/ A prepayment penalty of LATE PAYMENT CHARGE: If a payment is received more than N/A days late, Borrower will be charged a late payment charge of /_/ % of the unpaid late installment, /_/ $ or % of the unpaid installment, whichever is /_/ greater /_/ less as permitted by law. - -------------------------------------------------------------------------------- BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE. BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE. NOTE DATE: 4/5/02 BORROWER: Hardinge Inc. BORROWER: /s/ J. Patrick Ervin - ------------------------- J. Patrick Ervin President & CEO BORROWER: BORROWER: -----END PRIVACY-ENHANCED MESSAGE-----