-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BuLHwxHTSNGUcYcemETQ1SPGNrrkDS+5zBKiSlspEew+/Z6UWJPiwVWhFo6tHeyD 7MYg+tCgKsdU8gei+imzlA== 0000801898-96-000015.txt : 19960318 0000801898-96-000015.hdr.sgml : 19960318 ACCESSION NUMBER: 0000801898-96-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960315 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09299 FILM NUMBER: 96535467 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-Q 1 SECURITIES AND EXCHANGE COMMISSION ---------------------------------- Washington, D.C. 20549 FORM 10-Q --------- (MARK ONE) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) _____ OF THE SECURITIES EXCHANGE ACT OF 1934 X FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1996 - ----- ---------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) ______ OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ______ ______ COMMISSION FILE NUMBER 1-9299 ----------------------------- HARNISCHFEGER INDUSTRIES, INC. ------------------------------ (Exact name of registrant as specified in its charter) Delaware 39-1566457 - ------------------------ ------------------- (State of incorporation) (I.R.S. Employer Identification No.) 13400 Bishops Lane, Brookfield, Wisconsin 53005 - ------------------------------------------------- (414) 797-6480 (Address & telephone number of principal executive offices) Indicate by checkmark 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 14, 1996 - -------------------------- ----------------------------- Common Stock, $1 par value 48,964,242 shares HARNISCHFEGER INDUSTRIES, INC. ------------------------------ FORM 10-Q --------- JANUARY 31, 1996 ----------------- INDEX ------ Page No. ------------ PART I. Financial Information: Statement of Income - 1 Three Months Ended January 31, 1996 and 1995 Balance Sheet - 2-3 January 31, 1996 and October 31, 1995 Statement of Cash Flows - 4 Three Months Ended January 31, 1996 and 1995 Statement of Shareholders' Equity - 5 Three Months Ended January 31, 1996 and 1995 Notes to Financial Statements 6-9 Management's Discussion and Analysis of Results of Operations and Financial Condition 10-15 PART II. Other Information 15 Signatures 16 1 PART I. FINANCIAL INFORMATION - ------------------------------
HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ STATEMENT OF INCOME - --------------------- (Amounts in thousands except per share amounts) (Unaudited) Three Months Ended January 31, ------------------- 1996 1995 --------- -------- Revenues Net Sales $632,684 $449,369 Other Income 10,882 9,256 ---------------- 643,566 458,625 Cost of Sales 491,532 351,623 Product Development, Selling and Administrative Expenses 98,856 72,862 ------- ------- Operating Income 53,178 34,140 Interest Expense - Net (13,237) (11,492) --------- -------- Income Before JOY Merger Costs, Provision for Income Taxes and Minority Interest 39,941 22,648 JOY Merger Costs - (17,459) Provision for Income Taxes (including credit of $6,075in 1995 relating to JOY merger costs) 14,375 1,850 Minority Interest (2,375) (146) -------- -------- Income From Continuing Operations (after deducting $11,384, net of applicable income taxes, related to JOY merger costs) 23,191 3,193 Loss From and Net Loss on Sale of Discontinued Operation, net of applicable income taxes - (22,634) Extraordinary Loss on Retirement of Debt, net of applicable income taxes - (3,481) ---------------- Net Income (Loss) $23,191 $(22,922) ================ Earnings (Loss) Per Share Income from continuing operations (after deducting $0.24 per share related to JOY merger costs) $ 0.50 $ 0.07 Loss from and net loss on sale of discontinued operation - (0.49) Extraordinary loss on retirement of debt - (0.08) ------ ------- Net Income (loss) per share $ 0.50 $(0.50) ====== =======
See accompanying notes to financial statements. 2
HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ BALANCE SHEET - -------------- (Dollar amounts in thousands) January 31, October 31, 1996 1995 ----------- ------------- (Unaudited) Assets Current Assets: Cash and cash equivalents $ 77,645 $ 239,043 Accounts receivable-net 590,735 499,953 Inventories 523,905 416,395 Other current assets 131,031 57,999 Businesses held for sale 100,000 - ---------- ----------- 1,423,316 1,213,390 Property, Plant and Equipment: Land and improvements 47,796 31,571 Buildings 263,375 233,788 Machinery and equipment 710,606 676,546 ----------- ----------- 1,021,777 941,905 Accumulated depreciation (465,256) (454,249) ----------- ----------- 556,521 487,656 Investments and Other Assets: Goodwill 399,934 147,943 Intangible assets 44,413 66,796 Other assets 108,140 124,982 ---------- --------- 552,487 339,721 ---------- ---------- $2,532,324 $2,040,767 ========== ==========
See accompanying notes to financial statements. 3
HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ BALANCE SHEET - -------------- (Dollar amounts in thousands) January 31, October 31, 1996 1995 ------------- ------------ (Unaudited) Liabilities and Shareholders' Equity Current Liabilities: Short-term notes payable, including current portion of long-term obligations $ 172,541 $ 22,802 Trade accounts payable 265,557 263,750 Employee compensation and benefits 118,149 100,041 Advance payments and progress billings 205,686 154,401 Accrued warranties 50,244 43,801 Other current liabilities 233,298 138,508 --------- --------- 1,045,475 723,303 Long-term Obligations 617,490 459,110 Other Liabilities: Liability for postretirement benefits 97,362 101,605 Accrued pension costs 35,126 52,237 Other liabilities 19,536 20,820 Deferred income taxes 43,020 34,805 ------- -------- 195,044 209,467 Minority Interest 91,628 89,611 Shareholders' Equity: Common stock (issued 51,208,098 and 51,117,774 shares, respectively) 51,208 51,118 Capital in excess of par value 613,152 603,712 Retained earnings 71,869 53,560 Cumulative translation adjustments (46,257) (42,118) --------- --------- 689,972 666,272 Less: Stock Employee Compensation Trust (1,920,100 and 1,920,100 shares, respectively) at market (65,043) (60,483) Treasury stock (2,274,613 and 2,504,613 shares, respectively) at cost (42,242) (46,513) ----------- ----------- 582,687 559,276 ----------- ----------- $2,532,324 $2,040,767 =========== ===========
See accompanying notes to financial statements. 4
HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ STATEMENT OF CASH FLOWS - ------------------------ (Dollar amounts in thousands) (Unaudited) Three Months Ended January 31, ---------------------- 1996 1995 -------- --------- Operating Activities Net income (loss) $23,191 $ (22,922) Add (deduct) - Items not affecting cash: Net loss on sale of discontinued operation - 22,634 Extraordinary loss on retirement of debt - 3,481 Depreciation and amortization 22,922 18,286 Minority interest, net of dividends paid 2,375 146 Other - net 811 1,344 Changes in working capital, exclusive of acquisition of businesses (Increase) decrease in accounts receivable - net (17,830) 6,245 (Increase) in inventories (32,516) (24,999) (Increase) in other current assets (13,711) (8,965) (Decrease) in trade accounts payable (55,177) (28,300) (Decrease) in employee compensation and benefits (17,487) (639) Increase in advance payments and progress billings 20,007 27,315 Increase (decrease) in other current liabilities 5,812 (13,366) --------- ---------- Net cash (applied to) operating activities (61,603) (19,740) --------- ---------- Investment and Other Transactions Purchase of Dobson Park Industries plc, net of cash acquired of $4,631 (325,369) - Sale of Joy Environmental Technologies 11,651 - Proceeds from sale of investment in Measurex Corporation - 43,578 Property, plant and equipment - net (18,490) (10,262) Other - net 945 (3,718) --------- ---------- Net cash (applied to) provided by investment and other transactions (331,263) 29,598 --------- ---------- Financing Activities Dividends paid (4,690) (4,583) Exercise of stock options 1,719 952 Issuance of long-term obligations 153,077 - Redemption of long-term obligations (382) (95,458) Increase in short-term notes payable 81,431 34,487 --------- ---------- Net cash provided by (applied to) financing activities 231,155 (64,602) --------- ---------- Effect of Exchange Rate Changes on Cash and Cash Equivalents 313 58 --------- ---------- (Decrease) in Cash and Cash Equivalents (161,398) (54,686) (Use) of Cash by Joy Technologies from February 26, 1994 to November 1, 1994 - (23,706) Cash and Cash Equivalents at Beginning of Period 239,043 196,455 --------- ---------- Cash and Cash Equivalents at End of Period $ 77,645 $118,063 --------- ----------
See accompanying notes to financial statements. 5
HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ STATEMENT OF SHAREHOLDERS' EQUITY - --------------------------------- (Dollar amounts in thousands) (Unaudited) Capital Common Excess of Stock Par Value ------ --------- Three Months Ended January 31, 1996 Balance at October 31, 1995 $51,118 $603,712 Net income Translation adjustments Exercise of 82,074 stock options 82 1,637 Dividends paid ($.10 per share) Dividends on shares held by SECT 192 Adjust SECT shares to market value 4,560 230,000 shares purchased by employee benefit plans 2,964 Issuance of restricted stock 8 87 ------- ------- Balance at January 31, 1996 $51,208 $613,152 ======= ======== Three Months Ended January 31, 1995 - ----------------------------------- Balance at October 31, 1994 $50,506 $576,886 Adjustment related to Joy Technologies from February 26, 1994 to November 1, 1994 13 182 ------- ------- Adjusted Balance at November 1, 1994 50,519 577,068 Net income Translation adjustments Exercise of 50,580 stock options 10 (133) Dividends paid ($.10 per share) Dividends on shares held by SECT 184 Adjust SECT shares to market value 3,146 398,497 shares purchased by employee benefit plans ------- -------- Balance at January 31, 1995 $50,529 $580,265 ======= =========
See accompanying notes to financial statements. 5
HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ STATEMENT OF SHAREHOLDERS' EQUITY - ---------------------------------- (Dollar amounts in thousands) (Unaudited) Cumulative Retained Translation Earnings Adjustments -------- ----------- Three Months Ended January 31, 1996 - ----------------------------------- Balance at October 31, 1995 $53,560 $(42,118) Net income 23,191 Translation adjustments (4,139) Exercise of 82,074 stock options Dividends paid ($.10 per share) (4,882) Dividends on shares held by SECT Adjust SECT shares to market value 230,000 shares purchased by employee benefit plans Issuance of restricted stock -------- -------- Balance at January 31, 1996 $ 71,869 $(46,257) ======= ======== Three Months Ended January 31, 1995 - ----------------------------------- Balance at October 31, 1994 $19,936 $(39,194) Adjustment related to Joy Technologies from February 26, 1994 to November 1, 1994 (4,575) 1,742 -------- --------- Adjusted Balance at November 1, 1994 15,361 (37,452) Net income (22,922) Translation adjustments (2,755) Exercise of 50,580 stock options Dividends paid ($.10 per share) (4,767) Dividends on shares held by SECT Adjust SECT shares to market value 398,497 shares purchased by employee benefit plans ---------- --------- Balance at January 31, 1995 $ (12,328) $(40,207) ========== =========
See accompanying notes to financial statements. 5
HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ STATEMENT OF SHAREHOLDERS' EQUITY - --------------------------------- (Dollar amounts in thousands) (Unaudited) Treasury SECT Stock --------- -------- Three Months Ended January 31, 1996 Balance at October 31, 1995 $(60,483) $(46,513) Net income Translation adjustments Exercise of 82,074 stock options Dividends paid ($.10 per share) Dividends on shares held by SECT Adjust SECT shares to market value (4,560) 230,000 shares purchased by employee benefit plans 4,271 Issuance of restricted stock --------- -------- Balance at January 31, 1996 $(65,043) $(42,242) ========== ======== Three Months Ended January 31, 1995 - ----------------------------------- Balance at October 31, 1994 $(53,760) $(52,009) Adjustment related to Joy Technologies from February 26, 1994 to November 1, 1994 --------- --------- Adjusted Balance at November 1, 1994 (53,760) (52,009) Net income Translation adjustments Exercise of 50,580 stock options 1,075 Dividends paid ($.10 per share) Dividends on shares held by SECT Adjust SECT shares to market value (3,146) 398,497 shares purchased by employee benefit plans 10,260 --------- --------- Balance at January 31, 1995 $(45,571) $(52,009) ======== =========
See accompanying notes to financial statements. 5
HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ STATEMENT OF SHAREHOLDERS' EQUITY - --------------------------------- (Dollar amounts in thousands) (Unaudited) Total --------- Three Months Ended January 31, 1996 - ----------------------------------- Balance at October 31, 1995 $559,276 Net income 23,191 Translation adjustments (4,139) Exercise of 82,074 stock options 1,719 Dividends paid ($.10 per share) (4,882) Dividends on shares held by SECT 192 Adjust SECT shares to market value - 230,000 shares purchased by employee benefit plans 7,235 Issuance of restricted stock 95 --------- Balance at January 31, 1996 $582,687 ======== Three Months Ended January 31, 1995 - ----------------------------------- Balance at October 31, 1994 $502,365 Adjustment related to Joy Technologies from February 26, 1994 to November 1, 1994 (2,638) --------- Adjusted Balance at November 1, 1994 499,727 Net income (22,922) Translation adjustments (2,755) Exercise of 50,580 stock options 952 Dividends paid ($.10 per share) (4,767) Dividends on shares held by SECT 184 Adjust SECT shares to market value - 398,497 shares purchased by employee benefit plans 10,260 --------- Balance at January 31, 1995 $480,679 =========
See accompanying notes to financial statements. 6 HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ NOTES TO FINANCIAL STATEMENTS - ------------------------------ JANUARY 31, 1996 (Amounts in thousands unless indicated.) (a) Basis of Presentation --------------------- In the opinion of management, all adjustments necessary for the fair presentation of the results of operations for the three months ended January 31, 1996 and 1995, cash flows for the three months ended January 31, 1996 and 1995, and financial position at January 31, 1996 have been made. All adjustments made are of a normal recurring nature. See notes (b), (c), and (g) for discussions regarding acquisitions, divestiture of discontinued operations and the fiscal 1995 extraordinary loss on retirement of debt. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's 1995 Current Report on Form 8-K filed December 8, 1995, which is incorporated by reference in the Company's Annual Report on Form 10-K for the year ended October 31, 1995. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. (b) Acquisitions -------------- In early fiscal 1996, the Company completed the acquisition of Dobson Park Industries plc ("Dobson") for a purchase price of approximately $330 million including acquisition costs.The acquisition was accounted for as a purchase transaction with the purchase price allocated to specific assets acquired and liabilities assumed. This allocation was based on preliminary estimates and may be revised at a later date. Resultant goodwill is being amortized over 40 years. The following unaudited pro forma results of operations give effect to the acquisition of Dobson as if it had occurred on November 1, 1994:
Three Months Ended January 31, 1995 ----------------- Net Sales $538,915 Income From Continuing Operations 3,704 Net Loss (22,411) =========== Earnings per share: Income from continuing operations $ 0.08 Net Loss (0.49) =========
The unaudited pro forma information is not necessarily indicative either of results of operations that would have occurred had the purchase been made on November 1, 1994, or of future results of operations of the combined companies. Dobson, headquartered in the United Kingdom, is an industrial engineering group with interests in underground mining equipment, industrial electronic control systems, toys and plastics. Longwall International ("Longwall"), one of the main subsidiaries of Dobson, is engaged in the manufacture, sale and service of underground mining equipment for the international coal mining industry. Its products include electronically controlled roof support systems, armored face conveyors, pumps and belt conveyor 7 components and systems. Longwall's operations are being fully integrated into Joy Mining Machinery, enabling Joy Technologies Inc. ("JOY") to offer integrated underground longwall mining systems to the worldwide mining industry. Longwall's operating results for the first quarter of fiscal 1996 are included in the January 31, 1996 consolidated statement of income. The industrial electronic and toys/plastics businesses are held for sale and are separately classified as such on the Consolidated Balance Sheet. These businesses have been valued at $100.0 million and are expected to be sold within one year. This estimate is based on recent valuations and considers expected cash flow during the disposal period. On January 29, 1996, the Company and its Beloit Corporation subsidiary announced that they had entered into a letter of intent with Ingersoll-Rand Company to purchase the assets of the Pulp Machinery Division of Ingersoll-Rand. The purchase is expected to be consummated by March 31, 1996 subject to regulatory approval. On November 29, 1994, the Company completed the acquisition of JOY through a stock-for-stock merger following approval of the merger by shareholders of each company. Under the terms of the acquisition, accounted for as a pooling of interests, the Company exchanged 17,720,750 shares of Company common stock for all of JOY's 31,353,000 outstanding shares of common stock at an exchange ratio of .5652 of a share of the Company's common stock for each share of JOY common stock. JOY's Mining Group is a leader in the worldwide development, manufacture, distribution and servicing of underground mining equipment for the extraction of coal and other bedded materials. Effective November 1, 1994, the fiscal year of JOY was conformed to the Company's fiscal year. Transaction costs related to the JOY merger of $17,459 ($11,384 net of tax or $0.24 per share) were charged to income during the first quarter of fiscal 1995. (c) Divestitures and Discontinued Operations ----------------------------------------- In December 1995, the Company completed the sale of substantially all of the assets of Joy Environmental Technologies, Inc. to Babcock and Wilcox, an operating unit of McDermott International, for $11,651. The loss on sale, net of applicable income taxes, was recorded in fiscal 1995. On February 16, 1995, the Company completed the sale of Syscon Corporation (the remaining unit of the Systems Group) to Logicon, Inc. for a cash price of $45,000. In connection with this sale, the Company recorded a loss on sale of discontinued operations, net of applicable income taxes, in the first quarter of fiscal 1995. (d) Inventories -----------
Consolidated inventories consisted of the following: January 31, October 31, 1996 1995 ------------ ------------ Finished goods $ 279,166 $ 211,555 Work in process and purchased parts 191,053 170,027 Raw materials 127,065 106,999 -------- -------- 597,284 488,581 Less excess of current cost over stated LIFO value (73,379) (72,186) ---------- --------- $ 523,905 $416,395 ========== =========
Inventories valued using the LIFO method represented approximately 69% and 80% of consolidated inventories at January 31, 1996 and October 31, 1995, respectively. 8 The Company has reduced inventory by $6,101 and $6,051 at January 31, 1996 and October 31, 1995, respectively, for progress payments received on contracts accounted for on the completed contract method. (e) Research and Development Expense -------------------------------- 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 $7,145 and $6,966 for the three months ended January 31, 1996 and 1995, respectively. Certain capital expenditures used in research activities are capitalized and depreciated over their expected useful lives. (f) Interest Expense - Net ----------------------
Net interest expense consisted of the following: Three Months Ended January 31, -------------------- 1996 1995 ------- ------- Interest income $ 2,361 $ 1,666 Interest expense (15,598) (13,158) --------- --------- Interest expense - net $(13,237) $(11,492) ======== =========
(g) Long-Term Obligations ---------------------
Long-term obligations at January 31, 1996 and October 31, 1995 consisted of the following: January 31, October 31, 1996 1995 ------------- ----------- 10 1/4% Senior Notes due 2003 $188,380 $ 188,380 8.9% Debentures, due 2022 75,000 75,000 8.7% Debentures, due 2022 75,000 75,000 7 1/4% Debentures, due 2025 (net of discount of $1,269) 148,731 - 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 8.8%, due 1996 to 2017 34,224 28,428 Other 24,793 21,183 -------- -------- 621,128 462,991 Less: Amounts payable within one year 3,638 3,881 -------- --------- $617,490 $459,110 ======== =========
The 7 1/4% debentures were issued on December 19, 1995 at 99.153% in connection with the Company's acquisition of Dobson. The debentures will mature on December 15, 2025 and are not redeemable prior to maturity nor subject to any sinking fund requirements. Interest on the debentures is payable semi-annually on June 15 and December 15 of each year, commencing June 15, 1996. In the first quarter of fiscal 1995, as a result of the repayment of the JOY Bank Facility $(90,785) and the partial redemption of the 10 1/4% Senior Notes $(11,620), the Company recorded an extraordinary loss on debt retirement, net of applicable income taxes, of $(3,481) or $(0.08) per share consisting primarily of unamortized financing costs and redemption premiums. 9 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 borrowing 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. In December, 1995, the Agreement was amended to provide for an expiration date of November, 2000. A facility fee is payable on the Revolving Credit Facility. At January 31,1996, there were no direct outstanding borrowings related to the Revolving Credit Facility. However, commercial paper is considered a utilization of the Facility. As of January 31, 1996, the Company has commercial paper borrowings of $82,174. (h) Contingent Liabilities ---------------------- At January 31, 1996, the Company was contingently liable to banks, financial institutions, and others for approximately $191,000 for outstanding letters of credit securing performance of sales contracts and other guarantees in the ordinary course of business. The Company may also guarantee performance of its equipment at levels specified in sales contracts without the requirement for letters of credit. Performance guarantees are a normal part of the Company's business and have not resulted in significant cash outlays. In addition, in accordance with the terms of the agreement between the Company and H-K Systems, Inc., formerly Harnischfeger Engineers, Inc, the Company has made available a back-up bonding guarantee facility for certain bid, performance and other contract bonds issued by H-K Systems, Inc. The amount of guarantees outstanding cannot exceed $70,000 during fiscal 1996, with the maximum amount decreasing to zero by November, 1998. Outstanding contract bonds under the guarantee arrangement totaled approximately $49,930 at January 31, 1996; H-K Systems, Inc. typically requires similar bonds from its major subcontractors. Such guarantees have been part of H-K Systems' business in the past and have not resulted in significant 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 is a party to litigation matters, claims and performance guarantees which are normal in the course of its operations and, while the results of litigation, claims and guarantees 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. (i) Patent Infringement Jury Award ------------------------------ 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 Bel-Champ(R) paper machine drying technology. In connection with this suit, the jury awarded Beloit $7,875 in damages. The verdict in this case has been appealed by Valmet and the award has not been recorded in the Company's financial statements. (j) Sale of Measurex Stock ---------------------- On December 29, 1994, Measurex Corporation ("Measurex") repurchased 2,026,900 shares of its stock which had been purchased by the Company. The transaction reduced the Company's interest in Measurex from 20% to 10%. 10 The Company recorded a gain in Other Income in the first quarter of fiscal 1995 in connection with the sale of Measurex shares. On June 23, 1995, Measurex repurchased the remaining 1,613,100 shares of its stock. These transactions resulted in a combined gain of $29,657 in fiscal 1995. Measurex continues to have cooperative agreements with the Company's Beloit Corporation subsidiary. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION THREE MONTHS ENDED JANUARY 31, 1996 AND 1995 -------------------------------------------- (Amounts in thousands unless indicated) Net income for the three months ended January 31, 1996 amounted to $23,191, or $0.50 per share as compared to a net loss of $(22,922), or $(0.50) per share, for the three months ended January 31, 1995. Income from continuing operations in the first quarter of 1996 improved to $23,191, or $0.50 per share as compared to $3,193, or $0.07 per share after JOY merger costs for the comparable period in 1995. Net results for the first quarter ended January 31, 1995, were reduced by charges of $(21,948), or $(0.48) per share, and $(686), or $(0.01) per share, for losses from discontinued operations (Syscon and Joy Environmental Technologies, Inc, respectively). Also recorded was a charge of $(3,481), or $(0.08) per share, for the extraordinary loss on retirement of debt related to repayment of the JOY Bank Facility and some JOY 10 1/4% Senior Notes. Per share calculations for the first three months of 1996 and 1995 were based on 46,795 and 45,692 average shares outstanding, respectively. Significant factors contributing to the $19,998 increase in income from continuing operations for the first three months of 1996 as compared to 1995 included: (1) a $19,038 increase in operating income in 1996 over 1995 as described in the Segment Information section which follows, (2) JOY merger - ------------------- costs of $17,459 in fiscal 1995, offset by (3) a $1,745 increase in interest expense in 1996 resulting from additional debt incurred from the Dobson acquisition, (4) a $12,525 increase in income taxes in 1996 primarily due to higher pre-tax income and (5) a $2,229 increase in minority interest in 1996 due to higher after-tax results of certain operations owned in part by other entities. In December, 1995, the Company completed the sale of substantially all of the assets of Joy Environmental Technologies, Inc. to Babcock and Wilcox, an operating unit of McDermott International, for $11,651. The loss on sale, net of applicable income taxes, was recorded in fiscal 1995. On February 16, 1995, the Company completed the sale of Syscon Corporation to Logicon, Inc. for a cash price of $45,000. In connection with this sale, the Company recorded a loss on sale of discontinued operations, net of applicable income taxes, in the first quarter of fiscal 1995. 12 Segment Information - -------------------
Operating results of the Company's business segments for the first quarter of 1996 and 1995 are summarized as follows: Net Sales Operating Income 1996 1995 1996 1995 --------- ------ ------ First Quarter Mining Equipment $314,976$199,082$35,382 $22,669 Papermaking Machinery and Systems 252,353 202,332 18,562 12,835 Material Handling 65,355 47,955 4,332 3,322 ------- --------------- ------- Total Business Segments $632,684$449,369 58,276 38,826 ======= ======= Corporate Administration (5,098) (4,686) -------- ------- Operating Income $ 53,178 $34,140 ======= =======
(a) Includes purchased backlog of Longwall International totaling $231,495. Segment Information - ------------------- 12
Operating results of the Company's business segments for the first quarter of 1996 and 1995 are summarized as follows: Orders Booked Backlog at 1996 1995 1/96 10/95 ------ ----- ------ ------- First Quarter - ------------- Mining Equipment $291,052$201,292 $429,111 (a) $221,540 Papermaking Machinery and Systems 261,373 246,655 688,645 679,625 Material Handling 81,483 49,489 147,007 130,879 ------- ------- --------- -------- Total Business Segments $633,908$497,436 $1,264,763 $1,032,044 ======== ======== ====================
(a) Includes purchased backlog of Longwall International totaling $231,495. 13 Segment Information - Continuing Operations - ------------------------------------------- Net sales of the Mining Equipment segment amounted to $314,976 and $199,082 for the first three months of 1996 and 1995, respectively, representing a 58% increase in 1996 as compared to 1995. The sales increase is primarily due to the addition of Longwall and to increases in both original equipment and aftermarket activity for both the surface mining and underground mining operations. Operating profit increased to $35,382 in the first quarter of 1996 as compared to $22,669 in 1995. The increase in operating profit is primarily due to the addition of Longwall and strong surface mining results. Bookings for the first three months of 1996 amounted to $291,052 as compared to $201,292 for the same period in 1995. The Papermaking Machinery and Systems segment contributed sales and operating profit of $252,353 and $18,562, respectively, for the first three months of 1996, as compared to net sales of $202,332 and operating profit of $12,835 for the corresponding period in 1995. Sales increased 25% in 1996 over 1995 primarily due to an increase in sales of original equipment and rebuilds. Operating profit reflected stronger gross margins due to stronger sales, improved margins and reduced manufacturing variances, in addition to other income from a patent litigation settlement. Income in 1995 included a gain recognized in connection with the sale of Measurex shares. Bookings for the first three months of 1996 amounted to $261,373 as compared to $246,655 for the same period in 1995. The Material Handling segment contributed sales and operating profit of $65,355 and $4,332, respectively, for the first three months of 1996, as compared to sales of $47,955 and operating profit of $3,322 for the comparable period in 1995. Sales increased primarily due to an increase in original equipment sales. Operating profit increased as a result of increased sales. Bookings for the first three months of 1996 and 1995 amounted to $81,483 and $49,489, respectively. Income Taxes - ------------ The Company's estimated annual effective tax rate for continuing operations for the first three months of 1996 was 36% compared to a 35% federal statutory tax rate. The principal reason for the difference between the effective rate and the statutory rate is nondeductible goodwill partially offset by the availability of tax credits. Postretirement Benefits Other Than Pensions - ------------------------------------------- The Financial Accounting Standards Board has issued SFAS No. 112 "Employers' Accounting for Postemployment Benefits" (SFAS 112) which was implemented by the Company in the first quarter of fiscal 1995. The impact upon adoption of SFAS 112 on the Company's results of operations and financial position was not material. Liquidity and Cash Flows - ------------------------
The Company's capital structure at January 31, 1996 and October 31, 1995 was as follows: January 31, October 31, 1996 1995 - ------------- ----------- Short-term notes payable $ 168,903 $ 18,921 Long-term obligations, including current portion 621,128 462,991 -------- ------- 790,031 481,912 Liability for postretirement benefits (after tax) 63,285 66,043 Minority interest 91,628 89,611 Shareholders' equity, excluding SECT 647,730 619,759 - ---------- ---------- Total capitalization $1,592,674 $1,257,325 ========== ======== Debt to capitalization ratio 49.6% 38.3% ====== =======
The increase in debt, both short-term notes payable and long- 14 term obligations, was attributable to debt associated with the acquisition of Dobson Park. Cash Flow from Operating Activities - ----------------------------------- Cash flow used by operating activities was $61,603 for the three months ended January 31, 1996 compared to cash flow used by operating activities of $19,740 for the comparable period in 1995. The decrease in cash flows between periods is primarily the result of an increase in accounts receivable due to increased sales, an increase in inventory and a decrease in trade accounts payable. Net working capital, exclusive of businesses held for sale, decreased $212,246 during the three months ended January 31, 1996 due to increases in short-term notes payable and advance payments and a decline in cash and cash equivalents, partially offset by an increase in inventories and accounts receivable. The increase in short-term notes payable and decrease in cash and cash equivalents resulted from the acquisition of Dobson Park plc. Cash Flow from Investment Activities - ------------------------------------ Cash flow applied to investment activities was $331,263 for the three months ended January 31, 1996 compared to cash flow provided by investment activities of $29,598 for the comparable period in 1995. The change is primarily due to the $330,000 acquisition of Dobson Park plc in early fiscal 1996. Fiscal 1995 cash flows from investing activities includes $43,578 from the December 29, 1994 Measurex Corporation repurchase of approximately 2,000 shares of its stock from the Company. Cash Flow for Financing Activities - ---------------------------------- The $231,155 cash provided by financing activities in the first quarter of 1996 was due primarily to the issuance of 7 1/4%, $150,000 debentures and an $81,431 increase in short-term notes payable in connection with the acquisition of Dobson Park plc. Financing activities for the first quarter of fiscal 1996 included a use of cash for the $95,458 payment for redemption of JOY's remaining Bank Facility and partial redemption of JOY's 10 1/4% Senior Notes offset by an increase of $34,487 in short-term notes payable. As a result of the redemptions of the Bank Facility and Senior Notes, the Company recorded an extraordinary loss on debt retirement, net of applicable income taxes, of $(3,481), or $(0.08) per share, in the first quarter of fiscal 1995, consisting primarily of unamortized financing costs and redemption premiums. The Statement of Cash Flows for the three month period ending January 31, 1996 has been adjusted to reflect the $23,706 use of cash by JOY from the period February 26, 1994 to November 1, 1994. The Company maintains the ability to expand its borrowing in several ways, including the following: (1) A five-year Revolving Credit Facility Agreement between the Company and certain domestic and foreign financial institutions that allows for borrowing of up to $240,000 at rates expressed in relation to LIBOR and other rates. At January 31, 1996, there were no direct outstanding borrowings related to the Revolving Credit Facility. However, commercial paper is considered a utilization of the Facility. As of January 31, 1996, the Company has commercial paper borrowings of $82,174. (2) Short-term bank credit lines of foreign subsidiaries of approximately $163,700 of which approximately $45,204 was outstanding at January 31, 1996. 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 Company has no significant capital commitments as of January 31, 1996; any future capital commitments are expected to be funded through cash flow from operations and, if 15 necessary, available lines of credit; however, see discussion below regarding acquisitions. The Company intends to continue to expand its businesses, both internally and through acquisitions. It is expected that new acquisitions would be financed primarily by internally-generated funds or additional borrowings. Acquisitions - ------------ In early fiscal 1996, the Company completed the acquisition of Dobson for a purchase price of approximately $330,000 including acquisition costs. The acquisition was accounted for as a purchase transaction with the purchase price allocated to specific assets acquired and liabilities assumed. Resultant goodwill is being amortized over 40 years. Dobson, headquartered in the United Kingdom, is an industrial engineering group with interests in underground mining equipment, industrial electronic control systems, toys and plastics. Longwall International, one of the main subsidiaries of Dobson, is engaged in the manufacture, sale and service of underground mining equipment for the international coal mining industry. Its products include electronically controlled roof support systems, armored face conveyors, pumps and belt conveyor components and systems. Longwall's operations are being fully integrated into Joy Mining Machinery, enabling JOY to offer integrated underground longwall mining systems to the worldwide mining industry. Longwall's operating results were included in the consolidated statement of income in the first quarter of fiscal 1996. The industrial electronic and toys/plastics businesses are held for sale and are separately classified as such on the Consolidated Balance Sheet. These businesses have been valued at $100,000 and are expected to be sold within one year. This estimate is based on recent valuations and expected operating results during the disposal period. On January 29, 1996, the Company and its Beloit Corporation subsidiary announced that they had entered into a letter of intent with Ingersoll-Rand Company to purchase the assets of the Pulp Machinery Division of Ingersoll-Rand. The purchase is expected to be consummated by March 31, 1996 subject to regulatory approvals. On November 29, 1994, the Company completed the acquisition of JOY through a stock-for-stock merger following approval of the merger by shareholders of each company. Under the terms of the acquisition, accounted for as a pooling of interests, the Company exchanged 17,720,750 shares of Company common stock for all of JOY's 31,353,000 outstanding shares of common stock, at an exchange ratio of .5652 of a share of the Company's common stock for each share of JOY common stock. Effective November 1, 1994, the fiscal year of JOY was conformed to the Company's fiscal year. Transaction costs related to the merger of $17,459 ($11,384 net of tax or $0.24 per share) were charged to income during the first quarter of fiscal 1995. Sale of Measurex Stock - ---------------------- On December 29, 1994, Measurex Corporation repurchased 2,026,900 shares of its stock which had been purchased by the Company. The transaction reduced the Company's interest in Measurex from 20% to 10%. The Company recorded a gain in Other Income in the first quarter of fiscal 1995 in connection with the sale of Measurex shares. On June 23, 1995, Measurex repurchased the remaining 1,613,100 shares of its stock. These transactions resulted in a combined gain of $29,657 in fiscal 1995. Measurex continues to have cooperative agreements with the Company's Beloit Corporation subsidiary. PART II. OTHER INFORMATION ---------------------------- Item 4 Submission of Matters to a Vote of Security Holders --------------------------------------------------- None 16 Item 6 (a) Exhibits: 4 First Amendment dated as of November 13, 1995 to the $240,000,000 Amended and Restated Credit Agreement 10 Amended and Restated Harnischfeger Industries, Inc. Deferred Compensation Trust Agreement dated October 9, 1995. 11 Statement re: Calculation of Earnings Per Share (b) Reports on Form 8-K 1. Current Report on Form 8-K dated December 4, 1995 relating to the pro forma financial information relative to the acquisition of Dobson required pursuant to Article 11 of Regulation S-X and the Company's five-year historical computation of Ratio of Earnings to Fixed Charges. 2. Current Report on Form 8-K dated December 4, 1995 relating to the 1995 financial statements of Dobson. 3. Current Report on Form 8-K dated December 8, 1995 relating to the Company's filing of its fiscal 1995 financial statements and notes thereto, Management's Discussion and Analysis, and related schedules and exhibits. 17 FORM 10-Q - ---------- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARNISCHFEGER INDUSTRIES, INC. ------------------------------ (Registrant) /s/ Francis M. Corby, Jr. ----------------------------- Francis M. Corby, Jr. Executive Vice President for Finance and Administration and Chief Financial Officer /s/ James C. Benjamin --------------------------- James C. Benjamin Vice President and Controller Date March 14, 1996 and Chief Accounting Officer - -----------------------
Exhibit 11 ---------- HARNISCHFEGER INDUSTRIES, INC. - ------------------------------ CALCULATION OF EARNINGS PER SHARE - --------------------------------- (Amounts in thousands except per share amounts) 1996 1995 -------- ------- Average Shares Outstanding 46,795 45,692 ======== ======= Income from Continuing Operations $23,191 $ 3,193 Loss From and Net Loss on Sale of Discontinued Operation, net of applicable income taxes - (22,634) Extraordinary Loss on Retirement of Debt, net of applicable income taxes - (3,481) -------- --------- Net Income(Loss) $23,191 $(22,922) ======== ========= Earnings (Loss) Per Share Income from continuing operations (after deducting $0.24 per share relating to JOY merger costs $0.50 $ 0.07 Loss from and net loss on sale of discontinued operation - (0.49) Extraordinary loss on retirement of debt - (0.08) ------- ------- Net Income(loss) per share $ 0.50 $(0.50) ======= =======
EX-27 2
5 1000 3-MOS OCT-31-1996 JAN-31-1996 77,645 0 598,497 7,762 523,905 1,423,316 1,021,777 465,256 2,532,324 1,045,474 617,490 0 0 51,208 531,479 2,532,324 632,684 643,566 491,532 590,388 0 0 13,237 39,941 14,375 23,191 0 0 0 23,191 0.50 0.50
EX-4 3 Exhibit 4 FIRST AMENDMENT Dated as of November 13, 1995 to AMENDED AND RESTATED CREDIT AGREEMENT Dated as of November 25, 1994 THIS FIRST AMENDMENT ("Amendment") dated as of November 13, 1995 is entered into by and among Harnischfeger Industries, Inc. (the "Borrower"), the "Lenders" party to the Credit Agreement referred to below and Chemical Bank, as agent for the Lenders (the "Agent"). PRELIMINARY STATEMENTS: A. The Borrower, the Lenders and the Agent are parties to that certain Amended and Restated Credit Agreement dated as of November 25,1994 (the "Credit Agreement"). Terms used herein, unless otherwise defined herein, shall have the meanings set forth in the Credit Agreement; and B. The Borrower, the Lenders and the Agent wish to amend certain provisions of the Credit Agreement on the terms and conditions hereinafter set forth. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Amendments to the Credit ------------------------ Agreement. The Credit Agreement is, effective the - --------- date hereof subject to the satisfaction of the conditions precedent set forth in Section 2 below, --------- hereby amended as follows: 1.1 The defined term "Scheduled --------- Expiration Date" contained in Section 1.01 of the - --------------- ------------ Credit Agreement is amended to change the date set forth therein from November 17, 1998 to November 17, 2000. 1.2 Section 2.02 of the Credit ------------ Agreement is amended to delete subsection (f) thereof in its entirety. 1.3 Section 5.02 of the Credit ------------ Agreement is amended to delete clause (vii) of subsection (f) thereof and to substitute the following therefor: (vii) Liens (A) in connection with asset based financing arranged by any captive finance Subsidiary; (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; or (C) on any deposit, investment or other 2 depository account of a foreign Subsidiary to secure Indebtedness of one or more other foreign Subsidiaries; provided, that the sum of the -------- obligations secured by Liens described in sub-clauses (A), (B) and (C) above shall not exceed $130,000,000 or 20% of Consolidated Net Worth, whichever is greater. SECTION 2. Conditions Precedent. The -------------------- Amendment shall become effective and be deemed effective as of the date first above written upon receipt by the Agent of counterparts of this Amendment, executed by the Borrower, each of the Lenders and the Agent. SECTION 3. Representations and ------------------- Warranties of the Borrower. - -------------------------- 3.1 Upon the effectiveness of this Amendment, the Borrower hereby reaffirms the representations and warranties of the Borrower contained in Section 4.01 (other than representations and warranties which expressly speak only as of a different date) in the Credit Agreement to the extent the same are not modified hereby and agrees that all such representations and warranties shall be true and complete in all material respects on and as of the effective date of this Amendment. 3.2 The Borrower hereby represents and warrants that this Amendment constitutes a 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 generally or by general equitable principles). SECTION 4. Reference to and Effect on -------------------------- the Credit Agreement. - -------------------- 4.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement","hereunder", "hereof", "herein", "hereby" or words of like import shall mean and be a reference to the Credit Agreement as modified hereby, and each reference to the Credit Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference to the Credit Agreement as modified hereby. 4.2 The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Lender or Agent under the Credit Agreement, the Notes or any other document, instrument or agreement executed in connection therewith, nor constitute a waiver of any provision contained therein, except as specifically set forth herein. 3 SECTION 5. Execution in Counterparts. This ------------------------- Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 6. Headings. Section headings -------- in this Amendment are included herein for convenience or reference only and shall not constitute a part of this Amendment for any other purpose. SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereto duly authorized as of the date first written above. HARNISCHFEGER INDUSTRIES, INC., as the Borrower By: /s/ Ian Lambert --------------------- Name: Ian Lambert Title: Vice President and Treasurer CHEMICAL BANK, as Agent and as Lender By: /s/ Lisa D. Benitez ----------------------- Name: Lisa D. Benitez Title: Vice-President THE FIRST NATIONAL BANK OF CHICAGO, as a Lender By: /s/ Deborah E. Stevens ----------------------- Name: Deborah E. Stevens Title: Authorized Agent ROYAL BANK OF CANADA, as a Lender By: /s/ Gordon MacArthur ----------------------- Name: Gordon MacArthur Title: Manager EX-10 4 Exhibit 10 HARNISCHFEGER INDUSTRIES DEFERRED COMPENSATION TRUST - ---------------------------------------------------- (as amended and restated as of October 9, 1995) This Trust Agreement made as of the 9th day of October, 1995, by and between Harnischfeger Industries, Inc., a Delaware corporation (the "Company") and Marshall & Ilsley Trust Company, located at Milwaukee, Wisconsin, and its successor or successors and assigns in the trust hereby evidenced, as trustee (the "Trustee") providing for the amendment and restatement of the trust established on the 1st day of November, 1988 by and between the Company and the Trustee and know as the Harnischfeger Industries Deferred Compensation Trust (hereinafter called the "Trust") which provides a source for payments required to be made to participants (the "Participants") under certain of the Company's nonqualified employee benefit plans listed on Schedule I (the "Plans"). WITNESSETH THAT: WHEREAS, the Company is hereby making a contribution to the Trustee of $1,000.00 in cash, and may in the future make additional contributions of common stock of the Company (the "Stock"), cash, and/or other property (all such present and future contributions being hereafter referred to as "Contributions"), to the Trust to aid the Company in accumulating funds to satisfy its obligations under the Plans; and WHEREAS, the Company intends that the Trust Assets (as defined in paragraph 2.1(d) below) shall be subject to the claims of the Company's creditors in the event the Company becomes Insolvent (as defined in paragraph 5.5 below); and WHEREAS, the Company intends that the Trust shall constitute an unfunded arrangement and shall not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for select management and highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); and WHEREAS, the Company intends that the Trust shall remain in existence until all the Trust Assets shall have been distributed to the Participants or reverted to the Company, all in accordance with the provisions of this Trust Agreement; NOW, THEREFORE, IT IS AGREED, in consideration of the mutual undertakings of the parties and other good and valuable consideration, the parties hereto do hereby amend and restate the Trust and agree that the Trust shall be comprised, held and disposed as follows: ARTICLE 1 ------------ Certain Definitions ---------------------- 2 1.1 Definitions. As used herein, the ----------- following terms have the following respective meanings: (a) "Account" means each bookkeeping account maintained on behalf of each Participant under a Plan reflecting the Plan benefits which are or may become payable to the Participant or his Beneficiary under the terms of such Plan. (b) "Beneficiary" means any beneficiary of a Participant under a Plan. (c) "Board" means the board of directors of the Company. (d) "Change in Control" shall mean: (i) The acquisition by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (x) the then outstanding Company Shares (the "Outstanding Company Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subparagraph (i), the following acquisitions shall not constitute a Change in Control: (t) any acquisition by the Company, (u) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (x), (y) and (z) of subparagraph (iii) of this paragraph 1.1(d); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or any other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board; or 3 (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (x) all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (y) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (z) at least two-thirds (2/3) of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. e) "Committee" means the Management Policy Committee of the Company; provided that (i) if at any time prior to a Change in Control no such committee is in existence, the Board shall be the Committee, and (ii) following a Change in Control, the Committee shall be comprised of those persons who were members of the Committee immediately before the occurrence of the Change in Control. (f) "Company Shares" means shares of Stock. (g) "Government Securities" means obligations of, or guaranteed as to 4 principal and interest by, the United States Government. (h) "Permitted Investments" means: Company Shares; Government Securities; taxable corporate commercial paper having at the date of investment a rating of at least Al/Pl 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 Corporation or Moody's Investors Service, Inc. (or, in either case, its successor); 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." 1.2 Gender and Number. Words denoting one ----------------- gender shall include the other genders, and the singular shall include the plural and the plural shall include the singular, whenever required by the context. ARTICLE 2 ----------- Introduction ------------- 2.1 Continuation of Trust. --------------------- (a) The Company hereby contributes to the Trust, and the Trustee hereby acknowledges receipt of, the Contribution set forth in paragraph 2.2(a) hereof, which, together with any future Contributions, shall be added to the principal of the Trust, to be held, administered and disposed of by the Trustee in accordance with this Trust Agreement. (b) The Trust shall be irrevocable. (c) The Trust is intended to be a grantor trust of which the Company is the grantor, within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended (the "Code"), and an unfunded arrangement that does not affect the status of the Plans as unfunded plans maintained for the purpose of providing deferred compensation for select management and highly compensated employees for purposes of Title I of ERISA, and shall be construed accordingly. The Trust is not designed or intended to qualify under Section 401(a) of the Code. (d) The principal of the Trust and any earnings thereon and other 5 increases thereof shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes herein set forth. Such principal, increased by any earnings thereon and other increases thereof and reduced by any losses and distributions from the Trust and any other reductions thereof, is sometimes referred to herein as the "Trust Assets". The Participants shall not have any preferred claim on, nor any beneficial ownership interest in, any of the Trust Assets before the Trust Assets are paid to the Participants pursuant to the terms of this Trust Agreement, and all rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of the Participants against the Company. The Trust Assets shall at all times be subject to the claims of the Company's general creditors under federal and state law in accordance with paragraph 5.4. 2.2 Funding. The Company shall initially and ------- subsequently transfer assets to the Trustee as follows. (a) Simultaneously with the execution and delivery of this Trust Agreement, the Company shall transfer to the Trustee cash in the amount of $1,000.00. (b) The Company shall make additional Contributions to the Trust in accordance paragraphs 2.2(e) and 5.4 of this Trust Agreement, and such other Contributions as the Committee deems appropriate from time to time. The Trustee shall be responsible only for Contributions actually received by it hereunder, and the Trustee shall have no duty or responsibility with respect to the timing, amounts and sufficiency of the Contributions made or to be made by the Company hereunder. (c) The Company shall have the duty to inform the Trustee and the Committee whenever a Change in Control occurs. If any two Participants notify the Trustee that a Change in Control has occurred, the Trustee shall so notify the Company and the Committee and, unless within five business days thereafter the Company delivers to the Trustee and the Committee an opinion of independent counsel to the Company (which opinion may be based upon representations of fact, as long as counsel does not know that such representations are untrue) that a Change in Control has not occurred, then a Change in Control will be deemed to have occurred, and the Trustee and the Committee will be deemed to have received notice on such fifth business day that a Change in Control has occurred. (d) The Trustee shall determine, and shall give the Committee notice of , the "Trust Asset Value" (as defined below) and the Committee shall determine, and give the Company and the Trustee notice of, the "Required Assets" (as defined below) as soon as practicable, but in any event within ten business days, after (i) the date they receive notice that a Change in Control has occurred, and (ii) the end of each calendar quarter thereafter. The "Trust Asset 6 Value" means the aggregate net fair market value of the Trust Assets as of the date of the Change in Control or the end of the calendar quarter, as the case may be (such date, the "Measurement Date"). The "Required Assets" means the present value, as of the Measurement Date, of the sum of (x) the maximum aggregate amount that could become payable to the Participants under the Plans, and (y) an estimate of the expenses reasonably likely to be incurred by the Trust from the Measurement Date through the termination of the Trust, including without limitation the Trustee's fees. In determining present value, the Committee shall use as a discount rate the applicable federal rate (as defined in Section 1274(d) of the Code) in effect on the Measurement Date (the "Applicable Federal Rate"), or such lower amount as it shall in its discretion determine. (e) The Company shall contribute to the Trust, in cash, the excess (if any) of the Required Assets over the Trust Asset Value as of any Measurement Date plus interest at the Applicable Federal Rate from the Measurement Date through the date of contribution, within three business days after receiving notice thereof. 2.3. Acceptance. The Trustee accepts the duties and ---------- obligations of the Trustee hereunder. 2.4 No Effect on Company's Plan Obligations. --------------------------------------- Neither the establishing nor maintenance of the Trust, nor the Company's transfer of any assets to the Trustee, shall affect in any way the Participants' benefits under the Plans or the Company's obligations to pay such benefits, provided that any payments made hereunder shall be considered payments under the applicable Plan. ARTICLE 3 ----------- Accounting, Provision of Information by the Company --------------------------------------------------- 3.1 Plan and Trust Accounts. ----------------------- (a) The Committee shall maintain such separate Accounts for each Participant with respect to his benefits payable and paid under each Plan as it considers necessary or desirable for the proper administration of the Plans. Subject to the provisions of paragraph 3.1(c), the Trustee shall not make any separate investments for each Participant or Plan but rather shall invest all assets hereunder as a single Trust Fund to provide any Plan benefits to be paid by the Trustee hereunder. (b) The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be done, including such specific records as shall be agreed upon in writing between 7 the Committee and the Trustee. Within sixty days following the close of each calendar year and within sixty days after the removal or resignation of the Trustee, the Trustee shall deliver to the Committee a written statement of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be, and the book and fair market value of any such asset. (c) Upon receiving notice of a Change in Control, the Committee shall instruct the Trustee to, and the Trustee shall, establish a separate account for each Participant (a "Trust Account"), representing the portion of the Trust Assets allocable to amounts that may be payable to that Participant under the Plans. All Contributions made after the Change in Control, and all earnings on and increases to the Trust Assets, shall be allocated among the Trust Accounts as directed by the Committee. Within sixty days after the end of each calendar year following a Change in Control, the Trustee shall provide the Company and the Committee with a written statement of the Trust Account of each Participant, and the Committee shall deliver a copy of that statement to each Participant. (d) The Company shall promptly provide the Committee with any and all information the Committee reasonably requests or the Company believes would be useful to the Committee in carrying out its duties hereunder, and shall promptly update such information as and if it changes. The Company shall also use its best efforts to cause each Participant to provide the Committee with all information that it may reasonably request in order to determine the amount of any payments due to the Participant under the Plans. (e) The accounts, books and records maintained pursuant to this paragraph 3.1 shall be open to inspection and audit at all reasonable times by the Company, the Committee and the Participants. ARTICLE 4 --------- Management and Control of Trust Assets -------------------------------------- 4.1 Investments. The Trustee shall invest the ------------ Trust Assets in Permitted Investments as directed by the Committee from time to time. Notwithstanding the foregoing, the Trustee shall continue to invest in and hold Company Shares which have been contributed to the Trust 8 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. 4.2 Exercise of Trustee's Duties. The ---------------------------- Trustee shall discharge its duties hereunder in the interest of the Participants and their Beneficiaries, and with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. 4.3 General Powers. Subject to the express --------------- limitations and directions contained elsewhere in this Trust Agreement, the Trustee shall have the following powers, rights and duties in addition to those provided elsewhere in this Trust Agreement or by law: (a) to receive and hold all Contributions made to it by the Company; provided, however, that the Trustee shall have no right or duty to require any such Contributions to be made; (b) to vote Company Shares personally or by proxy in accordance with the directions of the Committee; (c) to purchase, hold, manage, sell, exchange, invest, reinvest and otherwise deal with the Trust Assets and any property forming part of the Trust Assets, together with the income therefrom, in such manner, for such consideration and on such terms and conditions as directed by the Committee; (d) to retain in cash (pending investment, reinvestment or distribution) any reasonable portion of the Trust Assets and to deposit cash in any depository (including without limitation the depository department of the Trustee if the Trustee is a bank or trust company); (e) to compromise, contest, arbitrate, settle or abandon claims and demands relating to the Trust Assets; (f) to begin, maintain or defend any litigation necessary in connection with the administration of the Trust, and the Company shall indemnify the Trustee against all expenses and liabilities sustained or anticipated by it by reason thereof; (g) to hold securities or other property in the name of the Trustee or any nominee or nominees of the Trustee, or in such other form as the Trustee shall determine, with or without disclosing the Trust relationship, provided that the records of the Trustee shall indicate the actual ownership of such securities 9 or other property; (h) to deposit securities with a corporate depository, in which event the certificates representing securities, including those in bearer form, may be held in bulk form with, and may be merged into, certificates of the same class of the same issuer which constitute assets of other accounts or owners, without certification as to the ownership attached; provided that the Trustee shall at all times maintain a separate and distinct record of the securities owned by the Trust; (i) to participate in and use a book-entry system for the deposit and transfer of securities; (j) to retain any funds or property subject to any dispute without liability for the payment of interest, or to decline to make payment or delivery thereof until final adjudication is made by a court of competent jurisdiction; (k) to employ agents, counsel, financial advisors, accountants or other persons for such purposes as the Trustee considers desirable; (l) to furnish the Company with such information in the Trustee's possession as the Company may need for tax or other purposes; and (m) to perform any and all other acts which are, in the Trustee's judgment, necessary or appropriate for the proper maintenance and administration of the Trust Assets as though the absolute owner thereof, and to exercise all the further rights, powers, options and privileges granted, provided or vested in trustees generally under applicable federal or state law, it being intended that, except as herein otherwise provided, the powers conferred upon the Trustee herein shall not be construed as being in limitation of any authority conferred by law, but shall be construed as in addition thereto; provided, however, that if an insurance policy is held as a Trust Asset, the Trustee shall have no power to name as beneficiary of that policy any person other than the Trust, nor to assign the policy (as distinct from converting it to a different form) to a person other than a successor Trustee, nor to loan to any person other than the Trust the proceeds of any borrowing against such policy; provided, further, that notwithstanding any powers granted to the Trustee under this Trust Agreement or applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code. 4.4 Reliance Upon Written Communications. ------------------------------------ The Committee shall provide the Trustee with a written certification identifying the person or persons authorized to give 10 instructions or directions on its behalf, and such certification shall be effective until a written revocation is filed with the Trustee. The Trustee may rely upon any written communication by such persons with respect to any instruction or direction of the Committee and may continue to rely upon such written communication until a subsequent written communication is filed with the Trustee. The Trustee may act upon any instrument, written communication or paper believed by the Trustee to be genuine and to be signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing, but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained. In the event that any dispute shall arise as to any act to be performed by the Trustee, the Trustee may postpone performance until adjudication of such dispute in a court of competent jurisdiction or until it shall have been indemnified against loss to its satisfaction. ARTICLE 5--------- Distribution of Trust Assets ----------------------------- 5.1 Payments to Participants ------------------------ (a) The names, addresses, Beneficiary designations, benefits commencement dates and Accounts of the Participants as of the date hereof (the "Payment Schedule") are set forth on Schedule II hereto. Schedule II shall be amended as frequently as necessary to ensure that it is accurate and complete at all times. Before a Change in Control, all necessary amendments shall be made by the Company, and after a Change in Control, they shall be made by the Committee. (b) The Company may make payments pursuant to the Payment Schedule directly to Participants. The Company shall notify the Trustee of its intention to make any such direct payment at least ten business days before the date such payment is due. If the Trustee does not receive such notice with respect to any payment, or if at any time following a Change in Control it receives a notice from a Participant certifying that the Company has failed to make a payment when due, the Trustee shall promptly make such payment in accordance with the Payment Schedule. (c) When the Trustee is required by paragraph (b) above to make a payment in the form of property other than Company Shares or cash, the Trustee shall, if necessary, acquire such property from the Company or other sources for fair market value in order to make such payment. If the Trustee cannot acquire such property, the Trustee shall promptly so notify the Company and the Participant, and unless the Participant directs otherwise, the Company shall make such payment. If the Participant gives the Trustee notice directing the Trustee to pay the Participant in cash rather than in the form of such property, the Trustee 11 shall so notify the Company and shall pay the Participant an amount of cash equal to the fair market value (determined by the Trustee in its sole discretion) of such property as of the date such payment was due. (d) If the Trust Assets are insufficient to make any payment (including interest thereon under paragraph (e) below) that the Trustee is required to make pursuant to paragraphs (b) or (c) above, the Trustee shall promptly so notify the Company and the Participant, and the Company shall make such payment to the extent the Trust Assets are insufficient. (e) Any payment, whether made by the Trustee or the Company, pursuant to paragraph (b), (c) or (d) above, that is made after the date it is due shall be accompanied by a cash payment of interest at 120 percent of the Applicable Federal Rate from the date the payment is due through the date it is made, computed on the amount of cash, plus the fair market value as of the date the payment is due of any other property, included in the payment. The fair market value of the property shall be determined by the Trustee in its sole discretion. (f) In making payment pursuant to this paragraph 5.1, the Trustee shall be entitled to rely on, and shall have no duty to inquire into, any written certification by a Participant that the Company has failed to make a payment when due. (g) The Trustee and the Company shall promptly notify the Committee of all payments made pursuant to this paragraph 5.1. 5.2 Distributions. As provided in paragraph ------------- 3.1, but subject to the provisions of this paragraph 5.2 which follow, the Committee shall certify the time, manner, amount and recipients of any distributions to Participants and Beneficiaries of Trust Assets. Distributions shall be subject to the following provisions: (a) The Trustee shall have no responsibility to inquire as to whether a distributee is entitled to a distribution, or as to whether a distribution is proper, and shall have no liability for a distribution made in good faith without actual notice or knowledge that such distribution is improper. (b) If any check for any distribution directed to be made from Trust Assets has been mailed by the Trustee by regular United States mail to the last address of the distributee furnished to the Trustee and is returned unclaimed, the Trustee shall notify the Committee of that fact and the Committee shall direct the Trustee whether to attempt the distribution by mail to another address. The Trustee shall have no obligation to search for or ascertain the whereabouts of any Participant or Beneficiary. 12 (c) The Trustee may reserve such reasonable amount from any distribution as it shall deem necessary to pay any estate, inheritance, income, withholding or other tax, charge or assessment attributable to such distribution or may require such release or other document from any taxing authority and such indemnity from the intended distributee as the Trustee shall deem necessary for its protection. 5.3 Reversion to Company. Subject to the -------------------- provisions of paragraphs 5.4 and 7.1, no part of the Trust Assets shall revert to the Company or be used for, or diverted to, purposes other than the exclusive benefit of Participants and their Beneficiaries. Notwithstanding the foregoing: (a) if as of the end of any calendar year the Company has paid any taxes described in paragraph 5.2(c) and the Committee so directs the Trustee within sixty days of the end of such year, the Trustee shall return to the Company Trust Assets in an amount equal to such taxes paid by the Company; (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 Trust Assets to the Company; and (c) if all amounts payable under the Plans have been fully paid and the Committee so advises the Trustee, the Trustee shall return all residual Trust Assets to the Company. For purposes of clause (b) above, any amounts payable under any Plan for the life of any individual shall be computed based on the life expectancy of such individual determined from the life expectancy tables set forth in the regulations issued pursuant to Section 72 (or any successor provision) of the Code. 5.4 Claims of Creditors. Trust Assets shall ------------------- be treated as assets of the Company and shall be subject to the claims of the general creditors of the Company. In the event that any of the Trust Assets are at any time paid to a creditor of the Company (including without limitation the Trustee, in its capacity as such, but excluding a Participant or a Beneficiary in his capacity as such), the Trustee will immediately notify the Committee and the Company will, within ten business days after receipt of such notice, deposit equivalent assets with the Trustee as 13 additional Trust Assets. 5.5 Notice to Trustee of Insolvency; ------------------------------- Suspension of Distributions. The Company shall be - --------------------------- considered "Insolvent" if (i) it is unable to pay its debts as they mature, or (ii) an order for relief is entered under Title 11 the United States Bankruptcy Code. The Committee (or if the Committee fails to act, the Board or chief executive officer of the Company) shall immediately notify the Trustee in writing if the Company becomes Insolvent. Upon receipt of any such notice and whenever the Trustee has actual knowledge that the Company is Insolvent, the Trustee shall immediately suspend any further distributions from Trust Assets and shall hold the Trust Assets for the benefit of the Company's general creditors pending resumption of the Company's ability to pay its debts as they mature, or the dismissal of such proceedings or direction from the court before which such proceedings are pending, as the case may be, or other direction from a court of competent jurisdiction and shall promptly notify the Participants that is is doing so. If the Trustee receives written notice from any other person or entity alleging that the Company has become Insolvent, the Trustee shall immediately notify the Committee of its receipt of such notice and shall immediately suspend any further distributions from Trust Assets pending the Trustee's determination that such allegation is not correct (and upon receipt of such notice (and at any other time or times if so requested by the Committee) the Trustee will promptly undertake, and complete within thirty days after commencing such undertaking, a determination whether the Company is in fact Insolvent). For this purpose, the Trustee may rely on a certification from the Company's auditor. In the event that such auditor declines to provide such certification, the Trustee may rely on a certification from any national public accounting firm. In making its determination, the Trustee may rely on and is fully protected in relying on a certification from such auditor. During any period when payments to the Participants are suspended under this paragraph 5.5, the Trustee may nevertheless pay its compensation and expenses and taxes payable by the Trust in accordance with paragraph 7.1, unless it receives a court order to the contrary. If the Company subsequently ceases to be Insolvent without the entry of a court order concerning the disposition of the Trust Assets, the Company shall give notice to the Trustee and the Participants (i) stating that the Company is no longer Insolvent and (ii) setting forth the extent to which the Company has made directly to the Participants any payments under the Payment Schedule that became due during the period that the Trustee had suspended payments. The Trustee shall thereupon resume payments pursuant to Article 5, including payments that became due during the period of suspension and were not made by the Company. 5.6 Alienation. The rights and benefits of ---------- the Participants or Beneficiaries under this Trust Agreement, and the payments to the Participants or Beneficiaries from the Trust Assets, may not be anticipated, assigned, alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process. Any attempt by a Participant to anticipate, alienate, assign, sell, transfer, pledge, encumber or charge the same shall be void. The Trust Assets shall not in any manner be subject to the debts, contracts, liabilities, engagements or torts of any Participant, and payments hereunder shall not be considered assets of any Participant in the event of insolvency or bankruptcy. 14 ARTICLE 6 ---------- Tax Matters ------------ 6.1 Nature of Trust. This Trust Agreement is ---------------- intended to constitute a grantor Trust as described under Section 671 of the Code . Without limiting the effect of the preceding sentence, for federal income tax purposes the Company will include, in computing its taxable income and credits, those items of income, deductions and credits against tax of the Trust that are attributable to the Trust while it is a grantor trust (to the extent that such items could be taken into account in computing the taxable income or credits against the tax). 6.2 Reporting Requirements. The Trustee ---------------------- shall withhold federal, state and local income and employment taxes which are assessable on amounts paid by it to a Participant or a Beneficiary at the appropriate rates under applicable laws, or at such higher rates as may be requested by the Participant or Beneficiary in writing to the Trustee, and shall transmit the amounts withheld to the Company which shall transmit the amounts withheld to the applicable taxing authorities. The Trustee shall furnish to the Committee and the Participants and Beneficiaries all withholding and benefit payment information as soon as practicable after the end of each calendar year. The Committee shall provide the Trustee with all necessary information in order for the Trustee to comply with this paragraph 6.2. 6.3 Taxation Prior to Receipt. If the -------------------------- Internal Revenue Service makes a determination that a Participant or Beneficiary is subject to federal income taxation on any amount held in the Trust in a calendar year prior to the calendar year in which he would otherwise receive benefits under the corresponding Plan, and if all appeals (judicial or otherwise) of such determination available to the Company have been exhausted or waived, the Committee shall, at the written request of the Participant or Beneficiary accompanied by evidence satisfactory to the Committee of such tax treatment, notify the Trustee thereof and direct the Trustee to distribute such amount to the Participant or Beneficiary as soon thereafter as practicable. ARTICLE 7 --------- Compensation, Expenses and Liability ------------------------------------ 7.1 Compensation and Expenses. All -------------------------- reasonable costs, charges and expenses incurred by the Trustee in connection with the administration of the Trust, including such reasonable compensation of the Trustee as may be agreed upon from time to time between the Committee and the Trustee, shall be paid by the Company; provided that if the Company shall fail to pay the same upon written demand from the Trustee, the Trustee, as a creditor of the Company, may pay the same from the Trust Assets. To the extent that any taxes are payable by the Trust to any federal, state, local or foreign taxing authorities on account of earnings on or transactions involving Trust Assets, such taxes shall be paid by the Company and if not so paid, shall be paid by the Trustee from Trust Assets. The Trustee may consult with legal counsel 15 (who may also be counsel for the Company) with respect to any of its duties or obligations hereunder, and shall be fully protected in acting or refraining from acting in accordance with the advice of such counsel, and the Company shall be responsible for the payment of any such expenses and compensation. The Trustee may hire agents, accountants and financial consultants, and the Company shall be responsible for the payment of their expenses and compensation. Such compensation, expenses and taxes shall be paid by the Company and if not so paid, shall be paid by the Trustee from the Trust Assets. In the event any Trust Assets are used pursuant to the preceding sentences to pay compensation, expenses or taxes, the Trustee shall so notify the Company and the Company shall promptly contribute to the Trust the amount of such payments, plus interest thereon at 120 percent of the Applicable Federal Rate, from the date of such use through the date of the contribution. 7.2 Liability of Trustee. The Trustee shall -------------------- not be liable for any act or failure to act under this Trust Agreement unless such action or failure to act was in willful violation of the law. 7.3 Indemnification. To the extent permitted ---------------- by law, no Trustee (including any former Trustee) shall be personally liable for any act done or omitted to be done in good faith in the administration of the Trust or the investment of the Trust Assets. To the extent permitted by law, each present or former Trustee shall be indemnified and saved harmless by the Company (to the extent not indemnified or saved harmless under any liability insurance or other indemnification arrangement with respect to the Plans or the Trust) from and against any and all claims of liability to which it is subjected by reason of any act done or omitted to be done in good faith in connection with the administration of the Trust or the investment of the Trust Assets, including all expenses reasonably incurred in its defense if the Company fails to provide such defense. Each present or former Trustee shall be indemnified and saved harmless by the Company from and against any and all liability to which such Trustee shall be subjected by reason of carrying out any directions of the Committee made in accordance with this Trust Agreement, including all expenses reasonably incurred in its defense if the Company fails to provide such defense. ARTICLE 8---------- Changes of Trustee ---------------------- 8.1 Resignation or Removal of Trustee. A ---------------------------------- Trustee may resign at any time by giving thirty days' advance written notice to the Committee, and the Committee may remove any Trustee by giving thirty days' advance written notice to the Trustee. 8.2 Appointment of Successor Trustee. In the -------------------------------- event of the resignation or removal of a Trustee, a successor Trustee shall be appointed by the Committee as soon as practicable. Notice of any such appointment shall be given by the Committee to the retiring Trustee and the successor Trustee. A successor Trustee shall be limited to a bank or trust company with assets under management of at least $3 billion. 16 8.3 Duties of Retiring and Successor --------------------------------- Trustee. In the event of the resignation or removal of a - ------- Trustee, the retiring Trustee shall promptly furnish to the Committee and the successor Trustee a final account of its administration of the Trust. A successor Trustee shall succeed to the right and title of the predecessor Trustee in the Trust Assets and the retiring Trustee shall deliver to the successor Trustee the property comprising the Trust Assets, together with any instruments of transfer, conveyance, assignment and further assurance as the successor Trustee may reasonably require, and the books and records of the retiring Trustee relating to the administration of the Trust. Each successor Trustee shall have all the powers, rights and duties conferred by this Trust Agreement as if originally named a Trustee. To the extent permitted by law, no successor Trustee shall be personally liable for any act or failure to act of a predecessor Trustee. ARTICLE 9---------- Miscellaneous-------------- 9.1 Action by the Committee. Any action with ----------------------- respect to the Trust required or permitted to be taken by the Committee (including without limitation the giving of any direction to the Trustee) shall be taken by resolution of the Committee or by a person or persons authorized by resolution of the Committee (whose action shall be deemed action by the Committee). 9.2 Disagreement as to Acts. If there is a ----------------------- disagreement between the Trustee and anyone as to any act or transaction reported in any accounting, the Trustee shall have the right to have its account settled by a court of competent jurisdiction. 9.3 Persons Dealing with Trustee. No person ---------------------------- dealing with the Trustee shall be required to see to the application of any money paid or property delivered to the Trustee or to determine whether or not the Trustee is acting pursuant to any authority granted under this Trust Agreement. 9.4 Evidence. Evidence required of anyone under -------- this Trust Agreement may be by certificate, affidavit, document or other instrument which the person acting in reliance thereon considers pertinent and reliable and signed, made or presented by the proper party. 9.5 Waiver of Notice. Any notice required under ---------------- this Trust Agreement may be waived by the person entitled thereto. 9.6 Counterparts. This Trust Agreement may be ------------ executed in counterparts, each of which shall be deemed an original, and no counterparts need be produced. 9.7 Governing Laws. This Trust Agreement shall be -------------- construed and administered according to the laws of the State of Wisconsin. 17 9.8 Successors, Etc. The provisions of this Trust ---------------- Agreement shall be binding on the Company, its successors and assigns and the initial Trustee and its successors and on all persons entitled to benefits under any of the Plans or the Trust and their respective heirs and legal representatives. 9.9 Service of Legal Process. If the Trustee ------------------------ receives service of summons, subpoena or other legal process of any court with respect to any action relating to this Trust Agreement, it shall, as soon as practicable, inform the Committee of such service and, at the request of the Committee, shall promptly provide the Committee with a copy of the document served. ARTICLE 10----------- Amendment and Termination ------------------------- 10.1 Amendment. This Trust Agreement may be amended --------- from time to time by the Committee and the Trustee without the consent of any Participant or any existing or future Beneficiary, whether or not identified, (i) to cure any defect, ambiguity or internal inconsistency, (ii) to impose additional obligations on the Company or the Trustee for the benefit of the Participants and their Beneficiaries, (iii) to alter the standard of care imposed on the Trustee in the exercise of its duties, or (iv) to cause the Trust to qualify or continue to qualify as a so-called "rabbi trust" for purposes of the Code; but otherwise this Trust Agreement may be amended (including without limitation to add any additional Plan or program to the definition of "Plans" following a Change in Control) by the Company and the Trustee only with the consent of each then existing Participant and each then existing and identified Beneficiary; provided that under no condition shall an amendment result in the return or repayment to the Company of any part of the Trust Assets or result in the distribution of any of the Trust Assets to anyone other than a Participant or a Beneficiary. 10.2 Termination. This Trust Agreement shall not ------------ terminate until the date on which all benefits payable under the Plans and all expenses of the Trust have been paid. If the Plans are terminated, all of the provisions of the Trust nevertheless shall continue in effect until the Trust Assets have been distributed by the Trustee. 10.3 Severability. Any provision of this Trust ------------ Agreement prohibited by law shall be ineffective to the extent of any such prohibition without invalidating or in any other way limiting the remaining provisions hereof. ARTICLE 11----------- Non-Applicability of ERISA--------------------------- Notwithstanding that certain terms and phrases used in this Trust Agreement are also used in ERISA, neither this Agreement nor the Trust is, or is intended to be, subject to the provisions of ERISA, and no rights, duties, obligations or restrictions created or imposed by ERISA shall 18 be created in favor of or imposed on the Company, the Trustee, any Participant, any Beneficiary or any other person or entity on account of the use of such terms and phrases. 19 IN WITNESS WHEREOF, the Company and the Trustee have each caused this Trust Agreement, as amended and restated as of October 9, 1995, to be signed by its duly authorized officers and its corporate seal to be hereunto affixed. HARNISCHFEGER INDUSTRIES, INC. By: /s/ Jeffery T. Grade ------------------------- Jeffery T. Grade Its: Chairman and Chief Executive Officer By: /s/ John Nils Hanson -------------------------- John Nils Hanson Its: Executive Vice President and Chief Operating Officer By: /s/ K. Thor Lundgren --------------------------- K. Thor Lundgren Its: Executive Vice President for Law and Government Affairs By: /s/ Francis M. Corby, Jr. ---------------------------- Francis M. Corby, Jr. Its: Executive Vice President for Finance and Administration By: /s/ Richard W. Schulze --------------------------- Richard W. Schulze Its: Senior Vice President and Special Advisor to the Chairman and CEO As members of the Management Policy Committee of Harnischfeger Industries, Inc. MARSHALL & ILSLEY TRUST COMPANY, as Trustee By:/s/ Forrest Dupre Its: Vice President ATTEST: Its: /s/Chad D. Kame Trust Officer (SEAL) -----END PRIVACY-ENHANCED MESSAGE-----