-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, S2ZizwLOVHnJJC1wmb/eU21xC/f3MXeYvWDSVbwfWsnFNnQc3Ue5Rxqhwku+TQKc SvXFmfIPqroNsyuJm5qf6A== 0000801898-95-000011.txt : 19950608 0000801898-95-000011.hdr.sgml : 19950608 ACCESSION NUMBER: 0000801898-95-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950130 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARNISCHFEGER INDUSTRIES INC CENTRAL INDEX KEY: 0000801898 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY (NO METALWORKING MACHINERY) [3550] IRS NUMBER: 391566457 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09299 FILM NUMBER: 95503756 BUSINESS ADDRESS: STREET 1: 13400 BISHOPS LN CITY: BROOKFIELD STATE: WI ZIP: 53005 BUSINESS PHONE: 4146714400 MAIL ADDRESS: STREET 1: P.O. BOX 554 CITY: MILWAUKEE STATE: WI ZIP: 53201-0554 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 1994. / / 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 1-9299 HARNISCHFEGER INDUSTRIES, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 39-1566457 (State of (I.R.S. Employer Jurisdiction of Identification No.) Incorporation or Organization) 13400 Bishops Lane, Brookfield, Wisconsin 53005 (Address of Principal Executive Office)
Registrant's Telephone Number, Including Area Code: (414) 671-4400 Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On Title of Each Class Which Registered Common Stock, $1 Par Value New York and Pacific Stock Exchanges Preferred Stock Purchase Rights New York and Pacific Stock Exchanges Securities registered pursuant to Section 12(g) of the Act: None 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, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of Registrant's Common Stock held by non-affiliates, as of January 25, 1995, based on a closing price of $ 27.88, was approximately $1,308.0 million. The number of shares outstanding of Registrant's Common Stock, as of January 25, 1995, was 47,671,432. DOCUMENTS INCORPORATED BY REFERENCE 1994 Annual Report to Shareholders (Parts I, II and IV). Proxy statement for the 1995 annual meeting of stockholders to be filed within 120 days of the end of the Company's fiscal year (Part III). HARNISCHFEGER INDUSTRIES, INC. INDEX TO ANNUAL REPORT ON FORM 10-K For The Year Ended October 31, 1994
Page ---- Part I Item 1. Business................................................. 3 Item 2. Properties............................................... 11 Item 3. Legal Proceedings........................................ 14 Item 4. Submission of Matters to a Vote of Security Holders...... 14 Part II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters...................................... 15 Item 6. Selected Financial Data for the Registrant for Each of the Last Five Fiscal Years................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 15 Item 8. Financial Statements and Supplementary Data.............. 15 Item 9. Disagreements on Accounting and Financial Disclosure..... 15 Part III Item 10. Directors and Executive Officers of the Registrant....... 16 Item 11. Executive Compensation................................... 16 Item 12. Security Ownership of Certain Beneficial Owners and Management............................................... 16 Item 13. Certain Relationships and Related Transactions........... 16 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................................. 16 Signatures ......................................................... 21
PART I Item 1. Business SEGMENTS OF BUSINESS Harnischfeger Industries, Inc. ("Harnischfeger Industries" or the "Company") is a holding company for subsidiaries involved in the worldwide manufacture and distribution of: paper machinery (Beloit Corporation); surface mining and material handling equipment (Harnischfeger Corporation); underground mining equipment (Joy Technologies Inc.); and systems integration services (Syscon Corporation). The Company expects that Syscon Corporation, the remaining unit in the Systems Group, will be divested in the first half of 1995. See Part IV Item 14(b)(6). The operating results of the Systems Group have therefore been reclassified as discontinued operations in the Company's Consolidated Statement of Income for each year presented. The Company completed its acquisition of Joy Technologies Inc.("Joy"), a world leader in underground mining equipment and environmental products, in an exchange of common stock on November 29, 1994. Harnischfeger Industries is the direct successor to a business begun over 100 years ago which, at October 31, 1994, through its subsidiaries, manufactures and markets products classified into three industry segments: Papermaking Machinery and Systems, Mining Equipment, and Material Handling Equipment. A fourth segment, the Environmental Group, was added in fiscal 1995 as a result of the acquisition of Joy. PAPERMAKING MACHINERY AND SYSTEMS The Papermaking Machinery and Systems Group is comprised of the Company's 80% interest in Beloit Corporation ("Beloit") and the Company's interest in Measurex Corporation ("Measurex"). On December 29, 1994, Measurex repurchased 2,026,900 shares of its stock held by the Company, reducing the Company's ownership interest from 20% to 10%. Beloit is consolidated, while Measurex is accounted for on the equity basis (cost basis subsequent to December 29, 1994). Mitsubishi Heavy Industries, Ltd. ("Mitsubishi") is the owner of the other 20% interest in Beloit. The Company and Mitsubishi have entered into certain agreements that provide Mitsubishi with the right to designate one of Beloit's five directors. These agreements also place certain restrictions on the transfer of Beloit stock. In the event of a change in control of the Company, Mitsubishi has the right to sell its 20% interest back to the Company for the greater of $60 million or the book value of its equity interest. Beloit is a leader in the design and manufacture of papermaking machinery and related products used in the pulp and paper industries. Beloit operates on a global basis with major manufacturing facilities in six countries and sales and service offices located throughout the world. In addition, licensing arrangements exist with several major foreign companies. Beloit's activities are divided into the following categories: complete installations involving the design, manufacture and installation of equipment and systems; major rebuilds and servicing of existing systems; and the sale of ancillary equipment and replacement parts. This machinery is custom designed to meet the specific needs of each customer. In 1994, Beloit expanded its service business through the acquisition of OASIS (Optical Alignment Systems and Inspection Services, Inc.), the leading supplier of in-mill optical alignment services. Beloit is known for the quality and dependability of its products and is a leader in product innovation and development. Beloit has made a continuous commitment to research and development activities, and has been granted numerous patents on its designs. Beloit systems and equipment are used by a substantial number of paper producers, both domestic and foreign, and Beloit's installed base of equipment exceeds that of any of its competitors. A major factor in Beloit's success in the paper machinery industry has been its international manufacturing operations. Beloit's overseas facilities have been used to support both domestic and foreign sales and have provided Beloit with the flexibility to shift its manufacturing to more favorable locations as appropriate. In addition, Beloit has been able to take advantage of favorable export financing provided by certain foreign governments. Beloit's manufacturing facilities are supported by a domestic and international marketing network staffed by experienced sales engineers. Measurex provides its customers with computer-integrated manufacturing through design, production, marketing and servicing of sensor-based information and control systems. Measurex products provide improved results for customers by increasing productivity, reducing raw material usage and energy consumption, and improving product quality and uniformity. Measurex's primary marketplace is within the manufacturing industries that produce products by continuous or batch processes. Over 79% of Measurex's business is with the pulp and paper industry, with the remaining business being with the plastic, metal, rubber, chemicals, glass and pharmaceutical industries. Beloit has entered into an agreement with Jagenberg Papiertechnik, GmbH, a German paper finishing and coating equipment manufacturer. Under the Jagenberg agreement, Beloit's Lenox Division will become the major supplier of parts and service for all winder products in the Americas. The agreement is currently being reviewed by regulatory authorities with final approval expected to be received in the first half of 1995. MINING EQUIPMENT Harnischfeger Corporation, through its Mining Equipment Division, is the world's largest producer of electric mining shovels and is a significant producer of electric and diesel-electric crawler and walking draglines, hydraulic mining excavators, blasthole drills, and electric, dredge and dragline bucket products. Electric mining shovels range in capacity from 18 to 80 cubic yards, crawler draglines from 10 to 20 cubic yards, and hydraulic mining excavators from 12 to 27 cubic yards. Capacities for the walking draglines range from 20 to 150 cubic yards. In 1991, Harnischfeger Corporation expanded its product lines by acquiring the large rotary blasthole drill product line from the Gardner-Denver Mining and Construction Division of Cooper Industries, Inc. There are three drill models currently in the active product line, with drilling diameters ranging from 9 to 22 inches and bit load capacities from 70,000 to 150,000 pounds. The products of the Mining Equipment segment are used in mines, quarries and earth-moving operations in the digging and loading of such minerals and other ores as coal, copper, gold, iron ore, lead, zinc, bauxite, uranium, phosphate, stone and clay. Harnischfeger Corporation has a significant relationship in the mining shovel business with Kobe Steel, Ltd. ("Kobe") pursuant to which Harnischfeger Corporation licenses Kobe to manufacture certain electric mining shovels and related replacement parts in Japan. Harnischfeger Corporation has the exclusive right to market Kobe-manufactured mining shovels and parts outside Japan (except in the case of certain government sales). In addition, Harnischfeger Corporation is party to an agreement, through 1996, with a corporate unit of the People's Republic of China, licensing the manufacture and sale of two models of electric mining shovels and related components. This relationship provides Harnischfeger Corporation with an opportunity to sell component parts for shovels built in China. On November 29, 1994, the Company completed its acquisition of Joy, a world leader in underground mining equipment and environmental products, in an exchange of common stock. Joy manufactures and services mining equipment for the underground extraction of coal and other bedded deposits and has facilities in Australia, South Africa, the United Kingdom and the United States, as well as sales offices in both Poland and the People's Republic of China. Joy's Mining Machinery Group designs, manufactures and distributes continuous miners, entry drivers and sump shearers; long-wall shearers; shuttle cars; and continuous haulage systems for use in underground mining. The Mining Machinery Group's products are used to extract bedded materials from underground deposits. They are not sold into the general construction industry, and demand for them is not tied to cycles in that industry. Joy also maintains an extensive network of service and spare parts distribution centers to rebuild and service equipment and sell spare parts in support of its installed base. This network includes six service centers in the United States and four outside of the United States, all of which are strategically located in major underground mining regions. Joy's Mining Machinery Group accounts for approximately 74% of total Joy sales. The financial position and results of operations of Harnischfeger Industries and Joy will be combined in fiscal 1995 retroactive to November 1, 1994. Financial information with respect to the acquisition of Joy is presented in Note 17 to the Financial Statements, on Page 43 of the 1994 Annual Report to Shareholders and is incorporated herein by reference. MATERIAL HANDLING EQUIPMENT The Material Handling Equipment Division of Harnischfeger Corporation produces lines of through-the-air material handling equipment designed for a variety of users as well as container handling cranes for use in ports. The Division is comprised of six business groups: P&H(TM) Equipment, Product Support, PHoenix(TM), Distribution and Service, Morris - Engineered Products Division and Morris - Standard Products Division. P&H(TM) Equipment The P&H(TM) Equipment group is comprised of the overhead crane, hoist and electrical product lines in the United States. It was formed from the core of what made up the Material Handling Equipment Division in prior years. The new crane portion of the group is comprised of several product lines: engineered cranes, standard cranes, portal cranes and crane components. Cranes are designed for installation in a wide range of industrial settings. Each crane is engineered to the customer's specifications, using standard components wherever possible. Engineered cranes are marketed for moderate to severe duty cycle applications in capacities from 3 to 800 tons. Standard overhead cranes are available in capacities from 5 to 100 tons. Stacker cranes, ranging in capacities from 2 to 50 tons, are particularly suitable for factory automation projects. Portal cranes range in lifting capacities from 5 to 100 tons and are used outdoors to load and unload materials. The large installed base of cranes and increasing sensitivity of customers to opportunities for improved manufacturing efficiency from upgrading their material handling equipment provides this product line an opportunity for growth. The component products portion of this group consists of electric wire rope and chain hoists, manual chain hoists, ratchet lever hoists, and electrical products. Hoists range in capacities from 1/8 ton to 60 tons. These hoists use state-of-the-art materials and manufacturing techniques and feature a wide variety of controls. Product Support The Product Support group markets replacement products and parts through Material Handling Centers, both independent and company owned, in domestic markets and through licensees or agents in international markets. This group differentiates itself from the competition through reliable and responsive delivery performance. PHoenix(TM) The PHoenix group markets pre-owned cranes under the PHoenix trademark which have been remanufactured and modernized to meet customer requirements. It also markets pre-owned parts to its customers. The PHoenix group provides a cost effective solution with reduced lead times to customers. The group's products are marketed direct and through both independent and company owned Material Handling Centers. Distribution and Service This group provides installation, erection and repair and maintenance services under the ProCare(TM) trademark through the growing network of company owned Material Handling Centers. The group responds to customers' increased desire to outsource the repair and maintenance of overhead cranes and hoists. Morris - Engineered Products Division The Morris - Engineered Products Division is the larger portion of the recently acquired Morris Mechanical Handling business based in the United Kingdom. It manufactures high integrity special purpose heavy lifting equipment, principally container handling cranes. In addition, its operations in South Africa are involved in the manufacture and service of cranes and other lifting equipment. Morris - Standard Products Division The Morris - Standard Products Division manufactures hoists, cranes, linear motors, and controls. The hoist division manufactures a range of electric wire rope hoists and both electric and hand chain hoists. The industrial cranes division manufactures electric overhead cranes all to standardized designs. Linear Motors manufactures crane and general industrial controls and linear motors for special and general application. ENVIRONMENTAL GROUP Joy's Environmental Group supplies flue gas desulfurization systems for reducing levels of sulfur dioxide in smokestack emissions which otherwise might react with other chemicals in the atmosphere to form acid rain. The Environmental Group also designs, fabricates, and installs systems for the collection and removal of ash accumulated at the bottom of coalburning boilers and ash carried up the exhaust flues of these boilers. These products and services are used worldwide by various electric utilities and industrial companies. The Environmental Group accounts for approximately 26% of total Joy sales. SYSTEMS The Systems Group consists of Syscon Corporation ("Syscon"). Syscon is engaged principally in providing systems development, systems integration and systems services to the United States Government, government agencies and commercial enterprises. The Company expects that Syscon will be divested in the first half of 1995. Syscon has been presented as a discontinued operation in the Company's Consolidated Financial Statements. Syscon develops complex systems for the federal government, including the Department of Defense and federal civil agencies. As a software engineering firm, Syscon provides sophisticated computer programs used by the military in their mission critical systems, training, logistics and business management systems. In addition, Syscon develops application-specific management information systems software for other federal departments and agencies and for commercial clients. Syscon develops, integrates and supports business/resource management information systems for defense and federal agencies and the commercial sector. Syscon provides cost-effective solutions to a particular client's needs using commercial off-the-shelf computer hardware and software to meet systems requirements. Syscon also performs a wide range of engineering and management services to assist clients responsible for projects that field complex military and space systems, and business management systems. INTERNATIONAL OPERATIONS Export sales from the United States were approximately 15% of net sales in 1994, 15% in 1993 and 15% in 1992. Typically, the profit margin on export sales does not differ substantially from the profit margin on domestic sales. In 1994, 1993 and 1992, Beloit's manufacturing subsidiaries outside the United States (principally in the United Kingdom, Italy, Canada, Brazil and Poland) generated approximately 12%, 17% and 29%, respectively, of Harnischfeger Industries' consolidated net sales. Harnischfeger Corporation's manufacturing subsidiaries outside the United States (principally in Australia, South Africa, Brazil, Canada, United Kingdom, Mexico and Germany) generated approximately 11% of Harnischfeger Industries' consolidated net sales in 1994, 9% in 1993 and 12% in 1992. Joy's Mining Machinery Group has been active in major coal mining markets outside the United States with development, manufacturing, distribution and service facilities in Australia, South Africa and the United Kingdom. More than 30% of Joy's mining revenues are derived from countries outside the United States. Joy's Environmental Group has been increasing its participation in global markets such as the Far East. Appoximately 40% of the Groups revenues are derived from sources outside of the United States. Beloit has granted licensing agreements to serve certain foreign markets to companies located in Australia, France, India, Italy, Japan, China and Spain. The licensing agreement with Mitsubishi in Japan represents the majority of Beloit's license income. Beloit maintains sales and service offices throughout the world to remain competitive in foreign markets. In general, sales of licensed mining products are managed within the country of manufacture by the foreign licensee. Licensee exports, together with exports from the United States, are sold through Harnischfeger Corporation's subsidiaries, which directly or through subsidiaries or affiliates maintain regional sales offices in: Brisbane, Melbourne and Perth, Australia; Toronto and Vancouver, Canada; Mexico City, Mexico; Belo Horizonte and Sao Paulo, Brazil; Antofagasta, Chile; Lima, Peru; Weiterstadt, Germany; Aylesbury, United Kingdom; Johannesburg, South Africa; Caracas and Maracaibo, Venezuela; and Beijing, China. Harnischfeger Industries' international operations are subject to certain risks not generally applicable to its domestic businesses, including currency fluctuations, changes in tariff restrictions, restrictive regulations of foreign governments (including price and exchange controls), and other governmental actions. Harnischfeger Industries has entered into various foreign currency exchange contracts with major international financial institutions designed to minimize its exposure to exchange rate fluctuations on foreign currrency transactions. GENERAL Seasonality No significant portion of Harnischfeger Industries' business is subject to or influenced by seasonal factors; however, Harnischfeger Industries' business is influenced by the cyclical nature of the paper machinery, mining, and capital goods industries, and for Syscon, the federal spending programs of the U.S. Government, particularly the Department of Defense. Distribution Sales of Beloit products are principally made directly to the end user. On a worldwide basis, each manufacturing facility is responsible for a designated market area. Beloit also maintains a worldwide marketing group to coordinate and support worldwide facilities in marketing strategies, technical sales support and participation in major projects including interface with engineering firms and financial institutions. Beloit offers systems and turnkey alternatives to assist in related business development throughout the world. Agents are used in certain foreign countries to augment Beloit's sales force stationed in the segment's manufacturing facilities and in sales offices worldwide. In the United States, mining equipment, overhead cranes and certain electrical products are marketed directly from Harnischfeger Corporation's headquarters and regional sales offices. Electric wire rope and chain hoists and crane modernizations are sold through dealers and distributors, assisted and coordinated by corporate and regional office personnel. The Material Handling Equipment Division has a dealer network of regional distributorships (referred to as Material Handling Centers). Joy's mining machinery sales are made mostly through sales offices located in major coal-producing areas. Joy's worldwide sales force has marketing responsibility for new machine sales, as well as for parts, components and rebuild services provided to customers. A segment of the sales force in the United States is dedicated to manning a truck fleet which visits customer sites on a regular basis in order to deliver components and parts. Joy's environmental sales are handled by direct sales contacts with the customer by employees as well as manufacturers' representatives. The manufacture and sale of repair and replacement parts and the servicing of equipment are important aspects of Harnischfeger Corporation operations. Harnischfeger Corporation maintains mining parts warehouses in Arizona, Minnesota, Nevada, Wisconsin, West Virginia and Wyoming and in Australia, Brazil, Canada, Chile, Germany, South Africa and Venezuela. These warehouses facilitate shipment of customers' orders for parts, and some also function as regional service centers. A majority of Syscon's business currently is performed under contracts obtained through negotiated procurement. To obtain a contract through negotiated procurement, Syscon typically submits a proposal for the production of a certain system, performance of a particular task or rendering of a particular service. If the proposal is accepted, Syscon and its customer enter into a contract for payment on a cost-plus-fee or fixed-price basis. Government contracts may be terminated for convenience at the Government's option at any time, in which event the Government would reimburse all allowable costs to the date of termination and those profits relating to work performed to such date. Competition Harnischfeger Industries conducts its domestic and foreign operations under highly competitive market conditions, requiring that its products and services be competitive in price, quality, service and delivery. The pulp and paper capital machinery market is globally competitive; Beloit's two major competitors are foreign-owned companies. The principal competitors are Valmet Paper Machinery, Inc., with controlling interest held by Valmet Corporation, Finland, and J. M. Voith GmbH, with headquarters in Germany. The Mining Equipment Division's principal competitors in electric mining shovels are B-E Holdings, Inc. and Marion, a division of Indresco, Inc. Harnischfeger Industries believes its Mining Equipment Division is the leading participant in this market. The Mining Equipment Division is committed to continue in its leadership position in providing surface mining equipment by competing aggressively against the other principal participants in the hydraulic mining excavator market: Orenstein & Koppel, Demag, Hitachi and Caterpillar. In draglines, the main competitors are B-E Holdings, Inc. and Marion. The Division's main competitors in drills are Ingersoll-Rand and B-E Holdings, Inc. In the underground coal mining industry, Joy competes primarily on the basis of the quality and reliability of its products and its ability to provide rapid, extensive and cost-effective repair and rebuild services and delivery of spare parts. Joy's primary competitors in the continuous mining machinery industry are EIMCO(a Tampella Tamrock Company), the Jeffrey division of Indresco Inc., Simmons-Rand Company(a subsidiary of Long Airdox Company), and Voest Alpine. In the longwall shearer new equipment market, Joy competes primarily with Anderson Longwall PLC, Eickhoff Corporation, and Mitsui Miike Machinery Company, Ltd. In the continuous haulage market, Joy competes with Long Airdox, Fairchild International, and Jeffrey. In the sale of spare parts for Joy's equipment, Joy competes with EIMCO and various small suppliers. Joy's competition in the environmental industry can be divided into two markets: wet scrubber and dry scrubber. In the wet scrubber market, Joy competes against ABB Environmental Systems Inc. (a subsidiary of Asea Brown Boveri Inc. which now includes ABB Flakt Inc.); G.E. Environmental (a subsidiary of General Electric Co.); and the Babcock & Wilcox Company (a subsidiary of McDermott Incorporated). In the dry scrubber market, Joy has the largest installed base of dry scrubbers at United States electric utilities. The primary competitors in this market are: ABB Environmental Systems Inc.; Research-Cottrell; Environmental Elements Corporation; and Wheelabrator Technologies, Inc. Joy Environmental Group's primary competitors in electrostatic precipitators (ESP's) and baghouses are G.E. Environmental; Research-Cottrell; ABB Environmental Systems Inc.; and Environmental Elements Corporation. In the ash handling business, the Environmental Group has competed mainly with United Conveyor Corp. and Fuller Company. There are more than 50 manufacturers of overhead and portal cranes in the United States, although many tend to specialize in certain products or regional segments of the market. There are approximately ten major United States manufacturers of electric wire rope and chain hoists. Syscon has numerous competitors in all areas of its business. Its principal competitors are those companies with significant engineering and computer hardware/software development capabilities. Additionally, numerous agencies of the Government maintain their own internal computer systems and engineering staffs. Customers Sales of services and equipment to agencies of the United States Government approximated $128.3 million, $185.2 million and $179.7 million in 1994, 1993 and 1992, respectively. The sales of services and equipment relate primarily to Syscon which is reported as a discontinued operation in the consolidated financial statements for 1994, 1993 and 1992, respectively. Backlog Backlog by business segment for the Company's continuing operations (in thousands of dollars) as of the end of fiscal years 1994 and 1993 was as follows:
Papermaking Machinery and Systems.................... $ 633,770 $ 550,660 Mining Equipment..................................... 70,880 102,165 Material Handling Equipment.......................... 107,112 43,112 ---------- ---------- $ 811,762 $ 695,937 ========== ==========
Supply of Materials and Purchased Components The Papermaking Machinery and Systems Group purchases raw materials used in its products which include: plates, sheets, shapes, carbon and alloy steel, stainless steel, brass and bronze, nickel alloy, and aluminum. Purchases of semi-processed and component parts include: castings, valves, filters, pumps, dryers, electrical equipment, and various vacuum, drying, hydraulic, combustion, material-handling and temperature control systems. Beloit has approximately 4,700 suppliers of which approximately 1,000 are most commonly used. No single source is dominant. The Mining and Material Handling Equipment Divisions manufacture machines and heat-treated gears, pinions, shafts, structural fabrications, electrical motors, generators, and other electrical parts. They purchase raw and semi-processed steel, castings, forgings, copper and other materials for these parts and components from approximately 400 suppliers. In addition, component parts, such as engines, bearings, controls, hydraulic components, and a wide variety of mechanical and electrical items are purchased from approximately 1,500 suppliers. Purchases of materials and components are made on a competitive basis with no single source being dominant. Joy purchases electric motors, gears, hydraulic parts, electronic components, forgings, steel, clutches and other components and raw materials from outside suppliers. Although Joy purchases certain components and raw materials from a single supplier, alternative sources of supply are available for all such quantities. Joy believes that it has adequate sources of supplies of component parts and raw materials for its manufacturing requirements. Patents and Licenses Patents are quite important in the papermaking industry. All major machinery manufacturers use patents extensively to protect the technology base that results from research and development. Beloit has been granted numerous patents on its designs and more are pending. Most are registered in all of the major countries into which Beloit and its licensees sell. On May 21, 1993, a Federal court jury in Madison, Wisconsin awarded Beloit $17.2 million following a patent infringement trial against J.M. Voith GmbH of Germany and its subsidiary, Voith, Inc. The jury determined that Beloit's patents on its new Bel-Champ(TM) technology for the drying section of large paper manufacturing machines were valid and infringed by Voith in connection with Voith's sale of a paper machine dryer section. The verdict of this patent infringement trial has been appealed by Voith. The award has not been recorded in the Company's financial statements. In addition, on November 23, 1994, a Federal court jury, in Madison, Wisconsin, returned a verdict finding Valmet Corporation of Finland guilty of infringing a key patent held by Beloit Corporation on the same Bel-Champ paper machine drying technology. In connection with this suit, the jury awarded Beloit $7.9 million in damages. It is expected that the verdict in this case will be appealed by Valmet and the award has not been recorded in the Company's financial statements. The Mining and Material Handling Equipment Divisions have numerous domestic and foreign patents, patent applications and patent licensing agreements. Harnischfeger Corporation does not consider these businesses materially dependent upon any patent or patent license agreement. Joy and its subsidiaries own numerous patents and trademarks and have patent licenses from others relating to its products and manufacturing methods. Also, patent and trademark licenses are granted to others throughout the world and royalties are received under most of these licenses. While Joy does not consider any particular patent or license or group of patents or licenses to be essential to its business as a whole, Joy considers its patents and licenses significant to the conduct of its business in certain product areas. The Systems Group does not consider its business materially dependent upon any patent or patent license agreement. Research and Development Harnischfeger Industries maintains a strong commitment to research and development with engineering staffs that are engaged in full-time research and development of new, and improvement of existing, products. Beloit maintains research and development facilities in Rockton, Illinois, Pittsfield, Massachusetts, Bolton, United Kingdom, Clarks Summit, Pennsylvania, Portland, Oregon and Waukesha, Wisconsin. Harnischfeger Corporation maintains research and development facilities in Milwaukee, Wisconsin. Joy pursues technological development through the engineering of new products, systems and applications; the improvement and enhancement of licensed technology; and synergistic acquisitions of technology. Syscon conducts research and development activities on a decentralized basis, thereby effectively utilizing the technology base that resides within the operating units. Research and development expenses were $25.0 million in 1994, $24.2 million in 1993, and $25.1 million in 1992. Environmental and Health and Safety Matters The activities of the Company are regulated by federal, state and local statutes, regulations and ordinances relating to both environmental protection and worker health and safety. These laws govern current operations, require remediation of environmental impacts associated with past or current operations, and under certain circumstances provide for civil and criminal penalties and fines, as well as injunctive and remedial relief. The Company's foreign operations are subject to similar requirements as established by their respective countries. The Company has expended substantial managerial and financial resources in developing and implementing actions for continued compliance with these requirements. The Company believes that it has substantially satisfied these diverse requirements. However, because these requirements are complex and, in many areas, rapidly evolving, there can be no guarantee against the possibility of sizeable additional costs for compliance in the future. These same requirements must also be met by the Company's competitors and, therefore, the costs for present and future compliance with these laws should not create a competitive disadvantage. Further, these laws have not had, and are not presently expected to have, a material adverse effect on the Company. The Company's operations or facilities have been and may become the subject of formal or informal enforcement actions or proceedings for alleged noncompliance with either environmental or worker health and safety laws or regulations. Such matters have typically been resolved through direct negotiations with the regulatory agency and have typically resulted in corrective actions or abatement programs. However, in some cases, fines or other penalties have been paid. Historically, neither such commitments nor such penalties have been material. Employees As of October 31, 1994, Harnischfeger Industries employed approximately 11,200 persons, of which approximately 7,400 were employed in the United States. Approximately 2,375 of the United States employees are represented by local unions under collective bargaining agreements with expiration dates from September 1, 1995 to April, 1996. Harnischfeger Industries believes that it maintains generally good relationships with its employees. Financial Information about Industry Segments The financial information on industry segments presented in Note 15 to the Financial Statements, on pages 40 through 42 of the 1994 Annual Report to Shareholders, is incorporated herein by reference. Item 2. Properties As of October 31, 1994, the following principal properties were owned, except as indicated. All of these plants are generally suitable for operations. Harnischfeger Industries owns a 120,000 square foot office building in Brookfield, Wisconsin, which is used as its worldwide corporate headquarters. The Company leases more than half of this building to Harnischfeger Engineers, Inc. and will continue to do so through October 1995. Syscon has 25 offices located in 12 states and currently leases all the principal facilities used in its business except that it owns an engineering development facility of 11,000 square feet in Virginia Beach, Virginia and a building of 20,000 square feet that houses its product development operations in Middletown, Rhode Island. Syscon leases facilities containing 80,000 square feet of space for its headquarters and principal computer installation in Falls Church, Virginia. Syscon also maintains major computer installations at offices in Middletown, Rhode Island and San Diego, California containing an aggregate of 77,000 square feet. MINING EQUIPMENT LOCATIONS
Floor Space Land Area Plant and Location (Sq. Ft.) (Acres) Principal Operations - ------------------------- ----------- --------- ---------------------------- Milwaukee, Wisconsin..... 1,067,000 46 Electric mining shovels, hydraulic mining excavators, electric and diesel-electric draglines and large rotary blasthole drills. Crane welding. Milwaukee, Wisconsin..... 180,000 13 Electrical products, heavy duty overhead and portal crane components and service parts warehouse. Crane assembly. Bassendean, Australia.... 75,500 5 Components and parts for mining shovels. Mt. Thorley, Australia... 20,000 6 Components and parts for mining shovels. Johannesburg, So. Africa................. 103,000 6 Components and parts for mining shovels. Johannesburg, So. Africa................. 27,000(1) 1 Electrical products and components for mining shovels. Belo Horizonte, Brazil... 37,700 1 Components and parts for mining shovels. Weiterstadt, Germany..... 31,200(1) 1 Components and parts for mining shovels.
- ------------------------- (1) Under a lease expiring in 1995. This division operates warehouses in Casper, Wyoming; Hibbing, Minnesota; Charleston, West Virginia; Milwaukee, Wisconsin; Phoenix, Arizona; Reno, Nevada; Hinton, Sparwood, Toronto and Vancouver, Canada; Bayswater and Mt. Thorley, Australia; Belo Horizonte, Brazil; Weiterstadt, Germany; Johannesburg, South Africa; Stobswood, United Kingdom and Maracaibo, Venezuela. The warehouses in Casper, Hibbing, Milwaukee, Mt. Thorley, Belo Horizonte and Johannesburg are owned; the others are leased. In addition, the division leases sales offices throughout the United States and in principal locations in foreign countries. MATERIAL HANDLING EQUIPMENT LOCATIONS
Floor Space Land Area Plant and Location (Sq. Ft.) (Acres) Principal Operations - ------------------------- ----------- --------- -------------------------- Milwaukee, Wisconsin..... 130,000 (1) 8 Remanufacture of overhead cranes, hoists and material handling equipment. Oak Creek, Wisconsin..... 277,000 36 Standard overhead cranes, hoists and material handling equipment. Loughborough, UK......... 420,000 36 Engineered and standard overhead cranes, hoists, controls and material handling equipment. Johannesburg, S. Africa.. 124,000 7 Standard overhead cranes, hoists and material handling equipment. Mexico City, Mexico...... 65,000 3 Standard overhead cranes, hoists and material handling equipment.
(1) Under a lease expiring in 1995. This division has leased facilities for its company owned Material Handling Centers in San Leandro, California; Pittsburg, California; Portland, Oregon; Reno, Nevada; Dallas, Texas; Houston, Texas; New Orleans, Louisiana; Chicago, Illinois; Detroit, Michigan; Pittsburgh, Pennsylvania; and Cleveland, Ohio. In addition, the division leases sales offices throughout the United States and in principal locations in foreign countries. PAPERMAKING MACHINERY AND SYSTEMS LOCATIONS
Floor Space Land Area Plant and Location (Sq. Ft.) (Acres) Principal Operations - -------------------------- ----------- --------- -------------------------------------- Beloit, Wisconsin......... 928,000 40 Papermaking machinery and finished product processing equipment. Beloit, Wisconsin......... 230,000 15 Castings, pattern shop. Waukesha, Wisconsin....... 57,000 10 Castings, pattern shop and finished product processing. Waukesha, Wisconsin....... 76,000(1) 13 Refiner plate machining, finished product processing and warehousing. Rockton, Illinois......... 469,000 203 Papermaking machinery, finished product processing equipment and R&D center. South Beloit, Illinois.... 163,000 11 Castings. Dalton, Massachusetts..... 277,000 55 Stock and pulp preparation equipment and specialized processing systems. Lenox, Massachusetts...... 127,000 19 Winders. Pittsfield, Massachusetts........... 36,000 30 Research and development facility and pilot plant for process simulation. Aiken, South Carolina..... 92,000 17 Columbus, Mississippi..... 133,000 22 Rubber and polymeric covers for rolls; Federal Way, Washington... 55,000 3 rubber blankets; rubber linings and Neenah, Wisconsin......... 77,000 10 metal roll repairs. Clarks Summit, PA......... 88,000 10 Renfrew, Canada........... 145,000 22 Kalamazoo, Michigan....... 23,500 1 Filled rolls for supercalenders and specialty rolls. Portland, Oregon.......... 41,000 5 Bulk materials handling and drying systems. Rochester, New Hampshire.. 15,650 5 Specialty services provided principally to the paper industry. Pensacola, Florida........ 7,250 2 Specialty services provide principally to the paper industry. Sandusky, Ohio............ 254,000 13 Centrifugal castings. Glenrothes, United Kingdom 56,000 8 Centrifugal castings. Campinas, Brazil.......... 202,000 33 Papermaking machinery and finished product processing equipment; stock and pulp preparation equipment; woodyard and pulp plant equipment. Bolton, United Kingdom.... 465,400 73 Papermaking machinery and finished product processing equipment; stock and pulp preparation equipment. Pinerolo, Italy........... 517,400 18 Papermaking machinery and finished product processing equipment; stock and pulp preparation equipment. Jelenia Gora, Poland...... 650,000 40 Papermaking machinery and finished product processing equipment; stock and pulp preparation equipment. Swiecie, Poland........... 37,000 (2) 4 Components and parts for papermaking machinery equipment.
- ------------------------- (1) Under a lease expiring in 2007. (2) Under a lease expiring in 2019. The papermaking machinery and systems business has warehouse space at the above facilities and in addition maintains leased facilities in Memphis, Tennessee; Swiecie, Poland; and Montreal, Canada. Sales offices are also maintained at various locations throughout the world. Information relating to lease commitments is presented in Note 11 to the Financial Statements on page 38 of the 1994 Annual Report to Shareholders, which is incorporated herein by reference. Item 3. Legal Proceedings The Company is a party to litigation matters and claims which are normal in the course of its operations and, while the results of litigation and claims cannot be predicted with certainty, management believes that the final outcome of such matters will not have a materially adverse effect on the Company's consolidated financial position or results of operations. The Company is also involved in a number of proceedings and potential proceedings relating to environmental matters. Although it is difficult to estimate the potential exposure to the Company related to these environmental matters, the Company believes that these matters will not have a materially adverse effect on its consolidated financial position or results of operations. As a prime contractor and subcontractor with various agencies of the U.S. Government, principally the Department of Defense, Syscon is subject to strict procurement regulations, with non-compliance found by any one agency possibly resulting in fines, penalties, debarment or suspension from receiving additional contracts with all agencies. In July, 1993, the U.S. Air Force rescinded a contract with Syscon following a post-award protest of the contract by another bidder. As a result of internal reviews, Syscon determined that evidence exists to indicate that an inaccurate certificate of compliance may have been submitted in connection with the contract. The outcome of the government investigation of this matter is not presently determinable. Management believes that the final outcome will not have a significant future effect on the Company's consolidated financial position or results of operations. Item 4. Submission of Matters to a Vote of Security-Holders No matters were submitted to a vote of security- holders during the fourth quarter of fiscal 1994. The following two matters were submitted to a vote of security- holders at a special meeting held November 29, 1994: 1. Approval of the acquisition of Joy Technologies Inc. through a stock-for-stock merger, and 2. Approval of an amendment to the Company's Restated Certificate of Incorporation increasing the number of authorized shares from 50,000,000 to 100,000,000. In the vote to approve the merger, the following number of shares of Common Stock were voted. 23,788,845 For 92,680 Against 63,089 Abstained 917,270 Non-Votes
In the vote to approve the amendment to the Certificate of Incorporation, the following number of shares of Common Stock were voted: 24,419,225 For 369,619 Against 73,040 Abstained -- Non-Votes
Executive Officers of the Registrant The following table sets forth, through the date of filing this 10-K report, the executive officers of Harnischfeger Industries and its major subsidiaries, their ages, their offices with Harnischfeger Industries and the period during which they have held such offices.
Number of Years Name Age Current Office and Principle Occupation as Officer - ---------------------------- --- ---------------------------------------- ---------- Jeffery T. Grade............ 51 Chairman of the Board and Chief Executive 12 Officer since 1993; Chief Executive Officer since 1992; President and Chief Operating Officer since 1986; Director since 1983; Senior Vice President, Finance and Administration and Chief Financial Officer from 1983 to 1986. John A. McKay............... 61 President and Chief Operating Officer since 9 1993; Senior Vice President and Chief Operating Officer from 1992 to 1993. Chief Executive Officer, Beloit Corporation since 1986. President, Beloit Corporation, from 1986 to 1992. Francis M. Corby, Jr........ 50 Executive Vice President for Finance and 9 Administration since December 1994; Senior Vice President, Finance and Chief Financial Officer from 1986 to December 1994. K. Thor Lundgren............ 47 Executive Vice President for Law and 3 Government Affairs since December 1994; Senior Vice President and General Counsel from 1991 to December 1994. Richard W. Schulze.......... 57 Senior Vice President and Special 13 Assistant to the Chairman and CEO since December 1994; Senior Vice President, Human Resources and Public Relations from 1982 to December 1994. James C. Benjamin........... 42 Vice President and Controller since 1986. 9 Ian Lambert................. 48 Vice President and Treasurer since 1989. 5
Mr. Lundgren joined the Company in September, 1991. Prior to joining the Company, Mr. Lundgren was a partner with the law firm of Michael, Best & Friedrich. The business address of each such person is 13400 Bishops Lane, Brookfield, Wisconsin 53005. All officers listed above are citizens of the United States of America except for Mr. Lambert who is a citizen of the United Kingdom. Officers are elected annually but may be removed at any time at the discretion of the Board of Directors. There are no family relationships between the foregoing officers. PART II The information required by Items 5 through 8 is incorporated by reference from the 1994 Annual Report to Shareholders. The following is a cross reference guide to the incorporated information:
Form 10-K Applicable Page(s) Item Number in Annual Report - ----------- ------------------ Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters........................................................... 49 Item 6. Selected Financial Data for the Registrant for Each of the Last Five Fiscal Years...................................................... 45-46 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 17-25 Item 8. Financial Statements and Supplementary Data....................... 26-44,47 Item 9. Disagreements on Accounting and Financial Disclosure: None
PART III All information required by Items 10 through 13 of Part III, with the exception of information on the Executive Officers which appears on page 15 of Part I of this report, is incorporated by reference to the Company's Proxy Statement for its 1995 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year. PART IV
Applicable Page(s) in Annual Report* ------------------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements Statement of Income for the years ended October 31, 1994, 1993 and 1992............................................................... 26 Balance Sheet at October 31, 1994 and 1993.............................. 27 Statement of Cash Flows for the years ended October 31, 1994, 1993 and 1992............................................................... 28 Statement of Shareholders' Equity for the years ended October 31, 1994, 1993 and 1992...................................................... 29 Notes to Consolidated Financial Statements.............................. 30-44 Report of Independent Accountants....................................... 47
- ------------------------- * Incorporated by reference from the indicated pages of the 1994 Annual Report to Shareholders. Applicable Page in Form 10-K -------------- (2) Financial Statement Schedules Report of Independent Accountants on Financial Statement Schedule........ 20 For the Years Ended October 31, 1994, 1993 and 1992: Schedule VIII. Valuation and Qualifying Accounts......................... 23
All other schedules are omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of 50% or less-owned companies have been omitted because the proportionate share of their profit before income taxes and total assets are less than 20% of the respective consolidated amounts and investments in such companies are less than 20% of consolidated total assets. (3) Exhibits
Exhibit Number Exhibit ------- ------------------------------------------------------------------- 3(a) Certificate of Incorporation of Harnischfeger Industries, Inc. (incorporated by reference to Exhibit 3(a) of the Registration Statement on Form S-4, File No. 33-8821). (b) Bylaws of Harnischfeger Industries, Inc., as amended on December 5, 1994 (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-8, File No. 33-57209). (c) Certificate of Designations of Preferred Stock, Series D (incorporated by reference to Exhibit 28.1(b) to Registrant's Current Report on Form 8-K dated March 25, 1992). (d) Amendment to Certificate of Incorporation of Harnischfeger Industries, Inc. dated November 29, 1994 (incorporated by reference to Exhibit 4.1(c) to Registration Statement on Form S-8, File No. 33-57209). 4(a) Revolving Credit Facility dated as of November 18, 1993 among Harnischfeger Industries, Inc. as borrower, Chemical Bank as Agent, First National Bank of Chicago and Royal Bank of Canada as Co-Agents and certain financial institutions (incorporated by reference to Exhibit 4(a) to Report of Harnischfeger Industries, Inc on Form 10-K for the year ended October 31, 1993, File No. 1-9299). (b) 9.1% Series A Senior Note Agreement dated as of September 15, 1989 (incorporated by reference to Exhibit 4(b) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299). (c) 9.1% Series B Senior Note Agreement dated as of October 15, 1989 (incorporated by reference to Exhibit 4(c) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299). (d) 8.95% Series C Senior Note Agreement dated as of February 15, 1991 (incorporated by reference to Exhibit 4(d) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299). (e) 8.9% Series D Senior Note Agreement dated as of October 1, 1991 (incorporated by reference to Exhibit 4(e) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299). (f) Indenture for Debentures issued March 3, 1992 between Harnischfeger Industries, Inc. and Continental Bank, National Association, Trustee, dated March 1, 1992 (incorporated by reference to Exhibit 4(f) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299). (g) First Supplemental Indenture for Debentures issued June 22, 1992 between Harnischfeger Industries, Inc. and Continental Bank, National Association, Trustee, dated June 12, 1992 (incorporated by reference to Exhibit 4(g) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299). (h) Registration Statement filed on Form S-3, for issuance of Debt Securities of up to $150,000,000 dated August 22, 1992, File No. 33-51436 (incorporated by reference to Exhibit 4(h) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299). (i) Rights Agreement dated as of February 8, 1989 between the Registrant and the First National Bank of Boston, as Rights Agent, which includes as Exhibit A the Certificate of Designations of Preferred Stock, Series D, setting forth the terms of the Preferred Stock, Series D; as Exhibit B the Form of Rights Certificate; and as Exhibit C the Summary of Rights to Purchase Preferred Stock, Series D (Incorporated by reference to Exhibit 1 to Registrant's Registration Statement on Form 8-A filed on February 9, 1989). (j) Harnischfeger Industries, Inc. Stock Employee Compensation Trust Agreement effective as of March 23, 1993 (incorporated by reference to Exhibit 4(k) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1993, File No.1-9299).* (k) $240,000,000 Amended and Restated Credit Agreement dated as of November 25, 1994 among Harnischfeger Industries Inc. as borrower and the financial institutions from time to time thereto as lenders, the First National Bank of Chicago and Royal Bank of Canada, as co-agents and Chemical Bank as Agent. (l) Form of Indenture, dated as of September 1, 1993, between Joy Technologies Inc. and The Bank of Montreal Trust Company, as Trustee for Joy Technologies Inc.'s 10 1/4% Senior Notes due 2002 (incorporated by reference to Exhibit 4.1 to Joy Technologies Inc.'s Report on Form 10-Q for the quarter ended August 27, 1993, filed October 7, 1993). 10(a) Harnischfeger Industries, Inc. 1988 Incentive Stock Plan, as amended on February 3, 1992.* (b) Harnischfeger Industries Deferred Compensation Trust dated November 1, 1988 (incorporated by reference to Exhibit 10(d) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1988, File No. 01-9299).* (c) First Amendment of the Deferred Compensation Trust dated December 19, 1990.* (d) Harnischfeger Industries, Inc. Executive Incentive Plan, as amended as of January 17, 1992 (incorporated by reference to Exhibit 10(d) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299).* (e) Harnischfeger Industries, Inc. Supplemental Retirement and Stock Funding Plan, as amended as of January 17, 1992 (incorporated by reference to Exhibit 10(e) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299).* (f) Directors Stock Compensation Plan effective as of March 2, 1992 (incorporated by reference to Exhibit 10(f) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1991, File No. 1-9299).* (g) Service Compensation Agreement for Directors effective as of June 1, 1992 (incorporated by reference to Exhibit 10(g) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299).* (h) Key Executive Employment and Severance Agreement (Restated), entered into as of January 31, 1992, between Harnischfeger Industries, Inc. and Jeffery T. Grade (incorporated by reference to Exhibit 10(h) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299).* (i) Key Executive Employment and Severance Agreement (Restated), entered into as of January 31, 1992, between Harnischfeger Industries and John R. Teitgen (incorporated by reference to Exhibit 10(i) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299).* (j) Key Executive Employment and Severance Agreement (Restated), entered into as of March 2, 1992, between Harnischfeger Industries, Inc. and John A. McKay (incorporated by reference to Exhibit 10(j) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299).* (k) Supplement to and Modification of Key Executive Employment and Severance Agreement (Restated) effective as of November 6, 1992 between Harnischfeger Industries, Inc. and John A. McKay (incorporated by reference to Exhibit 10(k) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1992, File No. 1-9299).* (l) Key Executive Employment and Severence Agreement (Restated), entered into as of March 2, 1992, between Harnischfeger Industries, Inc. and Francis M. Corby, Jr. (incorporated by reference to Exhibit 10(m) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31,1992, File No. 1-9299).* (m) Key Executive Employment and Severence Agreement, entered into as of March 2, 1992, between Harnischfeger Industries, Inc. and K. Thor Lundgren.* (n) Purchase and Sale Agreement by and among HEI Systems, Inc. and HEI Acquisition, Inc. and Harnischfeger Industries, Inc., dated as of October 28, 1993 (incorporated by reference to Exhibit 10(p) to Report of Harnischfeger Industries, Inc. on Form 10-K for the year ended October 31, 1993, File No. 1- 9299). (o) Agreement and Plan of Merger, dated as of August 17, 1994 among Harnischfeger Industries, Inc., Harnischfeger Acquisition Corporation and Joy Technologies Inc. (incorporated by reference to Exhibit 2.1 to Registration Statement on Form S-4, File No.1-9299). (p) Joy Technologies Inc. 1991 Stock Option and Equity Incentive Plan dated November 12, 1991 (incorporated by reference to Exhibit 99.1 to Registration Statement on For S-8, File No. 33-57209).* (q) Amendment to Joy Technologies Inc. 1991 Stock Option and Equity Incentive Plan dated November 29, 1994 (incorporated by reference to Exhibit 99.2 to Registration Statement on Form S-8, File No. 33-57209).* 11 Statement Re Computation of Earnings Per Share. 13 1994 Annual Report to Shareholders, filed solely to the extent portions are incorporated herein by reference. 21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 24 Powers of Attorney. 27 Financial Data Schedule
- ------------------------- * Represents a management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K (1)Current Report on Form 8-K dated August 18, 1994 relating to the announcement of the signing of the definitive agreement with Joy Technologies Inc.("Joy") pursuant to which Harnischfeger Industries, Inc. will acquire Joy in a stock-for- stock merger. (2)Current Report on Form 8-K dated September 8, 1994 relating to the announcement of the private sale of 2,000,000 shares of common stock. (3)Current Report on Form 8-K dated September 12, 1994 relating to the announcement that Harnischfeger Industries, Inc. has entered into an agreement in principle to acquire all of the outstanding shares of MMH(Holdings) Limited. (4)Current Report on Form 8-K dated November 29, 1994 relating to the announcement of the completion of Harnischfeger Industries, Inc.'s previously announced acquisition of Joy Technologies Inc. through a stock- for-stock merger. (5)Current Report on Form 8-K dated January 16, 1995 relating to the announcement of financial information on combined sales and net income of Harnischfeger Industries, Inc. and Joy Technologies Inc. for more than thirty(30) days of post-merger combined operations for purposes of complying with pooling accounting requirements. (6)Current Report on Form 8-K/A dated January 26, 1995 relating to the announcement by Harnischfeger Industries, Inc. that it has entered into an agreement (subject to closing conditions and regulatory approval) providing for the sale of Syscon Corporation to Logicon, Inc. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Directors and Shareholders of Harnischfeger Industries, Inc. Our audits of the consolidated financial statements referred to in our report dated December 5, 1994 appearing on page 47 of the 1994 Annual Report to Shareholders of Harnischfeger Industries, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. As discussed in Note 6 to the consolidated financial statements, the Company changed its method of accounting for income taxes effective November 1, 1993. The consolidated financial statements and the Financial Statement Schedule referred to above have been restated to reflect the retroactive application of the change. PRICE WATERHOUSE LLP Milwaukee, Wisconsin December 5, 1994 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brookfield, Wisconsin, on the 27th day of January, 1995. HARNISCHFEGER INDUSTRIES, INC. (Registrant) /s/FRANCIS M. CORBY, JR. Francis M. Corby, Jr. Executive Vice President for Finance and Administration Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on January 27, 1995.
Signature Title - ------------------------------------------ ------------------------------------------ /s/JEFFERY T. GRADE Chairman and Chief Executive Jeffery T. Grade Officer /s/FRANCIS M. CORBY, JR. Executive Vice President for Francis M. Corby, Jr. Finance and Administration (Chief Financial Officer) /s/JAMES C. BENJAMIN Vice President and Controller James C. Benjamin (Chief Accounting Officer) (1) Director Donna M. Alvarado (1) Director John D. Correnti (1) Director Don H. Davis, Jr. (1) Director Harry L. Davis (1) Director Robert M. Gerrity (1) Director Robert B. Hoffman (1) Director Ralph C. Joynes (1) Director Herbert V. Kohler, Jr. (1) Director Jean-Pierre Labruyere (1) Director Robert F. Schnoes (1) Director Donald Taylor (1) Director C.R. Whitney
- ------------------------- (1) Jeffery T. Grade, by signing his name hereto, does hereby sign and execute this report on behalf of each of the above-named Directors of Harnischfeger Industries, Inc. pursuant to powers of attorney executed by each of such Directors and filed with the Securities and Exchange Commission as an exhibit to this report. January 27, 1995 By: /s/JEFFERY T. GRADE Jeffery T. Grade, Attorney-in-fact HARNISCHFEGER INDUSTRIES, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS (Thousands of Dollars)
Balance at Additions Additions Beginning by Charged Classification of Year Acquisition to Expense Deductions(1) - ------------------------------ ---------- ----------- ----------- ------------- Allowances Deducted in Balance Sheet from Accounts Receivable: For the year ended October 31, 1994 Doubtful accounts $ 8,624 $ 532 $ 474 $ (4,656) Possible contract losses 2,687 - - - ------ ------ ------ ------- $11,311 $ 532 $ 474 $ (4,656) ====== ====== ====== ======= For the year ended October 31, 1993 Doubtful accounts $ 4,986 - $ 7,017 $(3,101) Possible contract losses 2,890 - ------ ------ ------ ------- $ 7,876 - $ 7,017 $(3,101) ====== ====== ====== ======= For the year ended October 31, 1992 Doubtful accounts $ 6,298 - $ 2,171 $(3,504) Possible contract losses 2,774 - - - ------ ------ ------ ------- $ 9,072 - $ 2,171 $(3,504) ====== ====== ====== ======= Transactions Currency of Balance Translation Discontinued at End Classification Effects Operations of Year - ------------------------------ ---------- ----------- ----------- Allowances Deducted in Balance Sheet from Accounts Receivable: For the year ended October 31, 1994 Doubtful accounts $ 235 - $ 5,209 Possible contract losses - (2,687) - ------ ------ ------ $ 235 $(2,687) $ 5,209 ====== ======= ======= For the year ended October 31, 1993 Doubtful accounts $ (224) $ (54) $ 8,624 Possible contract losses (203) 2,687 ------ ------- ------ $ (224) $ (257) $11,311 ====== ======= ======= For the year ended October 31, 1992 Doubtful accounts $ 17 $ 4 $ 4,986 Possible contract losses - 116 2,890 ------ ------- ------- $ 17 $ 120 $ 7,876 ====== ======= =======
(1) Represents write-off of bad debts, net of recoveries. Allowance Deducted in Balance Sheet from Deferred Tax Assets:
Balance at Additions Balance Beginning Charged at end of Year to Expense of Year ---------- ---------- -------- For the year ended October 31, 1994 $ 12,371 $ 1,763 $ 14,134 For the year ended October 31, 1993 $ 7,566 $ 4,805 $ 12,371 For the year ended October 31, 1992 $ - $ 7,566 $ 7,566
EX-4 2 Exhibit 4(k) $240,000,000 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of November 25, 1994 among HARNISCHFEGER INDUSTRIES, INC. as Borrower, and THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO, as Lenders, THE FIRST NATIONAL BANK OF CHICAGO and ROYAL BANK OF CANADA, as Co-Agents, and CHEMICAL BANK, as Agent TABLE OF CONTENTS ----------------- Section Page - ------- ---- ARTICLE I DEFINITIONS 1.01. Certain Defined Terms . . . . . . . . . . . 1 1.02. Computation of Time Periods . . . . . . . . 15 1.03. Accounting Terms. . . . . . . . . . . . . . 15 1.04. Other Definitional Provisions . . . . . . . 15 1.05. Amendment and Restatement . . . . . . . . . 15 ARTICLE II AMOUNTS AND TERMS OF THE REVOLVING CREDIT FACILITY 2.01. The Revolving Credit Facility . . . . . . . 16 2.02. Loan Facility Mechanics . . . . . . . . . . 17 2.03. Competitive Bid Procedures. . . . . . . . . 20 2.04. Notes . . . . . . . . . . . . . . . . . . . 22 2.05. Interest on the Loans . . . . . . . . . . . 23 2.06. Fees. . . . . . . . . . . . . . . . . . . . 26 2.07. Payments. . . . . . . . . . . . . . . . . . 27 2.08. Interest Periods. . . . . . . . . . . . . . 29 2.09. Special Provisions Governing Eurodollar Rate Loans 29 2.10. Taxes . . . . . . . . . . . . . . . . . . . 32 2.11. Increased Costs . . . . . . . . . . . . . . 35 2.12. Authorized Officers of Borrower . . . . . . 36 2.13. Replacement of Certain Lenders. . . . . . . 36 ARTICLE III CONDITIONS TO LOANS 3.01. Conditions Precedent to Effectiveness . . . 37 3.02. Conditions Precedent to all Loans . . . . . 38 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01. Representations and Warranties. . . . . . . 39 ARTICLE V COVENANTS 5.01. Affirmative Covenants of the Borrower . . . 42 5.02. Financial and Negative Covenants. . . . . . 46 5.03. Changes in GAAP and Borrower's Fiscal Year. 52 ARTICLE VI EVENTS OF DEFAULT; RIGHTS AND REMEDIES 6.01. Events of Default . . . . . . . . . . . . . 53 6.02. Remedies. . . . . . . . . . . . . . . . . . 55 6.03. Setoff Rights . . . . . . . . . . . . . . . 56 ARTICLE VII THE AGENT 7.01. Appointment . . . . . . . . . . . . . . . . 56 7.02. Nature of Duties. . . . . . . . . . . . . . 56 7.03. Rights, Exculpation, Etc. . . . . . . . . . 57 7.04. Reliance. . . . . . . . . . . . . . . . . . 58 7.05. Indemnification . . . . . . . . . . . . . . 58 7.06. The Agent Individually. . . . . . . . . . . 58 7.07. Successor Agent; Resignation of Agent . . . 59 ARTICLE VIII MISCELLANEOUS 8.01. Entire Agreement. . . . . . . . . . . . . . 59 8.02. Assignments and Participations. . . . . . . 59 8.03. Expenses. . . . . . . . . . . . . . . . . . 63 8.04. Indemnification . . . . . . . . . . . . . . 64 8.05. Ratable Sharing; Defaulting Lender. . . . . 65 8.06. Amendments and Waivers. . . . . . . . . . . 67 8.07. Notices . . . . . . . . . . . . . . . . . . 68 8.08. Failure or Indulgence Not Waiver; Remedies Cumulative. . . . . . . . . . . . . . . . . . 68 8.09. Termination . . . . . . . . . . . . . . . . 68 8.10. Marshalling; Payments Set Aside . . . . . . 68 8.11. Severability. . . . . . . . . . . . . . . . 69 8.12. Headings. . . . . . . . . . . . . . . . . . 69 8.13. GOVERNING LAW . . . . . . . . . . . . . . . 69 8.14. Successors and Assigns; Subsequent Holders of Notes 69 8.15. CONSENT TO JURISDICTION; SERVICE OF PROCESS 70 8.16. Counterparts; Effectiveness; Inconsistencies 70 EXHIBITS -------- Exhibit 1 -- Assignment and Acceptance (Sec. 8.02(d)) Exhibit 2 -- Competitive Bid Accept/Reject Letter (Sec. 1.01) Exhibit 3 -- Notice of Conversion/Continuation (Sec. 2.05(c)) Exhibit 4 -- Notice of Revolving Borrowing (Sec. 2.02(a)) Exhibit 5 -- Notice of Competitive Bid Borrowing (Sec. 2.03(a)) Exhibit 6 -- Notice of Competitive Bid Request (Sec. 2.03(a)) Exhibit 7 -- Competitive Bid (Sec. 2.03(b)) Exhibit 8 -- Form of Revolving Loan Note (Sec. 2.04) Exhibit 9 -- Form of Competitive Bid Note (Sec. 2.04) Exhibit 10 -- Lender Information (Sec. 8.07) AMENDED AND RESTATED CREDIT AGREEMENT This Amended and Restated Credit Agreement dated as of November 25, 1994 (the "Closing Date") (as amended, supplemented, modified or restated from time to time, the "Agreement") is entered into among HARNISCHFEGER INDUSTRIES, INC., a Delaware corporation (the "Borrower"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF and each other financial institution which from time to time becomes a party hereto in accordance with Section 8.02(a) (together with their respective successors and assigns, individually, a "Lender" and, collectively, the "Lenders"), and CHEMICAL BANK, a New York banking corporation, in its separate capacity as agent for the Lenders hereunder (in such capacity, the "Agent"). The Borrower, certain of the Lenders and the Agent were parties to that certain Credit Agreement dated November 18, 1993 (the "Original Credit Agreement"). The Borrower has requested that the Lenders agree to amend and restate the Original Credit Agreement in its entirety to enable the Borrower, on the terms and subject to the conditions set forth in this Agreement, to borrow on a revolving basis, at any time and from time to time from and including the Effective Date, an aggregate principal amount at any time outstanding not in excess of the Commitments which aggregate $240,000,000 on the Effective Date. ARTICLE I DEFINITIONS 1.01. Certain Defined Terms. The following terms used in this Agreement shall have the following meanings (such meanings to be applicable, except to the extent otherwise indicated in a definition of a particular term, both to the singular and the plural forms of the terms defined): "Affiliate," as applied to any Person, shall mean any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote 10% or more of the securities having voting power for the election of directors of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agent" shall have the meaning ascribed to such term in the preamble hereto and shall include any successor Agent appointed pursuant to Section 7.07. "Aggregate Commitments" shall mean the aggregate amount of the Commitments of all Lenders, from time to time, which on the Effective Date is $240,000,000. "Agreement" shall have the meaning ascribed to such term in the preamble hereto. "Alternate Base Rate" shall mean, for any day, a fluctuating interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) as shall be in effect from time to time, which rate per annum shall at all times be equal to the greatest of (a) the Prime Rate in effect on such day; (b) the sum of one-half of one percent (0.50%) and the Federal Funds Effective Rate in effect on such day; and (c) the sum of (1) one percent (1.0%) and (2) the product of (x) the Three-Month Secondary CD Rate in effect on such day and (y) Statutory Reserves and (3) the Assessment Rate. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by Chemical Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as being effective. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Federal Reserve Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Federal Reserve Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by Chemical Bank from three New York City negotiable certificate of deposit dealers of recognized standing selected by the Agent. "Federal Funds Effective Rate" shall mean, for any day, a fluctuating interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Chemical Bank from three Federal funds brokers of recognized standing selected by the Agent. "Assessment Rate" shall mean for any day the annual rate (rounded upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the Agent as the then-current net annual assessment rate that will be employed in determining amounts payable by Chemical or any other Lender to the FDIC (or any successor) for insurance by the FDIC (or such successor) of time deposits made in dollars at Chemical's or such Lender's domestic offices. If the Agent shall have determined that it is unable to ascertain the Three-Month Secondary CD Rate or the Federal Funds Effective Rate or both, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (b) or (c), or both, of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change. "Applicable Lending Office" shall mean, with respect to each Lender, such Lender's Domestic Lending Office, in the case of a Base Rate Loan and such Lender's Eurodollar Lending Office, in the case of a Eurodollar Rate Loan or, if different in the case of a Competitive Bid Loan, the office of such Lender notified by such Lender to the Agent as its Applicable Lending Office with respect to such Competitive Bid Loan. "Assignment and Acceptance" shall mean an Assignment and Acceptance in the form of Exhibit 1 delivered to the Agent in connection with an assignment of all or a portion of a Lender's interest under this Agreement pursuant to Section 8.02. "Base Rate Loans" shall mean all Loans outstanding which bear interest at a rate determined by reference to the Alternate Base Rate, as provided in Section 2.05(a)(i). "Borrower" shall have the meaning ascribed to such term in the preamble hereto. "Borrowing" shall mean a borrowing consisting of Loans of the same Type, having the same Interest Period and made on the same day by the Lenders (or, with respect to Competitive Bid Loan, by each of the Lenders whose offer to make Competitive Bid Loans as part of such borrowing has been accepted by the Borrower pursuant to Section 2.03). "Business Day" shall mean (i) for all purposes other than as described by clause (ii) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, or is a day on which banking institutions located in New York are required or authorized by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with Eurodollar Rate Loans, any day which is a Business Day described in clause (i) and which is also a day for trading in dollar deposits by and between banks in the London interbank Eurodollar market. "Capital Lease," as applied to any Person, shall mean any lease of any property (whether real, personal, or mixed) by that Person as lessee which, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "Chemical" shall mean Chemical Bank, a New York banking corporation, and any successor thereto. "Closing Date" shall have the meaning ascribed to that term in the preamble hereto. "Commitment" shall mean, with respect to each Lender, the principal amount set forth on Schedule A opposite such Lender's name under the heading "Commitment" or assigned to it in accordance with Section 8.02(a), as such amount may be reduced or otherwise adjusted from time to time pursuant to the terms of this Agreement. "Competitive Bid" shall mean an offer by a Lender to make a Competitive Bid Loan pursuant to Section 2.03. "Competitive Bid Accept/Reject Letter" shall mean a notification made by the Borrower pursuant to Section 2.03 in the form of Exhibit 2. "Competitive Bid Borrowing" shall mean a borrowing consisting of a Competitive Bid Loan or concurrent Competitive Bid Loans from the Lender or Lenders whose Competitive Bids for such Borrowing have been accepted by the Borrower under the bidding procedure described in Section 2.03. "Competitive Bid Loan" shall have the meaning ascribed to such term in Section 2.01(a) . Each Competitive Bid Loan shall be a Eurodollar Rate Loan bearing interest at the LIBO Rate plus the Spread applicable thereto or a Fixed Rate Loan. "Competitive Bid Note" shall have the meaning ascribed to such term in Section 2.04. "Competitive Bid Rate" shall mean, as to any Competitive Bid made by a Lender pursuant to Section 2.03 (i) in the case of a Eurodollar Rate Loan, the Spread, and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest offered by the Lender making such Competitive Bid. "Consolidated Net Income" (or as applicable, Consolidated Net Loss) shall mean, for any period, the gross revenues of the Borrower and its Consolidated Subsidiaries for such period (i) less all expenses and other proper charges (including taxes on income), determined on a consolidated basis in accordance with GAAP, after eliminating unremitted income or losses attributable to Persons that are not Consolidated Subsidiaries, all extraordinary items of gain or loss and all income or losses attributable to Minority Interests and (ii) plus the net charge recorded for postretirement benefits other than pensions pursuant to Statement of Financial Accounting Standards No. 106, determined in accordance with GAAP. "Consolidated Net Worth" shall mean, as of the date of any determination thereof, the amount of the capital stock accounts, including the portion thereof attributable to preferred stock which does not have mandatory redemption provisions requiring redemption prior to the Termination Date (net of any treasury stock, at cost) plus (or minus in the case of a deficit) (i) cumulative translation adjustments, (ii) the surplus and retained earnings of the Borrower and its Consolidated Subsidiaries, plus Minority Interests, (iii) the amount deducted from shareholder's equity for the Borrower's common stock held by the Harnischfeger Industries, Inc. Stock Employee Compensation Trust and (iv) the net liability recorded for postretirement benefits other than pensions pursuant to Statement of Financial Accounting Standards No. 106, all as determined in accordance with GAAP. "Consolidated Subsidiary" means any Person which for accounting purposes would be consolidated with the Borrower in accordance with GAAP. "Consolidated Total Tangible Assets" means, as of the date of any determination thereof, the total amount of all assets of the Borrower and its Consolidated Subsidiaries on a consolidated basis minus goodwill, organization expenses, patents, trademarks, trade names, copyrights, franchises and other like intangibles and unamortized debt discount and expense, all as determined in accordance with GAAP. "Default Rate" shall have the meaning ascribed to that term in Section 2.05(d). "Disclosure Document" means, at any time, the annual report of the Borrower on Form 10-K (or successor forms) most recently filed by it with the United States Securities and Exchange Commission (the "SEC") pursuant to Section 13(a) or Section 15(d) of the United States Securities Exchange Act of 1934, as amended, and the quarterly and current reports of the Borrower on Form 10-Q or Form 8-K (or successor forms), if any, so filed with the SEC since the filing of such most recently filed annual report. "Dollars" and "$" shall mean the lawful money of the United States of America. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" under its name on Schedule A or on the Assignment and Acceptance by which it became a Lender or such other office of such Lender as such Lender may from time to time specify by written notice to the Borrower and the Agent. "Effective Date" means the date on which all of the conditions precedent described in Section 3.01 have been satisfied; provided that such date occurs on or before December 31, 1994. "Environmental Legal Requirement" means any applicable law, statute or ordinance relating to public health, safety or the environment, including without limitation any such applicable law, statute or ordinance relating to releases, discharges or emissions to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use and handling of polychlorinated biphenyls or asbestos, to the disposal, transportation, treatment, storage or management of solid or hazardous wastes or to exposure to toxic or hazardous materials, to the handling, transportation, discharge or release of gaseous or liquid substances and any regulation, order, notice or demand issued pursuant to any such law, statute or ordinance, in each case applicable to the property of the Borrower and its Subsidiaries or the operation, construction or modification of any thereof, including without limitation the following: the Clean Air Act, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Comprehensive Environmental Response Compensation and Liability Act as amended by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act as amended by the Solid and Hazardous Waste Amendments of 1984, the Occupational Safety and Health Act, the Emergency Planning and Community Right-to-Know Act of 1986, and the Solid Waste Disposal Act, each as may be amended from time to time, and any state statutes addressing similar matters or providing for financial responsibility for cleanup or other actions with respect to the release or threatened release of hazardous substances and any state nuisance statute. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" under its name on Schedule A or on the Assignment and Acceptance by which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender as such Lender may from time to time specify by written notice to the Borrower and the Agent. "Eurodollar Rate Loans" shall mean those Revolving Loans and Competitive Bid Loans outstanding which bear interest at a rate determined by reference to the LIBO Rate as provided in Section 2.05(a)(ii). "Eurodollar Rate Margin" shall mean (i) .15% per annum when the Borrower's Rating falls within (A) Level I by either S&P or Moody's and (B) Level III or higher by the other rating agency, (ii) .20% per annum when the Borrower's Rating falls within Level II by both S&P and Moody's and (iii) .30% per annum when the Borrower's Rating falls within (A) Level III by either S&P or Moody's and (B) Level II or lower by the other rating agency. The applicable percentage for determining the Eurodollar Rate Margin shall change on the effective date of any change in the Level of the Borrower's Rating. "Event of Default" shall mean any of the occur- rences set forth in Section 6.01 after the expiration of any applicable grace period expressly provided therein. "Excluded Taxes" shall have the meaning ascribed to such term in Section 2.10(a). "Facility Fee" shall have the meaning ascribed to that term in Section 2.06(a). "FDIC" shall mean the Federal Deposit Insurance Corporation or any successor thereto. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System or any Governmental Authority succeeding to its functions. "Fixed Rate Loan" shall mean any Competitive Bid Loan bearing interest at a fixed percentage rate per annum (expressed in the form of a decimal to no more than four decimal places) specified by the Lender making such Loan in its Competitive Bid. "Funded Debt" means, with respect to any Person, all Indebtedness and Guarantees which have a final maturity of one or more than one year from the date of origin thereof (or which are renewable or extendible at the option of the obligor for a period or periods more than one year from the date of origin), excluding in each case the current portion of such Indebtedness and Guarantees; "Consolidated Funded Debt" shall mean the Funded Debt of the Borrower and its Consolidated Subsidiaries determined on a consolidated basis. "Funding Date" shall mean, with respect to any Loan, the date of the funding of such Loan. "GAAP" shall mean United States generally accepted accounting principles consistently applied and maintained throughout the period indicated and consistent with the prior financial practices of the Borrower except for (i) changes mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing and (ii) changes to any such principles deemed by the Borrower to be preferable and the use of which has been approved by the Borrower's independent certified public accountants. "Governmental Authority" shall mean any nation, state, sovereign, or government, any federal, regional, state, local or political subdivision and any entity exer- cising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including, without limitation, any central bank. "Guarantee" shall mean, with respect to any Person, all items of Indebtedness of any other Person which are guaranteed by such Person, directly or indirectly, in any manner or are in effect guaranteed through any agreement or other arrangement (even if not designated as a guarantee) designed to provide funds for or to secure payment or performance of such Indebtedness of such other Person, and including any letter of credit issued to secure Indebtedness of such other Person; provided, however, that with respect to any receivable sold or discounted with recourse only the amount of the recourse liability in connection therewith shall be considered a Guarantee for purposes of this definition. "Indebtedness" shall mean, with respect to any Person, (i) all obligations of such Person for borrowed money, however evidenced, (ii) all obligations of such Person to pay the deferred purchase price of property, except trade accounts arising in the ordinary course of business, (iii) all obligations of such Person as lessee under Capital Leases, (iv) all obligations of such Person to reimburse or indemnify the issuer of a letter of credit or Guarantee for actual drawings or payments thereunder, and (v) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person. "Interest Payment Date" shall mean, with respect to any Loan, (i) the last day of each Interest Period applicable to such Loan, (ii) with respect to any Eurodollar Rate Loan having an Interest Period in excess of three (3) months, the last day of each three (3) month interval during such Interest Period and (iii) with respect to any Fixed Rate Loan having an Interest Period in excess of 90 days, the last day of each 90 day interval during such Interest Period and, in addition, the date of any refinancing or conversion of such Loan with or to a Loan of a different Type. "Interest Period" shall mean (a) as to any Borrowing consisting of Eurodollar Rate Loans, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, and (b) as to any Borrowing consisting of Base Rate Loans, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Termination Date, and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.05(c) or repaid or prepaid in accordance with Section 2.01(c) and Section 2.07 and (c) as to any Borrowing consisting of Fixed Rate Loans, the period commencing on the date of such Borrowing and ending on the date specified in the Competitive Bid in which the offer to make such Fixed Rate Loans comprising such Borrowing was extended and accepted pursuant to Section 2.03, which shall not be earlier than 7 days after the date of such Borrowing or later than 180 days after the date of such Borrowing; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Borrowing consisting of Eurodollar Rate Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. "Interest Rate Determination Date" shall mean the date on which the Agent determines the LIBO Rate applicable to a Borrowing, continuation or conversion of Eurodollar Rate Loans. The Interest Rate Determination Date shall be the second (2nd) Business Day prior to the first day of the Interest Period applicable to such Borrowing, continuation or conversion. "IRC" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. "IRS" shall mean the Internal Revenue Service of the United States or any Governmental Authority succeeding to the functions thereof. "Joy" shall mean Joy Technologies Inc., a Delaware corporation. "Joy Indenture" shall mean the Indenture dated as of September 1, 1993 between Joy and the Bank of Montreal Trust Company, as Trustee, pursuant to which Joy issued 10 1/4% senior notes due 2003 as in effect on the Closing Date. "Lender" shall have the meaning ascribed to such term in the preamble and shall include Chemical Bank, in its individual capacity. "Level" shall mean any of Level I, Level II and Level III. "Level I" shall mean that the Borrower's Rating is either (i) A- or higher by S&P or (ii) A3 or higher by Moody's; "Level II" shall mean that the Borrower's Rating is either (i) BBB+, BBB or BBB- by S&P or (ii) Baa1, Baa2 or Baa3 by Moody's; and "Level III" shall mean that the Borrower's Rating is either (i) BB+ or lower by S&P or (ii) Ba1 or lower by Moody's; provided, that for purposes of determining the Level of the Borrower's Rating, if at any time (A) neither S&P nor Moody's shall have in effect a Rating for the Borrower's unsecured long term debt (other than by reason of the circumstances referred to in the last sentence of this definition), then both S&P and Moody's shall be deemed to have established a Rating in Level III; and (B) if any Rating established or deemed to have been established by S&P or Moody's shall be changed (other than as a result of a change in the rating system of S&P or Moody's), such change shall be effective as of the date on which such change is first announced by the applicable rating agency. If the rating system of S&P or Moody's shall change, or if either S&P or Moody's shall cease to be in the business of rating corporate debt obligations, the Borrower and the Agent (with the approval of the Requisite Lenders) shall negotiate in good faith to amend the references to specific ratings in this definition so that the criteria for determining the Borrower's Level shall be functionally the same after such changes in the rating system or the nonavailability of ratings from the applicable rating agency. "LIBO Rate" shall mean, with respect to any Interest Period applicable to a Borrowing of Eurodollar Rate Loans, an interest rate per annum equal to the average (rounded upwards, if necessary, to the next 1/16 of 1%) of the respective rates notified to the Agent by each of the Reference Banks as the rate per annum at which deposits in Dollars are offered to such Reference Banks in immediately available funds by prime banks in the London interbank market at approximately 11:00 a.m. (London time) on the Interest Rate Determination Date for such Interest Period, in the approximate amount of the relevant Borrowing of Eurodollar Rate Loans and having a maturity comparable to such Interest Period. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, security interest, encumbrance (including, but not limited to, easements, rights of way and the like), judgment, lien (statutory or other), environmental lien, charge, security agreement or transfer intended as security, including, without limitation, any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease, any financing lease having substantially the same economic effect as any of the foregoing and, in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" shall mean a Revolving Loan or a Competitive Bid Loan. "Loan Account" shall have the meaning ascribed to such term in Section 2.07(d). "Loan Documents" shall mean this Agreement, the Notes and all other agreements delivered to the Agent or any Lender by or on behalf of the Borrower or any of its Subsidiaries in satisfaction or furtherance of the requirements of this Agreement or any other Loan Document. "Minority Interests" shall mean any shares of stock of any class of a Consolidated Subsidiary (other than directors' qualifying shares if required by law) that are not owned by the Borrower and/or one or more of its Consolidated Subsidiaries; Minority Interests shall be valued in accordance with GAAP. "Moody's" shall mean Moody's Investors Service, Inc. and its successors. "Note" shall mean a Competitive Bid Note or a Revolving Loan Note. "Note Agreements" shall mean the Note Agreement dated as of September 15, 1989 pursuant to which the Borrower issued the Series A 9.10% notes due September 15, 1999, the Note Agreement dated as of October 15, 1989 pursuant to which the Borrower issued the Series B 9.10% notes due September 15, 1999, the Note Agreement dated as of February 15, 1991 pursuant to which the Borrower issued the Series C 8.95% notes due March 15, 2001 and the Note Agreement dated as of October 1, 1991 pursuant to which the Borrower issued the Series D 8.90% notes due September 15, 2006. "Notice of Competitive Bid Borrowing" shall have the meaning provided in Section 2.03(a). "Notice of Competitive Bid Request" shall have the meaning provided in Section 2.03(a). "Notice of Conversion/Continuation" shall mean, with respect to a proposed conversion or continuation of a Loan pursuant to Section 2.05(c), a notice substantially in the form of Exhibit 3. "Notice of Revolving Borrowing" shall mean, with respect to a proposed Borrowing pursuant to Section 2.02(a), a notice substantially in the form of Exhibit 4. "Obligations" shall mean the principal of and all interest on all Loans, all fees, expense reimbursements, taxes, compensation and indemnities payable by the Borrower to the Agent or any Lender pursuant to this Agreement and all other present and future Indebtedness and other liabilities of the Borrower owing to the Agent, any Lender or any Person entitled to indemnification pursuant to Section 8.04, or any of their respective successors, transferees or assigns, of every type and description, whether or not evidenced by any note, guaranty or other instrument, arising under or in connection with this Agreement, any Note or any other Loan Document, whether or not for the payment of money, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however arising. "Original Credit Agreement" shall have the meaning ascribed to such term in the preamble hereto. "Outstandings" shall mean, at any given time, the aggregate outstanding principal balance of Revolving Loans and Competitive Bid Loans. "Participant" shall have the meaning ascribed to such term in Section 8.02(e). "Performance Undertaking" shall have the meaning ascribed to such term in Section 5.02(e)(ii). "Person" shall mean any natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, or any other non-governmental entity, or any Governmental Authority. "Plan" means any employee pension benefit plan maintained or contributed to (i) by the Borrower or any Subsidiary of the Borrower or by any trade or business (whether or not incorporated) under common control with the Borrower or any such Subsidiary as defined in Section 4001(b) of ERISA and insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA, for employees of such entity, or (ii) pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which any trade or business under common control with the Borrower or any Subsidiary of the Borrower is then making or accruing an obligation to make contributions or has within the preceding five Plan years made contributions. "Potential Event of Default" shall mean an event, condition or circumstance which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "Pro Rata Share" shall mean, at any particular time and with respect to any Lender, a fraction (expressed as a percentage), the numerator of which shall be the then amount of such Lender's Commitment and the denominator of which shall be the Aggregate Commitments, as adjusted from time to time pursuant to the terms of this Agreement; provided, that if all of the Commitments are terminated or reduced to zero hereunder, the Pro Rata Share shall mean, at any particular time and with respect to any Lender, a fraction (expressed as a percentage), the numerator of which shall be the then amount of such Lender's outstanding Revolving Loans and the denominator of which shall be the then aggregate amount of all Revolving Loans outstanding hereunder. "Rating" shall mean, at any particular time, the Borrower's unsecured long term debt rating by S&P or Moody's. "Reference Banks" shall mean the principal London offices of Chemical Bank, The First National Bank of Chicago, and PNC Bank, National Association (or if such Lender does not maintain a London office, the office from which such Lender solicits offers for deposits in Dollars in the London interbank market). "Regulation D," "Regulation G," "Regulation T," "Regulation U" and "Regulation X" shall mean Regulation D, Regulation G, Regulation T, Regulation U and Regulation X, respectively, of the Federal Reserve Board as in effect from time to time. "Requisite Lenders" means, except as otherwise provided in Section 8.05(b)(v), Lenders whose Pro Rata Shares, in the aggregate, are greater than sixty percent (60%); provided, however, that, in the event that all of the Commitments have been terminated pursuant to the terms of this Agreement, "Requisite Lenders" means Lenders (without regard to such Lenders' performance of their respective obligations hereunder) whose aggregate ratable shares (stated as a percentage) of the aggregate outstanding principal balance of all Revolving Loans and Competitive Bid Loans are greater than sixty percent (60%). "Responsible Financial Officer" shall mean the Vice President and Treasurer of the Borrower, the Vice President and Controller of the Borrower and any officer of the Borrower to whom either thereof customarily reports. "Restricted Subsidiary" shall mean at any time each of (i) Beloit Corporation, (ii) Harnischfeger Corporation, (iii) Joy, (iv) any Subsidiary of the Borrower with revenues during the fiscal year of the Borrower most recently ended greater than or equal to 30% of the total revenues of the Borrower and its Consolidated Subsidiaries during such year, (v) any Subsidiary of the Borrower with assets as of the last day of the Borrower's most recently ended fiscal year greater than or equal to 30% of the total assets of the Borrower and its Consolidated Subsidiaries at such date, in each case computed in accordance with GAAP and (vi) any other Subsidiary of the Borrower that the Borrower designates as a "Restricted Subsidiary" in a written notice to the Agent; provided, that, notwithstanding the foregoing, Syscon Corporation shall not be a Restricted Subsidiary. "Revolving Credit Availability" shall mean, as at any particular date of determination, the amount by which Aggregate Commitments exceed Outstandings. For purposes of calculating Revolving Credit Availability as at any date, all Revolving Loans requested but not yet advanced and Competitive Bid Loans accepted but not yet advanced will be treated as advanced in calculating Outstandings unless the Borrower has directed that the requested advance be disbursed to repay Loans. "Revolving Credit Facility" shall mean the revolving credit facility established for Revolving Loans pursuant to Section 2.01. "Revolving Loan" shall have the meaning ascribed to such term in Section 2.01(a). "Revolving Loan Note" shall have the meaning ascribed to such term in Section 2.04. "S&P" shall mean Standard and Poor's Corporation and its successors. "Scheduled Expiration Date" shall mean November 17, 1998 or such other date as may be agreed to by a Lender pursuant to Section 2.02(f). "Spread" shall mean, as to any Competitive Bid Loan bearing interest at the LIBO Rate, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be added or subtracted from the LIBO Rate in order to determine the interest rate applicable to such Competitive Bid Loan, as specified in the Competitive Bid relating to such Competitive Bid Loan. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum applicable reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board and any other banking authority to which the Agent or any Lender is subject (a) with respect to the Three-Month Secondary CD Rate (as such term is used in the definition of "Alternate Base Rate"), for new negotiable nonpersonal time deposits in Dollars of over $100,000 with maturities approximately equal to three months or (b) with respect to the LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Federal Reserve Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Rate Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" shall mean, with respect to any Person, any corporation, partnership, trust or other entity of which a majority of the stock (or equivalent ownership or controlling interest) having voting power to elect a majority of the Board of Directors (if a corporation) or to select the trustee or equivalent controlling interest is directly or indirectly owned or controlled by such Person or one or more of the other Subsidiaries of such Person or any combination thereof, provided, however, that a Person shall only be a "Subsidiary" of the Borrower if (i) the net worth of such Person is equal to or greater than $5,000,000 as of the end of the fiscal quarter immediately preceding the most recent fiscal quarter or (ii) the revenues for such Person during the fiscal year most recently ended were equal to or greater than $20,000,000. "Taxes" shall have the meaning ascribed to such term in Section 2.10(a). "Termination Date" shall mean the earlier of (a) the Scheduled Expiration Date and (b) the date of termination of the Commitments pursuant to Section 2.02(d) or Section 6.02. "Type" when used in respect of any Loan or Borrowing, shall refer to the rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. 1.02. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. 1.03. Accounting Terms. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. 1.04. Other Definitional Provisions. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". References to "Articles," "Sections," "subsections," "Schedules," "Exhibits" and "the preamble" shall be to Articles, Sections, subsections, Schedules, Exhibits and the preamble, respectively, of this Agreement unless otherwise specifically provided. 1.05. Amendment and Restatement. (a) This Agreement amends and restates in its entirety the Original Credit Agreement and, upon the effectiveness of this Agreement, the terms and provisions of the Original Credit Agreement shall, subject to Section 1.05(b) and (c), be superseded hereby. (b) Notwithstanding the amendment and restatement of the Original Credit Agreement by this Agreement, the Borrower shall continue to be liable to the "Lenders" and the "Agent" thereunder with respect to agreements on the part of the Borrower under Sections 2.10 and 8.04 of the Original Credit Agreement and the "Lenders" under the Original Credit Agreement shall continue to be liable to the Agent with respect to the agreements on the part of such Lenders under Section 7.05 of the Original Credit Agreement. (c) Notwithstanding the amendment and restatement of the Original Credit Agreement by this Agreement, all of the indebtedness, liabilities and obligations owing to the "Lenders" by the Borrower under the Original Credit Agreement which remain outstanding as of the Effective Date, shall constitute Obligations hereunder. This Agreement is given in substitution for the Original Credit Agreement, and not as payment of the obligations of the Borrower thereunder, and is in no way intended to constitute a novation of the Original Credit Agreement. (d) Upon the effectiveness of this Agreement, each reference to the Original Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection therewith shall mean and be a reference to this Agreement. ARTICLE II AMOUNTS AND TERMS OF THE REVOLVING CREDIT FACILITY 2.01. The Revolving Credit Facility. (a) Availability. Subject to the terms and conditions set forth in this Agreement, each Lender hereby severally and not jointly agrees to make revolving loans, in Dollars (each individually, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower from time to time during the period from the Effective Date to the Business Day immediately preceding the Termination Date, in an amount which shall not exceed such Lender's Pro Rata Share of the Revolving Credit Availability at such time. Subject to and upon the terms and conditions herein set forth, each Lender severally agrees that the Borrower may incur a loan or loans (each a "Competitive Bid Loan" and collectively, the "Competitive Bid Loans") pursuant to a Competitive Bid Borrowing from time to time during the period from the Effective Date to the Business Day immediately preceding the Termination Date, provided that such Competitive Bid Borrowing shall not exceed the Revolving Credit Availability at such time. (b) Several Commitments. All Revolving Loans comprising the same Borrowing under this Agreement shall be made by the Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Revolving Loan hereunder and that the Commitment of any Lender shall not be increased or decreased without the prior written consent of such Lender as a result of the failure by any other Lender to perform its obligation to make a Revolving Loan. The failure of any Lender to make available to the Agent its Pro Rata Share of any Borrowing under the Aggregate Commitments shall not relieve any other Lender of its obligation hereunder to make available to the Agent such other Lender's Pro Rata Share of any Borrowing under the Aggregate Commitments on the date such funds are to be made available pursuant to the terms of this Agreement. (c) Repayments and Prepayments. Subject to the payment of any breakage fees due pursuant to Section 2.09(d), Revolving Loans may be voluntarily prepaid at any time and, subject to the provisions of this Agreement, any amounts voluntarily prepaid in respect of Revolving Loans may be reborrowed, up to the amount available under this Section 2.01 at the time of such Borrowing, until the Business Day immediately preceding the Termination Date. The Borrower shall not have the right to voluntarily prepay any Competitive Bid Loans. Each Lender's Commitment shall expire, and each of the Revolving Loans and the Competitive Bid Loans then outstanding shall mature and be repaid by the Borrower, without further action on the part of the Agent or the Lenders, on the Termination Date. (d) Minimum Amounts. Any Borrowing made on any Funding Date shall be in a minimum principal amount of $10,000,000 and in integral multiples of $1,000,000 in excess thereof. 2.02. Loan Facility Mechanics. (a) Notice of Revolving Borrowing. Whenever the Borrower desires to borrow under the first sentence of Section 2.01(a), the Borrower shall deliver to the Agent a Notice of Revolving Borrowing no later than 12:00 noon (New York City time) (i) at least one (1) Business Day in advance of the proposed Funding Date, in the case of a Borrowing of Base Rate Loans, and (ii) at least three (3) Business Days in advance of the proposed Funding Date, in the case of a Borrowing of Eurodollar Rate Loans. The Notice of Revolving Borrowing shall specify (A) the Funding Date (which shall be a Business Day) in respect of the Revolving Loans, (B) the amount of the proposed Borrowing, (C) whether the proposed Borrowing will be of Base Rate Loans or Eurodollar Rate Loans, and (D) in the case of Eurodollar Rate Loans, the requested Interest Period. In lieu of delivering the above-described Notice of Revolving Borrowing, and only with the consent of the Agent in its sole discretion at such time, the Borrower may give the Agent telephonic notice of any such proposed Borrowing by the time required under this Section 2.02(a); provided that, in the event the Agent so consents, such notice shall be confirmed in writing by delivery to the Agent promptly (but in no event later than 12:00 noon (New York City time) on the Funding Date of the requested Loans) of a Notice of Revolving Borrowing. Any Notice of Revolving Borrowing (or telephonic notice in lieu thereof) pursuant to this Section 2.02(a) shall be irrevocable. (b) Making of Loans. Promptly after receipt of a Notice of Revolving Borrowing under Section 2.02(a) (or telephonic notice in lieu thereof if the Agent consents to such telephonic notice), the Agent shall notify each Lender by telex or telecopy or other similar form of teletransmission, of the Borrowing. Each Lender shall make the amount of its Revolving Loan available to the Agent in Dollars and in immediately available funds, not later than 11:00 a.m. (New York City time) on the Funding Date specified in such Notice of Revolving Borrowing. After the Agent's receipt of the proceeds of such Revolving Loans, the Agent shall (unless it has learned that any of the conditions precedent set forth in Section 3.01, with respect to the Effective Date, or that any of the conditions precedent set forth in Section 3.02, with respect to any Funding Date, have not been satisfied) make the proceeds of such Revolving Loans available to the Borrower on such Funding Date and shall disburse such funds in Dollars and in immediately available funds to an account of the Borrower, designated in writing by the Borrower in such Notice of Revolving Borrowing. (c) Failure to Fund by Lender. Unless the Agent shall have been notified by any Lender prior to any Funding Date in respect of any Borrowing of Revolving Loans that such Lender does not intend to make available to the Agent such Lender's Revolving Loan on such Funding Date, the Agent may assume that such Lender has made such amount available to the Agent on such Funding Date and the Agent in its sole discretion may, but shall not be obligated to, make available to the Borrower a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to the Agent by such Lender on or prior to 11:00 a.m. (New York City time) on a Funding Date, such Lender agrees to pay and the Borrower agrees to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is paid or repaid to the Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate (as such term is defined in the definition of Alternate Base Rate) for the first three (3) Business Days and there- after at the Alternate Base Rate, and (ii) in the case of the Borrower, the interest rate which would be applicable at the time to a Borrowing of Base Rate Loans. If such Lender shall pay to the Agent such corresponding amount, such amount so paid shall constitute such Lender's Revolving Loan, and if both such Lender and the Borrower shall have paid and repaid, respectively, such corresponding amount, the Agent shall promptly pay over to the Borrower such corresponding amount in same day funds, but the Borrower shall remain obligated for all interest thereon. Nothing in this Section 2.02(c) shall be deemed to relieve any Lender of its obligation hereunder to make its Revolving Loan on any Funding Date. (d) Voluntary Reduction of Commitments. The Borrower shall have the right, at any time and from time to time, (i) to terminate the Commitments in whole, without premium or penalty, if no Loans are then outstanding, and no Loans have been requested but not yet advanced, or (ii) subject to the second to last sentence of this Section 2.02(d), permanently to reduce in part, without premium or penalty, the Commitments up to the amount by which the Aggregate Commitments exceed the sum of (A) Outstandings and (B) the aggregate principal amount of all Revolving Loans and Competitive Bid Loans requested hereunder but not yet advanced. The Borrower shall give not fewer than five (5) Business Days' prior written notice to the Agent designating the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction. Promptly after receipt of a notice of such termination or reduction, the Agent shall notify each Lender of the proposed termination or reduc- tion. Such termination or partial reduction of the Commitments shall be effective on the date specified in the Borrower's notice and shall reduce the Commitment of each Lender proportionately in accordance with its Pro Rata Share. Any such partial reduction of the Commitments shall be in integral multiples of $10,000,000. Any notice of reduction or termination pursuant to this Section 2.02(d) shall be irrevocable. (e) Retention of Rights and Remedies. Not- withstanding the termination of this Agreement on the Termination Date, until all of the Obligations shall have been fully and indefeasibly paid and satisfied and all financing arrangements among the Borrower and the Lenders pursuant to any Loan Document shall have been terminated, all of the rights and remedies under this Agreement and the other Loan Documents shall survive. (f) Extension of Term. The Borrower may request the extension of the Scheduled Expiration Date for an additional successive one year period by delivery of a written request to the Agent no later than 30 days before November 18, 1995. The Agent shall promptly notify each Lender of the Agent's receipt of such written request from the Borrower. Each Lender shall have the right, but shall not be obligated, to extend the Scheduled Expiration Date with respect to its Commitment. Each Lender shall notify the Agent in writing if it agrees to extend the Scheduled Expiration Date pursuant to the Borrower's written request. If the Agent shall not have received such written notice from any Lender by November 13, 1995, such Lender will be deemed to have declined the extension of the Scheduled Expiration Date. If the Requisite Lenders have notified the Agent by November 13, 1995 that such Lenders agree to extend the Scheduled Expiration Date, the Scheduled Expiration Date will be extended for one year with respect to any Lenders so agreeing to such extension, provided that the representations and warranties set out in Section 4.01 are true and correct as though made on and as of the date the extended period begins and no event has occurred and is continuing which is an Event of Default or a Potential Event of Default. In the event that the Scheduled Expiration Date is to be extended pursuant to the preceding sentence, but not all of the Lenders have agreed to such extension, then as of the then existing (prior to such extension) Scheduled Expiration Date, each such non- extending Lender's Commitment and its rights (other than any rights that survive termination of this Agreement) and obligations hereunder shall be cancelled, all Loans made by such Lender shall be repaid and such Lender shall cease to be a "Lender" and shall cease to be obligated to participate in Loans hereunder. 2.03. Competitive Bid Procedures. (a) Whenever the Borrower desires to incur a Competitive Bid Borrowing, it shall give the Agent at least one Business Day's prior written notice with respect to each proposed Competitive Bid Borrowing of Fixed Rate Loans and at least four Business Days' prior written notice of each proposed Competitive Bid Borrowing of Eurodollar Rate Loans to be made hereunder, provided that any such notice shall be deemed to have been given on a certain day only if given before 10:00 A.M. (New York City time) on such day. Each such notice (a "Notice of Competitive Bid Borrowing") shall be in the form of Exhibit 5 appropriately completed by the Borrower to specify (i) the aggregate principal amount of the proposed Competitive Bid Loans to be made pursuant to such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day) and (iii) whether the Competitive Bid Loans proposed to be made pursuant to such Borrowing are to be Fixed Rate Loans or Eurodollar Rate Loans and (iv) the Interest Period relating thereto. The maturity date for repayment of each Competitive Bid Loan to be made as part of such Competitive Bid Borrowing shall be the earlier of (x) the last day of the Interest Period relating thereto and (y) the Termination Date. A Notice of Competitive Bid Borrowing that does not conform substantially to the format of Exhibit 5 may be rejected in the Agent's sole discretion, and the Agent shall promptly notify the Borrower of such rejection. The Agent shall promptly notify each Lender of each such request for a Competitive Bid Borrowing received by it from the Borrower and not rejected by it by telecopying such Lender a notice in the form of Exhibit 6 hereto (a "Notice of Competitive Bid Request"). (b) Each Lender may, in its sole discretion, make one or more Competitive Bids to the Borrower responsive to a Notice of Competitive Bid Request. Each Competitive Bid by a Lender must be received by the Agent via telecopier, in the form of Exhibit 7 hereto, (i) in the case of a proposed Competitive Bid Borrowing of Eurodollar Rate Loans, not later than 10:00 a.m., New York City time, three Business Days before such proposed Competitive Bid Borrowing and (ii) in the case of a proposed Competitive Bid Borrowing of Fixed Rate Loans, not later than 10:00 a.m., New York City time, on the day of such proposed Competitive Bid Borrowing. Multiple bids will be accepted by the Agent. Competitive Bids that do not conform substantially to the format of Exhibit 7 may be rejected by the Agent after conferring with, and upon the instruction of, the Borrower, and the Agent shall notify the Lender making such nonconforming bid of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and specify (x) the principal amount (which shall be in a minimum principal amount of $5,000,000 and in a integral multiple of $1,000,000 in excess thereof and which may equal the entire principal amount of the Competitive Bid Borrowing requested by the Borrower) of the Competitive Bid Loan or Loans that the Lender is willing to make to the Borrower, (y) the Competitive Bid Rate or Rates at which the Lender is prepared to make the Competitive Bid Loan or Loans and (z) the Interest Period (which shall be the Interest Period set forth in the applicable Competitive Bid Request) and the last day thereof. If any Lender shall elect not to make a Competitive Bid, such Lender shall so notify the Agent via telecopier (I) in the case of Eurodollar Rate Loans, not later than 10:00 a.m., New York City time, three Business Days before a proposed Competitive Bid Borrowing, and (II) in the case of Fixed Rate Loans, not later than 10:00 a.m., New York City time, on the day of a proposed Competitive Bid Borrowing; provided, however, that failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Loan as part of such Competitive Bid Borrowing. A Competitive Bid submitted by a Lender pursuant to this Section 2.03(b) shall be irrevocable. (c) The Agent shall promptly notify the Borrower by telecopier of all the Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Bid Loan in respect of which a Competitive Bid was made and the identity of the Lender that made each Competitive Bid. The Agent shall send a copy of all Competitive Bids to the Borrower for its records as soon as practicable after completion of the bidding process set forth in this Section 2.03. (d) The Borrower may in its sole and absolute discretion, subject only to the provisions of this Section 2.03(d), accept or reject any Competitive Bid referred to in Section 2.03(c) above. The Borrower shall notify the Agent by telephone, confirmed by telecopier in the form of a Competitive Bid Accept/Reject Letter in the form of Exhibit 2, whether and to what extent it has decided to accept or reject any of or all the bids referred to in Section 2.03(b) above, (x) in the case of a Borrowing of Eurodollar Rate Loans, not later than 11:00 a.m., New York City time, three Business Days before a proposed Competitive Bid Borrowing, and (y) in the case of a Borrowing of Fixed Rate Loans, not later than 11:00 a.m., New York City time, on the day of a proposed Competitive Bid Borrowing; provided, however, that (i) the failure by the Borrower to give such notice shall be deemed to be a rejection of all the bids referred to in Section 2.03(b) above, (ii) the Borrower shall not accept a bid made at a particular Competitive Bid Rate if the Borrower has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the principal amount specified in the Notice of Competitive Bid Borrowing, (iv) if the Borrower shall accept a bid or bids made at a particular Competitive Bid Rate but the amount of such bid or bids shall cause the total amount of bids to be accepted by the Borrower to exceed the amount specified in the Notice of Competitive Bid Borrowing, then the Borrower shall accept a portion of such bid or bids in an amount equal to the amount specified in the Competitive Bids accepted with respect to such Notice of Competitive Bid Borrowing, which acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such bid at such Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted for a Competitive Bid Loan unless such Competitive Bid Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; provided further, however, that if a Competitive Bid Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Bid Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner which shall be in the discretion of the Borrower. A notice given by the Borrower pursuant to this Section 2.03(d) shall be irrevocable. (e) The Agent shall promptly notify each bidding Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by telecopy sent by the Agent, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Bid Loan in respect of which its bid has been accepted. (f) If the Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such bid directly to the Borrower one quarter of an hour earlier than the latest time at which the other Lenders are required to submit their bids to the Agent pursuant to Section 2.03(b) above. (g) All notices required by this Section 2.03 shall be given in accordance with Section 8.07. 2.04. Notes. The Borrower shall execute and deliver to each Lender (or to the Agent on behalf of each Lender) on or before the Effective Date a promissory note substantially in the form of Exhibit 8 hereto (each a "Revolving Loan Note" and collectively, the "Revolving Loan Notes") to evidence the aggregate amount of that Lender's Revolving Loans and with other appropriate insertions. The Revolving Loan Note delivered to each Lender shall (i) be dated the Closing Date, (ii) be stated to mature on the Termination Date, (iii) bear interest as provided in Section 2.05(a) in respect of Base Rate Loans or Eurodollar Rate Loans, as the case may be, evidenced thereby and (iv) be entitled to the benefits of this Agreement and the other Loan Documents. The Borrower's obligation to pay the principal of and interest on all Competitive Bid Loans made to it by a Lender shall be evidenced by its promissory note substantially in the form of Exhibit 9 hereto (each a "Competitive Bid Note" and collectively, the "Competitive Bid Notes"). Each Competitive Bid Note issued to each Lender shall (i) be payable to the order of such Lender and be dated the Closing Date, (ii) be in a stated principal amount equal to the Aggregate Commitments and be payable in the outstanding principal amount of Competitive Bid Loans evidenced thereby from time to time, (iii) mature with respect to each Competitive Bid Loan evidenced thereby on the earlier of (x) the last day of the Interest Period applicable thereto and (y) the Termination Date, (iv) bear interest as provided in Section 2.05(a) in respect of Fixed Rate Loans or Eurodollar Rate Loans, as the case may be, evidenced thereby and (v) be entitled to the benefits of this Agreement and the other Loan Documents. Each Lender is hereby authorized to, and prior to any transfer of any Note issued to it, each Lender shall, endorse the date and amount of each Loan made by such Lender and each payment or prepayment of principal of the Loans evidenced thereby on the schedule annexed to and constituting a part of such Note, provided that failure by any such Lender to make such endorsement shall not affect the obligations of the Borrower hereunder or under such Note. In lieu of endorsing such schedule as hereinabove provided, prior to any transfer of such Note, each Lender is hereby authorized, at its option, to record such Loans and such payments or prepayments in its books and records; provided, however, that if the Loan Account differs from the information endorsed by a Lender on such Lender's Notes, the Loan Account shall be rebuttably presumed to be correct. 2.05. Interest on the Loans. (a) Rate of Interest. All Revolving Loans shall bear interest on the unpaid principal amount thereof from the date made until paid in full at a rate determined from time to time by reference to the Alternate Base Rate or the LIBO Rate. The applicable basis for determining the rate of interest shall be selected by the Borrower at the time a Notice of Revolving Borrowing is given by the Borrower pursuant to Section 2.02(a) or at the time a Notice of Conversion/Continuation is delivered by the Borrower pursuant to Section 2.05(c); provided, however, that the Borrower may not select the LIBO Rate as the applicable basis for determining the rate of interest on a Loan (1) if at the time of such selection a Potential Event of Default or Event of Default exists or (2) if such a selection would be otherwise prohibited by the terms of this Agreement. If on any day a Revolving Loan is out- standing with respect to which a Notice of Revolving Borrowing or a Notice of Conversion/Continuation has not been delivered to the Agent in accordance with the terms of this Agreement specifying the basis for determining the rate of interest, then for each such day such Loan shall be a Base Rate Loan. Revolving Loans shall bear interest, subject to Section 2.05(d), at the following rates: (i) if a Base Rate Loan, then at a rate per annum equal to the Alternate Base Rate as in effect from time to time as interest accrues; and (ii) if a Eurodollar Rate Loan, then at a rate per annum equal to the sum of (A) the Eurodollar Rate Margin and (B) the LIBO Rate determined for the applicable Interest Period. The Borrower agrees to pay interest in respect of the unpaid principal amount of each Competitive Bid Loan made to the Borrower from the date the proceeds are made available to the Borrower until maturity thereof (whether by acceleration or otherwise) at a rate per annum which shall, during each Interest Period applicable thereto, subject to Section 2.05(d), be (i) if such Competitive Bid Loan is a Fixed Rate Loan, the fixed rate of interest offered by the Lender making such Loan and accepted by the Borrower pursuant to Section 2.03 and (ii) if such Competitive Bid Loan is a Eurodollar Rate Loan, the LIBO Rate plus or minus the applicable Spread offered by the Lender making such Loan and accepted by the Borrower pursuant to Section 2.03. (b) Interest Payments. Subject to Section 2.05(d), (i) interest accrued on each Loan shall be payable in arrears (A) on each Interest Payment Date applicable to such Loan, (B) upon the prepayment in full of the Loans and the termination of all Commitments under this Agreement, (C) upon the date any principal of the Loan is due, with respect to the principal amount then due and (D) on the Termination Date. (c) Conversion or Continuation. (i) Subject to the provisions of Sections 2.08 and 2.09, the Borrower shall have the option (A) to convert at any time all or any part of outstanding Revolving Loans which comprise part of the same Borrowing and which, in the aggregate, equal or exceed $10,000,000 from Base Rate Loans to Eurodollar Rate Loans; or (B) to convert all or any part of outstanding Revolving Loans which comprise part of the same Borrowing and which, in the aggregate, equal or exceed $1,000,000 from Eurodollar Rate Loans to Base Rate Loans on the expiration date of any Interest Period applicable thereto or upon the payment of compensation payable pursuant to Section 2.09(d); or (C) upon the expiration of any Interest Period applicable to a Borrowing of Eurodollar Rate Loans that are Revolving Loans, to continue all or any portion of such Loans equal to or in excess of $10,000,000 as Eurodollar Rate Loans, and the succeeding Interest Period of such continued Loans shall commence on the expiration date of the Interest Period applicable thereto; provided that no outstanding Loan may be continued as, or be con- verted into, a Eurodollar Rate Loan if any Potential Event of Default or Event of Default exists or if such a continuation or conversion would otherwise be prohibited by the terms of this Agreement. (ii) In the event the Borrower shall elect to convert or continue a Revolving Loan under this Section 2.05(c), the Borrower shall deliver a Notice of Conversion/Continuation to the Agent no later than 12:00 noon (New York City time) (A) at least one (1) Business Day in advance of the proposed conversion date in the case of a conversion to a Base Rate Loan and (B) at least three (3) Business Days in advance of the proposed conversion or continuation date in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan. A Notice of Conversion/Continuation shall specify (1) the proposed conversion or continuation date (which shall be a Business Day), (2) the amount of the Revolving Loan to be converted or continued, (3) the nature of the proposed conversion or continuation, and (4) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period to be applicable thereto. If no Interest Period is specified in any such Notice of Conversion/Continuation with respect to a Eurodollar Rate Loan, the Borrower shall be deemed to have selected an Interest Period of one month's duration. In lieu of deliv- ering the above-described Notice of Conversion/ Continuation, the Borrower may give the Agent telephonic notice of any proposed conversion or continuation by the time required under this Section 2.05(c); provided that such notice shall be confirmed in writing by delivery to the Agent promptly (but in no event later than 12:00 noon (New York City time) on the proposed conversion or continuation date) of a Notice of Conversion/Continuation. Promptly after receipt of a Notice of Conversion/ Continuation under this Section 2.05(c) (or telephonic notice in lieu thereof), the Agent shall notify each Lender by telex, telecopy or other similar form of transmission, of the proposed conversion or continuation. (iii) Any Notice of Conversion/Continuation for conversion to, or continuation of, a Revolving Loan (or telephonic notice in lieu thereof) shall be irrevocable and the Borrower shall be bound to convert or continue such Revolving Loan in accordance therewith. (d) Default Interest. Notwithstanding the rates of interest specified in Section 2.05(a) and the payment dates specified in Section 2.05(b), from and after the later of (i) occurrence of a payment default by the Borrower in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, by acceleration or otherwise, and (ii) notice from the Agent or Requisite Lenders to the Borrower of such default, until the past-due amount is paid, such amount not paid when due shall bear interest payable upon demand at a rate per annum (the "Default Rate") equal to the sum of (A) two percent (2.0%) and (B) the Alternate Base Rate in effect from time to time; provided, that, with respect to any Eurodollar Rate Loan, the Default Rate shall be equal to (x) the rate otherwise applicable to such Eurodollar Rate Loan under Section 2.05(a) plus (y) two percent (2%) per annum until the end of the Interest Period applicable to such Eurodollar Rate Loan. (e) Computation of Interest. Interest on all Obligations (other than those on which the interest rate is determined by reference to the Prime Rate component of the Alternate Base Rate) shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. Interest on all Obligations with respect to which the interest rate is determined by reference to the Prime Rate component of the Alternate Base Rate shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 365 or 366 days, as applicable. In computing interest on any Loan, the date of the making of the Loan or the first day of an Interest Period, as the case may be, shall be included and the date of payment or the expiration date of an Interest Period, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one (1) day's interest shall be paid on that Loan. 2.06. Fees. (a) Facility Fee. The Borrower shall pay to the Agent, for the account of the Lenders in accordance with their respective Pro Rata Shares, except as set forth in Section 8.05(b)(vi), a fee (the "Facility Fee"), accruing at (i) .10% per annum when the Borrower's Rating falls within (A) Level I by either S&P or Moody's and (B) Level III or higher by the other rating agency, (ii) .125% per annum when the Borrower's Rating falls within Level II by both S&P and Moody's and (iii) .20% per annum when the Borrower's Rating falls within (A) Level III by either S&P or Moody's and (B) Level II or lower by the other rating agency, on the average daily aggregate amount of the Aggregate Commitments (regardless of Outstandings) for the period commencing on the Effective Date and ending on the Termination Date, such Facility Fee being payable quarterly, in arrears, on the last calendar day of each calendar quarter occurring after the Effective Date and on the Termination Date. The applicable percentage used in calculating the Facility Fee shall change on the effective date of any change in the Level of the Borrower's Rating. (b) Payment of Fees. The fees described in this Section 2.06 represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention or forbearance of money, and the obligation of the Borrower to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of the Borrower to pay interest, other fees and expenses otherwise described in this Agreement. Fees and expenses shall be payable when due in immediately available funds. All fees and expenses shall be nonrefundable when paid. All fees and expenses specified or referred to in this Agreement due to the Agent or any Lender, including, without limitation, amounts referred to in this Section 2.06 and in Section 8.03, shall constitute Obligations. All fees described in this Section 2.06 which are expressed as a per annum charge shall be calculated on the basis of the actual number of days elapsed in a 360 day year. 2.07. Payments. (a) Manner and Time of Payment. Except as otherwise expressly set forth herein, all payments of principal of and interest on the Loans and other Obligations (including, without limitation, fees and expenses) payable to the Agent or the Lenders (or any of them) shall be made without setoff, counterclaim, defense, condition or reservation of right, in Dollars and in immediately available funds, delivered to the Agent not later than 12:00 noon (New York City time) on the date and at the place due, to such account of the Agent as it may designate, for the account of the Agent or the Lenders, as the case may be; and funds received by the Agent after that time and date shall be deemed to have been paid and received by the Agent on the next succeeding Business Day. Payments actually received by the Agent for the account of the Agent or the Lenders, or any of them, shall be paid to them promptly after receipt thereof by the Agent. All payments of principal, interest and fees, and all reimbursements for expenses pursuant to this Agreement and the other Loan Documents, may, at the option of the Agent (but without any obligation to do so) and upon reasonable notice to the Borrower, be paid from the proceeds of Revolving Loans made to the Borrower hereunder. (b) Apportionment of Payments and Prepayments. (i) Subject to the provisions of Section 8.05(b), all payments and prepayments of principal and interest in respect of outstanding Revolving Loans and all payments of fees and all other payments in respect of any other Obligations (other than with respect to payments of Competitive Bid Loans) shall be allocated among such of the Lenders as are entitled thereto, in proportion to their respective Pro Rata Shares or otherwise as provided herein. All payments of principal of any Competitive Bid Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective principal amounts of their outstanding Competitive Bid Loans comprising such Borrowing. All payments of interest on any Competitive Bid Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Bid Loans comprising such Borrowing. (ii) Subject to the provisions of Section 8.05(b), after the occurrence of an Event of Default and while the same is continuing, the Agent shall, unless otherwise specified at the direction of the Requisite Lenders, which direction shall be consistent with the last sentence of this clause (ii), apply all payments and prepayments in respect of any Obligations: (A) first, to pay interest on and then principal of any portion of the Loans which the Agent may have advanced on behalf of any Lender for which the Agent has not then been reimbursed by such Lender or the Borrower; (B) second, to pay Obligations in respect of any fees, expense reimbursements or indemnities then due to the Agent; (C) third, to pay Obligations in respect of any fees, expenses, reimbursements or indemnities then due to the Lenders; (D) fourth, to the ratable payment of interest due in respect of Revolving Loans and Competitive Bid Loans; (E) fifth, to the ratable payment or prepayment of principal outstanding on Revolving Loans and Competitive Bid Loans; and (F) sixth, to the ratable payment of all other Obligations. The order of priority set forth in this Section 2.07(b)(ii) and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Agent and the Lenders as among themselves. The order of priority set forth in clauses (C) through (F) of this Section 2.07(b)(ii) may at any time and from time to time be changed by the Requisite Lenders without necessity of notice to or consent of or approval by the Borrower, or any other Person. The order of priority set forth in clauses (A) and (B) of this Section 2.07(b)(ii) may be changed only with the prior written consent of the Agent. (iii) Subject to Section 8.05(b), the Agent shall promptly distribute to each Lender at its primary address set forth on the appropriate signature page hereof or the signature page to the Assignment and Acceptance by which it became a Lender, or at such other address as a Lender may request in writing, such funds as such Person may be entitled to receive; provided that the Agent shall under no circumstances be bound to inquire into or determine the validity, scope or priority of any interest or entitlement of any Lender and may suspend all payments or seek appropriate relief (including, without limitation, instructions from the Requisite Lenders or an action in the nature of interpleader) in the event of any doubt or dispute as to any apportionment or distribution contemplated hereby. (c) Payments on Non-Business Days. Whenever any payment to be made by the Borrower hereunder shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time, if any, shall be included in the computation of the payment of interest hereunder and of any of the fees specified in Section 2.06, as the case may be, unless, in the case of a payment with respect to a Eurodollar Rate Loan, such Business Day occurs in the succeeding month in which case such payment shall be made on the immediately preceding Business Day. (d) Agent's Accounting. The Agent shall maintain accounts, books and records (a "Loan Account") in which it shall record (i) the names and addresses of the Lenders and the respective Commitments of, and principal amount of Loans owing to, each Lender from time to time; (ii) other appropriate debits and credits as provided in this Agreement, including, without limitation, all interest and fees constituting Obligations; and (iii) all payments of such Obligations made by the Borrower or for the Borrower's account. Each Lender shall maintain in accordance with its usual practices an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan owing to such Lender from time to time, including the amount of principal and interest payable and paid to such Lender from time to time hereunder. Entries in the Agent's Loan Account made in accordance with the Agent's customary accounting practices as in effect from time to time shall constitute, as between the Agent and any Lender, prima facie evidence of the accuracy of such entries. 2.08. Interest Periods. By giving notice as set forth in Section 2.02(a), 2.03(a) or 2.05(c) with respect to a Borrowing of, conversion into or continuation of Loans, the Borrower shall have the option, subject to the other provisions of this Section 2.08 and Section 2.09, to specify an Interest Period to apply to the Borrowing described in such notice. The determination of Interest Periods shall be subject to the following provisions: (a) The Borrower may not select an Interest Period which terminates later than the Termination Date; and (b) Without the prior written consent of the Agent (such consent not to be unreasonably withheld), there shall be no more than five (5) Interest Periods with respect to Eurodollar Rate Loans under this Agreement in effect at any one time. 2.09. Special Provisions Governing Eurodollar Rate Loans. Notwithstanding other provisions of this Agreement, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: (a) Determination of Interest Rate. As soon as practicable after 11:00 a.m. (New York City time) on the Interest Rate Determination Date, the Agent shall determine the interest rate which shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and to each Lender in the case of Revolving Loans or, with respect to Eurodollar Rate Loans which are Competitive Bid Loans, the Lenders whose bids with respect to such Loans were accepted. (b) Interest Rate Unascertainable, Inadequate or Unfair. With respect to any Interest Period, if deposits in Dollars (in the applicable amount) are not being offered to the Reference Banks in the London interbank Eurodollar market for such Interest Period, if the Agent in good faith shall have determined that the rates at which such Dollar deposits are being offered will not adequately and fairly reflect the cost to any Lender of making or maintaining its Eurodollar Rate Loan during such Interest Period or if adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of LIBO Rate, then the Agent shall forthwith give notice thereof to the Borrower and each Lender, whereupon until the Agent has determined that the circumstances giving rise to such suspension no longer exist, (a) the right of the Borrower to elect to have Loans bear interest based upon the LIBO Rate shall be suspended, and (b) each outstanding Eurodollar Rate Loan that is a Revolving Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period therefor, notwithstanding any prior election by the Borrower to the contrary. (c) Illegality. (i) In the event that on any date any Lender shall have determined in good faith that the making or continuation of any Eurodollar Rate Loan has become unlawful by compliance by that Lender in good faith with any law, governmental rule, regulation or order of any Governmental Authority (whether or not having the force of law), then, and in any such event, such Lender shall promptly give notice (by teletransmission or by telephone promptly confirmed in writing) to the Borrower and the Agent of that determination and the reasons therefor. The Agent shall promptly forward any such notice it receives to the other Lenders. (ii) Upon the giving of the notice referred to in Section 2.09(c)(i), (A) the Borrower's right to request of such Lender and such Lender's obligation to make Eurodollar Rate Loans with respect to the requested Borrowing shall be immediately suspended, and such Lender shall make a Loan, with respect to such requested Borrowing of Eurodollar Rate Loans as a Base Rate Loan, which Base Rate Loan shall, for all purposes, be considered a part of such Borrowing and (B) if such Eurodollar Rate Loans that are Revolving Loans are then outstanding, the Borrower shall immediately (or, if permitted by applicable law, no later than the last day of any applicable grace period which such law permits, upon at least one (1) Business Day's written notice to the Agent and the Lenders) convert each such Loan into a Base Rate Loan. (iii) In the event that a Lender determines at any time following its giving of a notice referred to in Section 2.09(c)(i) that such Lender may lawfully make Euro- dollar Rate Loans, such Lender shall promptly give notice (by teletransmission or by telephone promptly confirmed in writing) to the Borrower and the Agent of that determination, whereupon the Borrower's right to request of such Lender and such Lender's obligation to make Eurodollar Rate Loans that are Revolving Loans shall be restored. The Agent shall promptly forward any such notice it receives to the Lenders. (d) Compensation. In addition to such amounts as are required to be paid by the Borrower pursuant to Sections 2.05(a), 2.05(d), 2.06, 2.11 and each other provision of this Agreement requiring payment by the Borrower, the Borrower shall compensate each Lender, upon demand, for all losses (including lost profits), expenses and liabilities (including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Lender's Eurodollar Rate Loans to the Borrower) which such Lender may sustain (i) if, as a result of the failure to satisfy the conditions precedent set forth in Sections 3.01 and 3.02, as applicable, a Borrowing of, conversion into or continuation of Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of Revolving Borrowing or a Notice of Conversion/Continuation or in a Competitive Bid Accept/Reject Letter or in a telephonic request for borrowing or conversion or continuation for a successive Interest Period does not commence after notice therefor is given pursuant to Section 2.05(c)(ii), (ii) if any principal payment of any Eurodollar Rate Loan (including, without limitation, any prepayment pursuant to Sec- tion 2.01(c) but excluding any prepayment of any Eurodollar Rate Loan in connection with the replacement of any Lender under clause (i) of Section 2.13) occurs for any reason on a date which is not the last day of the applicable Interest Period, (iii) as a consequence of an acceleration of the Obligations pursuant to Section 6.02 or (iv) as a consequence of any other failure by the Borrower to repay Eurodollar Rate Loans when required by the terms of this Agreement. If as a consequence of any required conversion of a Eurodollar Rate Loan to a Base Rate Loan as a result of any of the events indicated in Section 2.09(c), a Lender sustains lost profits, the Borrower shall compensate such Lender (such compensation being in lieu of any compensation that might otherwise be payable pursuant to the first sentence of this clause (d) as a result of any of the events indicated in Section 2.09(c)), upon demand, in an amount equal to the amount (if any) by which (x) the additional interest which would have been payable on the amount of the Eurodollar Rate Loan so converted had such Eurodollar Rate Loan been repaid on last day of the applicable Interest Period exceeds (y) the amount of interest which in the reasonable opinion of such Lender would have been payable to such Lender for its account on the last day of such Interest Period in respect of a deposit equal to the amount of such Eurodollar Rate Loan with a prime bank in London for a period starting on the Business Day following the date of such conversion and ending on the last day of such Interest Period. Such Lender shall deliver to the Borrower, as a condition of the Borrower's obligation to compensate such Lender, a written statement as to such losses, expenses and liabilities. (e) Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of, any of its branch offices or agencies or the office of an Affiliate of that Lender; provided that no Lender shall be entitled to receive any greater amount under Section 2.10 or Section 2.11 as a result of the transfer of any such Loan than such Lender would be entitled to immediately prior thereto unless (i) such transfer occurred at a time when circumstances giving rise to the claim for such greater amount did not exist and were not reasonably foreseeable by such Lender, or (ii) such claim would have arisen even if such transfer had not occurred. 2.10. Taxes. (a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.07, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto including those arising after the Closing Date as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority but excluding, in the case of each Lender and the Agent, such taxes (collectively, "Excluded Taxes")(including income taxes, franchise taxes and branch profit taxes) as are imposed on or measured by such Lender's or Agent's, as the case may be, income by the United States of America or any Governmental Authority of the jurisdiction under the laws of which such Lender or Agent, as the case may be, is organized, maintains an Applicable Lending Office or is deemed to be engaged in trade or business other than by reason of this Agreement or the transaction contemplated hereby (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings, and liabilities applicable to this Agreement, the other Loan Documents, the Commitments or the Loans being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the other Loan Documents to any Lender or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.10) such Lender or Agent receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. If a withholding tax of the United States of America or any other Governmental Authority shall be or become applicable (y) after the date of this Agreement, to such payments by the Borrower made to the Applicable Lending Office or any other office that a Lender may claim as its Applicable Lending Office, or (z) after such Lender's selection and designation of any other Applicable Lending Office, to such payments made to such other Applicable Lending Office, such Lender shall use reasonable efforts to make, fund and maintain its Loans through another Applicable Lending Office of such Lender in another jurisdiction so as to reduce the Borrower's liability hereunder, if the making, funding or maintenance of such Loans through such other Applicable Lending Office of such Lender does not, in the judgment of such Lender, otherwise materially adversely affect such Loans, such Lender's obligations under its Commitment or such Lender. (b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the other Loan Documents, the Commitments or the Loans (hereinafter referred to as "Other Taxes"). (c) The Borrower will indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any Governmental Authority on amounts payable under this Section 2.10) paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto. This indemnification shall be made within thirty (30) days after the date such Lender or the Agent (as the case may be) makes written demand therefor. A certificate as to any additional amount payable to any Lender or the Agent under this Section 2.10 submitted to the Borrower and the Agent (if a Lender is so submitting) by such Lender or the Agent shall show in reasonable detail the amount payable and the calculations used to determine such amount. With respect to such deduction or withholding for or on account of any Taxes and to confirm that all such Taxes have been paid to the appropriate Governmental Authorities, the Borrower shall promptly (and in any event not later than thirty (30) days after receipt) furnish to each Lender and the Agent such certificates, receipts and other documents as may be required (in the judgment of such Lender or the Agent) to establish any tax credit to which such Lender or the Agent may be entitled. (d) Within thirty (30) days after the date of any payment of Taxes or Other Taxes by the Borrower, the Borrower will furnish to the Agent, at its address referred to in Section 8.07, the original or a certified copy of a receipt evidencing payment thereof. (e) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.10 shall survive the payment in full of principal and interest hereunder and the termination of this Agree- ment. (f) Without limiting the obligations of the Borrower under this Section 2.10, each Lender that is not created or organized under the laws of the United States of America or a political subdivision thereof shall deliver to the Borrower and the Agent on or before the Closing Date, or, if later, the date on which such Lender becomes a Lender pursuant to Section 8.02 hereof, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender, in a form satisfactory to the Borrower and the Agent, to the effect that such Lender is capable under the provisions of an applicable tax treaty concluded by the United States of America (in which case the certificate shall be accompanied by two executed copies of Form 1001 of the IRS) or under Section 1442 of the IRC (in which case the certificate shall be accompanied by two copies of Form 4224 of the IRS) of receiving payments of interest hereunder without deduction or withholding of United States federal income tax. Each such Lender further agrees to deliver to the Borrower and the Agent from time to time a true and accurate certificate executed in dup- licate by a duly authorized officer of such Lender substantially in a form satisfactory to the Borrower and the Agent, before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously delivered by it to the Borrower and the Agent pursuant to this Section 2.10(f). Further, each Lender which delivers a certificate accompanied by Form 1001 of the IRS covenants and agrees to deliver to the Borrower and the Agent within fifteen (15) days prior to January 1, 1995, and every third (3rd) anniversary of such date there- after, on which this Agreement is still in effect, another such certificate and two accurate and complete original signed copies of Form 1001 (or any successor form or forms required under the IRC or the applicable regulations promulgated thereunder), and each Lender that delivers a certificate accompanied by Form 4224 of the IRS covenants and agrees to deliver to the Borrower and the Agent within fifteen (15) days prior to the beginning of each subsequent taxable year of such Lender during which this Agreement is still in effect, another such certificate and two accurate and complete original signed copies of IRS Form 4224 (or any successor form or forms required under the IRC or the applicable regulations promulgated thereunder). Each such certificate shall certify as to one of the following: (i) that such Lender is capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax; (ii) that such Lender is not capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax as specified therein but is capable of recovering the full amount of any such deduction or withholding from a source other than the Borrower and will not seek any such recovery from the Borrower; or (iii) that, as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority after the date such Lender became a party hereto, such Lender is not capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax as specified therein and that it is not capable of recovering the full amount of the same from a source other than the Borrower. Each Lender shall promptly furnish to the Borrower and the Agent such additional documents as may be reasonably required by the Borrower or the Agent to establish any exemption from or reduction of any Taxes or Other Taxes required to be deducted or withheld and which may be obtained without undue expense to such Lender. 2.11. Increased Costs. If solely as a result of (a) the introduction of or any change in any law, order or regulation or in the interpretation or administration of any law, order or regulation by any Governmental Authority charged with the interpretation or administration thereof after the Closing Date or (b) compliance with any guideline or request issued or made after the Closing Date from any central bank or other Governmental Authority (whether or not having the force of law and including, without limitation, imposition or application of Statutory Reserves or any other reserve, special deposit, compulsory loan, FDIC insurance, capital allocation or similar requirement): (i) any Lender incurs a cost or increase in cost as a result of its having entered into or performing its obligations under this Agreement, including its making, funding or maintaining all or any part of its Commitment or any Loans, (ii) any Lender becomes liable to make any payment (other than Excluded Taxes) on or calculated by reference to the amount of Loans made or to be made by it hereunder and/or any sum received or receivable by it hereunder, or (iii) there is a reduction in the amount of any sum received or receivable by any Lender hereunder, then the Borrower shall from time to time upon demand by such Lender pay to such Lender amounts sufficient to indemnify such Lender against, as the case may be, (A) such cost or increased cost (or such proportion of such cost or increased cost which is in fact attributable to its making, funding or maintaining its Commitment or any Loans), (B) such liability or (C) such reduction. Such amounts may be determined by using any reasonable averaging and attribution methods. Each Lender shall notify the Borrower (with a copy of such notice to the Agent) as soon as possible after the incurrence of the cost, increased cost or liability for which a claim is being made pursuant to this Section 2.11, which notice shall specify the event by reason of which it is entitled to make such claim and setting out in reasonable detail the basis and computation of such claim. On receipt of such notice, the Borrower shall indemnify such Lender, in accordance with this Section 2.11 from and as of the date such cost, increased cost or liability is incurred or any payment made (including, without limitation, where such cost, increased cost or liability is retroactively applied). Notwithstanding the foregoing, no Lender shall be entitled to compensation under this Section 2.11 with respect to any Competitive Bid Loan if it shall have been aware of the change giving rise to such request and of the impact of such change on the cost of making such Competitive Bid Loans at the time of submission of the Competitive Bid pursuant to which such Competitive Bid Loan shall have been made. 2.12. Authorized Officers of Borrower. The Borrower shall notify the Agent in writing of the names of the officers and employees authorized to request Loans and to request a conversion or continuation of any Loan and shall provide the Agent with a specimen signature of each such officer or employee. The Agent shall be entitled to rely conclusively on such officer's or employee's authority to request such Loan or such conversion or continuation until the Agent receives written notice to the contrary. The Agent shall have no duty to verify the authenticity of the signature appearing on any written Notice of Revolving Borrowing, Notice of Competitive Bid Borrowing, Notice of Conversion/Continuation or Competitive Bid Accept/Reject Letter and, with respect to an oral request for such a Loan or such conversion or continuation, the Agent shall have no duty to verify the identity of any person representing himself as one of the officers or employees authorized to make such request on behalf of the Borrower. Neither the Agent nor any Lender shall incur any liability to the Borrower in acting upon any telephonic notice referred to above which the Agent believes to have been given by a duly authorized officer or other person authorized to borrow or give other notices hereunder on behalf of the Borrower. 2.13. Replacement of Certain Lenders. In the event a Lender ("Affected Lender") shall have: (i) failed to fund its Pro Rata Share of any Borrowing of Revolving Loans requested by the Borrower which such Lender is obligated to fund under the terms of this Agreement and such failure has not been cured, (ii) requested compensation from the Borrower under Section 2.10 or 2.11 to recover additional costs incurred by such Lender which are not being incurred generally by the other Lenders, or (iii) delivered a notice pursuant to Section 2.09(c)(i) claiming that such Lender is unable to extend Eurodollar Rate Loans to the Borrower for reasons not generally applicable to the other Lenders, then, in any such case, the Borrower or the Agent may make written demand on such Affected Lender (with a copy to the Agent in the case of a demand by the Borrower and a copy to the Borrower in the case of a demand by the Agent) for the Affected Lender to assign, and such Affected Lender shall assign pursuant to one or more duly executed Assignment and Acceptances five (5) Business Days after the date of such demand, to one or more financial institutions which comply with the provisions of Section 8.02 which the Borrower or the Agent, as the case may be, shall have engaged for such purpose ("Replacement Lender"), all of such Affected Lender's rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment and all Loans owing to it) in accordance with Section 8.02. Further, with respect to such assignment, the Affected Lender shall have concurrently received, in cash, all amounts due and owing to the Affected Lender hereunder or under any other Loan Document, including, without limitation, the aggregate outstanding principal amount of the Loans owed to such Lender, together with accrued interest thereon through the date of such assignment and fees accrued for its account hereunder through the date of such assignment and not yet paid, amounts payable under Sections 2.10 and 2.11, and compensation payable under Section 2.09(d) in the event of any replacement of any Affected Lender under clause (ii) or clause (iii) of this Section 2.13; provided, upon such Affected Lender's replacement, such Affected Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.09, 2.10, 2.11, 8.03 and 8.04. Upon the replacement of any Affected Lender pursuant to this Section 2.13, the provisions of Section 8.05(b) shall continue to apply with respect to Borrowings which are then outstanding with respect to which the Affected Lender failed to fund its Pro Rata Share and which failure has not been cured. ARTICLE III CONDITIONS TO LOANS 3.01. Conditions Precedent to Effectiveness. The effectiveness of this Agreement shall be subject to the satisfaction of all of the following conditions precedent: (a) Documents. The Agent and the Lenders shall have received each of the following documents: this Agreement, the Notes, the Borrower's Certificate of the Secretary or Assistant Secretary of the Borrower and an opinion of counsel to the Borrower, each duly executed where appropriate and in form and substance satisfactory to the Agent and the Lenders, and such additional documentation as the Agent or any Lender may reasonably request. (b) No Default. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the Loans. (c) Representations and Warranties. All of the representations and warranties contained in Section 4.01 shall be true and correct in all material respects. (d) Fees and Expenses Paid. There shall have been paid to the Agent, for the accounts of the Agent and the Lenders under the Original Credit Agreement, as applicable, all accrued fees payable under the Original Credit Agreement. (e) Joy Acquisition. The merger of Harnischfeger Acquisition Corporation and Joy shall have been effected and Joy shall have become a wholly-owned Subsidiary of the Borrower as described in the Prospectus and Joint Proxy Statement dated October 28, 1994 furnished to the stockholders of the Borrower and Joy in connection with the merger. (f) Deadline for Effectiveness. The conditions precedent described in clauses (a) through (e) of this Section 3.01 shall have been satisfied on or before December 31, 1994. 3.02. Conditions Precedent to all Loans. The obligation of each Lender to make any Loan requested to be made by it or to convert/continue any Revolving Loan requested to be converted/continued on any date, is subject to the satisfaction of the following conditions precedent as of such date: (a) Notice of Borrowing. The Agent shall have received in accordance with the provisions of Section 2.02(a), with respect to any Revolving Loan, an original and duly executed Notice of Revolving Borrowing or, in accordance with the provisions of Section 2.03(a) with respect to any Competitive Bid Loan, a Notice of Competitive Bid Borrowing or, in accordance with the provisions of Section 2.05, with respect to a conversion/continuation of any Revolving Loan, an original and duly executed Notice of Conversion/Continuation. (b) Additional Matters. As of the Funding Date for any Loan or as of the proposed date for continuation/conversion, as applicable: (i) Representations and Warranties. All of the representations and warranties of the Borrower contained in or repeated pursuant to Section 4.01 (other than representations and warranties which expressly speak only as of a different date) shall be true and complete in all material respects on and as of such Funding Date as though made on and as of such date both before and after taking into account the requested Loans to be made. (ii) No Default. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the requested Loan. (iii) No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any Governmental Authority shall have been issued, and no litigation shall be pending or threatened (other than as a result of any condition described in Section 2.09(d), 2.10 or 2.11), which in the reasonable judgment of the Requisite Lenders, would enjoin, prohibit or restrain any Lender from making the requested Loan. (iv) Commercial Paper. The Revolving Credit Availability shall not be less than the aggregate face amount of the Borrower's interest bearing or discounted short term unsecured debt obligations having maturities of no more than 270 days ("Commercial Paper") then outstanding. The request by the Borrower for any Loan made, or to be made, on any Funding Date or delivery of any Notice of Conversion/Continuation shall constitute a representation and warranty by the Borrower as of such Funding Date or as of such conversion/continuation date, as applicable that all the conditions contained in this Section 3.02 have been satisfied or waived in writing pursuant to Section 8.06. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01. Representations and Warranties. The Borrower hereby represents and warrants to each Lender and the Agent that the following statements are true and correct (except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under this Agreement): (a) Corporate Organization. The Borrower and its Subsidiaries are duly organized, validly existing and in good standing under the laws of the jurisdiction of their incorporation, have the corporate power to own their assets and to conduct their business as now being conducted and are duly qualified, authorized and licensed to do business and are in good standing under the laws of each jurisdiction where their ownership or leasing of property or the conduct of their business requires such qualification, except for failures to be so qualified, authorized or licensed that would not in the aggregate have a material and adverse effect on the ability of the Borrower and its Subsidiaries taken as a whole to do business. (b) Corporate Powers and Authority. The Borrower has the corporate power, authority and legal right to execute, deliver and perform (including, without limitation, to borrow Loans pursuant to the terms of) this Agreement and the other Loan Documents and each instrument or obligation required of it hereunder or thereunder, and has taken all necessary corporate action to authorize its borrowing of Loans hereunder on the terms and subject to the conditions hereof and its execution, delivery and performance of this Agreement, the other Loan Documents and each instrument or obligation required of it hereunder or thereunder. (c) Governmental Consents. No consent of any other Person including, without limitation, stockholders and creditors of the Borrower, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any Governmental Authority is required by the Borrower in connection with the Loans hereunder or the execution, delivery, performance, validity or enforceability of this Agreement, the other Loan Documents and each instrument or obligation required of it hereunder or thereunder, or if required, has been received or made, as applicable. (d) Enforceability. This Agreement has been, and each instrument or document required by it hereunder will be, executed and delivered in accordance with this Agreement by a duly authorized officer of the Borrower, and this Agreement constitutes, and each instrument or document required of it hereunder when executed and delivered will constitute the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms (except to the extent limited by bankruptcy, reorganization, insolvency, moratorium and other similar laws of general application relating to or affecting the enforcement of creditors' rights or by general equitable principles). (e) No Conflict. The execution and delivery by the Borrower of this Agreement and the Notes and the performance by the Borrower of its obligations under the Loan Documents do not contravene the Borrower's Certificate of Incorporation or By-laws or any indenture, agreement or instrument to which the Borrower is a party or by which any of its material assets or properties may be bound or affected or any law, rule, statute, regulation, judgment, decree or order of any court or Governmental Authority. (f) Financial Position. The Borrower has heretofore delivered to the Agent and the Lenders, its audited consolidated balance sheet as of October 31, 1993 and its audited consolidated statements of income and cash flows for the fiscal year ended October 31, 1993 and its Form 10-Q Quarterly Report filed with the SEC for the period ended July 31, 1994; such financial statements are complete and correct and fairly present the position and results of operations as of the dates and for the respective periods covered; there are no additional material liabilities, contingent or otherwise, of a type normally shown on such financial statements or the footnotes thereto; and since the date of the most recent financial statements, there has been no change in the Borrower's consolidated financial condition or results of operations which could reasonably be expected to materially impair the Borrower's ability to perform its obligations hereunder. (g) Assets and Properties. The properties and assets of the Borrower and its Subsidiaries, real, personal and mixed, are not subject to any Liens, except for Liens permitted by this Agreement. (h) Litigation. Except as set forth in the Schedule 4.01(h), there are, to the knowledge of the Borrower, no proceedings pending or threatened against or affecting the Borrower or any of its Consolidated Subsidiaries in any court or before any Governmental Authority or arbitration board or tribunal the determination of which, individually or in the aggregate, is in the reasonable judgment of the Borrower likely to materially and adversely affect the properties, business or financial condition of the Borrower and its Consolidated Subsidiaries considered as one enterprise. (i) No Default. No event has occurred and is continuing, or would result from the incurring of obligations by the Borrower under this Agreement, which constitutes or would constitute an Event of Default or Potential Event of Default. (j) Governmental Regulation. Neither the Borrower nor any of its Consolidated Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940 and, after giving effect to the use of the proceeds of the Loans, margin stock (as defined in Regulation U) constitutes less than 25% of the assets of the Borrower and its Consolidated Subsidiaries on a consolidated basis. (k) Payment of Taxes. The Borrower and each Subsidiary have filed all tax returns which to the knowledge of the Borrower were required to be filed and have paid all taxes shown thereon to be due, including interest and penalties, or provided reserves reasonably believed by the Borrower to be adequate for payment thereof. (l) Use of Proceeds. No part of the proceeds of any Loan will be used in a manner which would violate, or result in a violation of, Regulation G, T, U or X; the Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U). (m) Pari Passu Treatment. Under applicable laws in force on the Effective Date, the claims and rights of the Lenders against the Borrower under the Loan Documents will not be subordinate to, and will rank at least pari passu with, the claims and rights of each other unsecured unsubordinated creditor of the Borrower. (n) ERISA. No Plan had a material accumulated funding deficiency (as such term is defined in Section 302 of ERISA) as of the last day of the most recent fiscal year of such Plan ended prior to the Closing Date, for which the actuarial analysis has been received, or would have had such an accumulated funding deficiency on such day if such year were the first year of such Plan to which Part 3 of Subtitle B of Title 1 of ERISA applied, and no material liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any such Plan by the Borrower or any of its Subsidiaries. No employee pension benefit plan (within the meaning of Section 3(2) of ERISA) to which the Borrower or any Subsidiary contributes is a multi- employer plan (within the meaning of Section 3(37) of ERISA). Each Plan is and has been in all material respects operated and administered in accordance with its provisions and applicable law. No liability under ERISA or otherwise exists with respect to any Plan which liability individually or in the aggregate would have a material adverse effect on the business, operations or financial condition of the Borrower and its Subsidiaries (taken as a whole). The execution, delivery and performance by the Borrower of this Agreement will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the IRC. The aggregate present value of all accrued benefits vested under all Plans (based on assumptions used to fund such Plans) did not, as of the last annual valuation date, which in the case of any one Plan was not earlier than November 1, 1988, exceed the value of the assets of such Plans allocable to such vested benefits by more than 10% of Consolidated Total Tangible Assets. (o) Performance. None of the Borrower or any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any contractual obligation applicable to it under any agreement or instrument, and no condition exists which, with the giving of notice or the lapse of time, or both, would constitute a default under such agreement or instrument which default or condition would have a material adverse effect (i) upon the business, assets or other properties, liabilities or condition (financial or otherwise), results of operations or prospects of the Borrower and its Consolidated Subsidiaries taken as a whole or (ii) upon the ability of the Borrower to perform any of its Obligations under any Loan Document in any material respect, including, without limitation, payment of the Obligations. (p) Funded Debt Documents. The Borrower has delivered to the Agent a complete copy of each agreement or indenture pursuant to which the Borrower or any Subsidiary has incurred or may incur Funded Debt in excess of $10,000,000 (including, without limitation, the Note Agreements, the Joy Indenture and the Indentures executed in connection with the Borrower's issuance of 8.90% debentures due 3/1/2022 and 8.70% debentures due 6/15/2022), in each case together with any amendments thereto. ARTICLE V COVENANTS 5.01. Affirmative Covenants of the Borrower. The Borrower covenants and agrees that so long as the Borrower shall have any outstanding Obligations or any Lender shall have any Commitment hereunder: (a) Payment of Taxes. The Borrower shall, and shall cause its Subsidiaries to, pay all taxes, assessments and governmental charges or levies when due, except such as may be contested in good faith by appropriate proceedings diligently pursued and, if and to the extent required by GAAP, with respect to which the Borrower has set aside on its books adequate reserves. (b) Maintenance of Insurance. The Borrower shall, and shall cause each Subsidiary to, maintain insurance coverage by financially sound and reputable insurers in such forms and amounts and against such risks as are customary for corporations of established reputation engaged in the same or similar businesses and owning and operating similar properties. (c) Notice of Defaults; ERISA Events. The Borrower shall give prompt written notice to the Agent and the Lenders (a) upon obtaining actual knowledge of the occurrence or existence of any Event of Default or any Potential Event of Default specifying the nature and the period of existence thereof and what action the Borrower has taken or proposes to take with respect thereto, or (b) of any receipt of written notice of a default or event of default under any agreement described in Section 6.01(h) which would permit the holder or obligee of the Indebtedness thereunder to accelerate such Indebtedness, (c) any reportable event under Section 4043(b)(5), (6) or (7) of ERISA with respect to any Plan, any decision to terminate or withdraw from any Plan, any finding made with respect to a Plan under Section 4041(c) or (e) of ERISA, the commencement of any proceeding with respect to a Plan under Section 4042 of ERISA, or any material increase in the actuarial present value of unfunded vested benefits under all Plans over the preceding year or (d) of any demand for payment by the Borrower or any Subsidiary under any Performance Undertaking in the aggregate amount of $5,000,000 or more. (d) Inspection of Property; Books and Records. The Borrower shall, and shall cause its Consolidated Subsidiaries to, at all times keep and maintain, full and accurate accounts and records of its operations according to GAAP and will permit the Agent and the Lenders, and their respective designated officers, employees, agents and representatives, to have access thereto and to make examination thereof at all reasonable times. (e) Reporting; Financial Statements. The Borrower shall furnish to the Agent and each Lender: (i) Quarterly Reports. As soon as available but no later than sixty (60) days after the close of each of the first three (3) quarters of each fiscal year, the Borrower's consolidated balance sheet and consolidated statement of cash flows as of the close of such quarter and consolidated statement of income and consolidated statement of shareholder's equity for such quarter and that portion of the fiscal year ending with such quarter, certified by the chief financial officer of the Borrower as being complete and correct and fairly presenting the financial condition and results of operations of the Borrower and its Consolidated Subsidiaries, accompanied by (A) a certificate from a Responsible Financial Officer (1) stating that as of the end of such quarter, no Event of Default or Potential Event of Default existed, or a statement of such Event of Default or Potential Event of Default if any exists and what action the Borrower has taken or proposes to take with respect thereto, (2) stating that the Borrower and its Consolidated Subsidiaries are in compliance with the covenants contained in Sections 5.02(a) and (b), together with the calculations showing how compliance was determined with respect to such Sections, or (3) if the Borrower and its Consolidated Subsidiaries are not in compliance therewith, stating each incidence of non-compliance and the amount thereof and explaining the reason therefor together with the calculations showing how such non-compliance was determined and (B) a certificate from a Responsible Financial Officer stating that the schedule attached to such certificate sets forth the amount of the maximum possible exposure of the Borrower or any Subsidiary under, and a brief summary of, each Performance Undertaking for which the maximum possible exposure thereunder exceeds $25,000,000 as at the end of such quarter. (ii) Annual Reports. As soon as available but no later than one hundred five (105) days after the close of each of its fiscal years, a complete copy of a report of the Borrower, which shall include the Borrower's consolidated balance sheet and consolidated statement of cash flows as of the close of such year and consolidated statement of income and consolidated statement of shareholder's equity for such year, certified in accordance with GAAP by an independent public accountant of national reputation selected by the Borrower. Such report shall be accompanied by (A) a certificate from a Responsible Financial Officer (1) stating (x) that as of the end of such fiscal year, no Event of Default or Potential Event of Default exists or (y) if any Event of Default or Potential Event of Default exists what action the Borrower has taken or proposes to take with respect thereto and (2) stating (x) that the Borrower and its Consolidated Subsidiaries are in compliance with the covenants contained in Sections 5.02(a) and (b), together with the calculations showing how compliance was determined with respect to such Sections, or (y) if the Borrower and its Consolidated Subsidiaries are not in compliance therewith, stating such incidence of non-compliance and the amount thereof and explaining the reason therefor together with the calculations showing how such non-compliance was determined and (B) a certificate from a Responsible Financial Officer stating that the schedule attached to such certificate sets forth the amount of the maximum possible exposure of the Borrower or any Subsidiary under, and a brief summary of, each Performance Undertaking for which the maximum possible exposure thereunder exceeds $25,000,000 as at the end of such fiscal year. (iii) Publicly Distributed Information. Promptly after being filed with the SEC, a copy of each Disclosure Document, Annual Report to Shareholders, Proxy Statement and Registration Statement and any other registration statements and reports which it is required to file, or shall have filed, with the SEC or with any other national or international securities exchange. (iv) Funded Debt Report. Not later than sixty (60) days after the end of each fiscal quarter of the Borrower, a statement describing the Funded Debt of the Borrower and its Consolidated Subsidiaries in excess of $5,000,000 incurred or created subsequent to the Closing Date that has not been previously disclosed to the Agent and the Lenders pursuant to this Section. (v) Other Information. Such other statements or reports as the Agent may reasonably request in form and detail satisfactory to the Agent and Requisite Lenders. (f) Disclosure Document Amendments. If on or after the date of a Notice of Revolving Borrowing or Notice of Competitive Bid Borrowing and until the Funding Date with respect thereto, the Disclosure Documents as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and if the Borrower is required to file any amendment or supplement to the Disclosure Documents with the SEC, then the Borrower shall: (a) prepare any such amendment or supplement to the Disclosure Documents that is required by the SEC; and (b) furnish copies of such amendment or supplement to the Agent for distribution to the Lenders, in such quantities as they may from time to time reasonably request. (g) Corporate Existence; Maintenance of Property. Except as otherwise permitted hereunder, the Borrower and each Restricted Subsidiary shall maintain and preserve their corporate existence and all material rights, permits, privileges and franchises now enjoyed and necessary for the operation of their business and keep all their properties in good working order and condition, normal wear and tear excepted, except properties the Borrower determines to be surplus, obsolete or otherwise not useful in the conduct of their businesses. (h) Compliance with Laws. The Borrower shall, and shall cause each Subsidiary to, comply with the requirements of all laws, rules, regulations, and orders of any Governmental Authority (including all Environmental Legal Requirements) the violation of which would materially and adversely affect the properties, business or financial condition of the Borrower and its Subsidiaries considered as one enterprise or would result in any Lien or charge upon any property of the Borrower or any Subsidiary, which Lien or charge would materially and adversely affect the properties, business or financial condition of the Borrower and its Subsidiaries considered as one enterprise, except where contested in good faith by appropriate proceedings diligently pursued. (i) ERISA. The Borrower shall, and shall cause each Subsidiary to, make promptly payment of contributions required to meet the minimum funding standards set forth in ERISA, except to the extent waived or deferred by the Pension Benefit Guaranty Corporation. (j) Pari Passu Treatment. The Borrower shall ensure that the claims and rights of the Lenders and the other parties to the Loan Documents against the Borrower under the Loan Documents will not be at any time subordinate to, and will rank at all times at least pari passu with, the claims and rights of each other unsecured creditor of the Borrower. (k) Funded Debt Documents. The Borrower shall promptly furnish to the Agent and the Lenders a complete copy of (i) each agreement or indenture entered into after the Closing Date pursuant to which the Borrower or any Subsidiary has incurred or may incur Funded Debt in excess of $10,000,000 and (ii) any amendment entered into after the Closing Date with respect to any agreement or indenture pursuant to which the Borrower or any Subsidiary has incurred or may incur Funded Debt in excess of $10,000,000. 5.02. Financial and Negative Covenants. The Borrower covenants and agrees that so long as the Borrower shall have any outstanding Obligations or any Lender shall have any Commitment hereunder: (a) Funded Debt. (i) The Borrower shall not, and shall not permit any Consolidated Subsidiary to, create, issue, assume, guarantee or otherwise incur or in any manner become liable or responsible in respect of any Funded Debt, except: (A) Funded Debt of the Borrower and its Consolidated Subsidiaries described on Schedule 5.02(a)(i)(A) and renewals, extensions and refundings thereof (without increase in principal amount outstanding at the time of any such renewal, extension or refunding); (B) additional Funded Debt of the Borrower and its Consolidated Subsidiaries (including Funded Debt permitted under Section 5.02(e)); provided, however, that at the time of issuance thereof and after giving effect thereto and to the application of the proceeds thereof, Consolidated Funded Debt (exclusive of Funded Debt permitted under Section 5.02(a)(i)(E)) would not exceed 50% of Consolidated Total Tangible Assets; (C) Funded Debt of a Consolidated Subsidiary owing to the Borrower or to a Consolidated Subsidiary; (D) Funded Debt of the Borrower owing to a Consolidated Subsidiary; and (E) Funded Debt of the Borrower incurred with respect to guarantees of HEI Systems, Inc. performance bonds pursuant to the Purchase and Sale Agreement dated as of October 29, 1993, provided that the maximum levels of such guarantees that are to be provided by the Borrower pursuant to the Purchase and Sale Agreement shall not exceed (1) $90,000,000 during the period from November 1, 1994 through and including October 31, 1996, (2) $70,000,000 during the period from November 1, 1996 through and including October 31, 1997, (3) $50,000,000 during the period from November 1, 1997 through and including October 31, 1998 and (4) $30,000,000 during the period from November 1, 1998 through and including October 31, 1999; (ii) any Person which becomes a Consolidated Subsidiary after the date of this Agreement shall for all purposes of this Section 5.02(a) be deemed to have created, assumed or incurred at the time it becomes a Consolidated Subsidiary all Funded Debt of such Person existing immediately after it becomes a Consolidated Subsidiary; and (iii) the renewal, extension or refunding of any Funded Debt issued, incurred or outstanding pursuant to Section 5.02(a)(i)(B) shall constitute the issuance of additional Funded Debt, which is, in turn, subject to the limitations of Section 5.02(a)(i)(B). (b) Net Worth. The Borrower shall at all times maintain Consolidated Net Worth of no less than $516,236,000, which amount shall be increased as of the date the annual consolidated financial statements are furnished to the Agent pursuant to Section 5.01(e)(ii) for fiscal year 1994 and each fiscal year thereafter by 25% of the amount equal to Consolidated Net Income adjusted to reflect expenses and other proper charges attributable to Minority Interests as reflected on such financial statements; provided, however, that in the event the Consolidated Net Income as adjusted to reflect expenses and other proper charges attributable to Minority Interests on the balance sheet of the Borrower results in a Consolidated Net Loss for any fiscal year, there shall be no increase (nor any decrease) for such fiscal year in the above referenced minimum amount of Consolidated Net Worth required to be maintained. (c) Restriction on Fundamental Changes. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, liquidate or dissolve, or enter into any consolidation, merger, partnership, joint venture or other combination (other than in the ordinary course of business) or dispose of (in one transaction or in a series of transactions) its or their business or assets as a whole or such portion thereof as in the good faith determination of the Requisite Lenders constitutes a substantial portion of the assets or business of the Borrower and its Subsidiaries taken as a whole, whether pursuant to an asset sale, sale of voting stock of a Subsidiary or otherwise; provided, however, that (i) any Restricted Subsidiary may merge into, consolidate with or transfer its business or assets to the Borrower or to any other Restricted Subsidiary, except that Joy shall not merge with (whether or not Joy is the surviving corporation), consolidate with or transfer its business or assets to any other Restricted Subsidiary so long as Joy is subject to any restriction pursuant to the Joy Indenture that would, but for the effect of the exception thereto, violate Section 5.02(i) and (ii) the Borrower may sell, for fair market value, up to 25% of the voting stock of each of Harnischfeger Corporation, Beloit Corporation and Joy to another Person. Notwithstanding the foregoing, the Borrower shall not permit any material portion of the business or assets of any Restricted Subsidiary to be transferred to Joy so long as Joy is subject to any restriction pursuant to the Joy Indenture that would, but for the effect of the exception thereto, violate Section 5.02(i). (d) Conduct of Business. The Borrower shall not permit Harnischfeger Corporation or Beloit Corporation or Joy to engage in any business activities or operations substantially different from and unrelated to its present business activities and operations. (e) Indebtedness of Subsidiaries. The Borrower shall not permit any Subsidiary to create or incur any Indebtedness or become liable as a surety, guarantor, accommodation endorser, or otherwise for or upon the obligation of any other Person, or sell or discount with recourse any receivables or any debt instruments owned by it, or enter into any other arrangement which has the effect of assuring a creditor of such Person against loss; provided, however, that this Section 5.02(e) shall not be deemed to prohibit: (i) the acquisition of goods, supplies or merchandise in the ordinary course of business; (ii) surety bonds, standby letters of credit, contingent liabilities, guarantees and similar undertakings, including, without limitation, undertakings of credit support (each a "Performance Undertaking"), entered into or provided by the Borrower or any Subsidiary in the ordinary course of business, as the same is or may in the future be conducted, relating to the performance of contractual obligations arising in connection with its sale of goods or services; (iii) the endorsement of instruments for deposit and collection in the ordinary course of business; (iv) Indebtedness incurred by foreign Subsidiaries in the ordinary course of their business in an aggregate amount not to exceed $130,000,000 or 20% of Consolidated Net Worth, whichever is greater, at any time; (v) industrial revenue bonds in an aggregate amount not to exceed $32,500,000 or 5% of Consolidated Net Worth, whichever is greater, at any time; (vi) the existing Indebtedness and Guarantees of the Borrower and its Subsidiaries listed on Schedule 5.02(e) and any renewals, extensions, refundings or replacements thereof (without increase in principal amount outstanding at the time of any such renewal, extension or refunding) on terms no less favorable than terms then current in the market; (vii) obligations of Subsidiaries under all Capital Leases not to exceed in the aggregate at any time $26,000,000 or 4% of Consolidated Net Worth, whichever is greater, together with renewals of such Capital Leases on terms no less favorable than the terms that could be obtained in the prevailing debt market; (viii) Indebtedness of Subsidiaries to the Borrower or other Subsidiaries and Indebtedness of the Borrower to Subsidiaries; (ix) Indebtedness of each of Joy, Beloit Corporation, Syscon Corporation, and Harnischfeger Corporation which does not exceed in the aggregate $6,500,000 or 1% of Consolidated Net Worth, whichever is greater, in each case at any time; (x) Guarantees with respect to receivables sold or discounted to, or originated by, a third-party finance company with recourse and Indebtedness of any captive-finance Subsidiary which do not exceed in the aggregate $150,000,000 or 25% of Consolidated Net Worth, whichever is greater, at any time; (xi) Indebtedness of Syscon Corporation which does not exceed $40,000,000, the proceeds of which will be used to pay a dividend to the Borrower in connection with the spin-off of Syscon Corporation to the shareholders of the Borrower; or (xii) Indebtedness of any Person that becomes a Subsidiary after the Effective Date to the extent such Indebtedness was outstanding on the date such Person becomes a Subsidiary and was not created in contemplation thereof, together with any renewals, extensions or refundings of such Indebtedness (without increase in principal amount outstanding at the time of any such renewal, extension or refunding). (f) Liens. The Borrower shall not, and shall not permit any Subsidiary to, create, assume or suffer to exist any Liens on any of its property, real or personal or mixed, whether now owned or hereafter acquired, or on the income or profits therefrom, without equally and ratably securing the Loans and other Obligations hereunder, except: (i) Liens for taxes, assessments or governmental charges which are not yet delinquent, or are being diligently contested in good faith and by appropriate proceedings; (ii) Liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens for sums not yet due or which are being diligently contested in good faith and by appropriate proceedings; (iii) Liens not otherwise covered in (i) through (xv) of this Section 5.02(f) existing as of the date of this Agreement and described in Schedule 5.02(f) which Liens do not secure obligations in an amount exceeding 10% of Consolidated Total Tangible Assets in aggregate; (iv) any Lien on any property acquired, constructed or improved by the Borrower or any Subsidiary after the Closing Date and created contemporaneously with or within twelve (12) months of such acquisition, construction or improvement to secure or provide for all or a portion of the purchase price of such property or for such construction or improvement; (v) Liens in connection with industrial revenue bonds, pollution control bonds or similar secured financings, to the extent such financings are permitted hereunder; (vi) Liens securing the performance of bids, tenders, contracts (other than for the repayment of borrowed money), leases or surety bonds, performance bonds or letters of credit issued in connection with the foregoing or for purposes of like general nature in the ordinary course of the Borrower's business as conducted as of the Effective Date; (vii) Liens (A) in connection with asset based financing arranged by any captive finance Subsidiary; or (B) securing letters of credit obtained in the ordinary course of business by any foreign Subsidiary so long as such Liens cover only properties of such foreign Subsidiary; provided that the sum of the obligations secured by Liens described in sub-clauses (A) and (B) above shall not exceed $130,000,000 or 20% of Consolidated Net Worth, whichever is greater; (viii) pledges of deposits to secure (x) public or statutory obligations, including workers' compensation, unemployment insurance and similar obligations and (y) surety, stay, appeal or customs bonds which, with respect to stay and appeal bonds, do not exceed an aggregate amount of $200,000,000; (ix) Liens in favor of any customer to secure partial, progress, advance or other payments for goods produced or services rendered to such customer in the ordinary course of the Borrower's or any Subsidiary's business; (x) attachment, judgment and other similar Liens arising in connection with court proceedings, provided the execution or other enforcement of such Liens is effectively stayed within thirty (30) days after the Borrower or a Subsidiary receives notice thereof and the claims secured thereby are being actively contested in good faith by appropriate proceedings and against which an adequate reserve has been established; (xi) any Lien existing on the property, shares of stock or Indebtedness of a Person at the time such Person becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or a Subsidiary or at the time of a sale, lease or other disposition of the properties of any Person as an entirety or substantially as an entirety to the Borrower or a Subsidiary and, in each case, not created in contemplation of such event; (xii) Liens on the property of a Subsidiary to secure Indebtedness owed to the Borrower or another Subsidiary; (xiii) in the case of leased properties, the terms and conditions of leases or subleases creating the leasehold estate and, in the case of all real properties, title exceptions affecting the underlying fee simple estate; (xiv) precautionary filings of Uniform Commercial Code financing statements or the taking possession of chattel paper by purchasers of accounts or notes receivables from the Borrower or any Subsidiary, without recourse, in the ordinary course of business; and (xv) Liens created in connection with the extension or renewal of any secured Indebtedness or other obligations permitted under the terms of this Agreement; provided, however, that the principal amount of the Indebtedness or other obligations secured thereby shall not exceed the principal amount of Indebtedness or other obligations so secured at the time of such extension or renewal and that any Lien granted in connection with such extension or renewal shall be limited to the same property that secured the Indebtedness or other obligations so extended or renewed. (g) Usage of Proceeds. The proceeds of any Loans shall not be used, directly or indirectly, whether immediate, incidental or ultimate, (a) in a manner which would violate, or result in a violation of, Regulation G, T, U or X, or (b) to finance or participate in a tender offer for the takeover or acquisition of all or part of any Person unless the board of directors of such Person has approved such tender offer, or (c) to purchase or repurchase any stock of the Borrower in an amount exceeding $25,000,000 in aggregate. (h) Note Agreement Amendments. The Borrower shall not, and shall not agree to, amend, modify or otherwise change any covenant in any Note Agreement so as to make the provisions thereof more restrictive than the corresponding provisions of this Agreement unless such corresponding provision herein shall simultaneously be amended in a like manner. (i) Dividend Restrictions. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries, to permit or place or agree to permit or place, any restriction, directly or indirectly, on (i) the payment of dividends or other distributions by any Restricted Subsidiary to the Borrower or (ii) the making of advances or other cash payments by any Restricted Subsidiary to the Borrower, except for any such restriction on Joy pursuant to the Joy Indenture. (j) Joy Indenture Amendments. The Borrower shall not, and shall not permit Joy to, agree to or amend, modify or otherwise change the Joy Indenture so as to make the provisions thereof more restrictive. 5.03. Changes in GAAP and Borrower's Fiscal Year. If, after the Closing Date, any changes in GAAP are required or permitted and are adopted by the Borrower with the agreement of its independent certified public accountants or the Borrower changes its fiscal year and any such changes in GAAP or its fiscal year result in a material change in the calculation of any of the financial covenants, restrictions or standards herein or in the related definitions or terms used therein ("Material Accounting Changes"), the parties hereto agree to enter into negotiations, in good faith, in order to amend such provisions in a credit neutral manner so as to reflect equitably such changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such changes as if such changes had not been made; provided, however, that no Material Accounting Change shall be given effect in such calculations until such provisions are amended, in a manner reasonably satisfactory to the Requisite Lenders. ARTICLE VI EVENTS OF DEFAULT; RIGHTS AND REMEDIES 6.01. Events of Default. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) Failure to Make Payments When Due. The Borrower shall fail to pay, in the manner specified in the Loan Documents, (i) any principal of, or interest on, any Loan when and as the same shall become due and payable hereunder, or (ii) any fee provided for in Section 2.06 within ten (10) days after its due date hereunder, or (iii) any other amount due from the Borrower hereunder or under any other Loan Document within thirty (30) days after its due date. (b) Breach of Certain Covenants. The Borrower shall fail to perform or observe any of the terms, provisions, covenants, conditions, agreements or obligations contained in Section 5.02(a), (b), (c), (d), (e)(x) or (g). (c) Breach of Other Covenants. The Borrower shall fail to perform or observe any of the terms, provisions, covenants, conditions, agreements or obligations contained in this Agreement (other than Section 5.02(a), (b), (c), (d), (e)(x) or (g)) and such failure shall continue for more than, and shall not have been remedied to the satisfaction of the Requisite Lenders within thirty (30) days after the Agent, or any Lender through the Agent, has given notice to the Borrower that such default has occurred, which notice shall specify the default to be remedied and state that it is a notice hereunder, provided, that, with respect to any breach of Section 5.01(c), such 30-day grace period shall commence without the giving of such notice by the Agent or any Lender. (d) Bankruptcy. (i) The Borrower or any Subsidiary shall become insolvent, or be unable, or admit in writing its inability, to pay its debts as they become due; or (ii) the Borrower or any Subsidiary shall make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties or assets; or (iii) the Borrower or any Subsidiary shall file or have filed against it a petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors or winding up or dissolution and any such filing against it shall not be dismissed within sixty (60) days after the date of such filing; or (iv) the Borrower or any Subsidiary shall apply for or consent to the appointment of or consent that an order be made appointing any receiver, custodian, trustee or similar officer for any of its or their properties, assets or business, or if a receiver, custodian, trustee or similar officer shall be appointed for all or a substantial part of its or their properties, assets or business; or (v) an order for relief shall be entered against the Borrower or any Subsidiary under the United States federal bankruptcy laws as now or hereafter in effect; or (vi) the Borrower or any Subsidiary shall take any action indicating its consent to, approval of or acquiescence in, any of the foregoing. (e) Breach of Representation or Warranty. Any representation or warranty made by the Borrower herein or in any certificate or financial statement heretofore or hereafter furnished by the Borrower or any of its respective officers in connection with this Agreement or the other Loan Documents shall prove to have been in any material respect false or misleading when made or when deemed to have been made. (f) Appropriation of Property. All, or substantially all, of the property of the Borrower and its Consolidated Subsidiaries taken as a whole shall be condemned, seized, or otherwise appropriated. (g) Suspension of Business. The Borrower or any Restricted Subsidiary shall voluntarily suspend its business for more than thirty (30) days in any fiscal year. (h) Defaults as to Other Indebtedness. (i) Any breach or default shall occur under any other agreement involving Indebtedness or the extension of credit under which the Borrower or any Subsidiary may be obligated as borrower or guarantor, if (A) such default consists of the failure to pay principal of or interest on any Indebtedness when due in the aggregate amount of $5,000,000 or more, or (B) the Indebtedness due thereunder in the aggregate amount of $5,000,000 or more shall have been declared to be due and payable immediately and such acceleration shall not have been rescinded or annulled; or (ii) any breach or default shall occur under any other agreement involving Indebtedness or the extension of credit in the aggregate amount greater than $25,000,000 under which the Borrower or any of its Subsidiaries may be obligated as borrower or guarantor if such default permits the holder or obligee thereof to accelerate such Indebtedness or other extensions of credit and such default continues unremedied in excess of thirty (30) days. (i) ERISA. Any Plan of the Borrower or any of its Subsidiaries shall be terminated within the meaning of Title IV of ERISA except as permitted by Section 4044(d) of ERISA, or a trustee shall be appointed by the appropriate United States District Court to administer any such Plan of the Borrower or any of its Subsidiaries, or the Pension Benefit Guaranty Corporation shall institute proceedings to terminate any Plan of the Borrower or any of its Subsidiaries or to appoint a trustee to administer any such Plan and, upon the occurrence of any of the foregoing, the then current value of vested benefits owing under any such Plan guaranteed under Title IV of ERISA (determined upon the basis of assumptions prescribed by the Pension Benefit Guaranty Corporation) exceeds the then current value of the assets allocable to such benefits by more than $500,000. (j) Change of Control. Any Person or Persons acting as a partnership, limited partnership, syndicate or other group for the purpose of acquiring an interest in the Borrower shall acquire a controlling interest in the Borrower such that it or they could elect a majority of the board of directors of the Borrower. (k) Judgments. There shall be entered against the Borrower or any of its Subsidiaries one or more judgments, writs or decrees which (after taking into account the application of any insurance proceeds) in the aggregate exceed the Dollar amount of $5,000,000 and all such judgments, writs or decrees shall not have been satisfied, vacated, discharged, stayed or appealed within the applicable period for appeal from the date of entry thereof. 6.02. Remedies. (a) Automatically upon the occurrence of an Event of Default under Section 6.01(d), the Commitments shall immediately terminate, and all Loans and other Obligations outstanding under this Agreement and the other Loan Documents shall, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived, be forthwith due and payable, if not herein otherwise then due and payable, together with all costs and expenses (including break and funding costs determined in accordance with Section 2.09(d)) incurred by the Lenders as a result thereof, anything herein or in any agreement, contract, indenture, document or instrument to the contrary notwithstanding; and (b) at any time after the occurrence of an Event of Default other than under Section 6.01(d), and in each and every such case, unless such Event of Default shall have been remedied or cured by the Borrower to the satisfaction of the Requisite Lenders or waived in writing by the Requisite Lenders (except in the case of an Event of Default under Section 6.01(a), the waiver of which shall require the consent of all Lenders), the Agent shall, upon the direction of the Requisite Lenders, immediately terminate the Commitments, whereupon the same shall be cancelled and reduced to zero and all Loans and all accrued interest thereon and all other liabilities and Obligations outstanding under this Agreement and the other Loan Documents shall, thereupon, without presentment, demand, protest, or notice of any kind, all of which are hereby expressly waived, be forthwith due and payable, if not otherwise then due and payable, together with all costs and expenses (including break and funding costs determined in accordance with Section 2.09(d)) incurred by the Lenders as a result thereof, anything herein or in any other agreement, contract, indenture, document or instrument to the contrary notwithstanding. (c) For purposes of this Agreement and each of the other Loan Documents, an Event of Default shall be deemed "continuing" until cured or waived in writing in accordance with Section 8.06. 6.03. Setoff Rights. If any amount payable hereunder or under the Notes is not paid as and when due, the Borrower hereby authorizes the Agent, each Lender, each Participant and each of their respective Affiliates to proceed, after acceleration upon default by the Borrower hereunder, to the fullest extent permitted by applicable law, without prior notice, by right of set-off, banker's lien or counterclaim, against any moneys or other assets of the Borrower in any currency that may at any time be in the possession of any such Person, at any branch or office thereof, to the full extent of all amounts due and owing to the Agent or such Lender hereunder. Any Lender or Participant that so proceeds or that has an Affiliate that so proceeds shall forthwith give notice to the Agent of any action taken by such Lender, Participant or Affiliate pursuant to this Section 6.03. ARTICLE VII THE AGENT 7.01. Appointment. (a) Each of the Lenders hereby designates and appoints Chemical Bank as the Agent of such Lender under this Agreement and the other Loan Documents, and each of the Lenders hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers as are set forth herein or therein, together with such other powers as are incidental thereto. The Agent agrees to act as such on the express conditions contained in this Article VII. (b) The provisions of this Article VII are solely for the benefit of the Agent and the Lenders, and the Borrower shall have no right to rely on or enforce any of the provisions hereof (other than as expressly set forth in Section 7.07). In performing its functions and duties under this Agreement and the other Loan Documents, the Agent shall act solely as agent for the Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for the Borrower or any of its Affiliates. 7.02. Nature of Duties. The Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. Nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be construed to impose upon the Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. Each Lender shall make its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the making and the continuance of the Loans hereunder and shall make its own appraisal of the creditworthiness of the Borrower and its Subsidiaries, and the Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the Closing Date or at any time or times thereafter. If the Agent seeks the consent or approval of the Requisite Lenders to the taking or refraining from taking any action hereunder, the Agent shall send notice thereof to each Lender. The Agent shall promptly notify each Lender at any time that the Requisite Lenders or, where expressly required, all of the Lenders, have instructed the Agent to act or refrain from acting pursuant hereto. 7.03. Rights, Exculpation, Etc. Neither the Agent nor any of its Affiliates nor any of its officers, directors, employees, agents, attorneys or consultants shall be liable to any Lender for any action taken or omitted by it or such Person hereunder or under any of the other Loan Documents, or in connection herewith or there- with, except that (i) the Agent shall be obligated on the terms set forth herein for performance of its express obligations hereunder, and (ii) no Person shall be relieved of any liability imposed by law for its gross negligence or willful misconduct (as determined by the final judgment of a court of competent jurisdiction). The Agent shall not be liable for any apportionment or distribution of payments made by it in good faith pursuant to the terms of this Agreement and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Lender to whom payment was due, but not made, shall be to recover from other Lenders any payment in excess of the amount to which they are determined to have been entitled. The Agent shall not be responsible to any Lender for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement or any of the other Loan Documents, or any of the transactions contemplated hereby and thereby, or of any of the other Loan Documents or any of the transactions contemplated thereby, or for the financial condition of the Borrower or any of its Subsidiaries. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of the Borrower or any of its Subsidiaries or the existence or possible existence of any Potential Event of Default or Event of Default. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are promptly requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the Requisite Lenders or, where expressly required, all of the Lenders. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of the Requisite Lenders or, where expressly required, all of the Lenders. 7.04. Reliance. The Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, or made by the proper Person, and with respect to all matters pertaining to this Agreement or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it in good faith. 7.05. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Borrower or the Borrower fails upon demand by the Agent to perform its obligations to reimburse or indemnify the Agent, the Lenders will severally reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any of the other Loan Documents or any action taken or omitted by the Agent under this Agreement or any of the other Loan Documents, in proportion to each Lender's Pro Rata Share; provided that no Lender shall be liable for (i) any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction, (ii) routine administrative costs described in Section 8.03(a)(ii) or (iii) the legal fees and expenses incurred by the Agent in connection with the execution and delivery of this Agreement and the other Loan Documents. The obligations of the Lenders under this Section 7.05 shall survive the payment in full of the Loans and the termination of this Agreement. 7.06. The Agent Individually. With respect to its Pro Rata Share hereunder and the Loans made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "Lenders", "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender or one of the Requisite Lenders. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower as if it were not acting as Agent pursuant hereto. 7.07. Successor Agent; Resignation of Agent. (a) The Agent may resign from the performance of its func- tions and duties hereunder at any time by giving at least thirty (30) days' prior written notice to the Lenders and the Borrower. In the event that the Agent gives notice of its desire to resign from the performance of its functions and duties as Agent, any such resignation shall take effect only upon the acceptance by a successor Agent of appointment pursuant to clauses (b) and (c) below. (b) The Requisite Lenders shall appoint a successor Agent. (c) If a successor Agent shall not have been so appointed within said thirty (30) day period, the retiring Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Requisite Lenders appoint a successor Agent as provided above. (d) Upon the appointment of a successor Agent, the term "Agent" shall, for all purposes of this Agreement and the other Loan Documents, thereafter include such successor, except that the retiring Agent shall reserve all rights as to Obligations accrued or due to it, in its capacity as such, at the time of such succession and all rights (whenever arising) under Section 8.04. (e) Notwithstanding anything in this Section 7.07 to the contrary, no Person shall serve as an Agent unless such Person is a Lender. ARTICLE VIII MISCELLANEOUS 8.01. Entire Agreement. This written Credit Agreement, together with the letter agreement between the Borrower and the Agent dated as of September 16, 1993 (which letter agreement relates solely to matters between the Borrower and the Agent), represents the final agreement among the parties as to its subject matter and may not be contradicted by evidence of prior, contemporaneous, or subsequent oral agreements among the parties. There are no oral agreements among the parties. 8.02. Assignments and Participations. (a) Subject to the limitations and requirements hereinafter set forth, each Lender may assign to one or more financial institutions all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and Loans); provided, however, that (i) each such assignment shall be of a constant, and not a varying, percentage of the assigning Lender's rights and obligations under this Agreement (other than any Competitive Bid Loans or Competitive Bid Notes) and the assignment shall transfer the same percentage of such Lender's Commitment, Revolving Loans and other interests hereunder, (ii) unless the Agent and the Borrower otherwise consent, the aggregate amount of the Commitments of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 (provided that assignments between Lenders shall have no minimum amount), (iii) except in the case of an assignment to a Lender or an Affiliate of such Lender (so long as at the time of such assignment to a Lender or an Affiliate it is not reasonably foreseeable by the assigning Lender that such assignment would increase the amounts payable by the Borrower pursuant to the cost protection provisions con- tained in Sections 2.09, 2.10 and 2.11), the Borrower and Agent must give their consent (which consent shall not unreasonably be withheld or delayed) to each such assignment and (iv) the parties to each such assignment (other than the Borrower) shall execute and deliver to the Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; Upon the execution, delivery, approval, acceptance and recording of an Assignment and Acceptance, from and after the effective date specified in such Assignment and Accept- ance, which effective date shall be at least five (5) Business Days after the execution date thereof (unless the Borrower and the Agent otherwise agree), (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned or negotiated to it pursuant to such Assignment and Accep- tance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned or negotiated by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.09, 2.10, 2.11, 8.03 and 8.04, as well as to any fees accrued for its account hereunder and not yet paid. Notwithstanding the foregoing, any Lender assigning rights and obligations under this Agreement may retain any Competitive Bid Loans made by it outstanding at such time and in such case shall retain its rights hereunder in respect of any Loans so retained until such Loans have been repaid in full in accordance with this Agreement. (b) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the as- signee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) the assignment made under such Assignment and Acceptance is made without recourse and, other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or any other document, instrument or agreement executed or delivered in connection herewith or therewith or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender makes no representation or warranty and assumes no respon- sibility with respect to the financial condition of the Borrower or any of its Subsidiaries or the performance or observance by the Borrower of any of its obligations under any Loan Document or any other instrument or document fur- nished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements most recently delivered pursuant to Section 5.01 and such other Loan Documents and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as an Agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement and the other Loan Documents are required to be performed by it as a Lender. (c) The Agent shall maintain at its address referred to on Schedule A a copy of each Assignment and Acceptance delivered to and accepted by it and shall record in the Agent's Loan Account the names and addresses of each Lender and the Commitment of, and principal amount of the Loans owing to, such Lender from time to time. The Borrower, the Agent and the Lenders may treat each Person whose name is recorded in the Loan Account as a Lender hereunder for all purposes of this Agreement. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and the assignee, the Agent shall, if such Assignment and Acceptance has been properly completed and is in substantially the form of Exhibit 1 and if the conditions for the assignment referred to in the Assignment and Acceptance and set forth in Section 8.02(a) have been met, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Agent's Loan Account and (iii) give prompt notice thereof to the Borrower. (e) Each Lender may sell to one or more banks or other entities (each a "Participant") participations in all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including, without limitation, all or a portion of its Commitment and Loans; provided, that (i) notice thereof is given to the Agent and, except in the case of a participation to a Lender or an Affiliate of such Lender, the Borrower shall have consented to such sale of a participation (which consent shall not be unreasonably withheld or delayed), (ii) such Lender's obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (iii) such Lender shall remain solely respon- sible to the other parties hereto for the performance of such obligations, (iv) any Participant shall be entitled to the benefit of the cost protection provisions contained in Sections 2.09, 2.10 and 2.11 to the same extent as if it were a Lender; provided, however, that no such Participant shall be entitled to receive any greater amount pursuant to such Sections than the Lender from which it purchased its participation would have been entitled to receive in respect of the amount of the participation transferred by such Lender to such Participant had no transfer occurred, (v) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents and with regard to any and all payments to be made under this Agreement and the Notes, and (vi) a Participant shall not be entitled to voting rights under this Agreement; provided, that the participation agreement between a Lender and its Participant may provide that such Lender will obtain the approval of such Participant prior to any amendment or waiver of any provisions of this Agreement which would decrease any fees payable hereunder or the amount of principal of, or the rate at which interest is payable on, the Loans, extend the final maturity of the Loans or any date fixed for the payment of interest on the Loans or any fees or extend or increase the Commitment of such Lender. (f) Upon the acceptance by the Agent of any Assignment and Acceptance, the parties to such Assignment and Acceptance may at any time request that new Notes be issued to the Lender assignor and the Lender assignee by (i) providing written notice of such request to the Agent and the Borrower and (ii) delivering to the Borrower such assigning Lender's Revolving Loan Note and, if applicable, Competitive Bid Note for cancellation and substitution. Promptly following receipt by the Borrower of any such notice, and verification from the Agent that the applicable Assignment and Acceptance shall have been accepted by the Agent, the Borrower forthwith shall cause to be executed, and shall deliver to the Lender assignee, new Notes to the order of the assignee and, if applicable, a replacement Revolving Loan Note to the order of the Lender assignor, and such Revolving Loan Notes shall equal the aggregate principal amount of such assigning Lender's Revolving Loan Note issued by the Borrower immediately prior to the acceptance by the Agent of the applicable Assignment and Acceptance. The Borrower shall immediately upon delivery of such new Notes, cancel the original Note(s) delivered by the Lender assignor to the Borrower. (g) Notwithstanding anything herein to the contrary, each Lender may assign all or any portion of its rights under this Agreement as collateral security to any Federal Reserve Bank or any Governmental Authority succeeding to its functions. 8.03. Expenses. (a) Generally. The Borrower agrees upon demand to pay, or reimburse the Agent for, any and all reasonable and necessary out-of-pocket costs incurred by the Agent or its Affiliates in connection with (i) the negotiation, preparation and execution of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof and thereof (including legal fees and out-of-pocket expenses of Agent's counsel, subject to the letter agreement between the Agent and the Borrower dated as of September 16, 1993); (ii) the administration of this Agreement, the Loan Documents and the Loans; and (iii) the enforcement of any of the Obligations. In addition, the Borrower shall pay, or reimburse the Agent for, all out-of- pocket costs and expenses, including, without limitation, reasonable and necessary attorneys' and legal assistants' fees (including allocated costs of internal counsel) incurred by the Agent prior to the occurrence of an Event of Default in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleading in any legal proceeding relating to the Borrower, or any of its Subsidiaries, and arising out of or in connection with the Loan Documents, subject to any limitations with respect thereto set forth in Section 8.04. (b) After Default. The Borrower further agrees to pay, or reimburse the Agent and the Lenders for all out-of-pocket costs and expenses, including, without limitation, reasonable and necessary attorneys' and legal assistants' fees, expenses and disbursements (including allocated costs of internal counsel and costs of settlement) incurred by the Agent or any Lender after the occurrence of an Event of Default (i) in enforcing any of the Obligations or exercising or enforcing any other right or remedy available by reason of such Event of Default; (ii) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; or (iii) in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleading in any legal proceeding relating to the Borrower or any of its Subsidiaries and related to or arising out of the transac- tions contemplated hereby or by any of the Loan Documents. Any payments made by the Borrower or received by the Agent and applied as reimbursements for costs and expenses under this Section 8.03(b) shall be apportioned among the Agent and the Lenders in the order of priority set forth in Section 2.07. 8.04. Indemnification. (a) The Borrower agrees to indemnify and hold harmless the Agent, each and all of the Lenders, each of the Affiliates of Chemical and each of the Lenders' respective Affiliates that have funded or maintained any Loan hereunder and each of the respective officers, directors, employees and agents of each of the foregoing (collectively called the "Indemnitees") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs and expenses to which any Indemnitee may become subject by virtue of any breach by the Borrower of any of its agreements or obligations under this Agreement or any of the other Loan Documents or by virtue of any wrongful or negligent action or inaction by the Borrower or any litigation, investigation or proceeding arising as a result of such breach or wrongful or negligent action or inaction by the Borrower and to reimburse each Indemnitee upon demand for any legal or other expenses incurred in connection with investigating or defending any of the foregoing (collectively, the "Indemnified Matters"); provided, that the Borrower shall have no obligation to an Indemnitee hereunder with respect to (i) matters for which such Indemnitee has been compensated pursuant to or for which an exemption is provided in Section 2.09(d) or 2.11 or any other provision of this Agreement and (ii) Indemnified Matters to the extent the same are found by a final decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of that Indemnitee. b) The Indemnitee shall promptly upon receipt of notice of the making of any claim or the initiation of any action, suit, or proceeding, if a claim in respect thereof is to be made against the Borrower hereunder, notify the Borrower in writing of the commencement thereof. The Borrower shall have the right, but not the obligation, at its expense, to provide and to control the defense of any such claim, action, suit or proceeding, provided that the Borrower shall agree that any judgment, settlement or other amounts payable as a result of such claim, action, suit or proceeding shall be subject to the foregoing indemnity and provided further that the Borrower must keep such indemnified party appraised of the progress of any such claim, action, suit or proceeding, and provided further that if such indemnified party reasonably believes that its failure to participate will adversely affect its interests or that there is a conflict of interest which makes it inadvisable for the Borrower's attorney to represent such party, it shall notify the Borrower of such conclusion in writing and may, at its election, participate in such claim, action, suit or proceeding (the legal fees incurred by such indemnified party as a result of such anticipation to be reimbursed by the Borrower to such party). If more than one Indemnitee shall elect to participate in such claim, action, suit or proceeding pursuant to the preceding sentence, the Borrower shall only be obligated to reimburse such Indemnitees for the legal fees of one counsel unless such Indemnitees inform the Borrower that they reasonably believe that there is a conflict of interest which makes it inadvisable for one counsel to represent all such Indemnitees, provided, that in the event one or more Indemnitees retain additional counsel over the Borrower's objection, the Borrower retains the right to challenge, in court or otherwise, such decision and any alleged payment obligation of such legal fees. Any such claim, action, suit or proceeding shall not be settled, if any indemnification is claimed hereunder with respect thereto, without the prior written approval of the Borrower which shall not be unreasonably withheld or delayed. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 8.04 shall survive the payment in full of principal and interest hereunder and the termination of this Agreement. 8.05. Ratable Sharing; Defaulting Lender. (a) Subject to Sections 2.07 and 8.05(b), the Lenders agree among themselves that (i) with respect to all amounts received by them which are applicable to the payment of the Obligations (excluding amounts payable under this Agreement which are determined on a non-pro-rata basis, including, without limitation, amounts payable pursuant to Competitive Bid Loans and under Sections 2.02(c), 2.02(f), 2.05(b), 2.09(d), 2.10, 2.11, 2.13, 8.03 and 8.04), equitable adjustment will be made so that, in effect, all such amounts will be shared among them ratably in accordance with their Pro Rata Shares, whether received by voluntary payment, by the exercise of the right of set- off or banker's lien, by counterclaim or cross action or by the enforcement of any or all of the Obligations (excluding the above described amounts payable under this Agreement which are determined on a non-pro-rata basis), (ii) if any of them shall by voluntary payment or by the exercise of any right of counterclaim, setoff, banker's lien or otherwise, receive payment of a proportion of the aggregate amount of the Obligations described in clause (i) above held by it which is greater than its Pro Rata Share of the payments on account of such Obligations, the one receiving such excess payment shall purchase, without recourse or warranty, an undivided interest and participation (which it shall be deemed to have been done simultaneously upon the receipt of such payment) in such Obligations owed to the others so that all such recoveries with respect to such Obligations shall be applied ratably in accordance with their Pro Rata Shares; provided, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases shall be re- scinded and the purchase prices paid for such participa- tions shall be returned to that party to the extent necessary to adjust for such recovery, but without interest except to the extent the purchasing party is required to pay interest in connection with such recovery. The Borrower agrees that any Lender so purchasing a participa- tion from another Lender pursuant to this Section 8.05(a) may, to the fullest extent permitted by law, exercise all its rights of banker's lien, setoff or counterclaim with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. (b) In the event that the FDIC is appointed as conservator or receiver of any Lender and thereafter such Lender fails to fund its Pro Rata Share of any Borrowing requested or deemed requested by the Borrower which such Lender is obligated to fund under the terms of this Agreement (the funded portion of such Borrowing being hereinafter referred to as a "Non Pro Rata Loan"), until the earlier of such Lender's cure of such failure and the termination of the Commitments, the proceeds of all amounts thereafter repaid to the Agent by the Borrower and otherwise required to be applied to such Lender's share of all other Obligations pursuant to the terms of this Agreement shall be advanced to the Borrower by the Agent on behalf of such Lender to cure, in full or in part, such failure by such Lender, but shall nevertheless be deemed to have been paid to such Lender in satisfaction of such other Obligations. Notwithstanding anything in this Agreement to the contrary: (i) the foregoing provisions of this Section 8.05(b) shall apply only with respect to the proceeds of payments of Obligations and shall not affect the conversion or continuation of Loans pursuant to Section 2.05(c); (ii) any such Lender shall be deemed to have cured its failure to fund its Pro Rata Share of any Borrowing at such time as an amount equal to such Lender's original Pro Rata Share of the requested principal portion of such Borrowing is fully funded to the Borrower, whether made by such Lender itself or by operation of the terms of this Section 8.05(b), and whether or not the Non Pro Rata Loan with respect thereto has been repaid, converted or continued; (iii) amounts advanced to the Borrower to cure, in full or in part, any such Lender's failure to fund its Pro Rata Share of any Borrowing ("Cure Loans") shall bear interest at the rate applicable to Base Rate Loans under Section 2.05 in effect from time to time, and for all other purposes of this Agreement shall be treated as if they were Base Rate Loans; (iv) regardless of whether or not an Event of Default has occurred or is continuing, and notwithstanding the instructions of the Borrower as to its desired application, all repayments of principal which, in accordance with the terms of Section 2.07, would be applied to the outstanding Base Rate Loans shall be applied first, ratably to all Base Rate Loans constituting Non Pro Rata Loans, second, ratably to Base Rate Loans other than those constituting Non Pro Rata Loans or Cure Loans and, third, ratably to Base Rate Loans constituting Cure Loans; (v) for so long as and until the earlier of any such Lender's cure of the failure to fund its Pro Rata Share of any Borrowing and the termination of the Commitments, the term "Requisite Lenders" for purposes of this Agreement shall mean Lenders (excluding all Lenders whose failure to fund their respective Pro Rata Shares of such Borrowing have not been so cured) whose Pro Rata Shares represent more than sixty percent (60%) of the aggregate Pro Rata Shares of such Lenders; and (vi) for so long as and until any such Lender's failure to fund its Pro Rata Share of any Borrowing is cured in accordance with Section 8.05(b)(ii), (A) such Lender shall not be entitled to any Facility Fees with respect to its Commitment and (B) the Facility Fee shall accrue in favor of the Lenders which have funded their respective Pro Rata Shares of such requested Borrowing, shall be allocated among such performing Lenders ratably based upon their relative Commitments, and shall be calculated based upon the aggregate Commitments of such performing Lenders. 8.06. Amendments and Waivers. Subject to the provisions of Section 2.07(b)(ii), no amendment or modi- fication of any provision of this Agreement shall be effective without the written agreement of the Requisite Lenders and the Borrower, and no termination or waiver of any provision of this Agreement, or consent to any departure by the Borrower therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders, which the Requisite Lenders shall have the right to grant or withhold at their sole discretion; except that any amendment, modification, or waiver of any provision of this Agreement which would (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan, shall not be effective without the prior written consent of each Lender affected thereby, (ii) change or extend any Commitment or decrease the Facility Fees of any Lender shall not be effective without the prior written consent of such Lender, (iii) amend the definition of "Requisite Lenders" or the provisions contained in this Section 8.06 or in the third sentence of Section 8.14, or (iv) waive or amend the condition precedent set forth in clause (iv) of Section 3.02(b), shall not be effective without the prior written consent of each Lender. No amendment, modification, termination, or waiver of any provision of Article VII or any other provision referring to the Agent shall be effective without the written concur- rence of the Agent. The Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 8.06 shall be binding on each assignee, transferee or recipient of a Lender's Commitment or Loans, each future assignee, transferee, recipient of a Lender's Commitment or Loans, and, if signed by the Borrower (when required), on the Borrower. 8.07. Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by courier service or United States mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex or four (4) Business Days after deposit in the United States mail (registered or certified, with postage prepaid and properly addressed). Notices to the Agent shall not be effective until received by the Agent. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 8.07) shall be as set forth in Schedule A or on the applicable Assignment and Acceptance, as to each party, at such other address as may be designated by such party in a written notice to all of the other parties. In addition, each Lender shall provide the Agent with the information requested on Exhibit 10 with respect to such Lender as such information changes from time to time. 8.08. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of the Agent, the Borrower or any Lender in the exercise of any power, right or privilege under any of the Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies exist- ing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 8.09. Termination. Upon the termination in whole of the Commitments pursuant to the terms of this Agreement, the Borrower shall pay to the Agent for the benefit of the Lenders an amount equal to any and all Obligations then outstanding. 8.10. Marshalling; Payments Set Aside. Neither any Lender nor the Agent shall be under any obligation to marshal any assets in favor of the Borrower or any other party or against or in payment of any or all of the Obligations. To the extent that the Borrower makes a payment or payments to the Agent or the Lenders, or the Agent or the Lenders enforce their rights or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 8.11. Severability. In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 8.12. Headings. Article and Section headings in this Agreement and in the Table of Contents hereto are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 8.13. GOVERNING LAW. THE AGENT HEREBY ACCEPTS THIS AGREEMENT, ON BEHALF OF ITSELF AND THE LENDERS, AT NEW YORK, NEW YORK BY ACKNOWLEDGING AND AGREEING TO IT THERE. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. 8.14. Successors and Assigns; Subsequent Holders of Notes. This Agreement and the other Loan Documents shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and permitted assigns of the Lenders. The terms and provisions of this Agreement shall inure to the benefit of any assignee or transferee of the Loans and the Commitment of any Lender (to the extent such assignment or transfer is effected in accordance with Section 8.02), and in the event of such transfer or assign- ment, the rights and privileges herein conferred upon Lenders shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and condi- tions hereof. The Borrower's rights or any interest therein hereunder, and the Borrower's duties and Obligations hereunder, may not be assigned without the written consent of all of the Lenders. All of the Borrow- er's obligations and duties under this Agreement and under each of the other Loan Documents shall be binding upon each of the Borrower's successors and assigns, including, without limitation, any receiver, trustee or debtor-in- possession of or for the Borrower. 8.15. CONSENT TO JURISDICTION; SERVICE OF PROCESS. Each of the parties hereto agrees that all disputes among them arising out of, connected with, related to, or incidental to the relationship established among them in connection with, this Agreement or any of the other Loan Documents whether arising in contract, tort, equity, or otherwise, shall be subject to the non-exclusive jurisdiction of any state or federal court located in New York, New York, but the parties hereto acknowledge that any appeals from those courts may have to be heard by a court located outside of New York, New York. Each of the parties hereto waives in all disputes brought pursuant to this Section 8.15 any objection that it may have to the location of the court considering the dispute. The Borrower agrees that the Agent or any Lender shall have the right to proceed against the Borrower in a court in any location to enable such Person to (1) obtain personal jurisdiction over the Borrower or (2) enforce a judgment or other court order entered in favor of such Person. The Borrower irrevocably waives any objection (including, without limitation, any objection of the laying of venue or based on the grounds of forum non conveniens) which it may now or hereafter have to the bringing of any such action or proceeding with respect to this Agreement or any other Loan Document or instrument, document or agreement executed or delivered in connection herewith in any jurisdiction set forth above. 8.16. Counterparts; Effectiveness; Inconsistencies. This Agreement and any amendments, waivers, consents, or supplements may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective against each of the Borrower, each Lender and the Agent on the date when all of such parties have duly executed and delivered this Agreement to each other (delivery by the Borrower to the Lenders and by any Lender to the Borrower and any other Lender being deemed to have been made by delivery to the Agent). This Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually inconsistent with the terms and conditions of any other Loan Document, this Agreement shall govern. IN WITNESS WHEREOF, this Agreement has been duly executed on the date set forth above. HARNISCHFEGER INDUSTRIES, INC., as the Borrower By: ---------------------- Name: Title: CHEMICAL BANK, as Agent and as a Lender By: ---------------------- Name: Title: THIS PAGE INTENTIONALLY LEFT BLANK THE FIRST NATIONAL BANK OF CHICAGO, as a Lender By: ---------------------- Name: Title: ROYAL BANK OF CANADA, as a Lender By: ---------------------- Name: Title: BANCA COMMERCIALE ITALIANA - CHICAGO BRANCH, as a Lender By: ---------------------- Name: Title: By: ---------------------- Name: Title: BANCA NAZIONALE DEL LAVORO SPA - NEW YORK BRANCH, as a Lender By: ---------------------- Name: Title: ABN AMRO BANK N.V., as a Lender By: ---------------------- Name: Title: COMMERZBANK AKTIENGESELLSCHAFT, GRAND CAYMAN BRANCH, as a Lender By: ---------------------- Name: Title: FIRST BANK NATIONAL ASSOCIATION, as a Lender By: ---------------------- Name: Title: THE FIRST NATIONAL BANK OF BOSTON, as a Lender By: --------------------- Name: Title: NBD BANK, N.A., as a Lender By: ---------------------- Name: Title: PNC BANK, NATIONAL ASSOCIATION, as a Lender By: ---------------------- Name: Title: ISTITUTO BANCARIO SAN PAOLO DI TORINO S.p.A., as a Lender By: ---------------------- Name: Title: FIRSTAR BANK MILWAUKEE, N.A. as a Lender By: ---------------------- Name: Title: M & I MARSHALL & ILSLEY BANK, as a Lender By: ---------------------- Name: Title: THE CHASE MANHATTAN BANK N.A., as a Lender By: ---------------------- Name: Title: EX-10 3 EXHIBIT 10(a) HARNISCHFEGER INDUSTRIES, INC. 1988 INCENTIVE STOCK PLAN (as amended February 3, 1992) HARNISCHFEGER INDUSTRIES, INC. I988 INCENTIVE STOCK PLAN Table of Contents Article Page 1 Introduction 1 1.1 Plan Name, Effective Date 1 1.2 Purpose 1 1.3 Plan Administrator 2 1.4 Company Shares Reserved for the Plan 2 2 Administration of the Plan 3 2.1 Plan Administrator 3 2.2 Plan Administrator's Powers 3 2.3 Actions by Plan Administrator 5 3 Plan Participants 5 3.1 Eligibility 5 3.2 Participation 6 3.3 Grant Date 7 4 Terms and Conditions of Options and Stock Appreciation Rights 7 4.1 Terms and Conditions of Options 7 4.2 Terms and Conditions of Stock Appreciation Rights 10 4.3 Method of Exercising Options and Stock Appreciation Rights 12 5 Terms and Conditions of Restricted Company Shares 13 5.1 Terms and Conditions of Restricted Company Shares 13 5.2 Vesting 14 5.3 Forfeitures 14 5.4 Issuance of Share Certificates 14 6 General Provisions 15 6.1 Stockholder Rights 15 6.2 Listing, Registration and Compliance with Laws and Regulations 15 6.3 Non-Transferability of Options, Stock Appreciation Rights, and Restricted Company Shares 16 6.4 Adjustments for Changes in Company Shares 17 6.5 Loan Agreement Restrictions 17 6.6 Indemnification 17 6.7 Withholding of Taxes 18 6.8 No Employment Rights Conferred 19 6.9 Notice of Early Disposition of Company Shares 19 6.10 Cancellation of Options 19 6.11 Continued Availability of Company Shares Under Unexercised Options and Forfeited Restricted Stock Grants 19 6.12 No Strict Construction 20 6.13 Choice of Law 20 6.14 Successors 21 6.15 Severability 21 7 Amendment and Termination 21 7.1 Amendment 21 7.2 Termination 21 HARNISCHFEGER INDUSTRIES, INC. 1988 INCENTIVE STOCK PLAN ARTICLE 1 Introduction 1.1 Plan Name, Effective Date. Harnischfeger Industries, Inc. 1988 Incentive Stock Plan (the "Plan") is established effective February 8, 1988 by Harnischfeger Industries, Inc. (the "Company"). 1.2 Purpose. The purpose of the Plan is to provide key employees of the Company and its subsidiaries with additional incentive to increase their efforts on the Company's behalf and to remain in or enter into the employ of the Company and its subsidiaries by granting to such employees from time to time, at the discretion of the plan administrator: (a) incentive stock options (within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code")) to purchase shares of common stock of the Company ("Company Shares"), (b) nonqualified stock options (meaning all options granted under the Plan which are not designated by the plan administrator at the time of grant as incentive stock options) to purchase Company Shares, (c) stock appreciation rights, but only in connection with incentive stock options and nonqualified stock options granted under the Plan, and (d) restricted Company Shares, according to the terms of Article 5. By virtue of the benefits available under the Plan, employees who are responsible for the future growth and continued success of the Company have an opportunity to participate in the appreciation in the value of Company Shares, which furnishes such employees with an additional incentive to work for and contribute to such appreciation through the growth and success of the Company. 1.3 Plan Administrator. As provided in Article 2, the Plan is administered by a committee of two or more members of the Board of Directors of the Company (the "plan administrator"). 1.4 Company Shares Reserved for the Plan. 2,280,000 Company Shares (which may be authorized and unissued shares or treasury shares and which number is subject to adjustment as provided in Section 6.4) shall be reserved for issuance under the Plan, reduced by the sum of the following: (i) all Company Shares which are purchased after 1987 upon the exercise of purchase options at any time granted under the Harnischfeger Industries, Inc. 1978 Incentive Stock Plan (the "1978 Plan") or this Plan, (ii) all Company Shares for which payment of incremental value is made after 1987 by reason of the exercise of stock appreciation rights at any time granted under the 1978 Plan or this Plan to the extent of a) the Company Shares received upon such exercise of stock appreciation rights and b) the number of Company Shares subject to incentive stock options granted in tandem with any such stock appreciation rights, (iii) the number of Company Shares determined by dividing the value of the cash or other consideration issued by the Company by reason of a surrender after 1987 of any option by the per share market value on the surrender date (provided that if a new option is substituted for a surrendered option, the new option will (regardless of the exercise price prescribed therein) be deemed to have a value of zero for purposes of this clause (iii)) and (iv) the number of restricted Company Shares granted and not forfeited. ARTICLE 2 Administration of the Plan 2.1 Plan Administrator. The Plan is administered by a committee consisting of two or more directors of the Company appointed by the Board of Directors of the Company, each of whom has not, during the one year prior to or during service as an administrator of the Plan, been granted or awarded equity securities of the Company pursuant to the Plan or any other plan of the Company other than a plan meeting the requirements of paragraphs (c)(2)(i)(A)-(D) of Rule 16b-3 promulgated pursuant to the Securities Exchange Act of 1934 as amended. Subject to the foregoing, the Board of Directors of the Company shall have the power to determine the number of plan administrative committee members and to change such number from time to time. The Board of Directors may from time to time appoint members who qualify under the above criteria to the plan administrative committee in substitution for, or (where the number of members has been increased) in addition to, members previously appointed and may fill vacancies, however caused. Any plan administrative committee member may be removed by the Board of Directors at any time without cause. No individual may be appointed as a committee member who shall not be a director of the Company at the time of such appointment. An individual shall automatically cease to be a plan administrative committee member at the time such individual ceases to be a director of the Company. 2.2 Plan Administrator's Powers. Except as otherwise specifically provided and in addition to the powers, rights and duties specifically given to the plan administrator elsewhere in the Plan, the plan administrator shall have the following powers, rights an duties: (a) To determine (i) the key employees of the Company and its subsidiaries to whom restricted Company Shares, incentive stock options, nonqualified stock options and stock appreciation rights shall be granted (provided that no restricted Company Shares, option or stock appreciation rights may be granted to an individual at a time when the individual owns, or would own after the grant of such Company Shares or the exercise of such option, stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company), (ii) the time or times at which such restricted Company Shares, options and stock appreciation rights shall be granted (provided that no restricted Company Shares, options and no stock appreciation rights may be granted after January 31, 1998), and (iii) the number of Company Shares to be granted as restricted Company Shares or to be covered under each incentive stock option or nonqualified stock option and any related stock appreciation right granted under the Plan. (b) To establish all of the terms and conditions governing the rights and obligations of a key employee with respect to any such restricted Company Shares, incentive stock option, nonqualified stock option or stock appreciation right granted to such employee, including but not limited to (i) the option price of Company Shares covered under each such option or stock appreciation right (which option price shall not be less than 100 percent of the fair market value of a Company Share on the date the applicable option is granted) and whether upon the exercise of an option such price may be paid in cash or Company Shares, or partially in each, (ii) the length of the period during which an option or stock appreciation right may be exercised, (iii) the time or times during each such applicable period when each option or stock appreciation right may be partially or fully exercised, including the power to accelerate the exercisability of any previously granted option or stock appreciation right, (iv) whether a stock appreciation right which has been exercised shall be partially or fully paid by the issuance of Company Shares, (v) any conditions precedent to be satisfied before an option or a stock appreciation right may be exercised, (vi) any restrictions on resale of any Company Shares received as restricted Company Shares or on exercise of an option or stock appreciation right and whether the Company shall have any repurchase rights with respect to such Company Shares, (vii) the form of the instruments evidencing any option or stock appreciation right granted under the Plan or effecting an exercise by a holder thereof of any option or stock appreciation right, and the form of the instruments evidencing the granting of restricted Company Shares, and (viii) the vesting schedule applicable to each grant of restricted Company Shares and whether the vesting schedule for a restricted Company Share shall be accelerated at any time. (c) To construe and interpret the Plan and the terms of restricted Company Shares, options and stock appreciation rights granted under the Plan, to adopt, amend and rescind such rules and regulations as may be necessary for the efficient administration of the Plan and as are consistent with its terms, and to remedy ambiguities, inconsistencies or omissions. Each action taken and decision made by the plan administrator within the scope of the authority delegated to it by this Plan or by the Board of Directors shall be binding and conclusive on all persons interested in the Plan. 2.3 Actions by Plan Administrator. The plan administrator shall hold its meetings at such times and places as it may determine and may make such rules and regulations for the conduct of its business as it considers advisable. A majority of the members of the plan administrative committee shall constitute a quorum and any action taken by a majority of the members present at a meeting at which a quorum of members is present shall be considered an act of the plan administrator. The plan administrator also may take fully effective actions by a written instrument signed by a majority of the members of the plan administrative committee. The plan administrative committee may select one of its members as its chairman and may appoint a secretary of the committee (who need not be a member of the committee). ARTICLE 3 Plan Participants 3.1 Eligibility. Each key employee of the Company and its subsidiaries shall be eligible to be designated by the plan administrator as the recipient of restricted Company Shares, an incentive stock option or nonqualified stock option and stock appreciation rights under the Plan. In making determinations as to the employees to be granted restricted Company Shares, options and stock appreciation rights, the plan administrator may take into account the nature of the services rendered or expected to be rendered by the respective employees, their present and potential contributions to the Company's success, the anticipated number of years of service remaining and such other factors as the plan administrator in its discretion considers relevant. The term "key employee" shall include officers as well as other employees of the Company and its subsidiaries (including employees who also are directors of the Company or one of its subsidiaries) who have managerial, supervisory, professional, engineering or similar responsibilities. Neither any member of the plan administrative committee nor any member of the Board of Directors who is not an employee of the Company or its subsidiaries shall be eligible to be granted an option, any stock appreciation rights or restricted Company Shares under the Plan. 3.2 Participation. The plan administrator may from time to time grant to key employees restricted Company Shares, incentive stock options to purchase Company Shares, nonqualified stock options to purchase Company Shares and, in addition at its sole discretion, stock appreciation rights in connection with such incentive stock options or nonqualified stock options. The plan administrator may grant more than one restricted Company Share, option or stock appreciation right to the same key employee. Each stock appreciation right granted under the Plan must be granted in connection with all or a portion of an incentive stock option or nonqualified stock option granted under the Plan. However, a stock appreciation right may be granted concurrently with the granting of an option or at any time thereafter during the term of the option; provided that at the time of such grant the individual to whom the stock appreciation right is granted is a key employee of the Company or of one of its subsidiaries. No restricted Company Share, option or stock appreciation right may be granted to any key employee who on the effective date of the grant is not in the employ of the Company or one of its subsidiaries. (Key employees who have received grants of restricted Company Shares or options under the Plan are sometimes referred to herein as "participants"). The Company will from time to time grant to such key employees as may be selected by the plan administrator the restricted Company Shares, options and stock appreciation rights designated to be granted by the plan administrator, subject to the terms and conditions established by the plan administrator and the terms and conditions herein provided. 3.3 Grant Date. The effective date of the grant of a restricted Company Share, option or stock appreciation right (the "grant date") shall be the date specified by he plan administrator in its determination or designation relating to the granting of such restricted Company Shares, option or stock appreciation right: provided that the plan administrator may not designate a grant date with respect to any restricted Company Shares, option or stock appreciation right which is earlier than the date on which the granting of such share, option or stock appreciation right is approved by the plan administrator. ARTICLE 4 Terms and Conditions of Options and Stock Appreciation Rights 4.1 Terms and Conditions of Options. As provided in Section 2.2, options granted under the Plan shall be in such quantity, at such price, subject to such terms and conditions and evidenced in such form as shall be determined from time to time by the plan administrator; provided that all options shall in any event be subject to the following terms and conditions: (a) Option Price. The option price per Company Share, which may be different in each case, shall be fixed by the plan administrator at or before the time the plan administrator approves the granting of the option. However, no option shall have an option price per Company Share of less than 100 percent of the fair market value of a Company Share on the grant date of the option. For this purpose "fair market value" of a Company Share as of any date shall be determined in such manner as shall be prescribed in good faith by the plan administrator; provided that in the absence of specific instructions by the plan administrator to the contrary, the fair market value of a Company Share as of any date shall be equal to the last per share sales price reported for a Company Share for such date in The Wall Street Journal or, if no sales of Company Shares are reported for such date in The Wall Street Journal, for the next succeeding date for which sales of Company Shares are so reported in The Wall Street Journal. (b) Term and Exercisability of Options. The term of each option granted under the Plan shall be for a period not exceeding ten years from the grant date, as established by the plan administrator at or before the time the plan administrator grants the option. No option shall be exercisable (i) during the first six full calendar months commencing on or after the grant date, (ii) following the exercise of a stock appreciation right related to such option (but only to the extent the stock appreciation right or portion thereof that has been exercised covered the same Company Shares that were covered by the option), or (iii) on or following the tenth anniversary of the grant date (or any earlier date which is the day following the last day of the term of the option). Unless the plan administrator determines otherwise in the original terms of an option, and subject to subsection (d) next below and other applicable provisions of the Plan, each option shall become exercisable in accordance with the following table based upon the number of full calendar months elapsed from the grant date of the option: If the Number of The Percentage of Full Calendar Months Company Shares Elapsed From the Covered By the Grant Date Equals Option Shall Be -------------------- ------------------ Less than 6 months 0 At least 6 months but less than 18 months 25% At least 18 months but less than 30 months 50% At least 30 months but less than 42 months 75% 42 months or more 100% Further, unless the plan administrator determines otherwise, in the case of a participant who will reach his "normal retirement date" (as defined in Harnischfeger Corporation Salaried Employees Retirement Plan) less than 42 months from the grant date of an option, the number of Company Shares which shall become exercisable at the beginning of each twelve calendar month period subsequent to the initial six calendar month period commencing on or following the grant date shall be the total number of Company Shares specified in the option multiplied by a fraction, the numerator of which is 100% and the denominator of which is the whole number (but not less than one) of complete twelve month periods between the date following such initial six calendar month period and the participant's normal retirement date. (c) Special Incentive Stock Option Terms. The terms of each incentive stock option granted under the Plan shall include those terms which are required by Section 422 of the Code and such other terms not inconsistent therewith as the plan administrator may determine. Each option which is designated by the plan administrator as an incentive stock option shall be considered to have contained from the outset such terms and provisions as shall be necessary to entitle such intended incentive stock option to the tax treatment afforded by the Code to incentive stock options under Section 422 of the Code. If any agreement covering such an intended incentive stock option granted under the Plan does not explicitly include any terms required to entitle such intended incentive stock option to the tax treatment afforded by the Code to incentive stock options, then all of such required terms and provisions shall be considered implicit in such agreement and such intended incentive stock option shall be considered to have been granted subject to such required terms and conditions. (d) Early Terminations of Options. If a participant ceases to be employed by the Company and all of its subsidiaries prior to the end of the six full months commencing on the grant date of an option, the option shall terminate effective as of the date of the participant's termination of employment and no portion of the terminated option shall be exercisable after that date. If a participant's termination of employment occurs following the six full months commencing on or after the grant date of an option the following shall apply with respect to such option: (i) Except as provided in (iii) and (iv) below, the participant shall, during the three months commencing on his date of termination of employment, have the right at his discretion to partially or fully exercise the unexercised portion of the option which was exercisable at the time of his termination of employment. (ii) If a participant shall die prior to his termination of employment or following his termination of employment but within the three month period described in subparagraph (i) next above, the unexercised portion of the option which was exercisable at the time of the participant's death may be partially or fully exercised within the twelve month period commencing on the date of the participant's death by the participant's estate or by any person who has acquired the right to exercise such option by bequest or inheritance or by reason of the laws of descent and distribution. (iii) If a participant's employment is terminated by the Company or any of its subsidiaries for cause, any unexercised portion of an option granted to the participant shall terminate effective as of the participant's date of termination of employment and no portion thereof shall be exercisable thereafter. For this purpose, termination "for cause" means termination as a result of the failure of the participant to carry out the duties assigned to him as a result of his incompetence, willful neglect or willful serious misconduct, as determined by the Company. (iv) Notwithstanding the foregoing, the unexercised portion of any option shall, to the extent permitted by applicable law, terminate immediately upon the employment of a participant by a competitor of the Company or of one of its subsidiaries. 4.2 Terms and Conditions of Stock Appreciation Rights. As provided in Section 2.2, stock appreciation rights granted under the Plan shall be subject to such terms and conditions and shall be evidenced by agreements in such form as shall be determined from time to time by the plan administrator. In general (i) stock appreciation rights shall be exercisable at such time or times and to the extent that the incentive stock option or nonqualified stock option, or portion thereof, to which the stock appreciation right is related is exercisable, and (ii) upon the termination, exercise or expiration of an option or portion thereof to which a stock appreciation right is related, such stock appreciation right shall terminate and shall not thereafter be exercisable. However, notwithstanding that the option or portion thereof related to a stock appreciation right may be exercisable, each stock appreciation right may be exercised only during a window period (as described below), a stock appreciation right may not be exercised until after the end of the six full calendar months commencing on or after the date such stock appreciation right is granted (except that this limitation shall not apply in the case of the death or disability of a participant if the option or portion thereof to which the stock appreciation right is related is exercisable) and a stock appreciation right related to an incentive stock option shall not be exercisable on any date on which the fair market value of a Company Share is less than the option price provided for in the related incentive stock option. A stock appreciation right granted to a participant shall entitle the participant upon his exercise of such right to surrender the related option or portion thereof and receive an amount (herein called the "incremental value") equal to the excess of the fair market value on the date of such exercise of the Company Shares subject to such surrendered option or portion thereof over the option price of such Company Shares as provided in such option. The incremental value shall be paid by the Company all in cash, all in Company Shares or in any combination of cash and Company Shares, as the plan administrator shall determine in its sole discretion, which determination shall be made after considering any preference expressed by the participant exercising the stock appreciation right. Any participant who wishes to express such a preference shall notify the plan administrator in writing of his preference and, if such participant expresses a preference to receive cash in whole or in part, such writing shall be delivered to the Company, in care of the plan administrator, during the period (hereinafter the "window period") beginning on the third business day following the date of release for publication of an annual or quarterly summary statement of the sales and earnings of the Company and its consolidated subsidiaries and ending on the twelfth business day following such date. In the event a participant does not duly notify the plan administrator of any preference, and in the absence of any express determination by the plan administrator to the contrary, each payment of incremental value which shall become due by reason of any exercise of a stock appreciation right shall be made in cash. In the event any Company Shares shall be delivered to satisfy all or any part of any incremental value obligation arising by reason of any exercise of a stock appreciation right, the dollar amount of such obligation satisfied by such delivery of Company Shares shall be considered to be equal to the fair market value of a Company Share as of the date of exercise multiplied by the number of Company Shares delivered. No fractional Company Shares shall be issued to make any payment of incremental value, and the cash and Company Shares payable in each case shall be adjusted in such manner as shall be prescribed by the plan administrator to avoid the issuance of any fractional Company Shares. Upon exercise of a stock appreciation right and surrender of the related option or portion thereof, such option, to the extent surrendered, shall be considered to have been exercised and shall not thereafter be exercisable, and to the extent Company Shares covered under the option have not been used to pay the incremental value, such Company Shares shall no longer be reserved under the Plan. 4.3 Method of Exercising Options and Stock Appreciation Rights. An option shall be exercised by a written notice to the plan administrator and payment of the option price to the Company, in care of the plan administrator. Payment of the option price may be made, at the discretion of the optionee, (i) in cash (including check, bank draft, or money order, (ii) by delivery of Company Shares (valued at the fair market value thereof on the date of exercise) or (iii) by delivery of a combination of cash and common stock provided, however, that the plan administration may, in any instance, in order to prevent any possible violation of law, require the option price to be paid in cash and further provided that the right to deliver Company Shares in payment of the option price may be limited or denied in any option agreement. A stock appreciation right shall be exercised by written notice to the plan administrator at such time as is permitted in accordance with the provisions of Section 4.2 and by surrender of the option or portion thereof to which the stock appreciation right relates. At the time or exercise of an option or stock appreciation right a participant may request that Company Shares to be issued with respect to the exercise of the option or which may be issued with respect to the exercise of the stock appreciation right be issued in the name of the participant and another person jointly with right of survivorship. ARTICLE 5 Terms and Conditions of Restricted Company Shares 5.1 Terms and Conditions of Restricted Company Shares. As provided in Section 2.2, Company Shares granted under the Plan shall be subject to such terms, conditions and restrictions, and shall be evidenced by such agreements as shall be determined from time to time by the plan administrator. All grants of Company Shares shall in any event be subject to the following terms, conditions and restrictions: (a) The purchase price, if any, will be determined by the plan administrator. (b) Restricted Company Shares may be subject to restrictions on the sale or other disposition thereof, rights of the Company to reacquire such restricted Company Shares at the purchase price, if any, originally paid therefor upon termination of the employee's employment within specified periods, representation by the employee that he or she intends to acquire restricted Company Shares for investment and not for resale, and such other restrictions, conditions and terms as the plan administrator deems appropriate. (c) The participant shall be entitled to all dividends paid with respect to restricted Company Shares during the period of restriction and shall not be required to return any such dividends to the Company in the event of the forfeiture of the restricted Company Shares. (d) The participant shall be entitled to vote the restricted Company Shares during the period of restriction. (e) The plan administrator shall determine whether restricted Company Shares are to be delivered to the participant with an appropriate legend imprinted on the certificate or if the shares are to be deposited in escrow pending removal of the restrictions. 5.2 Vesting. Each participant shall be vested in the Company Shares granted under this Article 5 according to such schedule and such performance factors affecting vesting as the plan administrator determines at the time of grant. As provided in Section 2.2, the plan administrator shall have the power to accelerate the vesting schedule. Whenever the term "vested" or "fully vested" are used in this Plan with reference to restricted Company Shares, the meaning of those terms shall be determined by reference to the vesting schedule. 5.3 Forfeitures. If a participant terminates employment before his Company Shares are vested or before fulfillment of the applicable performance factors, the participant shall forfeit such Company Shares under terms established by the plan administrator and they shall again be available for issuance under Section 1.4. 5.4 Issuance of Share Certificates. Share certificates for the number of restricted Company Shares granted will be issued in the name of each participant at the time of grant and shall be delivered pursuant to subsection 5.1(e). A participant may request that Company Shares be issued in the name of the participant and another person jointly with right of survivorship. ARTICLE 6 General Provisions 6.1 Stockholder Rights. A participant shall not have any dividend, voting or other stockholder rights by reason of a grant of an option or a grant of a stock appreciation right prior to the issuance of any Company Shares pursuant to the proper exercise of all or any portion of such option or stock appreciation right. A participant shall have dividend, voting and other stockholder rights with respect to restricted Company Shares except as provided in Section 6.3 or otherwise provided at the time of grant. 6.2 Listing, Registration and Compliance with Laws and Regulations. Each restricted Company Share, option and stock appreciation right granted to a participant shall be subject to the condition that the Company shall not be obligated to issue any Company Shares to the participant regardless of whether such participant attempts to exercise or has exercised the option or stock appreciation right, in whole or in part, if at any time the Board of Directors shall determine, in its discretion, that the listing, registration or qualification of Company Shares subject to such grant, option or stock appreciation right upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition or, or in connection with, the granting of such restricted Company Share, option or stock appreciation right or the issue or purchase of Company Shares thereunder unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Company shall not by reason of the granting of any restricted Company Share, option or stock appreciation right under this Plan have any obligation to register the Company Shares subject to such option under the Securities Act of 1933, as amended, or to maintain in effect any registration of such Company Shares which may be made at any time under such Act. In this connection, the form of restricted Company Share, stock option and stock appreciation right agreements to be used under the Plan may provide, among other things, that a participant shall represent that all Company Shares are being purchased for investment and not with a view to resale in connection with a distribution of such Company Shares. 6.3 Non-transferability of Options, Stock Appreciation Rights and Restricted Company Shares. During a participant's lifetime any option or stock appreciation right granted under the Plan shall be exercisable only by the participant and shall not be transferred (except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder), pledged or hypothecated in any way and shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of an option or stock appreciation right, contrary to the provisions hereof, or upon the levy of any attachment or similar process upon the rights and privileges conferred hereby, such option or stock appreciation right shall immediately become null and void. Company Shares granted under the provisions of Article 5 shall not be transferred until such Shares have become fully vested and nonforfeitable, and any attempt to sell, assign, pledge, hypothecate or otherwise encumber such Shares shall result in their forfeiture according to the terms of Section 5.3. 6.4 Adjustments for Changes in Company Shares. In order to prevent dilution or enlargement of restricted Company Shares, options or stock appreciation rights, in the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation or other change in Company Shares, the Board of Directors shall make appropriate changes in the aggregate number and type of Company Shares reserved for grant as restricted Company Shares, options and stock appreciation rights under this Plan, in the number and type of Company Shares subject to grant as restricted Company Shares and subject to unexercised options and stock appreciation rights, in the option price per Company Share specified in unexercised options and in stock appreciation rights relating to unexercised options. 6.5 Loan Agreement Restrictions. Each option and stock appreciation right shall be subject to the condition that the Company shall not be obliged to (i) issue any Company Shares to a participant, regardless of whether such participant attempts to exercise or has exercised an option or stock appreciation right, in whole or in part, or (ii) make any payment to a participant upon the surrender of a stock appreciation right, if at any time the Board of Directors shall determine, in its discretion, that the issuance of such Company Shares or the payment of cash would be in violation of any covenant contained in any of the Company's loan agreements or other contracts, as now or from time to time hereafter in effect. 6.6 Indemnification. No member of the plan administrative committee shall be liable, in the absence of bad faith, for any act or omission with respect to his service on the committee relating to the Plan. Service on the plan administrative committee shall constitute service as a director of the Company so that members of the plan administrative committee shall be entitled to indemnification and reimbursement as directors of the Company to the full extent provided for at any time by law, the Company's Certificate of Incorporation, the Company's By-Laws and in any insurance policy or other agreement intended for the benefit of the Company's directors. 6.7 Withholding of Taxes. The Company shall be entitled, if the plan administrator considers it necessary or desirable, to withhold (in cash or Company Shares), or secure payment from the participant in lieu of withholding, the amount of any withholding or other payment required of the Company under the tax withholding provisions of the Code, any state's income tax act or any other applicable law with respect to any amount payable and Company Shares issuable under such participant's exercised options or stock appreciation rights or as restricted Company Shares, provided, however, that with respect to any Section 16 Officer (as defined below) any decision by the Company to withhold Company Shares and any withholding of Company Shares by the Company from a Section 16 Officer shall only be made during a window period and provided further that no Company Shares shall be withheld under the provisions of this Section 6.7 that are issuable under options, stock appreciation rights or restricted stock granted to the Section 16 Officer less than six months before the date either the decision to withhold or the withholding is to take place. A Section 16 Officer is a participant who is or at any time during the prior six months has been designated by the Company as a Section 16 Officer for purposes of Section 16 of the Securities Exchange Act of 1934. Subject to the discretion of the Company, no distribution will be made to the participant until all tax withholding obligations have been satisfied and, if Company Shares are withheld pursuant to this Section 6.7, until the window period during which the Company Shares are withheld. 6.8 No Employment Rights Conferred. Nothing in the Plan or in any option, stock appreciation right or restricted Company Share granted under the Plan shall confer any right on an employee to continue in the employ of the Company or any subsidiary or shall interfere in any way with the right of the Company or any subsidiary at any time to terminate his employment with or without cause or to adjust his compensation. 6.9 Notice of Early Disposition of Company Shares. As a condition of participation in the Plan each participant agrees that he will give prompt notice to the plan administrator of any disposition of Company Shares acquired upon the exercise of an incentive stock option if such disposition occurs within either two years after the grant date of an incentive stock option or one year after the receipt of such Company Shares by the participant following his exercise of the incentive stock option. 6.10 Cancellation of Options. By express written agreement a participant and the plan administrator may agree that any previously granted option is thereby canceled as of the date of the agreement and, at its discretion, the plan administrator may subsequently grant to such a participant who has voluntarily surrendered and canceled a prior option one or more new or substitute similar or different options under the plan. 6.11 Continued Availability of Company Shares Under Unexercised Options and Forfeited Restricted Stock Grants. If an option granted under the Plan terminates or expires without being wholly exercised, if Company Shares as to which an option has been exercised shall for any reason not be issued, or if restricted Company Shares are forfeited, restricted Company Shares or a new option (and at the discretion of the plan administrator a related stock appreciation right) may be granted under the Plan covering the number of Company Shares to which such termination, expiration, forfeiture, failure to issue or reacquisition relates; provided, however, that to the extent Company Shares are issued in connection with the exercise of a stock appreciation right or a stock appreciation right granted in connection with an incentive stock option is exercised, the related option shall, solely for purposes of determining the total number of Company Shares available for grant under the Plan, be deemed to have been exercised, and the Company Shares issued upon the exercise of such stock appreciation right or which otherwise would have been issued upon the exercise of an incentive stock option related to such stock appreciation right shall not thereafter be available for any further grants under the Plan. 6.12 No Strict Construction. No rule of strict construction shall be applied against the Company, the plan administrator or any other person in the interpretation of any of the terms of the plan, any option agreement or stock appreciation right agreement or restricted Company Share agreement, any option or stock appreciation right or restricted Company Share granted under the plan or any rule or procedure established by the plan administrator. 6.13 Choice of Law. Each option, stock appreciation right, and restricted Company Share granted under the Plan shall be considered to be a contract under the laws of the State of Wisconsin and, for all purposes, the Plan and each option, stock appreciation right, and restricted Company Share granted under the Plan shall be construed in accordance with and governed by the laws of the State of Wisconsin. 6.14 Successors. This Plan is binding on and will inure to the benefit of any successor to the Company, whether by way of merger, consolidation, purchase or otherwise. 6.15 Severability. If any provision of the Plan or an option or stock appreciation right or restricted Company Share agreement shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan or such agreement, and the Plan and such agreement shall each be construed and enforced as if the invalid provisions had never been set forth therein. ARTICLE 7 Amendment and Termination 7.1 Amendment. The Board of Directors may amend the Plan from time to time, in its sole discretion, but no amendment shall: (a) without a participant's consent impair his rights to any option or stock appreciation right or restricted Company Share theretofore granted; or (b) without the authorization and approval of the Company's stockholders (i) increase the maximum number of Company Shares which may be issued in the aggregate under the Plan, except as provided in Section 6.4, (ii) extend the termination date of the Plan or of any option or stock appreciation right granted under the Plan, or (iii) enlarge the class of employees eligible to receive options or stock appreciation rights or restricted Company Shares under the Plan. 7.2 Termination. The Board of Directors may terminate the Plan at any time with respect to Company Shares which have not theretofore been granted or for which options have not theretofore been granted. Unless earlier terminated, the Pan will terminate at the close of business on January 31, 1998. Following the termination of the Plan, all options or stock appreciation rights which prior to the Plan termination have not expired, terminated or been exercised or surrendered may be exercised in accordance with their terms and the terms hereof, all restricted Company Shares which have been granted may vest or be forfeited in accordance with the terms of their grant and the terms hereof, and the plan administrator shall continue to have its full powers under the Plan, except with respect to the granting of restricted Company Shares, options or stock appreciation rights under the Plan. EX-10 4 Exhibit 10(c) FIRST AMENDMENT OF HARNISCHFEGER INDUSTRIES DEFERRED COMPENSATION TRUST WHEREAS, Harnischfeger Industries, Inc. (the "company") maintains Harnischfeger Industries Deferred Compensation Trust (the "trust"); and WHEREAS, amendment of the trust now is considered desirable; NOW, THEREFORE, by virtue and in exercise of the power reserved to the company by paragraph 10.1 of the trust, the trust be and hereby is amended, effective December 19, 1990, in the following particulars: 1. By substituting for subparagraphs 1.1(f), (g) and (h) of the trust the following: "(f) 'Company Shares' means shares of common stock of the Company. (g) 'Government Securities' means obligations of, or guaranteed as to principal and interest by, the United State Government. (h) 'Participant' means any participant in a Plan. (i) 'Permitted Investments' means: Company Shares; Government Securities; taxable corporate commercial paper, having at the date of investment a rating of at least A1/P1 from either Standard & Poor's Corporation or Moody's Investors Service, Inc. (or, in either case, its successor); certificates of deposit of banks or trust companies having a long-term debt rating of at least AA/Aa from either Standard & Poor's or Moody's; money market mutual funds or common trust funds or other collective investment funds maintained by the Trustee for trust investment purposes which are invested entirely or substantially entirely in investments of the foregoing kinds with average daily maturities of less than forty-five days; and such other investments, if any, as may hereafter be approved from time to time by the Committee as 'Permitted Investments'." 2. By substituting for subparagraph 2.2(b) of the trust the following: "(b) The Company shall transfer to the Trustee from time to time cash or Company shares in such amounts as it considers desirable." 3. By adding the following two sentences at the end of paragraph 4.1 of the Trust as a part thereof: "Notwithstanding the foregoing, the Trustee shall continue to invest in and hold Company Shares which have been contributed to the Trust by the Company until such time as the Trustee is directed by the Committee to distribute or otherwise dispose of such Company Shares. All dividends or other distributions received by the Trustee with respect to Company Shares shall be reinvested by the Trustee in Company Shares unless otherwise directed by the Committee." 4. By substituting for subparagraph 4.3(b) of the trust the following: "(b) To vote Company Shares personally or by proxy in accordance with the directions of Participants in the Plans who have benefits under the Plans denominated in Company Shares, and for this purpose each such Participant may instruct the Trustee as to the voting of that number of Company Shares reflected by the whole number of Company Shares held by the Trustee hereunder multiplied by a fraction, the numerator of which is the total number of Company Shares representing the Participant's benefits under the Plans denominated in Company Shares and the denominator of which is the total number of Company Shares representing all participant's benefits denominated in the Company Shares under the Plans. All Company Shares as to which the Trustee does not receive voting instructions as specified above shall be voted by the Trustee proportionately in the same manner as it votes Company Shares as to which the Trustee has received voting instructions as specified above." 5. By substituting for subparagraph 5.2(b) of the trust the following: "(b) if at any time there shall be on deposit with the Trustee Government Securities and cash (which for this purpose includes money market funds or certificates of deposit) which the Committee certifies to the Trustee to be sufficient, taking into account the respective maturities of any such Government Securities and assuming no reinvestment of any of the proceeds thereof or of any such cash, to provide for the payment of all amounts payable under the Plans in cash at the times such amounts are payable under the Plans plus Company Shares which the Committee certifies to the Trustee to be sufficient to provide for the payment of all amounts payable under the Plans in Company Shares, and the Committee so advises the Trustee, the Trustee shall, if so directed by the Committee, return all other assets of the Trust Fund to the Company; and" IN WITNESS WHEREOF, the company has caused this amendment to be executed on its behalf by the undersigned duly authorized members of its Management Policy Committee, this 19th day of December, 1990. HARNISCHFEGER INDUSTRIES, INC. /s/ Jeffery T. Grade -------------------------------- /s/ Francis M. Corby, Jr. -------------------------------- /s/ John R. Teitgen -------------------------------- As members of the Management Policy Committee of Harnischfeger Industries, Inc. The undersigned, as Trustee under Harnischfeger Industries Deferred Compensation Trust, hereby acknowledges receipt of an executed copy of the foregoing amendment, and consents thereto to the extent it applies to the undersigned as Trustee, this 28th day of December, 1990. MARSHALL AND ILSLEY TRUST COMPANY, as Trustee By /s/ James L. Neubauer ---------------------------------- Its Vice President ATTEST: /s/ Steven P. Palmer - ------------------------ Its Vice President Corporate Seal EX-10 5 Exhibit 10(m) KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT (Restated) This Agreement is made and entered into as of March 2, 1992 between K. Thor Lundgren ("Executive") and Harnischfeger Industries, Inc., a Delaware Corporation ("Company"). W I T N E S S E T H : WHEREAS, Executive possesses legal and business acumen and experience which are deemed vital by the Company and the Company desires to employ Executive as a member of its senior management team and to ensure that Executive will continue to make available his skills and experience to the Company; WHEREAS, Executive forfeited substantial current benefits and future opportunities to accept the Company's offer of employment; WHEREAS, the Company has determined it is in the best interests of the Company and its stockholders to assure that Executive is in a position to objectively evaluate all proposals for acquisition of the Company (recognizing that no such proposal is pending) and has determined this Agreement, including the severance provisions, will assure such independent evaluation; WHEREAS, the Company recognizes the need to provide a level of compensation and relative security that is competitive with that of other publicly held companies and which provides the necessary economic and performance incentives that will be of benefit to Company stockholders in the long term; and WHEREAS, in the event that Executive's position is eliminated or his employment is terminated as a result of an acquisition of the Company it would be difficult to calculate the losses and detriment which would be incurred by Executive in such circumstances: In consideration of each of the specific premises set forth above and in further consideration of the mutual agreements set forth herein, the parties agree as follows: 1. Employment by the Company of Executive and Acceptance by Executive. The Company hereby employs Executive during the term of this Agreement in such capacities and upon such conditions concerning rates of compensation, benefits and other matters as are hereinafter stated. Executive hereby accepts such employment and agrees faithfully, diligently and to the best of his ability to discharge the responsibilities of the offices which he shall, as provided herein, occupy. 2. Capacity. Executive shall be employed by the Company during the term of this Agreement as Senior Vice President, Secretary and General Counsel, with such duties, functions, responsibilities and authority which are commensurate with and appropriate for such position and as are from time-to-time set forth in the Bylaws of the Company and otherwise delegated to Executive by the Chief Executive Officer and the Board of Directors of the Company; provided that such duties, functions and responsibilities shall not be materially changed, without Executive's consent, from such duties, functions and responsibilities as are currently performed and enjoyed by Executive. Executive shall be a full-time employee of the Company and shall devote his best efforts to the performance and fulfillment of such duties, functions and responsibilities; provided that Executive shall be permitted such vacations and other time off as are consistent with his position and period of service and the general rules and practices of the Company in that regard, it being understood for this purpose that such rules and practices shall not be materially less favorable to Executive than those presently in effect. 3. Place of Employment; Moving. While it is recognized that the performance of Executive's duties hereunder will occasionally require Executive to travel on behalf of the Company, the principal office of Executive and the principal place for performance by him of his services hereunder shall be in the Milwaukee, Wisconsin metropolitan area, and Executive shall not, without his consent, be required to perform the principal portion of his services hereunder outside of such area. However, the Company may require from time-to-time that Executive perform such services outside the Milwaukee, Wisconsin metropolitan area as are required for the proper performance by him of his duties during any reasonable period or periods, but, unless the consent of Executive is obtained, such periods shall not exceed in the aggregate two months during any twelve-month period. If Executive shall consent to carry out his duties hereunder at some place other than the Milwaukee, Wisconsin metropolitan area, and, as a result thereof, it shall be or become necessary for Executive to move his place of residence, the Company shall reimburse Executive under the terms of the Company's employee relocation assistance plan in effect as of the date of this Agreement or, if more favorable to Executive, under the terms of any such practice adopted by the Company in the future. 4. Term. Subject to the other provisions of this Agreement, the term of this Agreement and Executive's employment hereunder shall be deemed to have commenced on the date of this Agreement and shall continue for a period of three years thereafter, or, if earlier, until Executive reaches age 65 or until his death or Disability (as hereafter defined), whichever occurs first. Subject to the other provisions of this Agreement, commencing on the first anniversary of this Agreement and on each anniversary thereafter, the term of this Agreement and Executive's employment hereunder shall, unless Executive has reached age 62 or died or become "Disabled" (as hereinafter defined) before such date, be automatically extended for a period of one additional year unless at least thirty days prior to such date Executive shall notify the Company in writing that Executive does not extend the term of this Agreement or the Company notifies Executive that, for Cause (as hereafter defined), the Company does not extend the term of this Agreement, which notice shall be in writing and set forth the grounds for Cause. Notwithstanding the foregoing but subject to Executive's right to terminate his employment for Good Reason (as hereafter defined), in the event of a Potential Change in Control (as hereafter defined) or a Change in Control (as hereafter defined) Executive will not terminate employment with the Company until the earliest of (i) a date which is twelve months from the occurrence of such Potential Change in Control, (ii) the termination of Executive's employment due to Disability or retirement at age 65 or (iii) a date which is twelve months from the occurrence of such Change in Control. In the event of a Change In Control, the term of this Agreement shall be extended for three years from the date of such Change In Control and there shall be no further extension of the term. The provisions of this Agreement, if extended, shall be identical to those of this Agreement as in effect immediately prior to such extension except that the annual base salary provided for herein shall be equal to the annual rate of base salary currently being paid to Executive immediately preceding the date on which such extension becomes effective. 5. Change in Control. One or more of the following shall constitute and be defined as a "Change In Control": (a) a change in control or other transaction or matters which are of a nature that any of them would be required to be reported in response to subparagraphs (i), (iv) or (v) of the first paragraph of Item 14 of Schedule 14A or Regulation 14a-101 (as now in effect or as amended) promulgated under Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement; or (b) a change in control or other transactions or matters which are of a nature that any of them would be required to be reported in response to Item 5 of Schedule 14D-1 of Regulation 14d-100 (as now in effect or as amended) promulgated under Section 14 of the Exchange Act, whether or not the Company is then subject to such a reporting requirement; or (c) if any Person (including a person as defined in Section 3(a)(9), Section 13 (d) or Section 14(d) of the Exchange Act) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities (the term Beneficial Owner as used herein shall include but not be limited to any person with the attributes or interests described in Rule 13d-3 (as now in effect or as amended) promulgated under the Exchange Act); or (d) during any period of two (2) consecutive years (not including any period prior to the execution of this Agreement) there shall cease to be a majority of the Company's Board of Directors comprised as follows: individuals who at the beginning of such period constitute the Board and any new director(s) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds ( ) of the directors who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; or (e) (i) the shareholders of the Company approve a merger, consolidation or other combination of the Company with any other corporation or entity, other than a merger, consolidation or other combination which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger, consolidation or combination or (ii) the shareholders of the Company approve a plan of liquidation of the Company or an agreement for the sale, disposition or transfer by the Company of all or substantially all the Company's assets. 6. Potential Change In Control. One or more of the following shall constitute and be defined as a "Potential Change In Control": (a) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change In Control; or (b) any Person (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) who is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 9.5% or more of the combined voting power of the Company's then outstanding securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such Person; or (c) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change In Control has occurred. For all purposes of this Agreement, if the facts giving rise to a Potential Change in Control cease to exist without any Change in Control having occurred, the provisions of this Agreement which are triggered by such Potential Change in Control shall no longer be effective unless another Potential Change in Control or any Change in Control occurs. 7. Salary Compensation. As salary compensation to Executive for his performance of the services to be rendered hereunder and for his acceptance of the responsibilities described herein and for his performance of all the usual obligations of employment, the Company agrees to pay or cause to be paid to Executive, and Executive agrees to accept, during the term of this Agreement an annual base salary of not less than $__________ per year or such greater amount as the Board of Directors may from time-to-time determine, payable in equal semi-monthly installments. At least annually the Board of Directors of the Company or the Human Resources Committee or such other committee to which the Company may have delegated such authority, shall review such base salary to determine whether it should be increased on the basis of Executive's performance, that of the Company, or other circumstances then prevailing. The results of each review shall be communicated to and discussed with Executive by the Board of Directors or such Committee. 8. Bonus and Incentive Compensation. In addition to the salary compensation payable to Executive as provided in par. 7 hereof, Executive shall be entitled during the term of this Agreement to receive such bonus and incentive compensation each year as may be awarded in the discretion of the Human Resources Committee (or other appropriate committee) of the Board of Directors of the Company pursuant to the Company's bonus, incentive compensation and similar plans as are presently in effect or as may hereafter be adopted or amended. 8A. Salary, Bonus and Other Compensation Following a Change in Control. Upon the occurrence of a Change in Control Executive shall be entitled, at a minimum, to the following in each year that Executive remains employed by the Company: (a) an annual base salary of no less than that paid immediately prior to such Change in Control plus a minimum annual salary increase, on each anniversary of this Agreement, equal to the cumulative change in the Consumer Price Index; (b) bonus and incentive compensation (including both cash and stock components) each year of no less than the greater of (i) the amount of bonus and incentive compensation received in the year immediately prior to such Change in Control or (ii) in the event Executive was promised or led to expect bonus and/or incentive compensation under any plans based upon the achievement of financial, operating or personal targets or goals, the amount that would have been payable to Executive as if such targets or goals were met for the year in question ("Par Bonus"); (c) pension benefits, supplemental retirement benefits, deferred compensation and salaried continuation plans, incentive stock awards, stock option plans, medical, health, life, accident and disability insurance plans and programs, auto and business expense reimbursements, vacations and other benefits of not less than the type and amount paid or granted to Executive immediately prior to such Change in Control; (d) office space and secretarial services equivalent to those existing immediately prior to such Change in Control. 9. Further Benefits. In addition to the compensation provided in par. 7 and par. 8 hereof, Executive shall, during the term of this Agreement (and thereafter to the extent provided herein), be covered by all applicable pension and retirement plans, insurance and death benefits in effect for all salaried employees, together with any future improvements in such plans and benefits. In addition, Executive shall be entitled during the term of this Agreement, and thereafter to the extent provided for herein or in any such plan, to receive such other and further benefits, including, without limitation, benefits under stock option plans, supplemental retirement plans, performance unit plans, deferred compensation and salary continuation plans, medical, health, life, accident and disability insurance programs, pension benefits, vacations, expense reimbursements and any and all other benefits as shall be generally made applicable to key executive employees of the Company, and such additional benefits, as may be granted to him from time-to-time by the Board of Directors of the Company or the appropriate committee thereof. 10. Covenant Against Competition. Executive agrees that at all times during the term of this Agreement and for a period of one year following the date on which Executive's employment is terminated, Executive will not, without the prior written approval of the Board of Directors of the Company, directly or indirectly, as owner, partner, officer or employee, engage in any business which is substantially competitive with any business then actively conducted by the Company or by any of its subsidiaries, or undertake to consult with or advise any such competitive business, or otherwise, directly or indirectly, engage in any activity which is substantially competitive with or in any way adversely and substantially affecting any activity of the Company or any of its subsidiaries, provided, however, that ownership by Executive of not more than 5% of the outstanding shares of stock of any such business listed on any national stock exchange or quoted on an automated quotation system, or of not more than 15% of the stock of any such business not so listed or quoted, shall not be deemed a violation of this covenant. 11. Confidentiality and Proprietary Information. Executive agrees to be bound by the provisions of the Employee Proprietary Rights and Confidentiality Agreement attached hereto as Exhibit "A" and incorporated herein. The provisions of such agreement supplement and are in addition to Executive's obligations under this Agreement. 12. Certain Remedies. If Executive commits a breach or threatens to commit a breach of any of the provisions of par. 10 hereof or the agreement described in par. 11, the Company shall have the right and remedy, in addition to any other remedy that may be available, at law or in equity, to have the provisions of par. 10 and the agreement described in par. 11 specifically enforced by any court having equity jurisdiction together with an accounting for any damages sustained, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. Such an injunction shall be available without the posting of any bond or other security, and Executive hereby consents to the issuance of such injunction. If any covenant contained in par. 10 or the agreement described in par. 11 or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions, and any court having jurisdiction shall have the power to reduce the duration and/or area of such covenant and, in its reduced form, said covenant shall then be enforceable. 13. Disability. Employee shall be considered "Disabled" (or a "Disability" shall have occurred) in the event Executive is unable to perform his services under this Agreement for a continuous period of six months by reason of his physical or mental illness or incapacity. If there is any dispute as to whether Executive is or was physically or mentally unable to perform his duties under this Agreement, such question shall be submitted to a licensed physician agreed to by Executive (or any legal guardian lawfully appointed) and the Company, or, if they are unable to so agree, appointed by the President of the Medical Society of Milwaukee County, Wisconsin at the request of either Executive (or such guardian) or the Company. Executive shall submit to such examinations and provide such information as such physician may reasonably request and the determination of such physician as to Executive's physical or mental condition shall be binding and conclusive upon Executive and the Company. If Executive shall become Disabled, in lieu of any further salary or other compensation provided for in par. 7 and par. 8 hereof (except to the extent that such salary or other compensation was earned but not paid prior to Disability), the Company shall thereafter pay to Executive the benefits under the Company's short-term disability plan as long as applicable and then the Company's long-term disability plan in effect at the date of this Agreement, together with any improvements in said plans in the future which provide additional or more favorable benefits to Executive. 14. Prior Service Credit. [This paragraph left blank]. 15. Termination by Company. (a) The Company shall have the right to terminate this Agreement (and Executive's employment) only upon the death or Disability of Executive or for Cause. For purpose of this Agreement, "Cause" shall mean (i) Executive's willful and continued failure to substantially perform the reasonably assigned duties with the Company which are consistent with Executive's position and job description referred to in this Agreement and, in the event of a Change in Control, those duties assigned prior to the Change in Control, other than any such failure resulting from incapacity due to physical or mental illness, after a written demand for substantial performance is delivered to Executive by the Board of Directors of the Company which specifically identifies the manner in which Executive has not substantially performed the assigned duties, or (ii) Executive's willful engagement in illegal conduct which is materially and demonstrably injurious to the Company. For purposes of this paragraph, no act, or failure to act, on Executive's part shall be considered "willful" unless done, or omitted to be done, in knowing bad faith and without reasonable belief that the action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board of Directors or based upon the advise of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, in good faith and in the best interests of the Company. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution, duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors at a meeting of the Board called and held for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board of Directors Executive was guilty of the conduct set forth above in (i) or (ii) of this paragraph and specifying the particulars thereof in detail. (b) Forfeiture. If Executive is terminated for Cause pursuant to par. 15, Executive shall be entitled to receive only the Accrued Benefits described in par. 16(c)(i). 16. Termination of this Agreement by Executive in Certain Circumstances. (a) Voluntary Termination. Subject to the restrictions in par. 4, Executive may terminate this Agreement other than for Good Reason (as hereinafter defined) upon 30 days prior written notice to the Company. Upon such termination, Executive shall be entitled to receive only the Accrued Benefits described in par. 16(c)(i). (b) Termination by Executive for Good Reason. Executive may terminate his employment under this Agreement for Good Reason at any time during the term hereof unless this Agreement has previously expired or been terminated by reason of (i) the death or Disability of Executive, (ii) attainment by Executive of age 65 (iii) termination of this Agreement by the Company for Cause, or (iv) voluntary termination of this Agreement by Executive other than for Good Reason. Termination by Executive for "Good Reason" shall mean termination by Executive of his employment hereunder (i) for any reason within the twelve (12) months following the expiration of the committed employment period specified in par. 4(i), (ii) or (iii) hereof (provided a Change in Control has occurred), or because of: (ii) the assignment to Executive without his express written consent of any duties or functions inconsistent with his present positions, duties, responsibilities, authority and status with the Company, or a change in his present reporting responsibilities, titles or offices, or any removal of Executive from, or any failure to re-elect Executive to, any of such positions; or (iii) failure to provide Executive with the bonus and incentive compensation required by par. 8A(b) of this Agreement or the exclusion of Executive from any management, incentive compensation or bonus programs maintained by the Company from time-to-time in its discretion and of a type in which Executive participated at the inception of this Agreement or in which key executives in general participate; or (iv) the failure by the Company to provide or maintain the benefits described in par. 8A(c) and (d) of this Agreement or the failure by the Company to maintain the deferred compensation plans, pension and retirement plans (including supplemental retirement plans), life insurance and other fringe benefit plans maintained by the Company at the inception of this Agreement; or (v) the failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company; or (vi) the failure by the Company to pay the annual base salary and annual increases required by par. 8(a) of this Agreement or any reduction in the base salary currently being paid to Executive; or (vii) any other material breach by the Company of any of the terms of this Agreement; or (viii) any purported termination by the Company of this Agreement or Executive's employment hereunder which is not effected pursuant to a Notice of Termination (as hereinafter defined) and which does not satisfy the requirements of par. 15 hereof. (c) Termination Payments. Upon any termination by Executive of his employment under this Agreement pursuant to par. 16(b), or upon any termination of Executive's employment by the Company during the term hereof other than for Cause, Disability or death, the Company shall forthwith: (i) Pay to Executive in cash the following accrued benefits ("Accrued Benefits") (a) all salary earned or accrued through the termination date; (b) reimburse Executive for any and all monies advanced n connection with Executive's employment for reasonable and necessary expenses incurred by Executive through the termination date; (c) pay any and all bonus, cash and other benefits previously earned through the termination date and deferred at the election of Executive or pursuant to any deferred compensation plans then in effect; (d) make a pro rata (based upon the portion of such fiscal year that Executive was an employee of the Company) lump sum payment of any bonus and incentive compensation (including both cash and stock components) otherwise payable to Executive with respect to the year in which termination occurs under any bonus and incentive plan(s) in which Executive is a participant; and (e) pay all other amounts and benefits to which Executive may be entitled under the terms of any benefit plan of the Company. Payment of amounts other than those described in subsections (d) and (e) hereof shall be made within 10 days after the termination date. Payment of amounts under subsections (d) and (e) hereof shall be made pursuant to the terms of any such plans either by the Company or a trust implementing such plan; plus (ii) Pay to Executive in cash in a lump sum an amount equal to the product of three (3) (or, if less, the whole number of years (rounded upward) remaining, at the time of such termination, until Executive would attain age 65) times the sum of (1) the annual base salary payable to Executive hereunder immediately prior to such termination plus (2) the greater of the average annual amount to which Executive became entitled (whether paid, payable or deferred) under all bonus, incentive compensation and other plan(s) of the Company during the three years (or number of years that Executive participated therein, if less) preceding such termination or the Par Bonus; and (iii) repurchase all restricted stock, stock options and any accompanying stock appreciation rights ("SARs") issued by the Company at the "Market Price" thereof, all of which shall, to the extent permissible under the applicable plans, automatically become vested and exercisable upon such termination. If the vesting or exercise date of any of the foregoing may not be accelerated, the Company shall pay to Executive, in exchange for the cancellation of such rights, an amount equal to the Market Price thereof. As used herein, the Market Price of an option and any accompanying SAR shall be equal to the difference between the Market Price of the underlying stock and the exercise price of such option. Underwater options and SARs shall remain in existence in accordance with their terms. The Market Price of the underlying stock shall be equal to the highest Market Price of the stock during the one year period immediately preceding such termination; plus (iv) in addition to the retirement benefits to which Executive is entitled under the Company's retirement plan(s) or any successor plans thereto, the Company shall pay to Executive not later than the tenth day following the termination date, a lump sum, in cash, equal to the actuarial equivalent of the excess of (a) the retirement pension (determined as a straight life annuity commencing at age 65) which Executive would have accrued under the terms of the Company's retirement plan (without regard to the limitations imposed by section 415 of the Internal Revenue Code of 1954, as amended (the "Code"), or any amendment to the retirement plan made subsequent to a Change in Control of the Company and on or prior to the termination date, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if Executive had rendered (after the termination date) three additional years of credited service thereunder, and as if Executive had accumulated three additional calendar years of compensation (for purposes of determining "Monthly Compensation" as defined in the Company's retirement plan), each in an amount equal to the amount for the highest calendar year out of the final ten calendar years preceding the termination date, but in no event shall Executive be deemed to have accumulated additional credited service after Executive's 65th birthday, over (b) the retirement pension (determined as a straight life annuity commencing at age 65), which Executive had then accrued pursuant to the provisions of the Company's retirement plan(s). For purposes of this Subsection, "actuarial equivalent" shall be determined using the same methods and assumptions utilized under the Company's retirement plan(s) immediately prior to the Change in Control of the Company. Provided, however, that to the extent that all or a portion of such amount is payable pursuant to any other arrangement established by the Company, the amount to which Executive shall be entitled pursuant to this Subsection shall be reduced by such amount; and (v) pay Executive in cash for any vacation time earned but not taken at the termination date, at an hourly rate equal to the annual base salary as in effect immediately prior to the termination date divided by 2080. Notwithstanding any other provisions of this Agreement, for purposes of the Company's salaried pension plan and its medical, health, life, accident and disability insurance programs, Executive shall, in the event of any termination which entitled Executive to the payments described in par. 16(c) hereof, be considered and deemed, for a period of 3 years following such termination or until Executive attains the age of 65 or until reasonably equivalent benefits are paid or extended by a new employer, whichever first occurs, to be a full-time employee of the Company and be entitled to all benefits, rights and privileges thereunder. If at the end of three years Executive has not attained the age of 65 or has not previously received or is not then receiving equivalent benefits from a new employer, the Company shall arrange, at its sole cost and expense, to enable Executive to convert the coverage under such policies to equivalent individual policies. To the extent necessary for application of this paragraph, Executive's annual compensation during the aforesaid period shall be deemed to be equal to the amount described in par. 16(c)(ii)(1) plus the amount described in par. 16(c)(ii)(2). 17. Tax Protection. In the event that Executive becomes entitled to any payments set forth in par. 16(c)(ii), (iii), (iv) or (v) of this Agreement ("Severance Payments"), and if any of such Severance Payments will be subject to the tax (the "Excise Tax") imposed by section 4999 of the Internal Revenue Code or any amendments thereof (or any similar tax that may hereafter be imposed), the Company shall reasonably estimate and pay to Executive upon termination an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax on the Severance Payments and any federal, state and local income taxes and Excise Tax upon the payment provided for by this subsection, shall be equal to the Severance Payments. For purpose of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) any other payments or benefits received or to be received by Executive in connection with a Change in Control of the Company or termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to Executive such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code in excess of the base amount within the meaning of section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Severance Payments or (B) the amount of excess parachute payments within the meaning of section 280G(b)(1) (after applying clause (i), above), and (iii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purpose of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the termination date, net of maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of employment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross- Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive if such repayment results in a reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. All reasonable fees and expenses incurred by the Executive to compute the Excise Tax or to litigate or otherwise defend the calculation, regardless of the outcome of any litigation, shall be paid by the Company. It is the intent of this provision to avoid any diminution in payments to which Executive is entitled under this Agreement by virtue of the imposition of any "excise" or similar taxes (excluding income taxes) and to make Executive whole should any such taxes be imposed. 18. No Diminution of Payments. Executive shall not be required to mitigate the amount of any payment provided for in par. 16, par. 17 or any other provision of this Agreement, and no such payment shall be reduced by any present value factor or any other compensation or amount payable to Executive by the Company or any other employer or source, or for any other reason. The payments provided by par. 16 and par. 17 are in addition to, and not in lieu of, any other rights, benefits or entitlements Executive may have under the provisions of any other plan. It is the expectation and agreement of the parties, in consideration of the mutual promises herein, that no amount payable hereunder shall be reduced by any court or arbitrator, regardless of the legal theory advanced. 19. Notice of Termination; Effect. (a) Notice. Any purported termination of this Agreement by the Company for Cause or Disability or by Executive pursuant to par. 16(b) hereof shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated. No such purported termination shall be effective if not effected pursuant to a Notice of Termination satisfying the requirements of this par. 19. (b) Effect. No termination of this Agreement shall affect any right or obligation of any party accrued prior thereto and no such termination shall affect the provisions of par.'s 10, 11, 12, 16, 17, 18, 19, 20, 21, 22 and 23 hereof, all of which shall remain in effect notwithstanding any such termination. 20. Payment Obligations Absolute. The Company's obligation during and after the term hereof to pay or cause to be paid to Executive the compensation and payments provided for in this Agreement and to make the arrangement provided herein shall be absolute and unconditional and shall not be diminished, reduced or affected by any circumstances, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final. 21. Superseding Effect - Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the parties with respect to the subject matter hereof and constitutes the entire agreement of the parties with respect thereto. No provision of this Agreement (including this par. 21) may be waived, amended, or otherwise modified except by a subsequent written agreement executed by the parties hereto. 22. Venue; Expenses. Any action concerning this Agreement may be brought in the federal or state courts located in the County of Milwaukee, Wisconsin, and each party consents to the venue and jurisdiction of such courts. The Company shall pay all legal fees and expenses incurred by Executive in connection with or as a result of termination following a Change in Control (including any fees incurred in contesting or disputing any termination). In addition, if a dispute arises with respect to the Company's obligations or Executive's rights under this Agreement, or if any legal proceeding shall be brought to enforce or interpret any provision contained herein, or to recover damages for breach hereof, or in the event of any other litigation involving this Agreement, Executive shall recover from the Company all attorneys' fees and costs and disbursements incurred as a result of such dispute or legal proceeding, regardless of the outcome, plus prejudgment interest on any money judgement obtained by the Executive, calculated at the rate of interest announced by First Wisconsin National Bank of Milwaukee from time-to-time as its prime rate, plus 2.0%, from the date that payments to Executive should have been made under this Agreement. 23. Assignment; Binding Effect. (a) This Agreement shall be binding upon, and shall inure to the benefit of and be enforceable by, the parties hereto and their respective successors and assigns, provided that (i) this Agreement is a personal service agreement and no right hereunder may be assigned by Executive except as contemplated by par. 23(c) hereof and (ii) unless the Company shall have complied with this par. 23, no right hereunder may be assigned or transferred by the Company by operation of law or otherwise. Any purported assignment or transfer in violation of this par. 23 shall be null and void. (b) The Company will obtain from any purchaser or other assignee or transferee of or successor to all or substantially all of the business or assets of the Company, an agreement in form and substance satisfactory to Executive, to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it as if no such purchase had taken place. As used in this Agreement, the term "Company" shall mean Harnischfeger Industries, Inc. as hereinbefore defined and any successor to or purchaser, transferee or assignee of its business or assets. The failure to obtain such an assumption within sixty days following the closing of any such purchase, assignment or transfer shall thereupon immediately entitle Executive to invoke all rights granted in par. 16. (c) This Agreement shall inure to the benefit of and be enforceable by the personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees of Executive. 24. Withholding. The Company shall be entitled to withhold from amounts to be paid to Executive hereunder any federal, state or local withholding or other taxes or charges which it is from time-to-time required to withhold. The Company shall be entitled to rely on an opinion of counsel if any questions as to the amount or requirement of any such withholding shall arise. 25. Invalidity. If a court shall determine that any provision of this Agreement is invalid or unenforceable as written, it is the intention of the parties that such provision be interpreted or judicially modified so as to enable such provision to be enforced to the maximum extent permissible. Any invalid or unenforceable provision which cannot be so modified shall be severed from this Agreement and shall not affect the validity or enforceability of any other provisions of this Agreement. 26. Notice. Notices given pursuant to this Agreement shall be in writing and shall be deemed given when received and if mailed, shall be mailed by United States registered or certified mail, return receipt requested, addressee only, postage prepaid, if to the Company, to Harnischfeger Industries, Inc., Attention: Secretary, 13400 Bishops Lane, Brookfield, Wisconsin 53005, or if to Executive, at the address set forth below the Executive's signature line of this Agreement, or to such other address as the party to be notified shall have given in writing to the other. 27. No Waiver. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provisions of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior to subsequent time. 28. Headings. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provisions of this Agreement. IN WITNESS WHEREOF, Executive has affixed his hand hereto, and the Company has caused this instrument to be executed by a duly authorized officer thereof, as of the day and year first above written. ---------------------------- K. Thor Lundgren 1711 E. Dean Road Fox Point, WI 53217 ATTEST: HARNISCHFEGER INDUSTRIES, INC. By - --------------------- --------------------------- Chairman, Board of Directors By - --------------------- --------------------------- Chairman, Human Resources Committee EX-11 6 EXHIBIT 11 HARNISCHFEGER INDUSTRIES, INC. CALCULATIONS OF EARNINGS (LOSS) PER SHARE (Dollar amounts in thousands except per share amounts)
Year Ended October 31, -------------------------------------- Determination of Number of Shares 1994 1993 1992 - --------------------------------------------------------- ---------- ---------- --------- Average shares outstanding............................... 25,973,621 26,606,547 29,121,653 ========== ========== ========== NET INCOME (LOSS) - --------------------------------------------------------- Income (Loss) from Continuing Operations................. $ 19,122 $ (36,907) $49,797 Income (Loss) from Discontinued Operations, net of applicable income taxes................................ (1,007) 3,680) 5,686 Gain on Sale of Discontinued Operation, net of applicable taxes.................................................. - 16,173 - Cumulative Effect of Accounting Change, net of applicable taxes and minority interest............................ (66,142) - - Earnings (Loss) Per Share - --------------------------------------------------------- Income (loss) from continuing operations................. $ .74 $ 1.39 $1.71 Income (loss) from discontinued operations............... (0.04) .14 .20 Gain on sale of discontinued operation................... - .61 - Cumulative effect of accounting change................... (2.55) - - Net Income (loss) per share $(1.85) $(0.64) $1.91
EX-13 7 EXHIBIT 13 Management's Discussion and Analysis of Financial Statements OVERVIEW Harnischfeger Industries, Inc. completed fiscal 1994 in the midst of growing enthusiasm and increasing momentum. All markets served by the Company are showing strong indications that the cyclical downturn of the past several years has turned. As a result, the Company posted income from continuing operations of $19.1 million, or $0.74 per share, on consolidated net sales of $1,116.7 million. This compares with income from continuing operations of $11.4 million, or $.43 per share, last year before considering the impact of the 1993 restructuring and nonrecurring charges. Sales in 1993 amounted to $989.2 million. In addition, bookings increased 12.1% in 1994 while backlog at October 31, 1994 was up 16.6%, led by the Papermaking Machinery and Systems("PaperGroup") and the Material Handling Equipment segments. In addition to achieving positive operating results, management continued to focus on the five characteristics required for consideration as a core business as outlined a year ago: a global marketplace, leadership positions in the industries served, strong aftermarket sales potential, technological superiority and the ability to earn positive Economic Value Added ("EVA"). In that regard, the most significant event of the year was the acquisition of Joy Technologies Inc.("Joy"), a world leader in underground mining equipment and environmental products, consummated with an exchange of common stock on November 29, 1994. In another major strategic acquisition, the Company acquired Morris Mechanical Handling Limited ("Morris") in September, 1994. This company, based in the United Kingdom, has become part of the Material Handling Equipment segment. These acquisitions, as well as several smaller niche transactions, are discussed in more detail below. In April, 1994, the Company reported as a discontinued business the remaining unit in the Systems Group, Syscon Corporation ("Syscon"). The operating results of the Systems Group have therefore been reclassified as discontinued operations in the Statement of Income for each year presented. It is expected that Syscon will be divested in the first half of 1995. In addition to moving forward with key acquisitions, affiliations, and divestitures, all three of the Company's existing core segments are experiencing strong order and sales activity. Leading the way in 1994 was the Paper Group, reporting net sales of $712.8 million, up 22.8% over 1993 levels, reflecting the beginning of an upturn in the cyclical worldwide pulp and paper industry's capital spending. Return on sales was 4.5% in 1994, compared to 3.8% in 1993, before considering restructuring charges. The Mining Equipment segment reported net sales of $294.5 million, up slightly from 1993. Return on sales for the segment amounted to 6.6% in 1994 compared to 8.6% in 1993 before considering restructuring and nonrecurring charges, a decrease primarily due to lower inventory levels resulting in reduced absorption of fixed manufacturing costs. While net sales for the Material Handling Equipment segment decreased 6.5% to $109.4 million in 1994 from $117.0 million in 1993, return on sales was 11.1% compared to 5.8% in 1993 reflecting higher machine margins and the continued growth of the segment's aftermarket business. EVA, introduced in fiscal 1993, was fully adopted for purposes of management incentive compensation in fiscal 1994. This concept emphasizes the weighted average after-tax cost of capital as an important component of overall profitability and rewards managers for net earnings in excess of this cost. Each of the Company's continuing segments posted an improvement in EVA achievement in 1994, with Material Handling Equipment going positive --the first of the Company's segments to do so. Acquisitions And Divestitures Fiscal 1994 saw significant acquisition activity occurring in each of the Company's three operating segments. Announced in August, 1994 and consummated early in fiscal 1995, the acquisition of Joy has placed the Company as the world's leader in both surface and underground mining equipment. The transaction was completed on November 29, 1994 upon the approval of the shareholders of each company. Under the terms of the acquisition, to be accounted for as a pooling of interests, the Company exchanged 17,720,750 common shares for all of Joy's 31,353,000 outstanding shares, at an exchange ratio of .5652 of a share of the Company's common stock for each of Joy's common shares. Joy's Mining Group is a leader in the worldwide development, manufacturing, distribution and servicing of underground mining equipment for the extraction of coal and other bedded materials. In addition, Joy's Environmental Group is a supplier of air pollution and ash handling equipment for electric utilities and other industrial applications. The financial position and results of operations of the Company and Joy will be combined in fiscal 1995 retroactive to November 1, 1994 and the fiscal year of Joy has been conformed to the Company's fiscal year. In addition, all prior periods presented will be restated to give effect to the merger. For the fiscal year ended February 25, 1994, Joy reported net sales of $566.0 million and income from continuing operations of $13.7 million. Total assets at that date were $541.7 million. See additional discussion in "Liquidity and Capital Resources" below and in Note 17 - Acquisition of Joy Technologies Inc. In September, 1994, the Company completed the acquisition for $24.9 million of all of the outstanding shares of MMH (Holdings) Limited, a holding company for Morris and related companies. Morris is a manufacturer of a broad line of cranes, hoists and other lifting equipment, and has an extensive service organization that provides aftermarket services to a broad spectrum of customers. Morris is headquartered in Great Britain and also has operations in the United States, the Far East and South Africa, and is a unit of the Material Handling Equipment segment. The results of Morris were included in the Company's consolidated operating results for the month of October . In addition, the Company completed two smaller acquisitions during 1994. In July, 1994, the Company acquired a Mexican company, Hercules, S.A. de C.V.("Hercules"), for $2.6 million. Hercules, a manufacturer of overhead cranes and hoists serving the Mexican and South American markets, is also a unit of the Material Handling Equipment segment. The Company acquired substantially all of the common shares of OASIS (Optical Alignment Systems and Inspection Services, Inc.) for $7.0 million in September, 1994. The New Hampshire- based company provides specialty services principally to the paper industry and is part of the Company's Beloit Corporation subsidiary. In addition, Beloit has entered into an agreement with Jagenberg Papiertechnik, GmbH, a German paper finishing and coating equipment manufacturer. Under the Jagenberg agreement, Beloit's Lenox Division will become the major supplier of parts and service for all winder products in the Americas. The agreement is currently being reviewed by regulatory authorities with final approval expected to be received in the first half of 1995. Fiscal 1994 included efforts to divest of Syscon, the remaining unit of the Company's Systems Group. In 1993, the Systems Group consisted of two subsidiaries, Harnischfeger Engineers, Inc. ("HEI") and Syscon. The Board of Directors and management of the Company determined that this segment did not meet the criteria of a core business. As such, the Board of Directors determined that retention of the Systems Group was not consistent with the Company's long-term goals. On October 29, 1993, the Company completed the sale of HEI to that unit's senior management and some equity partners. Proceeds from the sale were $45.2 million and the Company reported a $16.2 million after-tax gain on the sale in 1993. In April, 1994, the Company announced its decision to divest itself of Syscon. The Company is pursuing the divestiture, which should be completed in the first half of 1995. Results of Operations SALES. Sales for fiscal 1994 of $1,116.7 million were 12.9% greater than 1993 sales of $989.2 million, boosted in particular by the strong increase in the Paper Group of 22.8%. Sales for the Mining Equipment segment of $294.5 million improved slightly over 1993 levels of $291.7 million. The Material Handling Equipment segment saw a modest decline in sales. Worldwide sales amounted to $989.2 million in 1993 and $1,141.5 million in 1992. Overcapacity within the pulp and paper industry and depressed commodity prices and economic uncertainties in the mining industry were the primary causes for the 13.3% decrease in sales in 1993. The Material Handling Equipment segment saw improvement in 1993 with sales increases of 3.2% over 1992 levels. COSTS AND EXPENSES. Cost of sales increased 14.8% to $892.4 million from $777.3 million in 1993. This was more than the 12.9% increase in sales reflecting lower margins achieved primarily from machine sales. Product development, selling and administrative expenses as a percent of sales decreased to 18.0% from 18.7% in 1993 reflecting continued measures by management to reduce costs and increase efficiencies. Cost of sales decreased 10.8% in 1993, to $777.3 million from $871.4 million in 1992. Underutilization of manufacturing capacity in the Paper and Mining Equipment segments resulted in the increase in cost of sales as a percent of sales in 1993 to 78.6% as compared to 76.3% in 1992. Product development, selling and administrative expenses as a percent of sales increased to 18.7% from 16.2% in 1992 due primarily to the decrease in sales. OPERATING RESULTS FROM CONTINUING OPERATIONS. The Company reported income from continuing operations of $19.1 million in 1994, as compared to a loss from continuing operations of $(36.9) million in 1993 and income from continuing operations of $49.8 million in 1992. Significant factors contributing to the increase in 1994 included an $83.5 million increase in operating profit, caused primarily by higher net sales in 1994 and the $75.0 million in restructuring and nonrecurring charges in 1993. Offsetting this increase were higher taxes of $25.9 million due to higher pre-tax results. 1993 Restructuring Actions In the third quarter of fiscal 1993, the Company recorded a restructuring charge of $67.0 million($43.1 million after- tax, or $1.63 per share) to strengthen and streamline its papermaking machinery and mining equipment businesses consistent with action plans developed in light of the Company's previously determined five core business criteria. The restructuring actions were substantially completed by the end of fiscal 1994. At October 31, 1994, remaining restructuring reserves amount to $7.7 million, the majority of which relates to the Paper Group. Details regarding specific restructuring actions are as follows: 1993 Restructuring Actions
(in millions) Paper Mining Group Equipment Other Total Closure of facilities $20.5 $ - $ - $20.5 Inventory dispositions - 13.0 - 13.0 Product line discontinuance or modification 14.0 9.0 - 23.0 Employee severance - 3.5 - 3.5 Other 5.5 - 1.5 7.0 ------ ------- ------ ------ Pre-tax total $40.0 $25.5 $ 1.5 $67.0 ====== ======= ====== ======
Papermaking Machinery and Systems - $40.0 Million The largest element of the Paper Group restructuring reserve was for the closure of the Canadian papermaking machine manufacturing operation. Manufacturing operations were moved to the U.S. and the plant was closed in the second quarter of 1994. The provision consisted primarily of $3.2 million for severance of selected employees (approximately 100 direct and indirect employees in the manufacturing facility in Sorel, Quebec, Canada) and transfer costs of others to other operations in Canada and the U.S., $7.7 million for write-down of facilities and equipment to net realizable value, $0.8 million to relocate machinery for use in other operations, $2.3 million for scrapping inventory not usable elsewhere, and $4.5 million for losses prior to shutdown. After a detailed review of its product offerings, the Paper Group determined that selected product lines should be discontinued. In order to ensure customer satisfaction and to maintain its reputation as the technological leader in the industry, the Paper Group established a $9.0 million reserve as a necessary cost to exit these product lines. Other Paper Group actions included product line rearrangement costs at three divisions totaling $5.0 million. In each of these instances, inventory of the product line was scrapped. The remaining elements of the Paper Group reserve consisted primarily of costs of closure of a roll-covering facility to be moved to another larger location and costs to rationalize selected nonoperating assets which did not earn a 12% after- tax rate of return. Mining Equipment - $25.5 Million The Mining Equipment Division reassessed the amount of inventory held in warehouses for the servicing of customer parts requirements. As a result of a redefinition of inventory held on consignment at customer mine sites and of new part numbers subject to assessment for excess and obsolete exposure, the Division decided to dispose of $13.0 million of parts previously considered saleable at amounts greater than cost. The Mining Equipment Division has also charged $9.0 million for product line discontinuance and modification. Of this amount, $4.0 million was required to reposition the Division with two improved models (Model 1550 and Model 2250) in the hydraulic shovel market. An additional $5.0 million was required to scrap several products which management determined could not be made saleable, and to bring other models to a saleable condition. Severance costs of $3.5 million were recorded to reflect the costs of reduced employment in the Mining Equipment Division. The cash and noncash elements of the restructuring charge approximated $39.0 million and $28.0 million, respectively. In addition, the Mining Equipment Division recorded a nonrecurring charge in the third quarter of fiscal 1993 resulting from the reestimation of certain warranty reserves. The charge reduced pre-tax income by $8.0 million ($5.2 million after-tax, or $0.19 per share). This charge was the result of a deeper analysis of open warranty claims and customer requests, field experience on new products and additional analytical data provided by new systems, which has since resulted in engineering, design and manufacturing changes. The Company's warranty methodology, while long- established, is by its very nature based on management's judgement and is not mathematically precise or actuarially based. The resultant warranty reserves are reevaluated periodically and reflect refinements of estimated warranty exposure on evolving product lines. This additional warranty reserve was used primarily during fiscal 1994. INCOME TAXES During the first quarter of fiscal 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109), by restating prior years' financial statements, retroactive to 1989. The impact of adopting this standard was to reduce previously reported shareholders' equity by $15.0 million at November 1, 1991. The Company's effective tax rate from continuing operations was 19.9% in 1994, (33.1%) in 1993, and 34.8% in 1992. The effective tax rate for 1994 differed from the federal statutory rate of 35% due primarily to differences in foreign and U.S. tax rates, general business credits and lower state taxes due to net operating losses for state income tax purposes. A more detailed discussion of income taxes can be found in Note 6 to the Financial Statements. Other Postretirement Benefits During the first quarter of fiscal 1994, the Company adopted (SFAS No. 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106) through the immediate recognition of the obligation. Under SFAS 106, the costs of retiree health care and life insurance benefits are accrued over relevant employee service periods. Previously, these costs were charged to expense as claims were paid. The cumulative effect of the accounting change required by this Standard was a one-time pre-tax charge of $115.0 million ($66.1 million or $2.55 per share after taxes and minority interest). The discount rate used in determining the liability was 8.0%. The Board of Directors of the Company approved a general approach in 1993 that would culminate in the elimination of all Company contributions towards postretirement health care benefits. Increases in costs paid by the Company were capped beginning in 1994 extending through 1998 and Company contributions will be eliminated on January 1, 1999 for most employee groups. The initial one-time pre-tax charge reflected all plan terms and amendments in place on November 1, 1993. Negative plan amendments made subsequent to November 1, 1993 are being amortized from the date of amendment to January 1, 1999. Postretirement benefit expense recognized during fiscal 1994 was reduced by $3.0 million for amortization of negative plan amendments. See further discussion in "Liquidity and Capital Resources" below. Bookings and Backlog Backlog at October 31, 1994, 1993 and 1992 by business segment was as follows:
(in thousands) 1994 1993 1992 ----- ----- ------ Papermaking machinery and systems $633,770 $550,660 $444,369 Mining equipment 70,880 102,165 111,519 Material handling equipment 107,112 43,112 62,043 -------- -------- --------- $811,762 $695,937 $617,931 ======== ======== =========
Bookings were $1,196.8 million in 1994, $1,067.2 million in 1993 and $1,055.4 million in 1992. A discussion of changes in bookings by segment is presented in the "Operating Results by Business Segment" section which follows. Liquidity and Capital Resources The Company's capital structure at October 31, 1994 and 1993 was as follows:
(in thousands) 1994 1993 ------ ------ Short-term notes payable $ 14,083 $ 62,309 Long-term obligations, including current portion 244,529 246,389 -------- -------- 258,612 308,698 Minority interest 85,570 89,110 Shareholders' equity, excluding SECT 539,991 543,692 -------- -------- Total capitalization $884,173 $941,500 ======== ======== Debt to capitalization ratio 29.2% 32.8% ======== ========
The Company's debt to capitalization ratio decreased to 29.2% at October 31, 1994 from 32.8% at October 31, 1993. Significant decreases in short-term borrowings due to strong cash flow and higher cash levels at year-end resulted in the improvement. Equity in the ratio calculation excludes the Stock Employee Compensation Trust ("SECT") balance because shares in the SECT are issued and outstanding. Cash flow from operating activities was $100.0 million in 1994 compared to $67.9 million in 1993. The increase in cash flow between the periods was primarily a result of higher levels of advance payments and progress billings, increases in accounts payable and a decrease in inventories. While cash flow was favorably impacted in 1993 by strong collections of receivables, cash flow in 1992 was negatively impacted by the buildup of such receivables and the use of previously collected advance payments and progress billings. Net working capital of $250.8 million at October 31, 1994 remained about even with October 31, 1993 levels of $248.1 million. Cash used for property, plant and equipment, acquisitions and the decrease in short-term borrowings was offset by increased advance payments and progress billings and $46.8 million from the sale of treasury stock (discussed below). Although the reclassification of Syscon's assets and liabilities as net assets of discontinued operations affected the reported change in the Company's accounts receivable, inventories, accounts payable and employee compensation and benefit accruals in the Statement of Cash Flows, it had no effect on the change in net working capital. Net working capital decreased to $248.1 million in 1993 from $420.0 million in 1992, due primarily to reductions in worldwide receivables and inventories, and provisioning related to the $67.0 million restructuring plan and $8.0 million nonrecurring warranty charge, offset by a decrease in accounts payable. Capital expenditures for property, plant and equipment in 1994 were $35.1 million compared with $58.2 million in 1993. Higher capital expenditures in 1993 were due primarily to the new Beloit R&D pilot paper machine. Depreciation and amortization was $47.1 million and $44.5 million in 1994 and 1993, respectively. Cash used for investing activities in 1994, primarily for acquisitions, was $61.7 million and $51.9 million in 1993. Cash used for financing activities in 1994 of $11.1 million was used primarily to reduce short-term borrowings and for dividends and was offset by proceeds of $46.8 million from the sale of treasury stock discussed below. The significant elements in the $55.0 million use of cash for financing activities in 1993 were the purchase of 2,500,000 common shares for the establishment of the SECT, which was financed using available cash and additional short-term borrowings, and dividends. Significant changes to the Company's capital structure in 1994 are summarized below: (1) Reduction in short-term notes payable of $48.1 million due to strong positive operating cash flow. (2) The sale of 2,000,000 shares of treasury stock on September 7, 1994 for $46.8 million in a private transaction. This sale was executed in connection with the Company's merger with Joy to satisfy requirements under the pooling of interests accounting rules relating to treasury stock purchases. In May, 1993, following a "Dutch auction" self-tender offer, the Company purchased for cash 2,500,000 common shares, or approximately 9% of common shares then outstanding, at $19 5/8 per share, in conjunction with the establishment of the Harnischfeger Industries, Inc. SECT. Shares in the SECT are used to provide employee benefits under plans that currently require shares of stock. The Company maintains the ability to expand its borrowings in several ways, including the following: (1) A shelf registration with the Securities and Exchange Commission for the proposed sale of up to $150.0 million of debt securities. To date, no securities have been issued under this registration. (2) A four-year Revolving Credit Facility Agreement between the Company and certain domestic and foreign financial institutions that allows for borrowings of up to $240.0 million (recently renegotiated from $159.0 million) at rates expressed in relation to the LIBOR and other rates. (3) Short-term bank credit lines of foreign subsidiaries of approximately $61.1 million of which approximately $14.1 million was outstanding at October 31, 1994. The Company believes its available cash, cash flow provided by operating activities and committed credit lines provide adequate liquidity on both a short- and long-term basis. The acquisition of Joy, completed on November 29, 1994, has altered the Company's capital structure. At the time the transaction was completed, Joy's outstanding long-term borrowings totaled approximately $318.0 million. Of this amount, a $84.1 million bank facility, which was subject to a change in control provision, was immediately retired by the Company from available cash. Other debt includes $200.0 million of 10 1/4% Senior Notes due 2003 ("Senior Notes") and approximately $34.0 million of Industrial Revenue Bonds and other debt. The Company expects that its net interest expense in 1995 will increase significantly over 1994 levels. The Company's debt to capitalization ratio after the acquisition of Joy will amount to approximately 44%. The indenture for the Senior Notes provides that, upon a "Change in Control" as defined therein, each holder of the Senior Notes shall have the right to require the repurchase of the Senior Notes at a cash purchase price equal to 101% of the principal amount thereof plus accrued but unpaid interest, if any, to the date of purchase. The acquisition of Joy constituted a "Change in Control" under the indenture. On December 29, 1994, the Company offered to repurchase the Senior Notes, with the closing of such repurchase to occur not less than 30 nor more than 60 days from that date. Any required repurchases will be funded from cash, presently committed facilities or with new financing on acceptable terms. The Company may, at its option, redeem the Senior Notes in whole or in part at any time on or after September 1, 1998 at 105.125% of their principal amount, plus accrued but unpaid interest, declining to 100% of their principal amount, plus accrued but unpaid interest, on or after September 1, 2000. In connection with the Joy acquisition, the Company exchanged 17,720,750 common shares to consummate the transaction, after which 47,666,301 common shares were outstanding. In addition, via an amendment to the Company's Restated Certificate of Incorporation, authorized common stock was increased from 50,000,000 to 100,000,000 shares. The Company has no significant capital commitments as of October 31, 1994. Any future capital commitments are expected to be funded through cash flow from operations and, if necessary, from available lines of credit. It is the Company's policy not to, and it has not, participated in high-yield financings, highly leveraged transactions, or other "derivative" instruments. Hedging of specific foreign exchange transaction exposures does occur in certain circumstances. The Company intends to continue to expand its businesses, both internally and through acquisitions. Acquisitions are evaluated in light of the five characteristics required of a core business. It is expected that new acquisitions would be financed primarily by internally-generated funds or additional borrowings. The Company's restructuring actions announced in the third quarter of fiscal 1993 were substantially completed by the end of fiscal 1994. Related cash requirements in 1994 were financed internally. Cash requirements in fiscal 1995 relating to remaining restructuring actions will not be significant. The previously discussed implementation in the first quarter of 1994 of SFAS 106 will have no impact on the Company's cash outlays for these retiree benefits. Cash flow will improve in the future as Company contributions are capped in future years and then eliminated in 1999. The Company will adopt SFAS 112, "Employers' Accounting for Postemployment Benefits"(SFAS 112) in the first quarter of fiscal 1995. Inasmuch as it is currently the Company's policy to recognize obligations for most of the benefits covered by SFAS 112, the impact of adoption on the Company's results of operations and financial position will not be material. Operating Results by Business Segment Papermaking Machinery and Systems
(in thousands) 1994 1993 1992 Net sales $712,778 $580,421 $699,127 Operating profit before restructuring charge 32,195 21,887 70,860 Restructuring charge - (40,000) - Operating profit (loss) after restructuring charge 32,195 (18,113) 70,860 Bookings 795,888 686,712 633,112 The Papermaking Machinery and Systems segment reported sales of $712.8 million and operating profit of $32.2 million for 1994. Sales volume in 1994 was 22.8% higher than the prior year's level of $580.4 million, reflecting the upturn in the cyclical worldwide pulp and paper industry's capital spending for original equipment. Foreign sales of this segment amounted to 19.1% of total sales in 1994 and 28.2% in 1993 compared to a more typical 50/50 split, as U.S. activity was stronger than in Europe. Export sales totaled $74.6 million and $48.1 million in 1994 and 1993, respectively. Operating profit in 1994 was 4.5% of sales compared to 3.8% before the restructuring charge in 1993. Operating profit included other income of $1.4 million, $(0.3) million and $(0.7) million for the Company's equity share of Measurex Corporation's net income (loss) for 1994, 1993 and 1992, respectively and an amount representing a favorable confidential settlement of patent litigation. Both sales and return on sales are expected to improve in 1995 as the cyclical upturn continues. In July, 1993, the Company announced plans to strengthen and streamline its core businesses. As part of these plans, the Paper Group recorded a $40.0 million restructuring charge, primarily for the closure of its Canadian papermaking machinery manufacturing facilities and consolidation of North American papermaking machine manufacturing operations in Beloit, Wisconsin. The restructuring charge reduced operating results to a loss of $(18.1) million in 1993. The Paper Group's restructuring activities were substantially completed in 1994. Net sales and operating profit before restructuring charge amounted to $580.4 million and $21.9 million, respectively, in 1993. Net sales were 17.0% lower than the previous year reflecting continued recession in the worldwide pulp and paper industry. Operating profit before restructuring charge as a percent of sales decreased to 3.8% in 1993 from 10.1% in 1992, primarily due to underutilization of manufacturing capacity, competitive pricing of new orders and foreign currency transaction gains in 1992. Bookings activity improved in 1994 to $795.9 million from $686.7 million in 1993. The 15.9% increase reflects improvement in both North American pulp and paper machinery bookings and continued strength in overseas markets; bookings in 1995 are expected to exceed new orders recorded in 1994. The Paper Group continues to maintain its leadership in papermaking machinery and allied products for the pulp and paper industries. Mining Equipment
(in thousands) 1994 1993 1992 Net sales $294,497 $291,742 $328,997 Operating profit before restructuring and nonrecurring charges 19,531 25,158 35,267 Restructuring and nonrecurring charges - (33,500) - Operating profit (loss) after restructuring and nonrecurring charges 19,531 (8,342) 35,267 Bookings 263,212 282,388 305,465
The Mining Equipment segment reported net sales of $294.5 million in 1994, a slight increase from 1993 levels. Operating profit was $19.5 million or 6.6% of sales compared to operating profit before restructuring and nonrecurring charges of $25.2 million or 8.6% of sales in 1993. The decrease in operating profit reflected reduced absorption of fixed manufacturing costs, as efforts were made to reduce inventory levels. Foreign sales of the Mining Equipment segment amounted to 29.1% of total sales in 1994 and 28.7% in 1993. Export sales of product manufactured in the U.S. totaled $97.1 million and $103.0 million in 1994 and 1993, respectively. In the third quarter of fiscal 1993, the Mining Equipment segment recorded a $25.5 million restructuring charge for activities related principally to its plans to reduce worldwide inventory and to enhance manufacturing and repair parts capabilities. Other elements in the restructuring charge provided for refocusing manufacturing and marketing efforts and for employee severance costs. In addition, an $8.0 million nonrecurring charge was recorded to reflect the reestimation of certain warranty reserves. These charges reduced operating results to a loss of $(8.3) million in 1993. The activities addressed in the reserve were completed in 1994. Net sales and operating profit before restructuring and nonrecurring charges amounted to $291.7 million and $25.2 million, respectively, in 1993. Sales decreased 11.3% from record levels achieved in 1992. Likewise, operating profit before restructuring and nonrecurring charges decreased 28.7% due primarily to lower sales volume in both machines and parts, as well as reduced absorption of fixed manufacturing costs. Bookings amounted to $263.2 million in 1994 and $282.4 million in 1993. The 6.8% decrease was attributable to the booking of a Model 9020 dragline in Australia in 1993 of approximately $35 million. Excluding this large order, booking levels improved in 1994 and are expected to improve again in 1995, driven by strong coal demand and higher commodity prices, particularly copper. Material Handling Equipment
(in thousands) 1994 1993 1992 Net sales $109,429 $117,032 $113,412 Operating profit 12,094 6,753 10,343 Bookings 137,689 98,101 116,774
The Material Handling Equipment segment reported net sales of $109.4 million in 1994, a decrease of 6.5% from 1993 levels of $117.0 million. However, operating profit increased to $12.1 million, or 11.1% of sales, compared to $6.8 million, or 5.8%, of sales in 1993, reflecting higher machine margins and the continued growth of the segment's aftermarket business. Sales of the Material Handling Equipment segment were principally in the U.S. in 1994, but recent acquisitions in the U.K. and Mexico suggest a growing international focus in 1995. Net sales of the Material Handling Equipment segment increased to $117.0 million in 1993 from $113.4 million in 1992. Operating profit decreased to $6.8 million from $10.3 million in 1992, due primarily to lower machine margins resulting from competitive pricing pressures on orders taken in 1992. Bookings amounted to $137.7 million in 1994, a 40.4% increase from $98.1 million in 1993; these bookings do not include purchased backlog of the Morris acquisition of $35.7 million. The sharp increase in bookings reflects the segment's leadership in the domestic equipment market, growth of the aftermarket business and a $20 million order for container cranes booked by Morris in October. Discontinued Operations
(in thousands) 1994 1993 1992 Net sales $132,260 $245,503 $234,308 Income (loss) from discontinued operations (1,007) 3,680 5,686
Net sales and loss from discontinued operations in 1994 amounted to $132.3 million and $(1.0) million, respectively, as compared to $245.5 million and $3.7 million, respectively, for 1993. The decreases from 1993 are the result of the sale of HEI in October, 1993 and the recording of more than $5 million of nonrecurring charges by Syscon in 1994. As discussed in more detail above and in Note 16 - Discontinued Operations, the Company is pursuing a plan which provides for the divestiture of Syscon, the remaining subsidiary of this segment, in the first half of 1995. Statement of Income Year Ended October 31,(Dollar amounts in thousands except per share amounts)
1994 1993 ---------- --------- Revenues Net sales $1,116,704 $989,195 Other income 23,219 8,086 -------- --------- 1,139,923 997,281 Cost of Sales 892,449 777,320 Product Development, Selling and Administrative Expenses 200,567 185,471 Restructuring Charge - 67,000 Nonrecurring Charge - 8,000 --------- --------- Operating Income (Loss) 46,907 (40,510) Interest (Expense)-Net (20,261) (21,796) --------- --------- Income (Loss) from Continuing Operations before Provision (Credit) for Income Taxes and Minority Interest 26,646 (62,306) Provision (Credit) for Income Taxes 5,300 (20,600) --------- --------- 21,346 (41,706) Minority Interest (2,224) 4,799 --------- --------- Income (Loss) from Continuing Operations 19,122 (36,907) Income (Loss) from Discontinued Operations, net of applicable income taxes (1,007) 3,680 Gain on Sale of Discontinued Operation, net of applicable income taxes - 16,173 Cumulative Effect of Accounting Change, net of applicable income taxes and minority interest (66,142) - --------- -------- Net Income (Loss) $(48,027) $(17,054) ========= ======== Income (Loss) Per Share Income (loss) from continuing operations $ 0.74 $(1.39) Income (loss) from discontinued operations (0.04) 0.14 Gain on sale of discontinued operation - 0.61 Cumulative effect of accounting change (2.55) - ------- ------ Net Income (Loss)Per Share $(1.85) $(0.64) ========= ======== 1992 ---------- Revenues Net sales $1,141,536 Other income 14,271 --------- 1,155,807 Cost of Sales 871,399 Product Development, Selling and Administrative Expenses 185,127 Restructuring Charge - Nonrecurring Charge - --------- Operating Income (Loss) 99,281 Interest (Expense)-Net (8,667) --------- Income (Loss) from Continuing Operations before Provision (Credit) for Income Taxes and Minority Interest 90,614 Provision (Credit) for Income Taxes 31,550 --------- 59,064 Minority Interest (9,277) --------- Income (Loss) from Continuing Operations 49,787 Income (Loss) from Discontinued Operations, net of applicable income taxes 5,686 Gain on Sale of Discontinued Operation, net of applicable income taxes - Cumulative Effect of Accounting Change, net of applicable income taxes and minority interest - -------- Net Income (Loss) $55,473 ======== Income (Loss) Per Share Income (loss) from continuing operations $1.71 Income (loss) from discontinued operations 0.20 Gain on sale of discontinued operation - Cumulative effect of accounting change - ------ Net Income (Loss)Per Share $1.91 ========
The Accompanying Notes are an Integral Part of the Financial Statements. Balance Sheet October 31, (Dollar amounts in thousands)
1994 ---------- Assets Current Assets: Cash (including cash equivalents of $128,945 and $103,114 in 1994 and 1993, respectively, at cost which approximates market) $ 152,807 Accounts receivable-net 298,130 Inventories 209,487 Net current assets of discontinued operations 20,047 Other current assets 38,418 --------- 718,889 Property, Plant and Equipment: Land and improvements 26,227 Buildings 166,769 Machinery and equipment 506,563 --------- 699,559 Accumulated depreciation (303,680) --------- 395,879 Investments and Other Assets: Investment in Measurex Corporation 66,347 Goodwill 84,084 Intangible assets 41,919 Other assets 88,484 Noncurrent assets of discontinued operations 43,251 --------- 324,085 --------- $1,438,853 =========== Liabilities and Shareholders' Equity Current Liabilities: Short-term notes payable, including current portion of long-term obligations $ 15,404 Trade accounts payable 177,866 Employee compensation and benefits 60,971 Advance payments and progress billings 108,514 Accrued warranties 26,517 Other current liabilities 78,861 --------- 468,133 Long-term Obligations 243,208 Other Liabilities: Liability for postretirement benefits 96,097 Accrued pension and related costs 38,559 Other liabilities 9,449 Deferred income taxes 11,606 --------- 155,711 Minority Interest 85,570 Shareholders' Equity: Common stock (issued 32,798,155 shares and 32,798,155 shares, respectively) 32,798 Capital in excess of par value 416,277 Retained earnings 168,585 Cumulative translation adjustments (25,660) -------- 592,000 Less: Stock Employee Compensation Trust (2,150,416 shared and 2,526,553 shares, respectively) at market (53,760) Treasury Stock (2,852,604 shares and 4,847,729 shares, respectively) at cost (52,009) --------- 486,231 ---------- $1,438,853 =========== 1993 --------- Assets Current Assets: Cash (including cash equivalents of $128,945 and $103,114 in 1994 and 1993, respectively, at cost which approximates market) $ 125,576 Accounts receivable-net 281,142 Inventories 218,440 Net current assets of discontinued operations - Other current assets 49,162 --------- 674,320 Property, Plant and Equipment: Land and improvements 23,556 Buildings 162,001 Machinery and equipment 495,722 -------- 681,279 Accumulated depreciation (276,936) --------- 404,343 Investments and Other Assets: Investment in Measurex Corporation 66,563 Goodwill 115,755 Intangible assets 33,740 Other assets 76,547 Noncurrent assets of discontinued operations - --------- 292,605 -------- $1,371,268 =========== Liabilities and Shareholders' Equity Current Liabilities: Short-term notes payable, including current portion of long-term obligations $ 65,316 Trade accounts payable 113,170 Employee compensation and benefits 52,805 Advance payments and progress billings 48,272 Accrued warranties 30,318 Other current liabilities 116,340 --------- 426,221 Long-term Obligations 243,382 Other Liabilities: Liability for postretirement benefits - Accrued pension and related costs 32,676 Other liabilities 12,630 Deferred income taxes 79,457 --------- 124,763 Minority Interest 89,110 Shareholders' Equity: Common stock (issued 32,798,155 shares and 32,798,155 shares, respectively) 32,798 Capital in excess of par value 399,723 Retained earnings 227,991 Cumulative translation adjustments (28,475) -------- 632,037 Less: Stock Employee Compensation Trust (2,150,416 shared and 2,526,553 shares, respectively) at market (55,900) Treasury Stock (2,852,604 shares and 4,847,729 shares, respectively) at cost (88,345) -------- 487,792 -------- $1,371,268 ==========
The Accompanying Notes are an Integral Part of the Financial Statements. Statement of Cash Flows Year Ended October 31,(Dollar amounts in thousands)
1994 1993 --------- ------- Operating Activities Net income (loss) $(48,027) $ (17,054) Add(deduct)-Items not affecting cash: Restructuring charge - 67,000 Nonrecurring charge - 8,000 Cumulative effect of accounting change, net of income taxes and minority interest 66,142 - Gain on sale of discontinued operation - (16,173) Depreciation and amortization 47,147 44,500 Minority interest, net of dividends paid 571 (7,956) Deferred income taxes-net (8,653) (15,207) Other-net (8,775) 6,161 Changes in working capital Decrease in accounts receivable-net 5,009 89,759 Decrease in inventories 18,460 1,965 (Increase) in net current assets of discontinued operations (20,047) - (Increase) decrease in other current assets (4,861) 9,007 Increase (decrease) in trade accounts payable 48,669 (31,975) (Decrease) in employee compensation and benefits (5,208) (17,909) Increase (decrease) in advance payments and progress billings 53,480 1,953 (Decrease) in other current liabilities (43,924) (54,194) -------- -------- Net cash provided by (applied to) operating activities 99,983 67,877 -------- -------- Investment and Other Transactions Acquisition of Morris Mechanical Handling Limited (24,890) - Proceeds from sale of discontinued operation 23,219 Acquisition of J&L Fiber Services - (410) Acquisition of and investment in Beloit Poland - - Property, plant and equipment-net (35,141) (58,245) Other-net (1,633) (16,496) -------- -------- Net cash (applied to) investment and other transactions (61,664) (51,932) -------- -------- Financing Activities Sale of treasury stock 46,760 - Purchase of stock for Stock Employee Compensation Trust - (49,431) Purchase of treasury stock (124) (1,381) Dividends paid (10,477) (10,669) Exercise of stock options 2,919 266 Issuance of long-term obligations - - Redemption of long-term obligations (2,079) (13,354) (Decrease) increase in short-term notes payable (48,128) 19,615 -------- -------- Net cash (applied to) provided by financing activities (11,129) (54,954) -------- -------- Effect of Exchange Rate Changes on Cash and Cash Equivalents 41 (6,812) -------- -------- Increase (decrease) in Cash and Cash Equivalents 27,231 (45,821) Cash and Cash Equivalents at Beginning of Year 125,576 171,397 -------- -------- Cash and Cash Equivalents at End of Year $152,807 $125,576 ======== =========
Statement of Cash Flows Year Ended October 31,(Dollar amounts in thousands)
1992 ------- Operating Activities Net income (loss) $55,473 Add(deduct)-Items not affecting cash: Restructuring charge - Nonrecurring charge - Cumulative effect of accounting change, net of income taxes and minority interest - Gain on sale of discontinued operation - Depreciation and amortization 39,853 Minority interest, net of dividends paid 5,118 Deferred income taxes-net (1,143) Other-net 1,662 Changes in working capital Decrease in accounts receivable-net 1,429 Decrease in inventories 10,306 (Increase) in net current assets of discontinued operations - (Increase) decrease in other current assets (5,997) Increase (decrease) in trade accounts payable 10,427 (Decrease) in employee compensation and benefits (20,162) Increase (decrease) in advance payments and progress billings (67,947) (Decrease) in other current liabilities (48,147) -------- Net cash provided by (applied to) operating activities (19,128) -------- Investment and Other Transactions Acquisition of Morris Mechanical Handling Limited - Proceeds from sale of discontinued operation - Acquisition of J&L Fiber Services (46,206) Acquisition of and investment in Beloit Poland (5,676) Property, plant and equipment-net (50,246) Other-net (7,313) -------- Net cash (applied to) investment and other transactions (109,441) -------- Financing Activities Sale of treasury stock - Purchase of stock for Stock Employee Compensation Trust - Purchase of treasury stock (38,344) Dividends paid (11,611) Exercise of stock options 296 Issuance of long-term obligations 150,000 Redemption of long-term obligations (24,018) (Decrease) increase in short-term notes payable 7,404 -------- Net cash (applied to) provided by financing activities 83,727 -------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (4,161) -------- Increase (decrease) in Cash and Cash Equivalents (49,003) Cash and Cash Equivalents at Beginning of Year 220,400 -------- Cash and Cash Equivalents at End of Year $171,397 ========
The Accompanying Notes are an Integral Part of the Financial Statements. Statement of Shareholders' Equity (Dollar amounts in thousands)
Capital in Cumulative Common Excess of Retained Translation Stock Par Value Earnings Adjustments ------- --------- -------- ----------- Balance at October 31, 1991 as previously reported $32,751 $392,309 $227,317 $ (8,770) Cumulative effect of accounting change,net of minority interest - - (14,957) - Restated balance at ------ ------- ------- -------- October 31, 1991 32,751 392,309 212,360 (8,770) Net income 55,473 Exercise of stock options 19 277 Issuance of restricted stock 14 171 Dividends paid ($.40 per share) (11,611) Translation adjustments (10,253) 2,060,000 shares acquired as Treasury Stock ----- ------- ------- --------- Balance at October 31, 1992 32,784 392,757 256,222 (19,023) Net loss (17,054) Exercise of stock options 3 49 Issuance of restricted stock 11 132 Dividends paid ($.40 per share) (11,177) Dividends on shares held by SECT 508 Establishment of SECT Adjust SECT shares to market value 6,277 Translation adjustments (9,452) 2,577,500 shares acquired as Treasury Stock Purchase of shares by employee benefit plans ------ ------- ------- --------- Balance at October 31, 1993 32,798 399,723 227,991 (28,475) Net loss (48,027) Exercise of stock options (1,024) Issuance of restricted stock (120) Dividends paid ($.40 per share) (11,379) Dividends on shares held by SECT 902 Adjust SECT shares to market value 6,496 Translation adjustments 2,815 4,875 shares acquired as Treasury stock Sale of 2,000,000 shares of Treasury stock 10,300 Purchase of shares by employee benefit plans ------ ------- ------- --------- Balance at October 31, 1994 $32,798 $416,277 $168,585 $(25,660) ======= ======= ======== ========= Treasury SECT Stock Total ------ --------- ----- Balance at October 31, 1991 as previously reported $ - $(49,189) $594,418 Cumulative effect of accounting change net of minority interest - - (14,957) Restated balance at ------- ------- ------- October 31, 1991 - (49,189) 579,461 Net income 55,473 Exercise of stock options 296 Issuance of restricted stock 185 Dividends paid ($.40 per share) (11,611) Translation adjustments (10,253) 2,060,000 shares acquired as Treasury Stock (38,344) (38,344) ------- ------- ------- Balance at October 31, 1992 - (87,533) 575,207 Net loss (17,054) Exercise of stock options 214 266 Issuance of restricted stock 143 Dividends paid ($.40 per share) (11,177) Dividends on shares held by SECT 508 Establishment of SECT (50,000) 50,000 - Adjust SECT shares to market value (6,277) - Translation adjustments (9,452) 2,577,500 shares acquired as Treasury Stock (50,812) (50,812) Purchase of shares by employee benefit plans 163 163 ------- ------- ------- Balance at October 31, 1993 (55,900) (88,345) 487,792 Net loss (48,027) Exercise of stock options 3,943 2,919 Issuance of restricted stock 262 142 Dividends paid ($.40 per share) (11,379) Dividends on shares held by SECT 902 Adjust SECT shares to market value (6,496) - Translation adjustments 2,815 4,875 shares acquired as Treasury stock (124) (124) Sale of 2,000,000 shares of Treasury stock 36,460 46,760 Purchase of shares by employee benefit plans 4,431 4,431 ------- ------- ------- Balance at October 31, 1994 $(53,760) $(52,009) $486,231 ========= ========= ========
The Accompanying Notes are an Integral Part of the Financial Statements. Notes to Consolidated Financial Statements (Dollar amounts in thousands unless indicated.) NOTE 1 SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of all majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. INVENTORIES - Inventories are stated at the lower of cost or market value. Cost is determined by the last-in, first-out (LIFO) method for substantially all domestic inventories and by the first-in, first-out (FIFO) method for inventories of foreign subsidiaries. REVENUE RECOGNITION - Revenue on long-term contracts is generally recorded using the percentage-of-completion method for financial reporting purposes. Such contracts include contracts for papermaking machinery, certain mining equipment, custom-engineered cranes and systems engineering. Revenue on cost-plus-fee contracts is recognized to the extent of costs incurred plus a proportionate amount of fees earned. Losses, if any, are recognized in full as soon as identified. Sales of other products and services are recorded as products are shipped or services are rendered. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at historical cost. Expenditures for major renewals and improvements are capitalized, while maintenance and repairs which do not significantly improve the related asset or extend its useful life are charged to expense as incurred. For financial reporting purposes, plant and equipment are depreciated primarily by the straight-line method over the estimated useful lives of the assets. Depreciation claimed for income tax purposes is computed by accelerated methods. CASH EQUIVALENTS - The Company considers all highly liquid debt instruments with a maturity of three months or less at the date of purchase to be cash equivalents. FOREIGN EXCHANGE CONTRACTS - Any gain or loss on forward contracts designated as hedges of commitments is deferred and included in the measurement of the related foreign currency transaction, except that permanent losses are recognized immediately. FOREIGN CURRENCY TRANSLATION - The majority of the assets and liabilities of the Company's international operations are translated at year-end exchange rates; income and expenses are translated at average exchange rates prevailing during the year. For operations whose functional currency is the local currency, translation adjustments are accumulated in a separate section of shareholders' equity. Transaction gains and losses, as well as translation adjustments relating to operations whose functional currency is the U.S. dollar, are reflected in income. Pre-tax foreign exchange losses included in operating income were $238 in 1994. Pre-tax foreign exchange gains included in operating income in 1993 and 1992 were $3,917 and $7,795, respectively. GOODWILL AND INTANGIBLE ASSETS - Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of acquired companies and is being amortized on a straight-line basis over periods ranging from 25 to 40 years. The Company assesses the carrying value of goodwill at each balance sheet date. Consistent with the November, 1993 FASB Exposure Draft, "Accounting for the Impairment of Long-Lived Assets," such assessments include a comparison of (a) the estimated future nondiscounted cash flows anticipated to be generated during the remaining amortization period of the goodwill to (b) the net carrying value of goodwill. The Company recognizes diminution in value of goodwill, if any, on a current basis. Other intangible assets are amortized over the shorter of their legal or economic useful lives ranging from 5 to 19 years. Accumulated amortization was $34,042 and $32,102 at October 31, 1994 and 1993, respectively. INCOME TAXES - Effective November 1, 1993, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109) retroactive to fiscal 1989. SFAS 109 changed the criteria for measuring the provision for income taxes and recording deferred tax assets and liabilities on the consolidated balance sheet. Under SFAS 109, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The Company reflected the initial application of the new standard as a cumulative effect of a change in accounting principle in the year of adoption and accordingly recognized income of $5,520 in the first quarter of fiscal 1989. The consolidated financial statements for each year presented take into account the effects of SFAS 109. See Note 6-Income Taxes. RESEARCH AND DEVELOPMENT EXPENSES - Research and development costs are expensed as incurred. Such costs incurred in the development of new products or significant improvements to existing products amounted to $25,016, $24,235, and $25,056 in 1994, 1993 and 1992, respectively. Certain capital expenditures used in research activities, such as the construction of the new pilot paper machine to be used in research and for customer tests, are capitalized and depreciated over their expected useful lives. EARNINGS PER SHARE - Earnings per share are based upon the weighted average number of common shares outstanding during the year. The number of shares used in the computation were 25,973,621 in 1994, 26,606,547 in 1993, and 29,121,653 in 1992. Common stock equivalents were not significant in any of the years presented. Shares in the Stock Employee Compensation Trust ("SECT") are not considered outstanding for computing earnings per share. NOTE 2 ACQUISITIONS In September, 1994, the Company completed the acquisition of all of the outstanding shares of MMH (Holdings) Limited, a holding company for Morris Mechanical Handling Limited ("Morris") and related companies for $24,890. Morris is a manufacturer of a broad line of cranes, hoists, and other lifting equipment, and has an extensive service organization that provides aftermarket services for a broad spectrum of lifting equipment. Morris is headquartered in Great Britain and also has operations in the United States, the Far East and South Africa, and is a unit of the Material Handling Equipment segment. The acquisition was accounted for as a purchase transaction. The purchase price was allocated to the specific net assets acquired based upon a recently completed independent appraisal. The results of Morris for the month of October were included in the Company's consolidated operating results. In addition, the Company completed two smaller acquisitions during 1994. In July, 1994, the Company acquired a Mexican company, Hercules, S.A. de C.V., for $2,589. Hercules, a manufacturer of overhead cranes and hoists serving the Mexican and South American markets, is also a unit of the Material Handling Equipment segment. The acquisition was accounted for as a purchase. The Company's Beloit Corporation subsidiary acquired substantially all of the common shares of OASIS (Optical Alignment Systems and Inspection Services, Inc.) for $7,000 in September, 1994. The transaction was accounted for as a purchase. The New Hampshire-based company provides specialty services principally to the paper industry. In July, 1992, the Company completed the acquisition of certain assets and liabilities of the J&L Plate ("J&L") refiner plate manufacturing and Gartland foundry facilities of Sullivan Corporation, for a total purchase price of $46,616. The acquisition was accounted for as a purchase transaction. J&L, which has been renamed J&L Fiber Services, is a wholly-owned subsidiary of Beloit Corporation. J&L has focused on custom refiner plates suitable for a variety of pulp and paper applications. In 1990, the Company entered into an agreement with Measurex Corporation ("Measurex") pursuant to which the Company could purchase up to 20% of Measurex's outstanding common stock in open market transactions. As of October 31, 1994, the Company's total investment in Measurex, including related expenses, equity income (loss) and net of dividends received, amounted to $66,347, representing 3,640,000 shares or a 20% interest. The Company accounts for this investment using the equity method and includes its equity income (loss) in its Papermaking Machinery and Systems segment ("Paper Group"). The excess purchase price over the Company's proportionate share of the underlying equity in net assets is being amortized on a straight-line basis over 40 years. Also, see Note 14-Transaction with Affiliated Companies. NOTE 3 RESTRUCTURING AND NONRECURRING CHARGES In the third quarter of fiscal 1993, the Company recorded a restructuring charge to strengthen and streamline its papermaking machinery and mining equipment businesses. The total estimated cost of the restructuring activities reduced pre-tax income by $67,000 ($43,113 after-tax, or $1.63 per share). Of the total, $40,000 related to the Paper Group, which was primarily for the closure of its Canadian papermaking machinery manufacturing facilities and consolidation of North American papermaking machine manufacturing in Beloit, Wisconsin. The $25,500 charge for Harnischfeger Corporation's Mining Equipment Division related principally to its plans to reduce worldwide inventories and to enhance manufacturing and repair parts capabilities. Other elements in the restructuring charge provided for refocusing manufacturing and marketing efforts (to reduce non-value-added activities, to reduce nonoperating assets and to focus on capital carrying costs) as well as employee severance costs. Substantially all of the restructuring reserve was used by the end of fiscal 1994. The remaining reserves at October 31, 1994 of $7,746 relate primarily to the Paper Group. The Company recorded a charge in the third quarter of fiscal 1993 resulting from the reestimation of certain warranty reserves carried by the Mining Equipment Division. The charge reduced pre-tax income by $8,000 ($5,214 after- tax, or $.19 per share). This nonrecurring charge was the result of a deeper analysis of open warranty claims and customer requests, field experience on new products and additional analytical data provided by new systems which has since resulted in engineering, design and manufacturing changes. The Company's warranty methodology, while long-established, is by its very nature based on management's judgement and is not mathematically precise or actuarially based. The resultant warranty reserves are reevaluated periodically and reflect refinements of estimated warranty exposure on evolving product lines. This additional warranty reserve was used primarily during fiscal 1994. NOTE 4 ACCOUNTS RECEIVABLE Accounts receivable at October 31 consisted of the following:
(in thousands) 1994 1993 ----- ---- Trade receivables $234,843 $226,011 Unbilled receivables 68,496 66,442 Allowance for doubtful accounts and contract losses (5,209) (11,311) -------- -------- $298,130 $281,142 ======== ========
The amount of accounts receivable due beyond one year is not significant. NOTE 5 INVENTORIES Inventories at October 31 consisted of the following:
(in thousands) 1994 1993 ---- ---- Finished goods $ 92,143 $ 93,570 Work in process and purchased parts 86,187 113,520 Raw materials 73,189 54,257 -------- --------- 251,519 261,347 Less excess of current cost over stated LIFO value (42,032) (42,907) -------- --------- $209,487 $218,440 ======== ========
Inventories valued using the LIFO method represented approximately 69% and 76% of consolidated inventories at October 31, 1994 and 1993, respectively. The Company has reduced inventory by $3,739 and $8,125 at October 31, 1994 and 1993, respectively, for progress payments received on contracts accounted for on the completed contract method. NOTE 6 INCOME TAXES Effective November 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes," retroactive to November 1, 1988. See Note 1-Significant Accounting Policies. The impact on previously reported net income and earnings(loss) per share from adopting the new standard is as follows:
Year Ended October 31,(in thousands) 1993 1992 ---------- ------- Income Per Income Per (Loss) Share (Loss) Share -------- ----- -------- ----- Increase (Decrease) from previously reported $644 $ .03 $(1,213) $(.04)
The components of income (loss) from continuing operations before income taxes and minority interest for the Company's domestic and foreign operations for the years ended October 31 were as follows:
(in thousands) 1994 1993 1992 ---- ---- ---- Domestic $ 3,839 $(56,043) $ 48,788 Foreign 22,807 (6,263) 41,826 -------- ------- ------- Income (loss) from continuing operations before provision (credit) for income taxes and minority interest $ 26,646 $(62,306) $ 90,614 ========= ======= =========
The consolidated provision (credit) for income taxes included in the statement of income for the years ended October 31 consisted of the following:
(in thousands) 1994 1993 1992 ---- ---- ---- Current provision: Federal $ 2,282 $ 2,547 $ 3,436 State 572 2,100 1,235 Foreign 6,316 3,668 26,512 ------- ------ ------- Total Current 9,170 8,315 $31,183 ------- ------- ------- Deferred provision (credit): Federal (45,630) (17,715) 7,135 State and foreign (1,040) 2,027 (3,235) ------- ------- ------- Total Deferred (46,670) (15,688) 3,900 ------- ------- ------- Total consolidated income tax provision (credit)$(37,500) $(7,373) $35,083 ======== ======= =======
Income tax provision (credit) is included in the statement of income as follows:
(in thousands) 1994 1993 1992 ---- ---- ---- Continuing operations $ 5,300 $(20,600) $31,550 Income (loss) from discontinued operations 900 3,816 3,533 Gain on sale of discontinued operation - 9,411 - Cumulative effect of accounting change (43,700) - - -------- --------- -------- $(37,500) $(7,373) $35,083 ======== ======== ========
The difference between the federal statutory tax rate and the effective tax rate on continuing operations for the years ended October 31 follows:
1994 1993 1992 ---- ---- ---- Federal statutory tax rate 35.0% (34.8)% 34.0% Goodwill amortization not deductible for tax purposes 1.7 .7 .5 Canadian restructuring (1993) and other differences in foreign and U.S. tax rates (.1) 1.4 4.1 Differences in Foreign Sales Corporation and U.S. tax rate (7.8) (1.9) (2.0) State income taxes, net of federal tax impact (5.2) 1.5 .5 General business credits utilized (5.2) (.4) -- Resolution of certain prior years' tax exposures - - (2.2) Other items-net 1.5 .4 (0.1) ------- ------ ----- Effective tax rate 19.9% (33.1)% 34.8% ======= ====== =====
Temporary differences and carryforwards which gave rise to the net deferred tax liability are as follows:
October 31,(in thousands) 1994 1993 ---------- ----------- Differences in revenue recognition for book and tax purposes $ (565) $(5,233) Inventories (3,381) (3,775) Accrued expenses not currently deductible 9,788 7,940 Provisions for restructuring not currently deductible 2,588 19,154 Other - net (931) 5,337 ------- -------- Total deferred income taxes included in other current assets $ 7,499 $23,423 ======= ======= Depreciation and amortization in excess of book expense $(56,439) $(64,025) Employee benefit related items 18,266 (16,886) Tax credit carryforwards 40,497 29,628 Tax loss carryforwards 34,595 29,749 Other accruals and reserves in excess of tax expense (13,686) (27,209) State taxes (5,483) (8,143) Other - net (15,222) (10,200) -------- ------- 2,528 (67,086) Valuation Allowance (14,134) (12,371) --------- -------- Total deferred income taxes $(11,606) $(79,457) ========= ========= Net deferred tax liability $ (4,107) $(56,034) ========= =========
At October 31, 1994, the Company has foreign tax credit carryforwards of $14,357 expiring in 1995, 1998 and 1999, general business tax credits of $18,914 expiring in 2003- 2009, and alternative minimum tax credit carryforwards of $7,226 which do not expire. In addition, tax loss carryforwards consisted of foreign loss carryforwards of $21,464 with various expiration dates, and domestic carryforwards of $13,131 with various states and expiration dates. The carryforwards will be available for the reduction of future income tax liabilities. U.S. income taxes, net of foreign taxes paid or payable, have been provided on the undistributed profits of foreign subsidiaries, except in those instances where such profits are expected to be permanently reinvested. Such unremitted earnings of subsidiaries which have been or are intended to be permanently reinvested were $96,600 at October 31, 1994. If, for some reason not presently contemplated, such profits were to be remitted or otherwise became subject to U.S. income tax, the Company expects to incur tax at substantially less than the U.S. income tax rate as a result of foreign tax credits that would be available. Income taxes paid were $10,816, $11,858 and $40,020 for 1994, 1993 and 1992, respectively. NOTE 7 LONG-TERM OBLIGATIONS, BANK CREDIT FACILITIES AND INTEREST EXPENSE Long-term obligations at October 31 consisted of the following:
(in thousands) 1994 1993 ---- ---- 8.9% Debentures, due 2022 $ 75,000 $ 75,000 8.7% Debentures, due 2022 75,000 75,000 Senior Notes, Series A through D, at interest rates of between 8.9% and 9.1%, due 1996 to 2006 75,000 75,000 Industrial Revenue Bonds, at interest rates of between 5.9% and 7.6%, due 1994 to 2017 16,032 16,857 Other 3,497 4,532 --------- --------- 244,529 246,389 Less: Amounts payable within one year 1,321 3,007 -------- --------- $243,208 $243,382 ======== ========
The Company has $150,000 of unsecured debentures outstanding with interest rates ranging from 8.7% to 8.9% due at maturity in 2022. The Senior Notes, Series A through D, are privately placed and unsecured. The terms of the Note Agreements place limits on the amount of additional long-term debt the Company may issue and require maintenance of a minimum consolidated net worth, as defined. Additional funded debt may be incurred if immediately thereafter consolidated funded debt does not exceed 50% of consolidated total tangible assets, as defined. The Series D Notes provide for eleven equal annual repayments beginning in 1996; Series A through C Notes are due at maturity in 1999, 1999 and 2001, respectively. In 1992, the Company filed a shelf registration with the Securities and Exchange Commission for the proposed sale of up to $150,000 of additional debt securities. To date no securities covered by the registration have been offered for sale. In November, 1993, the Company entered into a four-year Revolving Credit Facility Agreement between the Company and certain domestic and foreign financial institutions that allowed for borrowings of up to $150,000 at rates expressed in relation to LIBOR and other rates. In November 1994, the facility was increased to $240,000, and was extended to November, 1998. A facility fee is payable on the Revolving Credit line. The Industrial Revenue Bonds are secured by certain assets of the Company's domestic operations. Installments payable to holders of the outstanding long-term obligations of the Company are due as follows:
(in thousands) 1995. . . . . . . . . . . . . . . . . .$ 1,321 1996. . . . . . . . . . . . . . . . . . 2,849 1997. . . . . . . . . . . . . . . . . . 2,704 1998. . . . . . . . . . . . . . . . . . 2,467 1999. . . . . . . . . . . . . . . . . . 37,611
At October 31, 1994, short-term bank credit lines of foreign subsidiaries were approximately $61,102. The outstanding borrowings were $14,083 with a weighted average interest rate of 19.6%, reflecting higher rates in Poland and South Africa. There were no compensating balance requirements under these lines of credit. Net interest (expense) consisted of the following:
Year Ended October 31,(in thousands) 1994 1993 1992 ---- ---- ---- Interest income (1) $ 6,150 $ 5,801 $10,820 Interest expense (26,411) (27,597) (19,487) -------- -------- ------- Interest (expense)-net $(20,261) $(21,796) $(8,667) ======== ======== =======
(1) The Company reflected $1,546 and $2,200 of interest income in 1993 and 1992, respectively, as a result of the resolution of certain prior years' tax issues. Interest paid was $25,990, $29,774 and $14,339 in 1994, 1993 and 1992, respectively. NOTE 8 PENSION PLANS The Company and its subsidiaries have a number of defined benefit, defined contribution and government mandated pension plans covering substantially all employees. Benefits from these plans are based on factors which include various combinations of years of service, fixed monetary amounts per year of service, employee compensation during the last years of employment and the recipient's social security benefit. The Company's funding policy with respect to its qualified plans is to contribute annually not less than the minimum required by applicable law and regulation nor more than the amount which can be deducted for income tax purposes. The Company also has a nonqualified senior executive supplemental pension plan, funded by Company stock, which is based on credited years of service and compensation during the last years of employment. Certain foreign plans, which supplement or are coordinated with government plans, many of which require funding through mandatory government retirement plans or insurance company plans, have pension funds or balance sheet accruals which approximate the actuarially computed value of accumulated plan benefits as of October 31, 1994 and 1993. The Company recorded an additional minimum pension liability and intangible asset of $19,915 and $16,820 in 1994 and 1993, respectively, to recognize the unfunded accumulated benefit obligation of certain domestic plans. Pension expense for all plans of the Company was $12,164 in 1994, $13,043 in 1993 and $17,042 in 1992. Net periodic pension costs for U.S. plans and plans of subsidiaries outside the United States for which SFAS No. 87 ("Employers' Accounting for Pensions") has been adopted included the following components:
Year Ended October 31,(in thousands) 1994 1993 1992 ---- ---- ---- Service cost-benefits earned during the year $ 12,123 $ 11,675 $ 13,101 Interest cost on projected benefit obligation 24,900 23,543 24,281 Actual gain on plan assets (10,943) (36,005) (21,333) Net amortization and deferral (14,667) 13,371 211 -------- -------- -------- Net periodic pension cost $ 11,413 $ 12,584 $ 16,260 ======== ======== ========
The discount rate used for U.S. plans was 8.0% in 1994, and 8.5% in 1993 and 1992, and for non-U.S. plans ranged from 6.7% to 15.0%. The assumed rate of increase in future compensation of U.S. salaried employees was 5.0% in 1994 and 5.5% in 1993 and 1992, and for non-U.S. salaried employees ranged from 5.0% to 11.0%. Benefits under the hourly employee plans are generally not based on wages. The expected long-term rate of return on assets for essentially all U.S. and non-U.S. plans was 10.0%. The assumptions for non-U.S. plans were developed on a basis consistent with that for U.S. plans, adjusted to reflect prevailing economic conditions and interest rate environments. Primarily, as a result of the sale of Harnischfeger Engineers, Inc.("HEI") in 1993 (see Note 16 - Discontinued Operations), a curtailment occurred within the Harnischfeger Salaried Pension Plan. Curtailment gains of $4,527 were recorded in 1993, $3,969 of which was included in the gain on sale of discontinued operations. The following table sets forth the plans' funded status at October 31, 1994 and 1993:
1994 ------------------------ Plans With Plans With Assets Accumulated Exceeding Benefits Accumulated Exceeding Benefits Assets ----------- --------- Actuarial present value of: Vested benefits $167,974 $103,738 Accumulated benefits 180,140 120,350 Projected benefits 220,426 126,228 Net assets available for benefits 227,796 87,369 --------- -------- Plans' assets greater (less) than projected benefits 7,370 (38,859) Unrecognized (asset) obligation existing at adoption (7,400) 4,828 Unrecognized prior service cost 6,016 10,131 Unrecognized net (gain) loss 354 10,446 --------- -------- Net pension asset (liability) $ 6,340 $(13,454) ========= ========= 1993 ------------------------- Plans With Plans With Assets Accumulated Exceeding Benefits Accumulated Exceeding Benefits Assets ---------- ---------- Actuarial present value of: Vested benefits $147,613 $111,205 Accumulated benefits 159,264 120,766 Projected benefits 198,560 124,764 Net assets available for benefits 209,354 86,548 --------- --------- Plans' assets greater (less) than projected benefits 10,794 (38,216) Unrecognized (asset) obligation existing at adoption (7,406) 5,466 Unrecognized prior service cost 7,819 9,846 Unrecognized net (gain) loss (10,409) 5,479 --------- --------- Net pension asset (liability) $ 798 $(17,425) ========= ==========
Pension plan assets consist primarily of trust funds with diversified portfolios of primarily equity and fixed income investments. The Company has a qualified profit sharing plan which covers substantially all domestic employees except employees covered by collective bargaining agreements and employees of subsidiaries with separate defined contribution plans. Contributions to the plan are based on the Company's consolidated Economic Value Added ("EVA") performance. Profit sharing expense was $3,300 in 1994. The Company made no profit sharing contribution in 1993. Profit sharing expense was $629 in 1992. The FASB also has issued SFAS No. 112 "Employers Accounting for Postretirement Benefits" which will be implemented by the Company in the first quarter of fiscal 1995. The impact upon adoption on the Company's results of operations and financial position will not be material. NOTE 9 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company generally provides certain health care and life insurance benefits for U.S. employees who retire after attaining early retirement eligibility. During the first quarter of fiscal 1994, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106), through the immediate recognition of the obligation. Under SFAS 106, the costs of retiree health care and life insurance benefits are accrued over relevant employee service periods. Previously, these costs were charged to expense as claims were paid. The cumulative effect of the accounting change required by this standard was a one time pre-tax charge of $115,000 ($66,142 or $2.55 per share after taxes and minority interest). The discount rate used in determining the liability as of the date of adoption and as of October 31, 1994 was 8.0%. The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheet as of October 31, 1994:
(in thousands) 1994 Accumulated postretirement benefit obligation: Retirees $ 55,700 Fully eligible active plan participants 6,000 Other active plan participants 16,500 --------- Total 78,200 Plan asset at fair value 0 --------- Accumulated postretirement benefit obligation in excess of plan assets 78,200 Unrecognized transition obligation 0 Unrecognized prior service credit 21,305 Unrecognized gain 10,176 --------- Accrued postretirement benefit liability 109,681 Less: Current portion 13,614 --------- $ 96,097 =========
Net periodic postretirement benefit cost for fiscal year 1994 includes the following components:
(in thousands) 1994 ------ Service cost $ 656 Interest cost on accumulated postretirement benefit obligation 6,204 Actual return on plan assets 0 Amortization of prior service cost(credit) (2,995) Net amortization and deferral 0 ------ Net periodic postretirement benefit cost $3,865 ======
For measurement purposes, a 13.0% annual rate of increase in the per capita cost of covered health care benefits for non-medicare eligible participants was assumed for 1994 (11.0% used for medicare eligible participants); the rate was assumed to decrease gradually to 5.0% for all participants by 2001 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. A one percentage point increase in the assumed health care cost trend rates each year would increase the accumulated postretirement benefit obligation as of October 31, 1994 by $2,800, and the aggregate service cost and interest cost components of the net periodic postretirement benefit cost for the year by $300. The cost of providing these benefits to retirees was $9,237 in 1993 and $7,908 in 1992. In 1993, the Board of Directors of the Company approved a general approach that would culminate in the elimination of all Company contributions towards postretirement health care benefits. Increases in costs paid by the Company were capped beginning in 1994 extending through 1998 and Company contributions will be eliminated on January 1, 1999 for most employee groups. The initial one-time pre-tax charge reflected all plan terms and amendments in place on November 1, 1993. Negative plan amendments made subsequent to November 1, 1993 are being amortized from the date of amendment to January 1, 1999. Amortization of negative plan amendments in 1994 amounted to $2,995, which reduced reported net periodic postretirement benefit cost. NOTE 10 SHAREHOLDERS' EQUITY AND STOCK OPTIONS As of October 31, 1994, the Company had 50,000,000 authorized shares of Common Stock, $1 par value, of which 1,923,384 shares are reserved for stock options and restricted stock. On November 29, 1994, as a part of the acquisition of Joy Technologies Inc. (see Note 17- Acquisition of Joy Technologies Inc.), the Company's authorized Common Stock was increased to 100,000,000 shares. A Preferred Stock Purchase Right is attached to each share of Common Stock which entitles a shareholder to exercise certain rights in the event a person or group acquires or seeks to acquire 20% or more of the outstanding Common Stock of the Company. The Incentive Stock Plan provides for the granting, up to January 31, 1998, of qualified and non-qualified options, stock appreciation rights and restricted stock to key employees for not more than 2,400,000 shares of Common Stock. Since the inception of the Incentive Stock Plan, options for the purchase of 2,296,550 shares have been granted, at prices ranging from $6.75 to $27.00 per share. At October 31, 1994, 1,286,050 of the granted options were outstanding, 402,075 had been exercised and 608,425 had expired. Generally, the options become exercisable in cumulative installments of one-fourth of the shares in each year beginning six months from the date of the grant. In addition, 63,000 shares were reserved for restricted stock in 1990. In 1994, 10,875 of the reserved restricted shares were issued. The recipients of restricted stock have the right to receive dividends and vote but such shares cannot be transferred until they become fully vested. The shares generally will become unrestricted following the end of fiscal 1995. Compensation expense related to restricted stock is included in income and amounted to $100 in 1994, $170 in 1993 and $438 in 1992. Certain information regarding stock options follows:
Number Option Price of Shares Per Share --------- ---------------- Outstanding at October 31, 1991 1,097,475 $14.38 to 27.00 Granted 355,000 17.25 to 20.63 Exercised (18,475) 14.38 to 19.63 Canceled or expired (205,875) 14.38 to 24.63 ---------- ---------------- Outstanding at October 31, 1992 1,228,125 14.38 to 27.00 Granted 348,750 18.50 to 19.63 Exercised (16,875) 14.38 to 19.25 Canceled or expired (46,175) 14.38 to 24.63 ---------- ---------------- Outstanding at October 31, 1993 1,513,825 14.38 to 27.00 Granted 80,000 26.50 Exercised (162,650) 14.38 to 24.63 Canceled or expired (145,125) 14.38 to 24.63 ---------- ---------------- Outstanding at October 31, 1994 1,286,050 14.38 to 27.00 ---------- ---------------- Exercisable at October 31, 1994 749,863 $14.38 to 27.00 ========== ================
In September, 1994, the Company sold 2,000,000 shares of common stock in a private transaction. The common stock sold has not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This sale of stock satisfied the requirements under the pooling of interest accounting rules to replace shares repurchased during the two years prior to the announcement of the Company's merger with Joy Technologies Inc. The shares were sold from treasury stock. Following a "Dutch auction" self-tender offer in May, 1993, the Company purchased for cash 2,500,000 common shares, or approximately 9% of common shares outstanding at that time, at $19 5/8 per share, in conjunction with the establishment of the Harnischfeger Industries, Inc. SECT. Concurrent with the purchase, the Company sold 2,547,771 common shares held in treasury to the SECT, amounting to $50,000 at $19 5/8 per share. The purchase of the treasury shares reduced shareholders' equity. The sale of the treasury shares to the SECT had no impact on such equity. Shares in the SECT are being used to provide future employee benefits under plans that currently require shares of Company stock. Shares owned by the SECT are accounted for as treasury stock until issued to existing benefit plans; they are reflected as a reduction to shareholders' equity. Each period the shares owned by the SECT are valued at the closing market price, with corresponding changes in the SECT balance reflected in capital in excess of par value. Also, the shares in the SECT are not considered outstanding for computing earnings per share. NOTE 11 OPERATING LEASES The Company leases certain office and warehouse space as well as machinery, vehicles, data processing and other equipment. Certain of the leases have renewal options at reduced rates and provisions requiring the Company to pay maintenance, property taxes and insurance. Generally, all rental payments are fixed. The Company's assets and obligations under capital lease arrangements are not significant. Total rental expense under operating leases, excluding maintenance, taxes and insurance, was $13,876, $13,646 and $15,288 in 1994, 1993 and 1992, respectively. At October 31, 1994, the future payments for all operating leases with remaining lease terms in excess of one year, and excluding maintenance, taxes and insurance, were as follows:
(in thousands) 1995. . . . . . . . . . . . . . . . .$11,290 1996. . . . . . . . . . . . . . . . . 9,504 1997. . . . . . . . . . . . . . . . . 7,769 1998. . . . . . . . . . . . . . . . . 5,970 1999. . . . . . . . . . . . . . . . . 364 2000. . . . . . . . . . . . . . . . . 294
NOTE 12 COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET RISKS At October 31, 1994, the Company was contingently liable to banks, financial institutions and others for approximately $71,000 for outstanding letters of credit securing performance of sales contracts and other guarantees, excluding the HEI back-up bond guarantee facility(see Note 16-Discontinued Operations). The Company may also guarantee performance of its equipment at levels specified in sales contracts without the requirement for letters of credit. One such guarantee may require a loan to a customer approximating the value of the related paper machine in the event certain performance tests are not achieved. Performance guarantees are a normal part of the Company's business and have not resulted in significant cash outlays. The Company is a party to litigation matters and claims which are normal in the course of its operations and, while the results of litigation and claims cannot be predicted with certainty, management believes that the final outcome of such matters will not have a materially adverse effect on the Company's consolidated financial position or results of operations. The Company is also involved in a number of proceedings and potential proceedings relating to environmental matters. Although it is difficult to estimate the potential exposure to the Company related to these environmental matters, the Company believes that these matters will not have a materially adverse effect upon its consolidated financial position or results of operations. The Company has entered into various foreign currency exchange contracts with major international financial institutions designed to minimize its exposure to exchange rate fluctuations on foreign currency transactions. These contracts are used to hedge known cash receipts and disbursements in the ordinary course of business. At October 31, 1994, the outstanding net U.S. dollar face amounts of these contracts totaled approximately $1,549. The difference between contract and estimated fair values at October 31, 1994 was not significant. The Company does not participate in derivative instruments or transactions. As a prime contractor and subcontractor with various agencies of the U.S. Government, principally the Department of Defense, the Company's Systems Group is subject to strict procurement regulations, with non-compliance found by any one agency possibly resulting in fines, penalties, debarment or suspension from receiving additional contracts with all agencies. In July, 1993, the U.S. Air Force rescinded a contract with Syscon Corporation ("Syscon") following a post-award protest of the contract by another bidder. As a result of internal reviews, Syscon determined that evidence exists to indicate that an inaccurate certificate of compliance may have been submitted in connection with the contract. The outcome of the government investigation of this matter is not presently determinable. Management believes that the final outcome will not have a significant future effect on the Company's consolidated financial position or results of operations. On May 21, 1993, a Federal court jury in Madison, Wisconsin awarded Beloit Corporation $17,200 following a patent infringement trial against J.M. Voith GmbH of Germany and its subsidiary, Voith, Inc. The jury had determined that Beloit's patents on its new Bel-Champ(TM) technology for the drying section of large paper manufacturing machines were valid and infringed by Voith in connection with Voith's sale of a paper machine dryer section. The verdict of this patent infringement trial has been appealed by Voith. The award has not been recorded in the Company's financial statements. In addition, on November 23, 1994 a Federal court jury in Madison, Wisconsin returned a verdict finding Valmet Corporation of Finland guilty of infringing a key patent held by Beloit Corporation on the same Bel-Champ paper machine drying technology. In connection with this suit, the jury awarded Beloit $7,875 in damages. It is expected that the verdict in this case will be appealed by Valmet and the award has not been recorded in the Company's financial statements. NOTE 13 DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents: The carrying value approximates fair value because of the short maturity of those instruments. Long-Term Obligations: The fair value of the Company's long-term obligations has been calculated by discounting cash flows using current market yields quoted on similar issues. The estimated fair values of the Company's financial instruments at October 31, 1994 and 1993 are as follows:
1994 (in thousands) Carrying Value Fair Value -------------- ---------- Cash and Cash Equivalents $ 152,807 $ 152,807 ========= ========= Long-Term Obligations (244,529) (227,672) ========= ========= 1993 (in thousands) Carrying Value Fair Value -------------- ---------- Cash and Cash Equivalents $ 125,576 $ 125,576 ========== ========= Long-Term Obligations (246,389) (284,783) ========== =========
NOTE 14 TRANSACTIONS WITH AFFILIATED COMPANIES Mitsubishi Heavy Industries, Ltd. ("Mitsubishi") owns a 20% interest in Beloit Corporation. In connection with this ownership interest, Mitsubishi entered into certain agreements that provide it with the right to designate one of Beloit's five directors. The agreements also place certain restrictions on the transfer of Beloit stock. In the event of change in control of the Company, Mitsubishi has the right to sell its 20% interest back to the Company for the greater of $60,000 or the book value of its equity interest. Transactions with Mitsubishi for the years ending October 31, were as follows:
(in thousands) 1994 1993 1992 ------ ------ ------ Sales $ 487 $ 152 $ 88 Purchases 191 5,352 897 Receivables 2,335 1,712 920 License Income 3,931 3,794 4,800
The Company believes that its transactions with Mitsubishi were competitive with alternate sources of supply for each party involved. In 1990, the Company entered into an agreement to acquire up to a 20% interest in Measurex. As part of the agreement, Measurex elected a nominee selected by the Company to its Board of Directors. There were no significant transactions with Measurex in 1994, 1993 or 1992. On December 29, 1994, Measurex bought back 2,026,900 shares of its stock reducing the Company's interest to 10%. NOTE 15 SEGMENT INFORMATION The Company designs, manufactures and markets products structured into three industry segments. Papermaking Machinery and Systems (Beloit Corporation) produces and markets papermaking machinery and allied equipment for the pulp and paper industries. The Company's investment in Measurex Corporation and related equity income (loss) are included in this segment's identifiable assets and operating results. The Mining Equipment Division (Harnischfeger Corporation) designs, manufactures and markets electric mining shovels, electric and diesel-electric draglines, buckets, hydraulic mining excavators, large rotary blasthole drilling equipment and related replacement parts for the surface mining and quarrying industries. The Material Handling Equipment Division (Harnischfeger Corporation) designs, manufactures, services and markets overhead cranes, electric wire rope and chain hoists, engineered products, container cranes and crane modernizations and electrical products for use in a variety of industries and applications. Intersegment sales are not significant. Common operating plants have been allocated to the respective segments. Corporate assets include principally cash, cash equivalents, the investment in HEI in 1994 and 1993 and administration facilities.
Segments of Business by Industry Total Operating Depreciation and (in thousands) Sales Income (Loss) Amortization ----- ------------- --------------- 1994 Papermaking Machinery and Systems $ 712,778 $ 32,195 $ 31,945 Mining Equipment 294,497 19,531 11,492 Material Handling Equipment 109,429 12,094 2,981 ---------- --------- --------- Total continuing operations 1,116,704 63,820 46,418 Corporate (16,913) 729 Discontinued Operations ---------- --------- --------- Consolidated total $1,116,704 $ 46,907 $ 47,147 ========== ========= ========= 1993 Papermaking Machinery and Systems $ 580,421 $ (18,113) $ 30,964 Mining Equipment 291,742 (8,342) 9,615 Material Handling Equipment 117,032 6,753 2,588 ---------- ---------- --------- Total continuing operations 989,195 (19,702) 43,167 Corporate (20,808) 1,333 Discontinued Operations ---------- ---------- --------- Consolidated total $ 989,195 $ (40,510) $ 44,500 ========== ========== ========= 1992 Papermaking Machinery and Systems $ 699,127 $ 70,860 $ 27,865 Mining Equipment 328,997 35,267 8,372 Material Handling Equipment 113,412 10,343 2,415 ---------- --------- --------- Total continuing operations $1,141,536 $ 116,470 $ 38,652 Corporate (17,189) 1,201 Discontinued Operations ---------- --------- --------- Consolidated total $1,141,536 $ 99,281 $ 39,853 ========== ========= ========= Segments of Business by Industry Capital Identifiable (in thousands) Expenditures Assets ------------ ----------- 1994 Papermaking Machinery and Systems $ 27,599 $ 752,999 Mining Equipment 5,355 323,910 Material Handling Equipment 3,935 135,680 --------- ---------- Total continuing operations 36,889 1,212,589 Corporate 289 162,966 Discontinued Operations 63,298 --------- ---------- Consolidated total $ 37,178 $1,438,853 ========== ========== 1993 Papermaking Machinery and Systems $ 44,347 $ 730,955 Mining Equipment 12,956 303,315 Material Handling Equipment 1,419 85,276 --------- ---------- Total continuing operations 58,722 1,119,546 Corporate 499 154,453 Discontinued Operations 97,269 --------- ---------- Consolidated total $ 59,221 $1,371,268 ========== ========== 1992 Papermaking Machinery and Systems $ 27,842 $ 841,983 Mining Equipment 19,685 362,435 Material Handling Equipment 1,502 90,161 --------- ---------- Total continuing operations 49,029 1,294,579 Corporate 2,045 95,333 Discontinued Operations 144,808 --------- --------- Consolidated total $ 51,074 $1,534,720 ========= ==========
Geographical Segment Information Total Interarea Sales to Unaffil- (in thousands) Sales Sales iated Customers ----- --------- --------------- 1994 United States $ 986,400 $(122,916) $ 863,484 Europe 138,600 (42,111) 96,489 Other Foreign 166,750 (10,019) 156,731 Interarea Eliminations (175,046) 175,046 -- ---------- --------- ---------- $1,116,704 $ -- $1,116,704 ========== ========= ========== 1993 United States $ 824,923 $ (83,273) $ 741,650 Europe 129,302 (11,007) 118,295 Other Foreign 144,807 (15,557) 129,250 Interarea Eliminations (109,837) 109,837 -- ---------- ---------- --------- $ 989,195 $ -- $ 989,195 ========== ========= ========== 1992 United States $ 781,860 $(110,575) $ 671,285 Europe 285,679 (20,023) 265,656 Other Foreign 220,512 (15,917) 204,595 Interarea Eliminations (146,515) 146,515 -- ---------- --------- ---------- $1,141,536 $ -- $1,141,536 ========== ========= ========== Geographical Segment Information Operating Identifiable (in thousands) Income (Loss) Assets ------------- ------ 1994 United States $ 40,937 $ 894,511 Europe 2,747 225,441 Other Foreign 18,523 112,569 Interarea Eliminations 1,613 (19,932) --------- ---------- $ 63,820 $1,212,589 ========== ========== 1993 United States $ (27,909) $ 840,503 Europe 3,077 173,692 Other Foreign 5,758 135,827 Interarea Eliminations (628) (30,476) --------- --------- $ (19,702) $1,119,546 ========= ========= 1992 United States $ 78,199 $899,862 Europe 22,354 266,346 Other Foreign 16,088 159,872 Interarea Eliminations (171) (31,501) --------- ---------- $ 116,470 $1,294,579 ========= ==========
Exports of U.S.-produced products were approximately $172,000, $151,000 and $169,000 in 1994, 1993 and 1992, respectively. Note 16 DISCONTINUED OPERATIONS In 1993, the Systems Group consisted of two subsidiaries, HEI and Syscon. The Board of Directors and management of the Company determined that this segment did not meet the criteria of a core business. As such, the Board of Directors determined that retention of the Systems Group was not consistent with the Company's long-term goals. On October 29, 1993, the Company completed the sale of HEI to that unit's senior management and some equity partners. Proceeds from the sale were $45,219, consisting of $23,219 in cash at closing, $10,000 of preferred stock and a ten-year subordinated promissory note for $12,000. The preferred stock is nonvoting and nonconvertible, and carries a dividend rate increasing from 6% in the first three years to 8% in years 4-10. Mandatory redemption is scheduled in year 10. The subordinated promissory note bears interest at rates ranging from 8% to 16%, quarterly payments starting in October, 1998 and a final payment of $3,500 in October, 2003. The Company agreed to make available a back-up bonding guarantee facility for certain bid, performance and other contract bonds issued by HEI. The maximum amount of guarantees cannot exceed $100,000 in the first year subsequent to sale, with the maximum amount decreasing to zero by November, 2000. Outstanding contract bonds under the guarantee arrangement totaled approximately $74,000 at October 31, 1994. HEI typically requires similar bonds from its major subcontractors. Such guarantees have been a normal part of HEI's business in the past and have not resulted in cash outlays. The back-up facility may not be used for new types of business or for projects outside of North America, nor does it permit exposure to consequential damages on commercial contracts. The Company reported a $16,173 after-tax gain on the sale of this discontinued operation in 1993. In the second quarter of fiscal 1994, the Company announced its decision to divest itself of Syscon, the remaining unit in the Systems Group. Although the Company is pursuing a plan which provides for the spin-off of Syscon through a dividend of Syscon stock to the shareholders of Harnischfeger Industries, Inc., the Company retains the option to pursue other divestiture alternatives. The divestiture is anticipated to occur in the first half of 1995. The operating results of the Systems Group have been segregated and are shown separately in the Statement of Income as results from discontinued operations. Operating results of discontinued operations as of October 31 were as follows:
(in thousands) 1994 1993 1992 ---- ---- ---- Net sales $132,260 $245,503 $234,308 Income (loss) before income taxes (107) 7,496 9,219 Income taxes 900 3,816 3,533 Income (loss) from discontinued operations (1,007) 3,680 5,686
The difference between the federal statutory tax rate and the effective tax rate relates primarily to non-deductible goodwill of Syscon. NOTE 17 ACQUISITION OF JOY TECHNOLOGIES INC. On November 29, 1994, the Company completed the acquisition of Joy Technologies Inc. ("Joy") upon the approval of the shareholders of each company. Under the terms of the acquisition, to be accounted for as a pooling of interests, the Company exchanged 17,720,750 common shares for all of Joy's 31,353,000 outstanding shares, at an exchange ratio of .5652 of a share of the Company's common stock for each of Joy's common shares. Joy's Mining Group is a leader in the worldwide development, manufacturing, distribution and servicing of underground mining equipment for the extraction of coal and other bedded materials. In addition, Joy's Environmental Group is a supplier of air pollution and ash handling equipment for electric utilities and other industrial operations. The financial position and results of operations of the Company and Joy will be combined in fiscal 1995 retroactive to November 1, 1994 and the fiscal year of Joy has been conformed to the Company's fiscal year. In addition, all prior periods presented will be restated to give effect to the merger. The Company's fiscal 1994 financial statements will be combined with Joy's fiscal 1994 financial statements (fiscal year ended February 25, 1994). Joy's operating results for the period February 26, 1994 to October 31, 1994 will be reflected as an adjustment to the combined Company's retained earnings on November 1, 1994. Presented below are condensed combined financial statements as of and for the year ended October 31, 1994. Amounts related to Joy are presented as of and for the year ended February 25, 1994 and have been adjusted to reflect the adoption of SFAS 106 through the immediate recognition of the obligation as of the beginning of the period to conform with the Company's adoption. Condensed Combined Balance Sheet
October 31, 1994 (in thousands) Harnischfeger Joy Combined ------------- ---------- -------- ASSETS Current assets $ 718,889 $ 324,512 $1,043,401 Property, plant and equipment-net 395,879 94,358 490,237 Other noncurrent assets 324,085 122,784 446,869 ---------- ---------- ---------- $1,438,853 $ 541,654 $1,980,507 ========== ========== ========== LIABILITIES Current liabilities $ 468,133 $ 143,943 $ 612,076 Long-term obligations 243,208 325,725 568,933 Other noncurrent liabilities 155,711 55,583 211,294 ---------- ---------- ---------- 867,052 525,251 1,392,303 Minority Interest 85,570 - 85,570 Shareholders' Equity 486,231 16,403 502,634 ---------- ---------- ---------- $1,438,853 $ 541,654 $1,980,507 ========== ========== ==========
Condensed Combined Statement of Operations
Year Ended October 31, 1994 (in thousands) Harnischfeger Joy Combined ------------- ---------- -------- Net sales $1,116,704 $ 566,038 $1,682,742 Other income 23,219 82 23,301 ---------- ---------- ---------- 1,139,923 566,120 1,706,043 Operating costs & expenses 1,093,016 517,442 1,610,458 ---------- ---------- ---------- Operating income 46,907 48,678 95,585 Interest expense, income taxes and minority interest (27,785) (34,182) (61,967) ---------- ---------- ---------- Income from continuing operations 19,122 14,496 33,618 Accounting changes & other (67,149) (18,666) (85,815) ---------- ---------- ---------- Net income (loss) $ (48,027) $ (4,170) $ (52,197) ========== ========== ========== Earnings per share from continuing operations $0.77 ========== Net income (loss) per share $(1.19) ==========
NOTE 18 UNAUDITED QUARTERLY FINANCIAL DATA AND STOCK PRICES (Dollar amounts in thousands, except per share and market price amounts)
Fiscal Quarter First Second Third --------------------------------------------- Net sales $239,027 $253,566 $282,834 Gross profit 44,194 50,745 56,697 Operating income 8,135 9,063 10,650 Income from continuing operations 1,952 2,809 4,421 Income (loss) from discontinued operations, net of applicable income taxes 431 473 99 Cumulative effect of accounting change, net of applicable income taxes and minority interest (66,142) - - --------- -------- -------- Net income(loss) $ (63,759) $ 3,282 $ 4,520 ========= ======== ======== Earnings (loss) per share (1) Income from continuing operations $ 0.08 $0.11 $0.17 Income (loss) from discontinued operations 0.02 0.02 - Cumulative effect of accounting change (2.59) - - --------- -------- -------- Net income(loss)per share $(2.49) $0.13 $0.17 ========= ======== ======== Market price of common stock: High $25 1/2 $25 3/4 $21 3/4 Low 21 1/2 20 1/8 18 1/2 Fiscal Quarter 1994 Fourth Year ---------------------- Net sales $341,277 $1,116,704 Gross profit 72,619 224,255 Operating income 19,059 46,907 Income from continuing operations 9,940 19,122 Income (loss) from discontinued operations, net of applicable income taxes (2,010) (1,007) Cumulative effect of accounting change, net of applicable income taxes and minority interest - (66,142) -------- ---------- Net income(loss) $ 7,930 $ (48,027) ======== ========== Earnings (loss) per share (1) Income from continuing operations $0.37 $0.74 Income (loss) from discontinued operations (0.07) (0.04) Cumulative effect of accounting change - (2.55) -------- ---------- Net income(loss)per share $0.30 $(1.85) ======== ========== Market price of common stock: High $26 1/2 $26 1/2 Low 20 1/2 18 1/2
(Dollar amounts in thousands, except per share and market price amounts)
Fiscal Quarter First Second Third -------------------------------------------- Net sales $233,780 $259,043 $243,074 Gross profit 46,522 55,470 51,937 Operating income (loss) 4,174 9,619 (66,593) Income (loss) from continuing operations 258 3,054 (46,134) Income from discontinued operations, net of applicable income taxes 481 775 1,192 Gain on sale of discontinued operation, net of applicable income taxes -- -- -- -------- -------- -------- Net income (loss) $ 739 $ 3,829 $(44,942) ======== ======== ======== Earnings (loss) per share (2) Income (loss) from continuing operations $0.01 $0.11 $(1.82) Income from discontinued operations 0.02 0.03 0.05 Gain on sale of discontinued operation -- -- -- -------- -------- --------- Net income (loss) per share $0.03 $0.14 ($1.77) ========= ======== ========= Market price of common stock: High $20 7/8 $19 3/4 $21 3/8 Low 17 1/8 17 1/8 17 5/8 Fiscal Quarter 1993 Fourth Year ---------------------- Net sales $253,780 $989,195 Gross profit 57,946 211,875 Operating income (loss) 12,290 (40,510) Income (loss) from continuing operations 5,915 (36,907) Income from discontinued operations, net of applicable income taxes 1,232 3,680 Gain on sale of discontinued operation, net of applicable income taxes 16,173 16,173 -------- -------- Net income (loss) $23,320 $(17,054) ======== ======== Earnings (loss) per share (2) Income (loss) from continuing operations $0.23 $(1.39) Income from discontinued operations 0.05 0.14 Gain on sale of discontinued operation 0.64 0.61 -------- -------- Net income (loss) per share $0.92 $(0.64) ========= ======== Market price of common stock: High $22 3/4 $22 3/4 Low 19 1/8 17 1/8
(1) Due to the effect of the sale of 2.0 million shares of treasury stock in September, 1994 and the use of the weighted average shares outstanding each quarter for computing earnings (loss) per share, the sum of the quarterly per share amounts does not equal the per share amount for the fiscal year. (2) Due to the effect of purchase of 2.5 million shares for the Stock Employee Compensation Trust in April, 1993 and the use of the weighted average shares outstanding each quarter for computing earnings (loss) per share, the sum of the quarterly per share amounts does not equal the per share amount for the fiscal year. Item 6. FIVE-YEAR REVIEW OF SELECTED FINANCIAL DATA
Year Ended October 31, (Dollar amounts in thousands except per share amounts) 1994 1993 1992 -------- -------- -------- Revenues Net sales $1,116,704 $ 989,195 $1,141,536 Other income 23,219 8,086 14,271 ---------- --------- ---------- 1,139,923 997,281 1,155,807 Cost of Sales 892,449 777,320 871,399 Product Development, Selling and Administrative Expenses 200,567 185,471 185,127 Restructuring Charge - 67,000 - Nonrecurring Charge - 8,000 - ---------- ------- ---------- Operating Income (Loss) 46,907 (40,510) 99,281 Interest (Expense) Income-Net (20,261) (21,796) (8,667) ---------- ---------- ----------- Income (Loss) from Continuing Operations before Provision (Credit) for Income Taxes and Minority Interest 26,646 (62,306) 90,614 Provision (Credit) for Income Taxes 5,300 (20,600) 31,550 Minority Interest (2,224) 4,799 (9,277) ---------- ---------- ----------- Income(Loss) from Continuing Operations 19,122 (36,907) 49,787 Income (Loss) from Discontinued Operations, net of appli- cable income taxes (1,007) 3,680 5,686 Gain on Sale of Discontinued Operation, net of appli- cable income taxes - 16,173 -- Cumulative Effect of Account- ing Change, net of minority interest (66,142) -- -- ---------- ---------- --------- Net Income (Loss) $ (48,027) $ (17,054) $ 55,473 ========== ========== ========= Earnings (Loss) Per Share Income (loss) from continuing operations $0.74 $(1.39) $1.71 Income (loss) from discontinued operations (.04) 0.14 0.20 Gain on sale of discon- tinued operation -- 0.61 -- Cumulative effect of accounting change (2.55) -- -- ---------- ---------- ---------- Net Income (Loss) Per Share $(1.85) $ (0.64) $ 1.91 ========== ========== ========== Dividends Per Common Share $ 0.40 $ 0.40 $ 0.40 ========== ========== ========= Working Capital: Current assets $ 718,889 $ 674,320 $ 885,405 Current liabilities 468,133 426,221 465,459 ---------- ---------- ---------- Working capital $ 250,756 $ 248,099 $ 419,946 Current ratio 1.5 1.6 1.9 ========== ========== ========== Plant and Equipment: Net properties $ 395,879 $ 404,343 $ 386,948 Capital expenditures 37,178 59,221 51,074 Depreciation expense 43,575 40,738 35,858 ========== ========== ========== Total Assets $1,438,853 $1,371,268 $1,534,720 ========== ========== ========== Debt and Capitalized Lease Obligations: Long-term obligations(1) $ 244,529 $ 246,389 $ 260,436 Short-term notes payable 14,083 62,309 42,876 ---------- ---------- ---------- $ 258,612 $ 308,698 $ 303,312 ========== ========== ========== Minority Interest $ 85,570 $ 89,110 $ 99,655 ========== ========== ========== Debt to Capitalization Ratio 29.2% 32.8% 31.0% ========== ========== ========== Shareholders' Equity $ 486,231 $ 487,792 $ 575,207 Book value per share $17.49 $19.19 $20.57 Common shares outstanding (2) 27,795,135 25,423,873 27,965,655 Number of (End of Year): Employees 11,200 10,800 11,600 Common shareholders of record 2,261 2,512 2,865 Year Ended October 31, (Dollar amounts in thousands except per share amounts) 1991 1990 -------- -------- Revenues Net sales $1,359,823 $1,526,251 Other income 19,361 15,182 ---------- ---------- 1,379,184 1,541,433 Cost of Sales 1,078,317 1,240,646 Product Development, Selling and Administrative Expenses 190,008 189,256 Restructuring Charge - - Nonrecurring Charge - - ---------- --------- Operating Income (Loss) 110,859 111,531 Interest (Expense) Income-Net 4,598 8,150 ---------- ---------- Income (Loss) from Continuing Operations before Provision (Credit) for Income Taxes and Minority Interest 115,457 119,681 Provision (Credit) for Income Taxes 40,750 39,500 Minority Interest (15,509) (16,918) ---------- --------- Income(Loss) from Continuing Operations 59,198 63,263 Income (Loss) from Discontinued Operations, net of appli- cable income taxes 5,066 6,772 Gain on Sale of Discontinued Operation, net of appli- cable income taxes -- -- Cumulative Effect of Account- ing Change, net of minority interest -- -- --------- --------- Net Income (Loss) $ 64,264 $ 70,035 ========= ========= Earnings (Loss) Per Share Income (loss) from continuing operations $1.91 $1.96 Income (loss) from discontinued operations 0.16 0.21 Gain on sale of discon- tinued operation -- -- Cumulative effect of accounting change -- -- ---------- ----------- Net Income (Loss) Per Share $ 2.07 $ 2.17 ========== =========== Dividends Per Common Share $ .40 $ .20 ========== ========== Working Capital: Current assets $ 937,660 $1,003,701 Current liabilities 568,853 646,131 ---------- --------- Working capital $ 368,807 $ 357,570 Current ratio 1.6 1.6 ========== ========== Plant and Equipment: Net properties $ 353,933 $ 349,185 Capital expenditures 47,103 60,355 Depreciation expense 32,612 29,437 ========== ========== Total Assets $1,525,436 $1,598,005 ========== ========== Debt and Capitalized Lease Obligations: Long-term obligations(1) $ 135,690 $ 121,702 Short-term notes payable 31,307 30,557 ---------- ---------- $ 166,997 $ 152,259 ========== ========== Minority Interest $ 97,135 $ 94,048 ========== ========== Debt to Capitalization Ratio 19.8% 18.7% ========== ========== Shareholders' Equity $ 579,461 $ 567,978 Book value per share $19.32 $17.92 Common shares outstanding (2) 29,993,055 31,695,714 Number of (End of Year): Employees 12,400 12,200 Common shareholders of record 3,250 3,500
(1) Includes amounts classified as current liabilities. (2) As of end of year, excluding SECT shares. REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Directors and Shareholders of Harnischfeger Industries, Inc. In our opinion, the financial statements appearing on pages 26 to 43 of this report present fairly, in all material respects, the consolidated financial position of Harnischfeger Industries, Inc. and its subsidiaries (the "Company") at October 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 6 and 9, the Company changed its method of accounting for income taxes and postretirement benefits other than pensions effective November 1, 1993. The consolidated financial statements referred to above have been restated to reflect the retroactive application of the change in the Company's method of accounting for income taxes. PRICE WATERHOUSE LLP Milwaukee, Wisconsin December 5, 1994 EX-21 8 EXHIBIT 21 HARNISCHFEGER INDUSTRIES, INC. SUBSIDIARIES October 31, 1994 Harnischfeger Industries, Inc. is publicly held and has no parent. The following subsidiaries are wholly-owned except as noted below:
Description (1) Beloit Corporation (2) . . . . . . . . . . . . . . . . Delaware Beloit Canada Ltd./Ltee. . . . . . . . . . . . . . . Canada Beloit Industrial Ltda. (3). . . . . . . . . . . . . Brazil Beloit Poland S.A. (4) . . . . . . . . . . . . . . . Poland Beloit Technologies, Inc.. . . . . . . . . . . . . . Delaware BWRC, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware Beloit Italia SpA. . . . . . . . . . . . . . . . . Italy Beloit Lenox Europa GmbH . . . . . . . . . . . . . Germany Beloit Walmsley Limited. . . . . . . . . . . . . . United Kingdom J&L Fiber Services, Inc. . . . . . . . . . . . . . Wisconsin Optical Alignment Systems and Inspection Services, Inc.(5) New Hampshire Sandusky International Inc.(6) . . . . . . . . . . Ohio Harnischfeger Corporation. . . . . . . . . . . . . . . Delaware Harnischfeger of Australia Pty. Ltd. (7) . . . . . . Australia Harnischfeger do Brasil Comercio e Industria Limitada Brazil Harnischfeger Corporation of Canada, Ltd.. . . . . . Canada Harnischfeger GmbH (8) . . . . . . . . . . . . . . . Germany Harnischfeger International Corporation, S.A.. . . . Panama Harnischfeger (South Africa) (Proprietary) Limited .South Africa/Delaware HCHC, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware Harnischfeger Contract Services, Inc.. . . . . . . Delaware Harnischfeger Holdings Limited . . . . . . . . . . United Kingdom MMH (Holdings) Limited . . . . . . . . . . . . . United Kingdom Morris Mechanical Handling Limited . . . . . . United Kingdom Linear Motors Limited. . . . . . . . . . . . United Kingdom MMH (International) Limited. . . . . . . . . . United Kingdom Morris Mechanical Handling, Inc. . . . . . . Delaware Morris Mechanical Handling (Pty) Limited . . South Africa Hercules S.A. de C.V (9) . . . . . . . . . . . . . Mexico SPH Crane and Hoist, Inc.. . . . . . . . . . . . . . Delaware HIHC, Inc. . . . . . . . . . . . . . . . . . . . . . . Delaware Syscon Corporation . . . . . . . . . . . . . . . . . District of Columbia Syscon Services, Inc.. . . . . . . . . . . . . . . District of Columbia
- -------------------------- (1) Where the name of a subsidiary is indented, it is wholly-owned by its immediate parent listed at the margin above it, unless otherwise indicated. (2) Harnischfeger Industries, Inc. owns 80% and Mitsubishi Heavy Industries, Ltd. of Japan owns 20% of the voting securities of Beloit Corporation. (3) Beloit Corporation owns 45% of the voting quotas and 100% of the non-voting quotas and Monteiro Aranha S.A. owns 55% of the voting quotas of Beloit Industrial Ltda. This gives Beloit Corporation an 82.1% ownership of Beloit Industrial Ltda. (4) Beloit Corporation owns 99.5% of the voting securities of Beloit Poland S.A.; the remaining .5% is owned by employees. (5) BWRC, Inc. owns 96% of the voting securities of Optical Alignment Systems and Inspection Services, Inc.; the remaining 4% is owned by an Employee Stock Ownership Plan. (6) BWRC, Inc. owns 50% of the voting securities of Sandusky International, Inc. (7) Harnischfeger Corporation owns 75% and Kobe Steel, Ltd. of Japan owns 25% of the voting securities of Harnischfeger of Australia Pty. Ltd. (8) Harnischfeger Corporation owns 75% and Harnischfeger of Australia Pty. Ltd. owns 25% of the voting securities of Harnischfeger GmbH. (9) HCHC, Inc. owns 90% and Harnischfeger Corporation owns 10% and of the voting securities of Hercules S.A. de C.V. EX-23 9 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 and in the Registration Statements on Form S-8 listed below of Harnischfeger Industries, Inc. of our report dated December 5, 1994 appearing on page 47 of the Annual Report to Shareholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page 20 of this Form 10-K. 1. Registration Statement on Form S-8 (Registration No. 33-42833) 2. Registration Statement on Form S-8 (Registration No. 33-23985) 3. Registration Statement on Form S-8 (Registration No. 33-18393) 4. Registration Statement on Form S-3 (Registration No. 33-51436) 5. Registration Statement on Form S-8 (Registration No. 33-46738) 6. Registration Statement on Form S-8 (Registration No. 33-46739) 7. Registration Statement on Form S-8 (Registration No. 33-46740) 8. Registration Statement on Form S-8 (Registration No. 33-57209) PRICE WATERHOUSE LLP Milwaukee, Wisconsin January 27, 1995 EX-24 10 EXHIBIT 24 POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/Donna M. Alvarado SEAL) --------------------- Donna M. Alvarado POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/John D. Correnti (SEAL) ------------------- John D. Correnti POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/Don H. Davis, Jr. (SEAL) -------------------- Don H. Davis, Jr. POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/Harry L. Davis (SEAL) ----------------- Harry L. Davis POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/Robert M. Gerrity (SEAL) -------------------- Robert M. Gerrity POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/Jean-Pierre Labruyere (SEAL) ------------------------ Jean-Pierre Labruyere POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/Ralph C. Joynes SEAL) ------------------ Ralph C. Joynes POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/Herbert V. Kohler, Jr. (SEAL) ------------------------- Herbert V. Kohler, Jr. POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/ Robert F. Schnoes (SEAL) --------------------- Robert F. Schnoes POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/ Donald Taylor (SEAL) ----------------- Donald Taylor POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/C. R. Whitney (SEAL) ----------------- C. R. Whitney POWER OF ATTORNEY Form 10-K Annual Report WHEREAS, Harnischfeger Industries, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), will file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, a Form 10-K Annual Report for the fiscal year ended October 31, 1994; and, WHEREAS, the undersigned is a Director of the Corporation; NOW, THEREFORE, the undersigned hereby constitutes and appoints Jeffery T. Grade, John A. McKay and Francis M. Corby, Jr., and each or any of them, his attorney, with full power to act for him and in his name, place and stead, to sign his name in the aforesaid capacity to such Form 10-K Annual Report, hereby ratifying and confirming all that said attorney may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal this fifth day of December, 1994. /s/Robert B. Hoffman (SEAL) -------------------- Robert B. Hoffman EX-27 11
5 1,000 YEAR OCT-31-1994 OCT-31-1994 152,807 0 303,339 (5,209) 209,487 718,889 699,559 (303,680) 1,438,853 468,133 243,208 32,798 0 0 453,433 1,438,853 1,116,704 1,139,923 892,449 1,093,016 0 0 (20,261) 26,646 5,300 19,122 (1,007) 0 (66,142) (48,027) (1.85) (1.85)
-----END PRIVACY-ENHANCED MESSAGE-----