UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee Required)
For the fiscal year ended May 31, 1998.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (No Fee Required)
Commission File Number: 1-4676
THE BETHLEHEM CORPORATION
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(Name of small business issuer in its charter)
PENNSYLVANIA 24-0525900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25TH AND LENNOX STREETS, EASTON, PENNSYLVANIA 18044-0348
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including Area Code: (610) 258-7111.
Securities registered under Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, no par value American Stock Exchange, Inc.
Securities registered under Section 12(g) of the Exchange Act: None.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days. Yes X No
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
State issuer's revenues for its most recent fiscal year: $16,271,000
As of August 18, 1998, 2,288,520 shares of the registrant's common stock were
outstanding and the aggregate market value of such common stock held by
non-affiliates was approximately $1,802,210 based on the average of the bid and
asked prices on that date of $1.75.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Proxy Statement for 1998 Annual Meeting of Stockholders
incorporated by reference in Part III, Items 9, 10, 11 and 12.
<PAGE>
TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT - 1998
THE BETHLEHEM CORPORATION
PART I........................................................................1
Item 1. Description of Business.....................................1
Item 2. Description of Property.....................................5
Item 3. Legal Proceedings...........................................5
Item 4. Submission of Matters to a Vote of Security Holders.........5
PART II.......................................................................7
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters.........................................7
Item 6. Management's Discussion and Analysis or Plan of Operation...7
Item 7. Financial Statements.......................................12
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure........................12
PART III.....................................................................13
Item 9. Directors, Executive Officers, Promotors and Control
Persons; Compliance with Section 16(a) of the
Exchange Act...............................................13
Item 10. Executive Compensation.....................................13
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................13
Item 12. Certain Relationships and Related Transactions.............13
PART IV......................................................................14
Item 13. Exhibits, List and Reports on Form 8-K.....................14
SIGNATURES...................................................................16
<PAGE>
PART I
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Item 1. DESCRIPTION OF BUSINESS
GENERAL
The Bethlehem Corporation (the "Company") was founded in
1856 as a foundry and machine shop and incorporated in 1888. The Company
designs, manufactures, markets and services a product line of capital equipment
and systems used to process materials for a variety of industrial applications.
Its proprietary products include the Porcupine Processor(R), the Thermal Disc(R)
Processor, the Bethlehem Tower Filter Press, drum dryers and flakers, tubular
dryers, and calciners. In addition, the Company operates a production facility
that fabricates, machines and assembles equipment to customers' specifications.
The Company has developed expertise in the areas of thermal processing systems,
environmental systems, filtration, specialty machining, fabrication and the
rebuilding and remanufacture of specialty process equipment. In addition, the
Company, through Bethlehem Advanced Materials Corporation ("BAM"), a
wholly-owned subsidiary, designs and manufactures high-temperature furnaces for
sale and for its own use for the processing of advanced materials for customer
orders. The furnaces process specialty carbon, graphite and ceramic materials
for semiconductors and aerospace industries.
CAPITAL EQUIPMENT, MACHINING AND FABRICATION
The Company's customers for its capital equipment include
refineries, chemical, food, pharmaceutical and petrochemical firms. Its products
include the Porcupine Processor(R), the Thermal Disc(R) Processor, the Bethlehem
Tower Filter Press, drum dryers and flakers, tubular dryers and calciners. The
Porcupine Processor(R) dries, heats or cools various chemicals, solids, or
slurries. It reduces operating and installation costs and provides a
free-flowing end product. The Bethlehem Tower Filter Press filters a wide range
of slurries, operating automatically and uses a programmable logic control
system. The Company operates a production facility that includes a full service
laboratory equipped to test a broad range of materials and processes for
filtration and thermal processing applications. The Company also has thermal
processing and filtration pilot units available for use at customer sites for
test processing. In conjunction with sales of capital equipment and systems, the
Company provides engineering and design services and conducts an aftermarket
business consisting primarily of remanufacture, repair, refurbishment and
equipment upgrade services and spare parts sales. The Company markets its
products through an international sales network covering markets in North and
South America, Asia and Europe.
The Company serves these markets through three main business
units:
o The Thermal Process Equipment unit markets
core heat transfer equipment, which includes
dryers, coolers, rotary calciners and
flakers. The Porcupine Processor(R), an
indirectly heated dryer developed by the
Company, is the flagship of this unit's
products. Some of the markets for these
products include the chemical, plastics,
food, pharmaceuticals, refineries, waste
treatment and mining industries.
o The Environmental Systems unit markets
Thermal Desorption Systems for sale and
rental. These systems, which usually include
a Porcupine Processor(R), are used for
treating hazardous and non-hazardous
sludges, contaminated soils, drill cuttings
and other waste streams. The market for
these systems is currently driven by
environmental regulations and is expected to
grow.
o The Filtration Process Equipment unit
designs, manufactures and markets coarse to
fine filtration systems used in solid/liquid
separation. The target markets are fine and
specialty chemicals, mining, food, precious
metal recovery and pharmaceutical. The
Bethlehem Tower Filter Press is the unit's
principal product.
<PAGE>
BETHLEHEM ADVANCED MATERIALS CORPORATION (BAM)
BAM designs and manufactures specialty high-temperature
furnaces that are used for the processing and manufacturing of a wide variety of
advanced materials, such as carbon and graphite fiber, carbon graphite
composites, carbon and graphite structures, ceramic powders and ceramic
composites. In addition, BAM processes specialty carbon, graphite and ceramic
materials for the semiconductor and aerospace industries. BAM is also involved
in commercial process and product development of advanced materials.
BAM is engaged in three primary lines of business involving
high temperature furnaces and the processing of advanced specialty materials:
o Furnace Manufacturing--design/engineering,
manufacturing and installation of specialty
high temperature furnace systems.
o Toll Processing--contract heat treating and
thermal processing of specialty materials.
o Commercial Product and Process
Development--utilization of the Company's
own furnaces, technology and expertise to
commercialize new applications and products
for its own use and in conjunction with
customers in order to enhance their
processes and applications.
In addition to selling furnaces, BAM owns and operates
several furnaces to provide toll firing services for its customers. Customers of
BAM, whether a furnace purchaser or on a tolling basis, are typically
manufacturers of carbon graphite structures, composites, powders and fibers, as
well as manufacturers of non-oxide ceramics, such as silicon carbide or silicon
nitride or other advanced ceramic structures.
STRATEGY
The Company's business strategy is to continue the
technological development and marketing of its core capital equipment products
and environmental systems. Additionally, the Company will focus on the expansion
of specialty high temperature furnace systems and toll processing services for
select advanced materials markets.
The Company's strategy is also to continue to strengthen its
position in markets inside and outside the United States, to expand its world
wide manufacturing sourcing and to pursue new sales opportunities as they
develop, in new, rebuilt and used equipment. In addition, the Company intends to
identify and evaluate opportunities to extend current market applications,
identify new potential applications and establish plans for developing such
applications for high temperature furnaces.
As part of its efforts to expand its current range of market
applications, the Company is engaged in exploring strategic partnerships with
specific customers to use Company technology and expertise in the areas of
semiconductor purification and the carbonization of PAN for use in aircraft
brakes.
CUSTOMERS; EXISTENCE OF SHORT-TERM CONTRACTS
The Company's principal customers for its capital equipment
are domestic and foreign manufacturers of chemicals, pharmaceuticals, foods,
plastics, petrochemicals and environmental firms. The Company's principal
customers for its high temperature furnaces and related tolling services are
domestic and foreign manufacturers of carbon and graphite structures, and other
advanced ceramic composite structures.
Currently, the major portion of the Company's sales are made
under short-term or one-time contracts for the Company's capital equipment or
high-temperature furnaces, which contracts are not subject to renewal. Although
this may afford the Company flexibility in responding to changing market
conditions, a market for the Company's products and services under such
contracts is not assured. As a result, one or more short-term or one-time
contracts may constitute a high percentage of the Company's total net sales for
any particular quarter or fiscal year. The inability of the Company to obtain
such contracts in the future could have a material adverse effect on the
Company's business.
The Company's active customers for capital equipment include
Dow Belgium N.V., Mobile Chemical Company, Shetland Leasing and Property
Development Corporation, Eastman Chemical Company, Olin Corporation
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<PAGE>
and Mexicana de Cobre, S.A. de C.V. Sales to Universal Process Equipment, Inc.
("UPE"), a significant shareholder of the Company accounted for approximately 8%
of total sales in 1998 and approximately 1% of total sales in 1997. The
Company's active customers for high temperature furnaces and tolling services
are Allied Signal Inc., Graphite Products, Inc., Hexcel Corporation and Amoco
Performance Products, Inc. Purchases by any single customer vary significantly
from year to year according to such customer's capital equipment needs. The
composition of the Company's customers may also vary from year to year.
SALES AND MARKETING
The Company markets its products to customers in North and
South America, Asia and Europe, primarily by a direct sales and support staff
based at its headquarters in Easton, Pennsylvania for its capital equipment
products and services and in Knoxville, Tennessee for its high temperature
furnace products and tolling services. The Company also relies on product sales
representatives in some regions of North America and in certain geographic areas
outside the United States. The Company's commission program with respect to such
independent representatives varies depending on the type of product sold and the
volume of sales over the course of a year. The percentage of sales generated
from such independents equaled approximately 10% of total sales for the year
ended May 31, 1998 and approximately 18% of total sales for the year ended May
31, 1997 and it is anticipated that the percentage of sales for the year ending
May 31, 1999 will be approximately 15%.
BACKLOG
As of August 18, 1998, the Company had a backlog of orders
equaling $4.7 million compared to $9.5 million for the same period last year.
Orders comprising current backlog are expected to be filled during the fiscal
year ending May 31, 1999.
RAW MATERIALS
The basic raw materials used in the Company's products are
pipe and forgings, steel plate, bars and castings and in addition, in the high
temperature furnace business, graphite and copper. Raw materials are available
from a number of sources on comparable terms. The Company is not dependent on
any supplier that cannot be replaced in the normal course of business. Principal
suppliers to the Company at May 31, 1998 were, Bush Miller, Citisteel USA, Inc.,
MG Industries Inc., and, in connection with the high temperature furnace
business, Graphite Products Corp., Air Products and Chemicals Inc. and Graybar
Electric Co.
DEVELOPMENT OF LITHIUM-ION RECHARGEABLE BATTERIES
BAM executed a License Agreement on December 20, 1995 with
Sandia Corporation ("Sandia"), a multi-program laboratory operated by a
subsidiary of Lockheed Martin Corp. for the U.S. Department of Energy. On July
13, 1998, BAM elected to abandon its license agreement with Sandia. The primary
reason for the abandonment was a strategic decision on the part of the Company
to focus on the growth of its core business.
PATENTS AND TRADEMARKS
The Company depends upon its proprietary technology and
expertise. The Company relies principally upon trade secret and copyright law to
protect its proprietary technology and owns no patents which are material to its
business. The Company recently filed a patent application for a new generation
of its tower filter product line. The Company regularly enters into
confidentiality agreements with its employees, consultants, customers and
potential customers and limits access to and distribution of its trade secrets
and other proprietary information. There can be no assurance that these measures
will be adequate to prevent misappropriation of its technology or that the
Company's competitors have not and will not independently develop technologies
that are substantially equivalent or superior to the Company's technology.
COMPETITION
The Company's products are sold in highly competitive
worldwide markets. A number of companies compete directly with the Company in
the chemical, pharmaceutical, food, plastic and petrochemical processing markets
and the Company competes with various other furnace manufacturers and toll
processors. Numerous competitors of varying
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sizes compete with the Company in one or more of its product lines. A number of
the Company's competitors are divisions or subsidiaries of larger companies with
significantly greater financial, marketing, managerial and other resources than
those of the Company. The Company believes that the principal competitive
factors affecting its core proprietary equipment business are price,
performance, delivery, breadth of product line, product availability, experience
and customer support. The Company believes that the principal areas of
competition for its high temperature furnace sales segment are price, quality,
delivery, skill and experience in developing specialized equipment aimed at a
customer's specific materials requirement. The Company believes that the
principal areas of competition for its toll processing operations are the
ability to reliably meet the customer's quality specification and program
requirements, including volume and price considerations.
The Company's direct competitors that manufacture high
temperature furnaces include Consarc, Seco/Warwick, Ipsen GMBH, AVS, Inc., Abar
Ipsen, and Harper International Corp.
There can be no assurance that developments by existing or
future competitors will not render the Company's products or technologies
noncompetitive or that the Company will be able to keep pace with new
technological developments. In addition, the Company's customers could decide to
vertically integrate their operations and perform for themselves some or all of
the functions performed by the Company.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
For the year ending May 31, 1998, the Company's five largest
customers individually accounted for 11% to 17% of the Company's sales (68% in
the aggregate). The customers are Shetland Leasing and Property Development
Corporation, Eastman Chemical Company, Great Hope International Investment,
Ltd., Foster Wheeler Corporation and Allied Signal, Inc.
EMPLOYEES
As of August 18, 1998, the Company had 111 full-time
employees, including 23 employees of BAM. Of these, 86 are engaged in
manufacturing and technical services, 11 in marketing and sales and 14 in
administrative functions.
The production employees at the Easton, Pennsylvania
facility (44 persons) are represented by their own bargaining unit called The
Bethlehem Corporation Employees Association. A three-year labor contract was
ratified with this Association on July 31, 1998 and is due to expire on July 31,
2001. The employees at the Knoxville, Tennessee facility are not represented by
any collective bargaining organization. The Company believes that its relations
with its employees are good.
ENVIRONMENTAL IMPACT AND REGULATION
The operations at the Company's Knoxville, Tennessee plant
utilize fume destruction and scrubbing of various exhaust streams, designed to
comply with applicable laws and regulations. The plant produces air emissions
that are regulated and permitted by Knox County, Tennessee, Department of Air
Pollution Control (the "KCDOAPC"). Management believes that the plant is
currently in compliance with its permit and the conditions set forth therein.
The Company has also received from the KCDOAPC additional permits necessary to
expand its operations to allow increased carbon processing, chlorine
purification and the operation of a second afterburner.
The Company believes that compliance by its operations with
applicable environmental regulations will not have a material effect upon the
Company's future capital expenditure requirements, results of operations or
competitive position. There can be no assurance, however, as to the effect of
future changes in federal, state and county environmental laws or regulations on
the Company's results of operations or financial condition.
GOVERNMENT REGULATION
The Company is not aware of a need for government approval
of any principal products. Existing governmental regulations do not have a
significant effect on the business of the Company. In addition, government
regulations that are probable of enactment are not anticipated to have any
material effect.
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<PAGE>
Item 2. DESCRIPTION OF PROPERTY
The Company operates from two properties, one in Easton,
Pennsylvania and one in Knoxville, Tennessee.
The Company owns a complex on 29 acres consisting of four
major heavy manufacturing buildings, a laboratory, a two-story office building,
miscellaneous storage and service buildings and a one-story office building
located near the City of Easton in Northampton County, Pennsylvania. The
facility is an integrated production facility, conducting engineering,
fabrication, forming, machining, assembly, heat treating, finishing and testing.
The machine and assembly floor area is 100,000 square feet and is serviced by a
70 ton lifting capacity crane. Complete shipping facilities are available by
truck with access to major interstate systems. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
As of August 18, 1998, the Company's Easton facilities were
subject to a first mortgage loan and a second lien. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
BAM leases a 33,600 square foot manufacturing and office
building in Knoxville, Tennessee for capital equipment manufacturing, toll
processing and related administrative services and marketing. The facility is
equipped with several furnace systems with capabilities of firing in excess of
3000(Degree)C. It is located in an industrial park with excellent access to
major interstate highways and a modern airport. The lease expires September 30,
2000, but provisions for the lease provide for two additional three year rental
terms. The Knoxville lease has a monthly base rent of approximately $8,800. The
Company believes this facility is suitable and adequate for its present
operations there. The Company is a guarantor of payment on this lease.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Matters submitted to a vote of security holders at Annual
Meeting of Stockholders held on April 23, 1998:
o Election of eight directors, each to serve for a
term of one year and until the next annual meeting
of Stockholders and until their successors are
duly elected and qualify;
o Approval of the grant of stock options to each of
UPE, James L. Leuthe and Salvatore J. Zizza in
exchange for debt guarantees and services to the
Company.
o Approval of the issuance of 350,000 shares of the
Company's common stock, no par value, to UPE.
o Approval of an amendment to the Company's
Certificate of Incorporation confirming cumulative
voting in the election of directors.
o Ratification of the appointment of BDO Seidman,
LLP as independent auditors of the Company for the
fiscal year ending May 31, 1998.
VOTING RESULTS
o Election of eight directors:
Number of Shares of Number of Shares of Common
Common Stock - For: Stock - Withheld Authority:
-------------------------------------------------------------------------------
Harold Bogatz 1,687,516 0
B. Ord Houston 1,687,889 0
Jan P. Gale 1,687,908 0
Ronald H. Gale 1,687,894 0
Salvatore J. Zizza 1,687,889 0
Alan H. Silverstein 1,687,904 0
James L. Leuthe 1,687,913 0
James F. Lomma 1,687,669 0
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o Grant of Stock Options to UPE, James L. Leuthe and Salvatore J. Zizza:
NUMBER OF SHARES OF COMMON STOCK
FOR 1,094,494 AGAINST 35,672
ABSTAIN 16,108 BROKER NON-VOTES 542,019
o Issuance of 350,000 shares of the Company's Common Stock, to UPE:
NUMBER OF SHARES OF COMMON STOCK
FOR 1,112,072 AGAINST 28,407
ABSTAIN 5,795 BROKER NON-VOTES 542,019
o Amendment to the Company's Certificate of Incorporation confirming
cumulative voting in the election of directors:
NUMBER OF SHARES OF COMMON STOCK
FOR 1,106,405 AGAINST 26,453
ABSTAIN 13,416 BROKER NON-VOTES 542,019
o Ratification of BDO Seidman, LLP as independent auditors of the
Company for the Fiscal Year ending May 31, 1998:
NUMBER OF SHARES OF COMMON STOCK
FOR 1,184,391 AGAINST 969
ABSTAIN 2,933 BROKER NON-VOTES 0
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PART II
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Item 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, no par value, (the "Common
Stock") is traded under the symbol "BET" on the American Stock Exchange
("AMEX"). The following table sets forth the high and low sales prices for the
Common Stock, for the periods indicated, as reported by the AMEX.
LOW ($) HIGH ($)
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1997 FISCAL YEAR
First Quarter 1.88 2.75
Second Quarter 1.94 3.00
Third Quarter 1.88 2.75
Fourth Quarter 1.88 2.38
1998 FISCAL YEAR
First Quarter 1.88 2.50
Second Quarter 2.06 3.81
Third Quarter 2.56 3.25
Fourth Quarter 2.50 3.88
As of August 18, 1998, there were approximately 854 holders
of record of the Company's Common Stock.
On May 31, 1998, 350,000 shares of the Company's common
stock were issued to UPE in consideration for a 50% ownership interest in
certain resale inventory, which consists primarily of tower presses, rotary
vacuum dryers, double cone dryers and vacuum freeze dryers owned by UPE. See
"Management's Discussion and Analysis of Financial Condition of Plan of
Operation - fiscal year ended May 31, 1998, compared to fiscal year ended May
31, 1997."
The Company did not declare any cash dividends on its Common
Stock during Fiscal 1998 or Fiscal 1997. The Company's new financing with PNC
Bank, N.A., in the amount of $4 million imposes certain limitations with respect
to payment of cash dividends (See "Management's Discussion and Analysis of Plan
of Operation--Liquidity and Capital Resources"). The Company plans to retain any
earnings to provide for the development and growth of the Company.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
COMPANY OVERVIEW
The Company was founded in 1856 as a foundry and machine
shop and incorporated in 1888. The Company designs, manufactures, markets and
services a product line of capital equipment and systems used to process
materials for a variety of industrial applications. Its proprietary products
include the Porcupine Processor(R), the Thermal Disc(R) Processor, the Bethlehem
Tower Filter Press, drum dryers and flakers, tubular dryers, and calciners. In
addition, the Company fabricates, machines and assembles equipment to customers'
specifications. The Company has developed expertise in the areas of thermal
processing systems, environmental systems, filtration, specialty machining,
fabrication and the rebuilding and remanufacture of specialty process equipment.
In addition, the Company, through BAM, designs and manufactures high-temperature
furnaces for sale and for its own use and processes specialty carbon, graphite
and ceramic materials for semiconductors and aerospace industries.
All three of the Company's business units each serve several
billion dollar worldwide markets. The Company expects the future size of each of
these markets to remain in the billions of dollars.
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The Company would characterize the markets for each of its
business units as follows:
(1) THERMAL PROCESS AND FILTRATION UNITS
o Markets are relatively
concentrated in mature
industries such as
chemicals, plastics,
foods, pharmaceuticals,
refineries, waste
treatment and mining and
minerals.
o Technology barrier is medium.
o Competition is worldwide.
(2) ENVIRONMENTAL SYSTEMS UNIT
o Markets are concentrated.
o Technology barrier is medium.
o Competition is worldwide.
The Company's customer concentration has historically been
limited to segments such as military, chemical process, power generating or
ferrous and nonferrous producers. More recently, the Company has sought to
broaden its customer base to include customers in such markets as environmental
and mining and precious metals. The Company has also added new products such as
high temperature furnaces through BAM, which services newer growth markets such
as the semiconductor industry. To the degree the Company is able to add to and
diversify its products and the markets it serves, the Company will insulate
itself from potential volatility due to declines in any particular market served
by the Company's products.
Historically, the sale of the Company's products has
primarily been limited to North America and Western Europe. The Company has
sought to further increase its international sales because it believes demand
and opportunity for its products are increasing in direct proportion to the
development of process industries such as chemical, food and pharmaceutical in
countries outside of the North American and Western European markets. The
Company enjoys access to customers through the worldwide customer base of UPE,
and occasionally utilizes UPE's network of company owned offices and personnel
around the world. The only cost incurred for the utilization of UPE's offices
and personnel is the payment of a commission on actual sales originated. The
Company believes this relationship has and will continue to help the Company
increase its sales. The Company does not believe, however, that the termination
of this relationship, which is not anticipated, would have a significant
material adverse effect on the Company's results of operations.
The Company's capital equipment products and technologies
were developed throughout the 20th century. Historically, the Company's product
life cycles have been relatively long term. There can be no assurance, however,
that such products will continue to be viable in the future. The Company
continues to evaluate other products and companies that have the potential to
complement the Company's existing products and business.
In the future, the Company intends to continue to enhance
existing products and continue to explore new opportunities and the possibility
of additional strategic partnerships with existing and new customers. The
Company will also seek to develop joint ventures with several of its customers
and other firms to develop new processes and broaden its manufacturing services.
There can be no assurance, however, that the Company will be able to
successfully implement any of these strategies or that, if implemented, these
strategies will improve the Company's financial position or results of
operations.
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<PAGE>
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MAY 31, 1998 ("1998") COMPARED TO FISCAL YEAR ENDED MAY 31,
1997 ("1997")
The Company's total sales were $16,271,000 for 1998,
compared to sales of $17,916,000 for 1997, a decrease of $1,645,000 or 9%. Gross
profit was $5,119,000 or 31% of sales for 1998 compared to gross profit of
$5,062,000 or 28% of sales for 1998. Decreased sales in the Company's Filtration
and Thermal Process Units were the primary reason for the lower sales recorded
over 1997 levels. A thermal process equipment contract in the amount of
$1,611,000 was cancelled during the third quarter of 1998. In addition, a
contract with an Asian customer for thermal process equipment originally
scheduled for completion in 1998 was delayed into the second quarter of 1999.
The Company's wholly owned subsidiary, BAM, recorded stronger sales in 1998.
Higher gross profit margins were attributable to BAM contracts and Thermal
Process contracts. The Company continues to focus on the development and
marketing of its core capital equipment products and environmental systems
inside and outside of North America. Additionally, the Company will focus on the
expansion of specialty high temperature furnace systems and toll processing
services for select advanced materials markets. The Company continues to focus
on increasing production efficiency as well as decreasing manufacturing expenses
in the production of its core products.
The Company's five largest customers individually accounted
for 11% to 17% of the Company's sales for 1998. In 1997, one customer accounted
for approximately 35% of the Company's sales. The Company's export sales equaled
$5,436,000 for 1998 compared to $7,165,000 for 1997. All sales were denominated
in US Dollars, therefore, currency fluctuations did not affect the transactions.
Operating expenses for 1998 were $3,631,000 or 22% of sales,
compared to $3,849,000 or 21% of sales, for 1997. In 1998, general and
administrative expense decreased $323,000 due, in part, to reduced benefit costs
of $157,000 and lower bad debt provisions of $43,000. In 1998, the Company
recorded approximately $126,000 of non cash compensation expense related to the
issuance of 350,000 shares of the Company's common stock to UPE for a 50%
ownership in certain resale inventory, which consists primarily of tower
presses, rotary vacuum dryers, double cone dryers and vacuum freeze dryers. This
transaction was approved by the Company's stockholders at the Annual Meeting of
Stockholder's held on April 23, 1998. In addition, the Company recorded
approximately $32,000 in compensation expense for the issuance of options to
James L. Leuthe (a Director) and Salvatore J. Zizza (Chairman of the Board). The
issuance of 125,000 options to Mr. Leuthe and 178,000 options to Mr. Zizza were
also approved at the April 23, 1998 meeting. The balance of the options' fair
values of approximately $335,000 will be expensed as services are rendered over
the three year vesting period of the options. Operating income equaled
$1,488,000 for 1998 or 9% of sales compared to operating income of $1,213,000 or
7% of sales for 1997.
Other expense totaled $1,067,000 for 1998 compared to
$600,000 for 1997. Interest expense was $822,000 in 1998 compared to $667,000
for 1997 due largely to an increase in outstanding borrowings. In addition, the
Company expensed $48,000 in financing expenses related to the prepayment of the
mortgage loan in December 1997. A financing charge of $296,000 related to
options issued to UPE in return for debt guarantees was also recognized in 1998.
The value ascribed to these options is $424,000 and the balance of $128,000 will
be amortized over the life of the outstanding guarantees. In 1997, the Company
wrote off approximately $103,000 of costs associated with an aborted Stock
Rights Offering. Such costs had been previously capitalized. In May 1997, the
Company negotiated a final payment for previously accrued liabilities with a
third party service provider. As a result of such negotiations, the Company
recognized income of $98,000 in 1997. Income before income taxes totaled
$421,000 for 1998 compared to $613,000 for 1997.
The Company's benefit for income taxes totaled $110,000 for
1998 compared to $100,000 for 1997. The 1998 benefit was comprised of a Federal
benefit of $170,000 and a net state provision of $60,000. Based on historical
results, estimated 1999 earnings, which include earnings on existing contracts,
and the Company's ability to generate taxable income, management considers
realization of the unreserved deferred tax asset more likely than not.
Additional reductions to the valuation allowance will be recorded when, in the
opinion of management, the Company's ability to generate taxable income is
considered more likely than not. Net income for 1998 was $531,000 compared to
$713,000 for 1997.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During 1998, $363,000 of cash was provided by operating
activities compared to $97,000 of cash provided by operating activities in 1997.
The Company's accounts receivable decreased $1,302,000 due to timely collection
of milestone and progress billings, offset by a decrease in accounts payable of
$616,000. Billings in excess of costs and estimated profits decreased $1,229,000
due to reduced advance billings. The Company recorded non cash compensation
expense in the amount of $158,000 and a financing charge of $296,000 during the
fourth quarter of 1998.
Cash flow used for investing activities, solely capital
expenditures, was $385,000 in 1998 as compared to $367,000 in 1997. In 1998,
capital expenditures included renovations of facilities and the purchase,
refurbishment and installation of plant assets. The Company's estimated budget
for capital expenditures for 1999 approximates $300,000 for energy efficiency
upgrades, new plant equipment, upgrades to existing plant equipment and office
buildings. The Company is in the process of evaluating all capital expenditures
for Fiscal 1999 and, accordingly, there can be no assurance as to the ultimate
amount of capital expenditures.
Cash flow provided by financing activities was $27,000 for
1998 compared to $287,000 provided by financing activities in 1997. On December
12, 1997, the Company prepaid its mortgage loan and accrued interest in the
amount of $1,481,000 to Sterling Commercial Capital, Inc., First Wall Street
SBIC, L.P., and Interequity Capital Partners, L.P. with proceeds received from a
$2,000,000 five year mortgage loan from Ocwen Federal Bank. The loan from Ocwen
Federal Bank is collateralized by a first mortgage lien on all real estate owned
by the Company. The loan bears interest at 11.25% per annum. The outstanding
principal and interest is payable in 59 consecutive equal monthly payments
calculated to fully amortize over a 20 year period with a final payment of all
then outstanding principal and interest. The balance of the loan proceeds will
be used for capital improvements and working capital purposes. As of May 31,
1998, the amount outstanding under the loan was $1,990,000.
On June 3, 1998, the Company entered into a loan agreement
with PNC Bank National Association for a $4 million line of credit and term
loan, secured by a first lien on the Company's inventory, accounts receivable,
machinery and equipment and other assets. The proceeds of the line of credit and
term loan were used to prepay the outstanding term loan and line of credit with
The CIT Group/Credit Finance ("CIT") (of which $1,502,000 was outstanding at May
31, 1998) and for general working capital needs. This credit facility includes
(a) an $800,000 term loan requiring $13,000 monthly principal payments plus
interest at 9.70%, maturing on June 1, 2003, and (b) a $3,200,000 line of credit
with advances against eligible inventory and accounts receivable at the interest
rate of prime plus one and one-half percent, maturing on June 1, 1999. The loan
agreement contains certain covenants which among other things, will require the
Company to maintain specified levels of net worth. UPE agreed to provide a
guarantee for this credit facility. This guarantee consists of an equipment
repurchase agreement wherein UPE is required to either liquidate or otherwise
purchase for its own account the Company's eligible inventory upon the
occurrence of a payment default. In addition, UPE agreed to subordinate $800,000
of indebtedness due from the Company to PNC. By securing this funding, the
Company expanded working capital and increased liquidity. In August 1998, the
Company issued options to purchase 175,000 shares to UPE as consideration for
providing guarantees on this agreement.
On February 28, 1997, the Company purchased a two stage
environmental system in Alberta, Canada. To effect the acquisition of the
equipment, the Company borrowed $225,000 from UPE, at an interest rate of prime
plus 2.5%. This loan was repaid in full during the third and fourth quarters of
1998. In addition, the Company secured a loan from Royal Bank of Canada in the
amount of $320,000 to assist with the buyout of these assets at the borrowing
rate equal to Canadian prime rate plus 1.5% per annum. This loan was repaid in
full in September 1997.
From time to time in the ordinary course of business, UPE
advances funds to the Company to enable the Company to meet certain temporary
cash requirements. These advances are repaid from operating cash flow. An
advance of $250,000 was made to the Company in August 1996 by UPE. Another
advance of $250,000 was made to the Company by UPE in October 1996. In addition,
an advance was made to the Company in May 1997 in the amount of $75,000. As of
May 31, 1998, $782,000 of these advances remains outstanding. The interest rate
on the advances is prime plus 1%.
The Company believes that cash available from the PNC
National Bank credit agreement and cash generated from existing business and new
orders, will be sufficient to meet operating and investing requirements through
the year ending May 31, 1999, and principal repayments on debt obligations as
they become due.
-10-
<PAGE>
Backlog of $4,700,000 at August 18, 1998, compares to
backlog of $9,500,000 for the same period last year. The decrease reflects a
cancellation of a 1997 order.
EFFECTS OF INFLATION
Management believes that any inflationary increase arising
from the Company's raw material costs and certain overhead expenses have
generally been reflected in pricing to its customers.
NET OPERATING LOSS CARRY FORWARD
At May 31, 1998 the Company had approximately $3.5 million
of unused federal net operating loss carryforwards and federal investment and
research tax credit carryforwards. If the net operating loss carryforwards
remain unused, they will expire during the years 2004 through 2010. If the
investment and research tax credit carryforwards remain unused, they have or
will expire during the years 1998 through 2002. In addition, at May 31, 1998,
the Company has unused state net operating loss carryforwards of approximately
$1.4 million, of which $1.2 million expires in 1998.
FORWARD LOOKING STATEMENTS
This Form 10-KSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended which are
intended to be covered by the safe harbors created thereby. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Form 10-KSB will prove to be accurate. Factors that could cause
actual results to differ from the results discussed in the forward-looking
statements include, but not limited to, the Company's proprietary rights,
environmental considerations and its ability to obtain contracts in the future.
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
YEAR 2000
The Company is aware of the uncertainty surrounding the
ability of computer systems to function properly with the coming of the year
2000 and related issues. The Company replaced its existing computer software
during 1998 with software that is Year 2000 compliant, and is currently
assessing the functionality of the systems of its customers and suppliers in an
attempt to identify and avoid potential problems.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
two new disclosure standards.
SFAS No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"),
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, ("SFAS 131") which supersedes SFAS No. 14, FINANCIAL
REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE, establishes standards for the
way that public companies report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by management in deciding how to allocate resources
in assessing performance.
-11-
<PAGE>
SFAS 130 and 131 are effective for the Company's 1999
financial statements and require comparative information for earlier years to be
restated. Results of operations and financial position, however, will be
unaffected by implementation of these standards. The Company, however, has not
determined whether either of these two standards will have a material impact on
its financial statement disclosures.
In February 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 132 ("SFAS 132"),
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS, which
standardizes the disclosure requirements for pensions and other postretirement
benefits. The adoption of SFAS 132 in 1999 is not expected to materially impact
the Company's current disclosures.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which establishes
accounting and reporting standards for derivative instruments and hedging
activities. Due to its recent issuance, the Company is currently reviewing the
effects of SFAS 133. This standard will be adopted by the Company no later than
its year ending May 31, 2001.
Item 7. FINANCIAL STATEMENTS
Provided following the signature page.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
-12-
<PAGE>
PART III
--------
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The response to this Item is incorporated by reference to the
Company's Proxy Statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission separately pursuant to
Rule 14a-6 under the Securities Exchange Act of 1934.
Item 10. EXECUTIVE COMPENSATION
The response to this Item is incorporated by reference to
the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission separately pursuant to
Rule 14a-6 under the Securities Exchange Act of 1934.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The response to this Item is incorporated by reference to
the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission separately pursuant to
Rule 14a-6 under the Securities Exchange Act of 1934.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is incorporated by reference to
the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission separately pursuant to
Rule 14a-6 under the Securities Exchange Act of 1934.
-13-
<PAGE>
PART IV
-------
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are being filed or are incorporated
by reference in this Form 10-KSB Report:
3(i) Amended And Restated Articles of
Incorporation approved at the December 12,
1995 Annual Meeting of the Company
(incorporated by reference to Exhibit 3(i)
to the Company's Registration Statement on
Form SB-2 filed May 15, 1996 (the "Form
SB-2")).
3(ii) Amended and Restated Bylaws approved at the
December 12, 1995 Annual Meeting of the
Company (incorporated by reference to
Exhibit 3(ii) to the Company's 10-QSB for
the quarterly period ended November 30, 1995
(the "November 1995 10-QSB")).
10(a) The Company's 1989 Equity Incentive Plan.
Incorporated by reference to the Company's
Report on Form 10-K for the fiscal year
ended December 31, 1992.
10(b) Description of the Company's deferred
compensation arrangements with certain
employees, including its officers.
Incorporated by reference to the Company's
Amendment No. 1 to report on Form 10-Q for
the quarter ended September 30, 1993.
10(c) The Company's Equity Incentive Plan for
Directors. Incorporated by reference to the
Company's Report on Form 10-K for the fiscal
year ended December 31, 1991.
10(e) Registration Rights Agreement dated as of
July 27, 1990 among the Company, Universal
Process Equipment, Inc., Ronald Gale and Jan
Gale. Incorporated by reference to the
Company's Report on Form 10-K for the fiscal
year ended December 31, 1991.
10(f) Form of Agreement dated March 31, 1993 by
and between the Company and Universal
Process Equipment, Inc. Incorporated by
reference to the Company's Report on Form
10-K for the fiscal year ended December 31,
1992.
10(g) Conformed copy of Settlement Agreement,
including the following exhibits thereto.
Incorporated by reference to the Company's
Amendment No. 1 Report on Form 10-Q for the
quarter ended September 30, 1993.
10(g)1.1 Exhibit A: UPE Agreement. Incorporated by
reference to the Company's Amendment No. 1
Report on Form 10-Q for the quarter ended
September 30, 1993.
10(g)1.2 Exhibit B: Security Promissory Note, dated
November 22, 1993, by The Bethlehem
Corporation to The Harrisburg Sewage
Authority. Incorporated by reference to the
Company's Amendment No. 1 Report on Form
10-Q for the quarter ended September 30,
1993.
10(g)1.3 Exhibit C: Guaranty and Suretyship
Agreement, dated as of November 22, 1993, by
Universal Process Equipment, Inc. to The
Harrisburg Sewage Authority. Incorporated by
reference to the Company's Amendment No. 1
Report on Form 10-Q for the quarter ended
September 30, 1993.
10(g)1.4 Exhibit D: Equipment Security Agreement
(Schedule 1 Equipment), dated as of November
22, 1993, by and between Universal Process
Equipment, Inc. and The Harrisburg Sewage
Authority. Incorporated by reference to the
Company's Amendment No. 1 Report on Form
10-Q for the quarter ended September 30,
1993.
-14-
<PAGE>
10(g)1.5 Exhibit E: Equipment Security Agreement
(Schedule 2 Equipment), dated as of November
22, 1993, by and between Universal Process
Equipment, Inc. and The Harrisburg Sewage
Authority. Incorporated by reference to the
Company's Amendment No. 1 Report on Form
10-Q for the quarter ended September 30,
1993.
10(g)1.6 Exhibit F: Collateral Assignment of
Judgement, dated as of November 22, 1993, by
and between Universal Process Equipment,
Inc. and The Harrisburg Sewage Authority.
Incorporated by reference to the Company's
Amendment No. 1 Report on Form 10-Q for the
quarter ended September 30, 1993.
10(g)1.7 Exhibit G: Consent to Entry of Judgement.
Incorporated by reference to the Company's
Amendment No. 1 Report on Form 10-Q for the
quarter ended September 30, 1993.
10(g)2 Conformed copy of UPE Agreement.
Incorporated by reference to the Company's
Amendment No. 1 Report on Form 10-Q for the
quarter ended September 30, 1993.
10(p) 1994 Stock Option Plan of the Company as
amended (incorporated by reference to
Exhibit 10(a) to the Company's November 1995
10-QSB).
10(q) Equity Incentive Plan for Directors of the
Company as amended (incorporated by
reference to Exhibit 10(b) to the Company's
November 1995 10-QSB).
10(s) Net Commercial Lease Contract, dated January
30, 1996, by and between Knoxville
Industrial Group, Ltd., Bethlehem Advanced
Materials Corporation, The Stanfield York
Company and the Company (incorporated by
reference to Exhibit 10(d) to the Form
SB-2).
10(u) Agreement dated July 31, 1998 between the
Company and The Bethlehem Corporation
Employees Association .
10(v) Mortgage agreement dated December 19, 1997
by the Company to Ocwen Federal Bank.
10(w) Loan agreement dated June 2, 1998 between
the Company and PNC Bank, N.A. (also
includes Subordinated Note)
27 Financial Data Schedules.
27(a) Quarterly period ended August 31, 1996.
27(b) Quarterly period ended November 30, 1996.
27(c) Quarterly period ended February 28, 1997.
27(d) Quarterly period ended August 31, 1997.
27(e) Quarterly period ended November 30, 1997.
27(f) Quarterly period ended February 28, 1998.
27(g) Year ended May 31, 1998.
-15-
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE BETHLEHEM CORPORATION
Dated: August 21, 1998 By: /S/ Alan H. Silverstein
-----------------------------------------
Alan H. Silverstein, President, Director
and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Alan H. Silverstein August 21, 1998
- ---------------------------- President, Director and
Alan H. Silverstein Chief Executive Officer
(Principal Executive Officer)
/s/ Antoinette L. Martin August 21, 1998
- ---------------------------- Chief Financial Officer
Antoinette L. Martin (Principal Financial Officer)
/s/ Salvatore J. Zizza Chairman of the Board August 21, 1998
- ----------------------------
Salvatore J. Zizza
/s/ Ronald H. Gale Director August 21, 1998
- ----------------------------
Ronald H. Gale
/s/ Jan P. Gale Director August 21, 1998
- ----------------------------
Jan P. Gale
/s/ James L. Leuthe Director August 21, 1998
- ----------------------------
James L. Leuthe
/s/ Harold Bogatz Director August 21, 1998
- ----------------------------
Harold Bogatz
/s/ B. Ord Houston Director August 21, 1998
- ----------------------------
B. Ord Houston
/s/ James F. Lomma Director August 21, 1998
- ----------------------------
James F. Lomma
-16-
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1998 AND 1997
INCLUDING REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
F-1
<PAGE>
================================================================================
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONTENTS
PAGE
----
Report of Independent Certified Public Accountants............ F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet
May 31, 1998............................................ F-4 - F-5
Statements of Income
for the Years Ended May 31, 1998 and 1997 .............. F-6
Statements of Stockholders' Equity (Deficit)
for the Years Ended May 31, 1998 and 1997 .............. F-7
Statements of Cash Flows
for the Years Ended May 31, 1998 and 1997 .............. F-8
Notes to Financial Statements............................. F-9
================================================================================
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------
To the Board of Directors and Stockholders
The Bethlehem Corporation
Easton, Pennsylvania
We have audited the accompanying consolidated balance sheet of The Bethlehem
Corporation and subsidiaries as of May 31, 1998 and the related consolidated
statements of income, stockholders' equity and cash flows for the years ended
May 31, 1997 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Bethlehem
Corporation and subsidiaries as of May 31, 1998, and the results of their
operations and their cash flows for the years ended May 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
Woodbridge, New Jersey
August 14, 1998
================================================================================
F-3
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1998 (amounts in thousands, except share data)
================================================================================
ASSETS
CURRENT ASSETS:
Cash $ 41
Accounts receivable (net of allowance for doubtful
accounts of $150) 1,365
Costs and estimated profit in excess of billings
on long-term contracts 833
Inventories 4,687
Prepaid expenses and other current assets 227
Deferred tax asset 300
-------
Total Current Assets 7,453
-------
PROPERTY, PLANT AND EQUIPMENT, at cost less
accumulated depreciation and amortization 2,772
OTHER ASSETS:
Inventories, non current 500
Intangibles (net of $92 of accumulated amortization) 349
Intangible pension and deferred compensation plan assets 180
Other 311
-------
Total Other Assets 1,340
-------
Total Assets $11,565
=======
================================================================================
F-4
<PAGE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE BETHLEHEM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
(Continued) MAY 31, 1998 (amounts in thousands, except share data)
================================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C>
Current maturities of long-term debt and capital leases $ 312
Note payable - related party 782
Accounts payable 3,570
Accounts payable - related parties 313
Accrued liabilities 569
Billings in excess of costs and estimated profit
on long-term contracts 160
--------
Total Current Liabilities 5,706
--------
OTHER LIABILITIES:
Long-term debt and capital leases, net of current maturities 3,912
Deferred compensation and other pension liabilities 724
--------
Total Long-Term Liabilities 4,636
--------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)
STOCKHOLDERS' EQUITY:
Preferred stock - authorized, 5,000,000 shares
without par value, none issued or outstanding --
Common stock - authorized, 20,000,000 shares
without par value, stated value of $.50 per share;
2,288,532 shares issued and 2,288,520 shares outstanding 1,144
Additional paid-in capital 6,123
Accumulated deficit (6,044)
--------
1,223
Less - treasury stock, at cost, 12 shares --
Total Stockholders' Equity 1,223
--------
Total Liabilities and Stockholders' Equity $ 11,565
========
</TABLE>
================================================================================
See notes to consolidated financial statements F-5
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except share data)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1998 1997
-------- --------
<S> <C> <C>
NET SALES $ 16,271 $ 17,916
COST OF GOODS SOLD 11,152 12,854
-------- --------
GROSS PROFIT 5,119 5,062
-------- --------
OPERATING EXPENSES:
Selling 1,078 1,131
General and administrative 2,395 2,718
Stock Compensation Expense 126 --
Non-Employee Stock Option Expense 32 --
-------- --------
3,631 3,849
-------- --------
Operating income 1,488 1,213
-------- --------
OTHER INCOME (EXPENSE):
Interest expense (822) (667)
Financing charge - issuance of stock options (296) --
Write off of Stock Rights Offering costs -- (103)
Gain on settlement of accrued liabilities -- 98
Interest income 5 5
Other income 46 67
-------- --------
(1,067) (600)
-------- --------
Income before income taxes 421 613
INCOME TAX BENEFIT 110 100
-------- --------
NET INCOME $ 531 $ 713
======== ========
EARNINGS PER SHARE DATA:
Basic $ .27 $ .37
======== ========
Diluted $ .15 $ .22
======== ========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 1,975 1,939
======== ========
Diluted 3,435 3,261
======== ========
</TABLE>
================================================================================
See notes to consolidated financial statements F-6
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(amounts in thousands, except share data)
================================================================================
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY SHARES
---------------------- PAID-IN ACCUMULATED ------------------------------
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1996 1,938,532 $ 969 $ 4,995 $ (7,288) 12 - $ (1,324)
Net Income for the Year Ended -- -- -- 713 -- - 713
May 31, 1997
--------- --------- --------- --------- --------- - ---------
Balance at May 31, 1997 1,938,532 969 4,995 (6,575) 12 - (611)
Issuance of Common Stock 350,000 175 672 -- -- - 847
In Exchange for Inventory
Value of Stock Option Grants -- -- 456 -- -- - 456
to Non-Employees
Net Income for the Year Ended
May 31, 1998 -- -- -- 531 -- - 531
--------- --------- --------- --------- --------- - ---------
Balance at May 31, 1998 2,288,532 $ 1,144 $ 6,123 $ (6,044) 12 - $ 1,223
========= ========= ========= ========= ========= ======== =========
</TABLE>
================================================================================
See notes to consolidated financial statements F-7
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(amounts in thousands)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1998 1997
-------- ---------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
Net income $ 531 $ 713
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 543 544
Write off of stock rights offering costs -- 103
Accrued loss on contracts and obsolete inventory write-offs 56 105
Deferred tax benefit (200) (100)
Gain on settlement of accrued liabilities -- (98)
Non cash compensation expense 158 --
Financing charge - issuance of options 296 --
Changes in operating assets and liabilities:
Accounts receivable 1,302 (16)
Inventories (27) (253)
Prepaid expenses and other current assets (133) 30
Costs and estimated profits in excess of billings 472 (35)
Other assets (139) (130)
Accounts payable (616) (1,438)
Accounts payable - related parties 77 (263)
Accrued liabilities (231) (74)
Billings in excess of costs and estimated profits (1,229) 1,079
Advances on contracts -- (238)
Commissions payable (213) 36
Deferred compensation and other pension liabilities (284) 132
------------------------
Net Cash Provided by Operating Activities 363 97
------------------------
INVESTING ACTIVITIES:
Purchase and construction of property, plant and equipment (385) (367)
------------------------
Net Cash Used in Investing Activities (385) (367)
------------------------
FINANCING ACTIVITIES:
Net repayments on line of credit (262) (344)
Proceeds from debt borrowings 2,000 312
Repayments on debt borrowings and capital leases (1,563) (311)
Proceeds from notes payable - related party 75 630
Repayment of notes payable - related party (223) --
------------------------
Net Cash Provided by Financing Activities 27 287
------------------------
NET INCREASE IN CASH 5 17
CASH
BEGINNING OF PERIOD 36 19
------------------------
CASH
END OF PERIOD $ 41 $ 36
========================
</TABLE>
================================================================================
See notes to consolidated financial statements F-8
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
NATURE OF BUSINESS:
The Bethlehem Corporation was founded in 1856 as a foundry and machine shop and
incorporated in 1888. The Company designs, manufactures, markets and services a
product line of capital equipment and systems used to process materials for a
variety of industrial applications. In addition, the Company, through Bethlehem
Advanced Materials Corporation ("BAM"), a wholly-owned subsidiary formed in
September 1995, designs and manufactures high-temperature furnaces for sale and
for its own use and processes specialty carbon, graphite and ceramic materials
for semiconductors and aerospace applications.
The following is a summary of the significant accounting policies applied in the
preparation of the accompanying consolidated financial statements as of and for
the year ended May 31, 1998 ("1998") and for the year ended May 31, 1997
("1997").
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of The Bethlehem
Corporation and its wholly owned subsidiaries (collectively the "Company"). All
inter-company transactions and balances have been eliminated in consolidation.
REVENUE RECOGNITION:
Sales and profit on long-term contracts are recognized on the
percentage-of-completion method of accounting. Under this method, sales and
profits are recorded throughout the contract term based upon the percentage of
costs incurred to date to total estimated costs of the contract.
Sales and profit on all other contracts are recognized on the completed contract
method of accounting. Under this method, sales and profits are recognized when a
contract is substantially complete. A contract is deemed to be substantially
complete when the product is shipped to a customer or when it is ready for
shipment to a customer and the product has been accepted by the customer.
Losses on long-term and short-term construction contracts are recorded at the
time the losses are determined to be probable and can be reasonably estimated.
Changes in job performance, job conditions, and estimated profitability may
result in revisions to profits and costs, which are recognized in the period in
which the revisions are determined. For long-term contracts, the accumulated
gross profit, changes in estimated job profitability resulting from material and
labor costs, job performance and conditions, contract penalty provisions,
claims, change orders, and settlements are accounted for as changes in estimates
in the current period.
INVENTORIES:
Inventories are stated at the lower of cost (principally first-in, first-out) or
market. Inventoried costs relating to any contracts accounted for under the
completed contract method are stated at the actual production cost, including
factory overhead incurred to date. The Company periodically performs a review of
inventories to evaluate whether such goods are obsolete or off standard. When
identified, provisions to reduce inventories to net realizable value are
recorded.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. The cost of self-constructed
assets includes material, direct labor and overhead expenses. Betterments and
extraordinary repairs that extend the useful life or functionality of an asset
are capitalized; other repairs and maintenance charges are expensed as incurred.
Depreciation and amortization expense is recognized over the assets' estimated
useful lives on a straight-line basis.
================================================================================
F-9
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
- --------------------------------------------------------------------------------
The useful lives of the principle classes of assets are as follows:
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 20 years
Equipment under capital leases 3 to 5 years
LONG-LIVED ASSETS:
Long-lived assets, such as property, plant and equipment, and intangible assets
are evaluated for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable through the
estimated undiscounted future cash flows from the use of these assets. If and
when any such impairment exists, the related assets will be written down to fair
value. There were no such impairments recognized in 1998 and 1997.
INTANGIBLES:
The excess of the purchase price over tangible net assets acquired by BAM has
been allocated to intangible assets acquired on the basis of ascribed fair
values. The intangible assets are being amortized on a straight-line basis over
their estimated useful lives as follows:
Designs, blue prints and plans 20 Years
Technology 20 Years
Customer list 10 Years
Covenants not to compete 5 Years
Amortization was $34 and $48 for the years ended May 31, 1998 and 1997,
respectively.
DEFERRED FINANCING COSTS:
Direct costs incurred in obtaining financing have been capitalized and are being
amortized over the term of the related debt using the interest method. The
amortization of the deferred financing costs was $159 and $74 for 1998 and 1997,
respectively, and is included in "Interest Expense" in the accompanying
Statements of Income. The Company amortizes the value ascribed to stock options,
issued in connection with debt guarantees provided by a related party, over the
terms of the underlying guarantees (see Notes 7, 11 and 13).
INCOME TAXES:
The Company utilizes the liability method of accounting for income taxes, which
requires the recognition of deferred tax assets and liabilities for both the
expected future tax impact of differences between the financial statement and
tax basis of assets and liabilities, and for the expected future tax benefit to
be derived from net operating losses and tax credit carryforwards and the
establishment of a valuation allowance to reflect whether realization of
deferred tax assets is considered more likely than not.
EARNINGS PER SHARE:
Earnings per Share are computed in accordance with Financial Accounting
Standards Board Standard No. 128 ("SFAS 128"), EARNINGS PER SHARE. SFAS 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Basic earnings per share are calculated
based on the weighted-average number of common shares outstanding. Diluted
earnings per share are calculated based on the weighted-average number of common
shares outstanding, plus dilutive potential common shares. Dilutive potential
common shares, principally stock options, are computed under the treasury stock
method. As required, earnings per share for all periods presented reflect the
adoption of SFAS 128.
================================================================================
F-10
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
- --------------------------------------------------------------------------------
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. The more
significant estimates used by management in preparing the financial statements
include the following: measurement of costs and profitability on long-term
contracts; valuation of inventory (current and non-current); useful lives
assigned to fixed and tangible assets; and valuation allowances established
against deferred tax assets and accounts receivable. Actual results could differ
from those estimates.
STOCK-BASED COMPENSATION:
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS
123") but applies Accounting Principle Board Opinion No. 25 in accounting and
measuring compensation expense related to employee stock option plans.
Accordingly, there was no compensation expense related to the issuance of
employee stock options for 1998 and 1997 (See Note 11 for pro-forma disclosure
required by SFAS 123). With respect to stock option grants to non-employees, the
Company recognizes a charge to operations for the ascribed value of such options
over the underlying vesting periods or the expected terms of debt guarantees.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the consolidated balance sheet for cash,
accounts receivable, accounts payable, accrued liabilities and related party
balances approximate fair value because of the immediate or short-term maturity
of these financial instruments. Based on an assessment of the terms, conditions
and rates of the Company's various debt agreements, management estimates that
the fair values of long term and short term debt instruments approximate
carrying values.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform to the 1998
presentation.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board issued
two new disclosure standards.
SFAS No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"),
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, ("SFAS 131") which supersedes SFAS No. 14, FINANCIAL
REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE, establishes standards for the
way that public companies report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by management in deciding how to allocate resources
in assessing performance.
================================================================================
F-11
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (CONTINUED)
- --------------------------------------------------------------------------------
SFAS 130 and 131 are effective for the Company's 1999
financial statements and require comparative information for earlier years to be
restated. Results of operations and financial position, however, will be
unaffected by implementation of these standards. The Company, however, has not
determined whether either of these two standards will have a material impact on
its financial statement disclosures.
In February 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 132 ("SFAS 132"),
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS, which
standardizes the disclosure requirements for pensions and other postretirement
benefits. The adoption of SFAS 132 in 1999 is not expected to materially impact
the Company's current disclosures.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and
reporting standards for derivative instruments and hedging activities. Due to
its recent issuance, the Company is currently reviewing the effects of SFAS 133.
This standard will be adopted by the Company no later than its year ending May
31, 2001.
- --------------------------------------------------------------------------------
NOTE 2 - ACCOUNTS RECEIVABLE:
- --------------------------------------------------------------------------------
Accounts receivable are comprised of the following at May 31, 1998:
Billed (net of allowance for $ 1,154
doubtful accounts of $150)
Retention on contracts 211
--------------
$ 1,365
==============
The Company generally invoices customers in accordance with pre-established
milestones, the Company's agreement with the respective customer, or when the
job or equipment is shipped.
The accounts receivable retention balances are pursuant to the retention
provisions in long-term contracts and are due and payable to the Company upon
contract completion and/or customer acceptance of merchandise. All of the
retentions are expected to be collected within the next fiscal year.
- --------------------------------------------------------------------------------
NOTE 3 - LONG TERM CONTRACTS:
- --------------------------------------------------------------------------------
At May 31, 1998, costs, estimated profit, and billings on uncompleted long-term
contracts accounted for by the percentage of completion method are summarized as
follows:
================================================================================
F-12
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 3 - LONG TERM CONTRACTS: (CONTINUED)
- --------------------------------------------------------------------------------
Costs incurred on long term contracts $ 1,197
Estimated profit 1,764
-------------------
2,961
Less: billings to date (2,288)
-------------------
$ 673
===================
These amounts are included in the accompanying
consolidated balance sheet under the following
captions:
Costs and estimated earnings in excess of
billings on long-term contracts $ 833
Billings in excess of costs and estimated
earnings on long term contracts (160)
--------------------
$ 673
====================
- --------------------------------------------------------------------------------
NOTE 4 - INVENTORIES:
- --------------------------------------------------------------------------------
The components of inventories are comprised of the following at May 31, 1998:
Raw materials and components $ 343
Work in process 1,561
Finished goods 3,458
Less: reserve for obsolete inventory (175)
--------------
5,187
Less: Non-Current Inventory (500)
--------------
$4,687
==============
At May 31, 1998, the Company's finished goods inventories consist of new and
used processing equipment for resale. The processing equipment is specialized
and is sold to a limited customer base. Based upon management's assessment, 10%
of net inventory will not be sold within one year and has been classified as a
non-current asset. The Company is actively marketing these items and believes no
loss will be incurred upon the ultimate sale of this inventory.
The Company provided for the write-down of specific raw material and finished
goods inventory to net realizable value in the amount of $56 and $105 for 1998
and 1997, respectively. While management believes the Company is carrying
inventories at net realizable value, it is reasonably possible that additional
losses may be required should the Company be unable to sell the inventories or
if market conditions change in the future.
Work in process consists principally of costs (including materials, direct labor
and overhead) incurred on equipment in the process of being manufactured for
resale or incurred on short-term contracts that are in process and accounted for
on the completed contract method.
================================================================================
F-13
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT (SEE NOTE 7):
- --------------------------------------------------------------------------------
At May 31, 1998, property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 348
Buildings and improvements 1,464
Machinery and equipment 8,366
Equipment under capital leases 136
Construction in progress 205
-----------
10,519
Less: accumulated depreciation and amortization (7,747)
-----------
Property, plant and equipment, net of accumulated depreciation $ 2,772
===========
</TABLE>
Depreciation and amortization expense on property, plant and equipment was $350
and $422 in 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
NOTE 6 - ACCRUED LIABILITIES:
- --------------------------------------------------------------------------------
At May 31, 1998, accrued liabilities consist of the following:
Salaries and wages $ 361
Current portion of deferred compensation 100
Postretirement obligation (401-K) 54
Other 54
===============
$569
===============
In May 1997, the Company negotiated a final payment for previously accrued
liabilities with a third party service provider. As a result of such
negotiations, the Company recognized a gain of $98, which is reflected in "Other
Income (Expense)" in the accompanying 1997 Statement of Operations.
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
- --------------------------------------------------------------------------------
At May 31, 1998, long-term debt and capital lease obligations consists of the
following:
Note payable - Ocwen Federal Bank $ 1,990
Note payable - Harrisburg Authority 650
Line of credit - CIT 1,155
Term Loan payable - CIT 347
Capital lease obligations 58
Other notes payable 24
-------
4,224
Less: current maturities (312)
-------
Total $ 3,912
=======
================================================================================
F-14
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS: (CONTINUED)
- --------------------------------------------------------------------------------
Universal Process Equipment ("UPE"), a corporation which is a stockholder of the
Company, is a party to certain financing transactions that the Company enters
into (see Notes 11 and 13).
NOTE PAYABLE - OCWEN FEDERAL BANK
In December 1997, the Company entered into a $2,000 mortgage loan agreement with
Ocwen Federal Bank ("Ocwen"). Proceeds from the loan were used to repay existing
indebtedness of approximately $1,481 with the balance used for general corporate
purposes. Terms of the loan agreement provide for minimum monthly principal and
interest payments of approximately $21 with all unpaid principal and interest
due by January 2003 and interest accruing at the rate of 11.25% per annum. The
Company is subject to prepayment penalties (ranging from 3% to .50% of the
outstanding balance) if the balance is repaid prior to December 2001. During the
first year of the loan period the Company has no rights to make prepayments on
the outstanding principal balance. The Company has granted Ocwen a first lien
and security interest on all land and related improvements owned by the Company.
During the year ended May 31, 1998, the Company recorded $94 in interest expense
related to this loan agreement.
NOTE PAYABLE - HARRISBURG AUTHORITY:
On July 12, 1985, the Harrisburg Authority filed suit against the Company. The
complaint alleged liability on grounds that certain Porcupine dryers
manufactured and furnished by the Company failed to satisfy design
specifications. In June 1993, a judgement was entered against the Company in the
amount of $2,127.
In November 1993, as part of a settlement agreement between the Company and the
Harrisburg Authority for this lawsuit, the Company executed a $1,200 note
payable to the Harrisburg Authority. The Harrisburg Authority has a second lien
on the Company's owned real estate. Interest expense on this debt totaled $17
and $24 in 1998 and 1997, respectively. The note's remaining principal payment
provisions at May 31, 1998 are as follows:
1) Payable in equal monthly installments of $7, including interest
discounted at 10.5% due the first day of each month through
November 1, 1999.
2) The remaining balance of $528 will be paid from 50% of the
proceeds from the sale of certain machinery or equipment included
in UPE's inventory and certain equipment co-owned by UPE and the
Company.
3) The settlement agreement requires principal balances referenced in
1 and 2 above, which are unpaid on March 1, 1998 to accrue 3%
simple interest compounded annually through February 28, 1999.
Principal balances unpaid on March 1, 1999 through November 1,
1999 accrue 6% simple interest compounded annually. On November 1,
1999, all unpaid balances of principal and accrued interest
referenced in 1 and 2 above are due and payable to the Harrisburg
Authority.
NOTE PAYABLE - CIT GROUP/CREDIT FINANCE, INC.
On July 1995, the Company signed a three year $5 million maximum credit facility
including an $800 term loan from CIT Group/Credit Finance, Inc. secured by a
third lien position (behind the Ocwen Note Payable and the Harrisburg Authority
Note Payable) on Company owned real estate and a first lien on substantially all
other owned assets of the Company. In addition, UPE has agreed to purchase
certain of the Company's used equipment inventory in the event the Company
defaults on the loan or certain other specified events occur. The Company paid
off all outstanding balances with proceeds from a new credit facility issued in
June 1998. At May 31, 1998, the credit facility included:
1) A $347 term loan (original balance of $800) requiring $13.3
monthly principal plus interest at prime plus 3% from August 1,
1995 through July 1, 1998.
2) A line of credit against a percentage of eligible inventory not to
exceed $4,000 in the aggregate. The line of credit is payable
interest only at prime plus 3% until the line of credit was paid
in full in July 1998. At May 31, 1998, $1,155 was outstanding
under the line, which represents the maximum credit available to
the Company at that date.
3) Advances against other eligible collateral not to exceed the
unused balance of the line of credit. Interest expense (net of
amounts capitalized) on this debt totaled $338 and $322 in 1998
and 1997, respectively.
================================================================================
F-15
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS: (CONTINUED)
- --------------------------------------------------------------------------------
The Company granted warrants in July 1995 to the CIT Group/Credit Finance, Inc.
to purchase 50 thousand shares of the Company's stock at $1.87 per share, the
fair market value of the stock on the date the warrants were granted.
PNC BANK, N.A. - CREDIT FACILITY
In June 1998, the Company entered into a financing agreement with PNC Bank, N.A.
("PNC") which provides for a term loan of $800 and a revolving credit facility
of $3,200. Borrowings under the revolving credit facility are subject to an
advance formula principally based on defined accounts receivable and inventory
balances and require the Company to maintain certain financial and operational
covenants. Borrowings under the term loan accrue interest at 9.7%. Borrowings
under the revolving credit facility accrue interest at PNC's prime rate of
interest plus one and one half percent. The proceeds from this financing
agreement were used to pre-pay the CIT term loan and credit facility balances
outstanding at June 3, 1998. As part of loan agreement, UPE was required to
provide certain guarantees on the Company's behalf. In August 1998, the Company
granted UPE 175,000 stock options for providing these guarantees. The Company
will recognize a charge for the fair values of these options over the term of
these guarantees.
DEBT MATURITIES:
At May 31, 1998, long-term debt maturities for the next five fiscal years are as
follows:
YEAR ENDING MAY 31,
1999 $ 293
2000 765
2001 1,219
2002 42
2003 1,847
----------------
$ 4,166
================
With the proceeds from the PNC facility, the Company paid off all existing
indebtedness outstanding under the CIT Group/Credit Finance, Inc. agreement.
Based on the Company's ability to refinance short term obligations with long
term debt, a portion of the liabilities have been classified as long term in the
accompanying consolidated balance sheet as of May 31, 1998.
CAPITAL LEASE OBLIGATIONS:
Certain leased equipment has been capitalized for financial statement purposes.
The following summarizes, by year, future minimum lease payments and the present
value of the minimum lease payments as of May 31, 1998.
YEAR ENDING MAY 31,
1999 $ 32
2000 26
2001 9
----------------
Minimum lease payments 67
Less: imputed interest (9)
----------------
Present value of minimum
lease payments 58
Less: current portion (19)
----------------
Long term portion $ 39
================
================================================================================
F-16
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES:
- --------------------------------------------------------------------------------
The components of the benefit (provision) for income taxes are as follows:
1998 1997
-------------------------------------------------------------------------
Current:
Federal $(280) $(150)
State (117) (95)
Recognition of net operating losses 307 245
-------------------------------------------------------------------------
(90) --
-------------------------------------------------------------------------
Deferred:
Federal 170 85
State 30 15
-------------------------------------------------------------------------
200 100
-------------------------------------------------------------------------
Income tax benefit $ 110 $ 100
=========================================================================
The following table presents the principal reasons for the difference between
the actual income tax benefit and the tax provision computed by applying the
U.S. Federal statutory income tax rate to income before income taxes.
May 31, 1998 1997
------------------------------------------------------------------------
U.S. Federal income tax
provision at statutory rates $(143) $(205)
State income taxes, net of
Federal benefit (33) (40)
Utilization of net operating loss
carryforwards 178 245
Decrease in beginning of the
period valuation allowance 134 100
Other, net (26) --
------------------------------------------------------------------------
Income tax benefit $ 110 $ 100
========================================================================
================================================================================
F-17
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES: (CONTINUED)
- --------------------------------------------------------------------------------
The components of the Company's deferred tax assets and liability are as
follows:
<TABLE>
<CAPTION>
MAY 31,
1998 1997
---------- -----------
<S> <C> <C>
Deferred Tax Assets:
Receivables $ 60 $ 44
Inventory 100 116
Net operating loss
carryforwards 1,252 1,531
Tax credits 119 119
Lawsuit settlement 216 219
Deferred compensation
and retirement benefit 203 307
Stock Option Compensation
183 -0-
Other 20 20
-------------------------
Total Gross Deferred
Tax Assets 2,153 2,356
Valuation allowance (1,663) (2,009)
-------------------------
Total Deferred Tax
Assets 490 347
Deferred Tax Liability:
Property, plant and
equipment (190) (247)
-------------------------
Net Deferred Tax Asset $ 300 $ 100
=========================
</TABLE>
At May 31, 1998, the Company has approximately $3.5 million of unused federal
net operating loss carryforwards and federal investment and research tax credit
carryforwards. If the net operating loss carryforwards remain unused, they will
expire during the years 2004 through 2010. If the investment and research tax
credit carryforwards remain unused, they have or will expire during the years
1998 through 2002. In addition, at May 31, 1998, the Company has unused state
net operating loss carryforwards of approximately $1.4, of which $1.2 million
expires in 1998.
- --------------------------------------------------------------------------------
NOTE 9 - DEFERRED COMPENSATION AND RETIREMENT PLANS:
- --------------------------------------------------------------------------------
The Company has an unfunded nonqualified deferred compensation plan for certain
employees which provide for ten to fifteen year payouts of annual retirement
benefits equal to 20% of the pre-retirement salary of employees. The benefits
become fully vested upon the employees' retirement from the Company. The plan
provides for benefits to be paid to beneficiaries of retirees who have passed
away and had unpaid vested benefits at the time of their death. The Company
funds the plans' annual benefit payments through operating cash flow. A
description of the plan follows:
================================================================================
F-18
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 9 - DEFERRED COMPENSATION AND RETIREMENT PLANS: (CONTINUED)
- --------------------------------------------------------------------------------
The Retirement Income Security Plan ("RISP") is an
unfunded noncontributory plan and covers eligible
plan participants and, for purposes of determining
net pension expense and plan liabilities, includes
one participant from a predecessor plan. During
the year ended May 31, 1995, the Company notified
all active employees covered by this plan that
they will no longer be eligible for the plan.
Instead, the Company has funded a portion of the
active employees accrued benefit obligation to a
qualified 401(k) plan.
The Company maintains two noncontributory defined benefit retirement plans
("Pension Plans") covering substantially all hourly employees subject to a
collective bargaining agreement. The plans require benefits to be paid to
eligible employees at retirement based primarily on years of service and a fixed
compensation formula. For the plan year beginning January 1, 1995, the plan was
amended to no longer require the Company to accrue future service benefits. The
remaining transition obligations are being amortized over a six year term for
one plan and a twelve year term for the other plan. The Company funds the plans,
at a minimum, based upon the statutory amounts required under ERISA.
The following tables set forth the components of net periodic pension expense
and the funded status and amounts recognized in the Company's consolidated May
31, 1998 balance sheet for deferred compensation and defined benefit plans. Plan
assets are stated at fair value and are comprised primarily of common stock and
corporate bonds.
NET PERIODIC PENSION EXPENSE:
PENSION
RISP PLANS
1998 1997 1998 1997
Service cost $-- $-- $-- $--
Interest cost on projected benefit
obligation 38 46 207 208
Actual return on plan assets -- -- (530) (553)
Amortization of transition
obligation 33 33 55 55
Prior service cost and gain
amortization (9) (9) -- --
Net amortization and deferral -- -- 273 347
--------------------------------
$ 62 $ 70 $ 5 $ 57
================================
================================================================================
F-19
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 9 - DEFERRED COMPENSATION AND RETIREMENT PLANS: (CONTINUED)
- --------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF RISP PENSION
BENEFIT OBLIGATIONS AT PLANS
MAY 31, 1998:
Vested benefit obligation $ -- $ 2,744
======= =======
Accumulated benefit
obligation $ 463 $ 2,742
======= =======
Projected benefit obligation $ 463 $ 2,742
Plan assets at fair value -- 3,209
------- -------
Deficit (excess) of plan assets
over projected benefit
obligation 463 (467)
Unrecognized net gain and
prior service cost 140 1,116
Unamortized net obligation
at adoption (152) (435)
------- -------
Accrued pension expense $ 451 $ 214
======= =======
The expected long-term return on plan assets and the weighted average discount
rate assumed in determining the actuarial present value of the projected benefit
obligation for all plans was 8% in 1998 and 1997.
401(K) PLAN:
During 1995, the Company adopted a 401(k) plan for all eligible employees.
Employees can contribute at their discretion up to 15% of compensation. The
Company matches 25% of the employee's contribution to a maximum contribution of
6% of an employee's contribution. At May 31, 1998, the Company's liability to
the plan approximated $54. The Company's expense related to the plan was $70 and
$91 for 1998 and 1997, respectively.
- --------------------------------------------------------------------------------
NOTE 10 - POSTRETIREMENT BENEFIT PLANS:
- --------------------------------------------------------------------------------
The Company provides certain employees with postretirement health care and life
insurance benefits. Postretirement health care and life insurance benefits are
provided to salaried employees who retired prior to August 1, 1992. The Company
provides postretirement health care benefits upon retirement to eligible hourly
employees in accordance with the Company's collective bargaining agreement.
Postretirement life insurance benefits are also available to eligible hourly
employees. Employees are eligible for postretirement benefits upon reaching
certain ages or completing certain years of service. The Company does not fund
its future obligations for postretirement benefits in advance.
MEDICAL BENEFITS:
The Company accrues the expected future cost of providing these benefits during
the years the employees render the necessary service. The Company elected to
recognize the transition obligation associated with unfunded health insurance
benefits over a 20-year period and prior service cost over a 15-year period. The
following table presents the Company's postretirement medical benefit expense:
================================================================================
F-20
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 10 - POSTRETIREMENT BENEFIT PLANS: (CONTINUED)
- --------------------------------------------------------------------------------
YEAR ENDED MAY 31,
1998 1997
Service cost $ 5 $ 5
Interest cost 68 68
Amortization of
transition obligation 58 58
Amortization of prior
service costs (26) (26)
Expected contributions
from retirees (49) (48)
==================
$ 56 $ 57
==================
Discount rate 7% 7%
==================
Medical trend rate 13.5% 13.5%
==================
The Company's accumulated postretirement medical benefit obligation at May 31,
1998 is as follows:
Active plan participants $ 117
Retirees 879
------------------
996
Plan assets 0
------------------
Accumulated postretirement benefit obligation in
excess of plan assets
996
Unrecognized transition obligation and net gain (940)
------------------
Accrued medical postretirement liability $ 56
==================
The effect of raising health care cost trend rates 1% for each future year would
increase the accumulated benefit obligation by approximately $88 and increase
the aggregate service and interest cost components of net periodic
postretirement health care benefit costs by approximately $9.
LIFE INSURANCE:
Term life insurance in the face amount of $3 is provided to salaried retirees.
Term life insurance in the face amount of $10 is provided to salaried executive
retirees. Salaried employees and executives who retired subsequent to August
1992 are not eligible for these postretirement life insurance benefits. Term
life insurance in face amounts ranging from $1 to $3 is provided to retired
hourly employees. The related expense in 1998 and 1997 was $17 and $2,
respectively. The actuarially determined liability was $15 at May 31, 1998.
================================================================================
F-21
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 11 - STOCKHOLDERS' EQUITY:
- --------------------------------------------------------------------------------
RIGHTS OFFERING COSTS:
The Company had capitalized professional fees incurred in connection with a
contemplated Stock Rights Offering. In May of 1997, the Company decided not to
pursue the Stock Rights Offering and, accordingly, a non-operating loss
provision of $103 was recorded to reflect this impairment.
STOCK OPTIONS
PLAN 1:
On June 2, 1989, the Board of Directors of the Company adopted The Bethlehem
Corporation "1989 Equity Incentive Plan" which was approved by the stockholders
on May 11, 1990. The plan provides that the Board of Directors may grant
incentive or nonqualified common stock options to officers, directors,
consultants and employees of the Company for the purchase of up to 150,000
shares of the Company's common stock. Incentive stock options may be granted
only to employees pursuant to the plan and Board established performance
criteria. Options expire one month after employees terminate employment but in
no case later than ten years after the date of grant. In 1990, the Company's
Board of Directors granted 25,000 options to officers and key employees with an
exercise price of $2.50 per share. There were no options granted under this plan
in 1998 and 1997.
PLAN 2:
During 1991, the Equity Incentive Plan ("EIP") for Directors was approved and
provides that each of the Company's directors receive nonqualified stock options
to purchase 10,000 shares of common stock of the Company.
The Company's common shares subject to options under the EIP may not exceed
130,000 shares in the aggregate and 10,000 shares for any one director. The Plan
provided the following: (i) each director of the Company on March 21, 1991
receive common stock options for 10,000 shares, and (ii) each director elected
after March 21, 1991 be granted common stock options for 10,000 shares under the
EIP. The exercise price of each option granted under the EIP shall be the
greater of $3.15 per share or 100% of the fair market value of a share of the
Company's common stock on the date the option is granted. The EIP is not limited
in duration. There were no options granted under this plan in 1998 and 1997.
PLAN 3:
During 1995, the stockholders approved the 1994 Stock Option Plan ("1994 Plan").
The 1994 Plan provides for the granting of non-qualified and incentive stock
options and stock appreciation rights equal to the greater of 400,000 shares or
8% of common stock issued and outstanding, to certain officers, non-employee
directors and key employees of the Company and its subsidiaries. The Board of
Directors may at its discretion determine the key employees eligible to
participate in the 1994 Plan. The Board has granted options to eleven employees.
The maximum number of shares that may be granted to one person pursuant to the
1994 Plan is 250,000 shares. There were no options granted under this plan in
1998 and 1997.
The 1994 Plan provides that options are to be granted at an exercise price of at
least fair market value at the date of the grant. Options covered by the 1994
Plan vest ratably over a three year period, however, if there is a change in
control, the options become fully vested. The 1994 Plan provides for Directors
of the Company, elected after December 1, 1994 to receive 10,000 options if they
do not receive options under the EIP. Also, continuing directors of the Company
are entitled to options to acquire 500 shares annually. Also, the aggregate fair
market value (determined as of the date an option is granted) of the shares with
respect to which incentive stock options are exercisable by any single employee
during any calendar year cannot exceed $100. The options are nontransferable and
the 1994 Plan expires December 23, 2004.
PLAN 4:
During 1997, the stockholders approved the 1997 Stock Option Plan ("1997 Plan").
The 1997 Plan provides for the granting of non-qualified and incentive stock
options. The 1997 plan currently authorizes the issuance of a maximum of 200,000
shares of common stock. The maximum number of shares that may be subject to
options granted under the 1997 Plan to any calendar year may not exceed 50,000.
Options totaling 85,000 shares have been issued under this plan in fiscal 1998.
There were no options granted under this plan in 1997.
================================================================================
F-22
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 11 - STOCKHOLDERS' EQUITY: (CONTINUED)
- --------------------------------------------------------------------------------
OTHER OPTIONS:
In April 1998, the Company's stockholders approved the issuance of an additional
653,000 stock options outside of any existing plan to the Company's Chairman, a
Director of the Company and UPE The options were granted with an exercise price
of $1.825 per share (the fair market value at the date the grants were approved
by the Board of Directors). Since the recipients of the options are considered
non-employees, the Company recognizes a charge. With respect to the options
granted to the Company's Chairman and Director, the values ascribed to these
options ($367) will be recognized as services are rendered over the three year
vesting period. The charge for the year ended May 31, 1998 totaled $32. With
respect to the values ascribed to the options granted to UPE ($424), the Company
has and will recognize a charge over the expected terms of the various
guarantees provided by UPE The 1998 financing charge totaled $296.
The Company estimated the fair value of such stock options using the Black -
Scholes option price model with the following assumptions at the initial grant
date, no dividend yield; expected volatility of 31.4%; risk free interest rates
of 6.1% and expected lives of ten years. Such fair value also encompassed the
excess of the fair market value of the stock, as adjusted for liquidity and
dilution factors, less the exercise price of the option. The options vest over a
three year period.
In connection with the PNC credit facility and UPE's guarantee of such
indebtedness, the Company's Board of Directors approved the issuance of an
additional 175,000 stock options at an exercise price of $1.63 which represented
the fair market value of the stock at the date of the grant in August of 1998.
The value ascribed to such options will be amortized over the estimated term of
the guarantee.
DISCLOSURE ON OPTIONS:
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees",
and related Interpretations in accounting for the 1994 Plan and the 1997 Plan.
Under APB Opinion 25, because the exercise price of the Company's stock options
issued to employees equals the market price of the underlying stock on the date
of grant, no compensation is recognized.
SFAS 123 requires the Company to provide pro-forma information regarding net
income and earnings per share as if compensation cost for the Company's
employees had been determined in accordance with the fair value based method
prescribed in SFAS 123. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option price model with the
following weighted average assumptions used for employee grants in 1998, no
dividend yield; expected volatility of 46.5%; risk-free interest rates of 6.42%
and expected lives of 10 years for the options.
Under the accounting provisions of SFAS No. 123, the Company's net income,
primary earnings per share and fully diluted earnings per share would have been
reduced to the pro-forma amounts indicated below.
1998 1997
Net Income:
As reported $ 531 $ 713
Pro-forma $ 450 $ 645
Basic earnings per share:
As reported $ .27 $ .37
Pro-forma $ .23 $ .33
Diluted earnings per share:
As reported $ .15 $ .22
Pro-forma $ .13 $ .20
================================================================================
F-23
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 11 - STOCKHOLDERS' EQUITY: (CONTINUED)
- --------------------------------------------------------------------------------
The pro forma effect on net income and earnings per share for 1998 and 1997 may
not be representative of the pro forma effect in future years because it
includes compensation cost on a straight-line basis over the vesting periods of
the grants and does not take into consideration the pro forma compensation costs
for grants made prior to 1996.
A summary of the status of the Company's outstanding options as of May 31, 1998
and 1997 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
May 31, 1998 May 31, 1997
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding-beginning of year 1,995,000 .90 2,065,000 $ .98
Granted 738,000 1.82 - -
Exercised - - -
Forfeited (47,500) 2.56 (70,000) $ 3.15
------------------ -------------------
Outstanding-end of year 2,685,500 . 1,995,000
================== ===================
Options exercisable -year-end 532,493 429,174
================== ===================
Weighted-average fair value of
options granted during the year $ 1.22 $ -
================== ===================
</TABLE>
Options issued to employees in 1998 expire in 2007 and are exercisable
immediately.
The following table summarizes information about stock options outstanding at
May 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------------------------------
Range of Number Outstanding Weighted-Average Weighted-Average Number Exercisable Weighted-Average
Exercise at May 31, 1998 Remaining Contractual Exercise Price at May 31, 1998 Exercise Price
Prices Life
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$0.33 to 0.94 1,700,000 1.5 years $0.67 250,000 $ 0.94
$1.81 653,000 10 $1.81 - $ 1.81
$1.87 to 2.88 272,500 6 $1.99 230,828 $ 1.99
$ 2.50 50,000 5 $2.50 41,665 $ 2.50
$ 3.15 10,000 1.8 $3.15 10,000 $ 3.15
---------------- ----------------
$0.33 to 3.15 2,685,500 3.5 $2.02 532,493 $ 2.11
================ ================
</TABLE>
================================================================================
F-24
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS AND CONTINGENCIES:
- --------------------------------------------------------------------------------
LEGAL MATTERS
The Company is party to litigation and claims that arise in the normal course of
operations. Management does not believe that the ultimate disposition of such
matters will have a material adverse effect on the Company's financial position,
results of operations or liquidity.
OPERATING LEASE COMMITMENTS
The Company leases a manufacturing facility in Knoxville, Tennessee, which is
accounted for as an operating lease. The lease is due to expire on September 30,
2000 with two consecutive three year renewal options. In addition to the base
annual rent, the Company is responsible for the payment of property taxes and
other operating expenses. The Company also leases certain equipment and
automobiles. Rent expense under all operating lease arrangements was
approximately $130 and $151 in 1998 and 1997, respectively. At May 31, 1998, the
future minimum lease payments on these operating leases are as follows:
YEAR ENDED MAY 31,
-------------------------
1999 $ 140
2000 132
2001 45
2002 -
2003 -
=============
$ 317
=============
EMPLOYMENT AGREEMENT
The Company has an employment contract with an officer resulting in future
commitments for payments of approximately $110 in the fiscal year ending May 31,
1999. This agreement expires in January 1999, but contains provisions for an
automatic two year extension.
- --------------------------------------------------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS:
- --------------------------------------------------------------------------------
Ronald Gale and Jan Gale are directors and stockholders of the Company and are
officers, directors and principal stockholders of Universal Process Equipment
("UPE"), a corporation, which is a stockholder of the Company. UPE and Ronald
and Jan Gale are also majority stockholders or otherwise affiliated with other
companies that engage in transactions with the Company.
On September 9, 1992, the Company and UPE entered into an agreement for the
foreign production of the Company's dryer equipment. This agreement provides for
payment to the Company of fees for design drawings and a license fee for sales
of equipment manufactured in Eastern Europe. The Company earned no royalties in
1998 and 1997.
On November 28, 1995, the Company and UPE entered into a sales and marketing
agreement whereby UPE will market certain used equipment owned by the Company.
As consideration for its services, UPE would receive from the Company 50% of the
net selling price (defined as the sales price less the cost of the equipment)
plus 1/2 of the sales commission paid by UPE to its sales people. The agreement
provides that UPE will pay the Company any interest it will be required to pay
on the original acquisition of the inventory from its supplier. The amounts paid
to and earned by UPE were $256 and $378 in 1998 and 1997, respectively. In May
1998 this agreement was terminated when all equipment under this agreement was
transferred to UPE.
From time to time, UPE advances funds to the Company for working capital
purposes. At May 31, 1997, advances outstanding totaled $782. Related interest
expense on such advances totaled $79 in 1998 and $53 in 1997. The interest rate
on the advances range from prime rate plus 1% to prime rate plus 2.5%.
================================================================================
F-25
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS: (CONTINUED)
- --------------------------------------------------------------------------------
On February 28, 1997, the Company purchased a two stage environmental thermal
process system for $545. In order to effect the acquisition of the equipment,
the Company borrowed $225 from UPE at an interest rate of prime plus 2.5%.
Interest expense in 1998 and 1997 totaled $12 and $6, respectively. This loan
was paid in full during the third and fourth quarters of 1998. The Company also
secured a loan with the Royal Bank of Canada in the amount of $320 to assist
with the purchase of these assets at the borrowing rate of Canadian prime rate
plus 1.5% per annum. This loan was paid in full in September of 1997.
The related party accounts receivable and accounts payable are derived from the
normal course of business activities and are included in the accompanying
balance sheet as follows:
<TABLE>
<CAPTION>
MAY 31, 1998
-------------------------------------------
ACCOUNTS
RECEIVABLE ACCOUNTS PAYABLE
(RELATED PARTIES) (RELATED PARTIES)
-------------------------------------------
<S> <C> <C>
a. UPE (Owned by Ronald & Jan
Gale through Universal Baling &
Processing, Inc. UPE's parent) $ 2,715 $ 2,925
b. Universal Industrial Gases, Inc.
(U.I.G.) (100% owned by UPE) 23 3
c. Universal Industrial Refrigeration, Inc.
(U.I.R.) (80% owned by UPE) 10 233
d. Universal Glastell Equipment
(U.G.E.) (50% owned by Gale Glass) 11 -
e. R. Simon Dryers, Ltd. (Directors are
Ronald & Jan Gale) 115 26
-------------------------------------------
$ 2,874 $ 3,187
===========================================
</TABLE>
Since the right of offset exists between the Company, UPE and related parties, a
net amount payable to related parties of $313 is presented in the accompanying
May 31, 1998 balance sheet.
Related party sales were as follows:
YEAR ENDED MAY 31,
1998 1997
--------------------------------
UPE $ 1,318 $ 54
U.I.G. - 22
--------------------------------
$ 1,318 $ 76
================================
Rental income from related parties totaled $39 in 1998.
The Company purchases equipment and services from UPE and its affiliates. These
purchases total approximately 10% and 7% of the total cost of goods sold for
1998 and 1997, respectively.
In November 1993, the Company and Harrisburg Authority settled a lawsuit for
$1,300 based upon negotiations between the Company, UPE and the Harrisburg
Authority. Under the terms of the settlement agreement, UPE agreed to serve as a
================================================================================
F-26
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS: (CONTINUED)
- --------------------------------------------------------------------------------
guarantor and surety for the obligation. In addition, UPE agreed to pay up to
$650 from the proceeds of the sale of certain of its machinery and equipment
inventory and certain equipment co-owned by the Company and UPE Pursuant to the
settlement agreement, the Company granted stock options to UPE These options
provide that at UPE's discretion, the Company will issue additional shares of
common stock to UPE in exchange for payments made by UPE on behalf of the
Company to Harrisburg under the settlement agreement instead of reimbursing UPE
in cash. UPE may make payments (without prior approval of the Company) on the
outstanding amounts due to Harrisburg and thereby be entitled to exercise its
options or accept reimbursement for payments it advanced on behalf of the
Company. Provided however, for any such payment made by UPE, the Company will
not be obligated to issue more than 1,450,000 shares to UPE for such payments.
The ratio of exchange shall be as follows: three (3) shares issued for each
dollar in payment made by UPE, up to a total of 450,000 shares in exchange for a
total of $150 in payments, and after such total of 450,000 shares has been
reached, two (2) shares issued for each additional $1.50 in payment made by UPE
up to a total of 1,000,000 additional shares in exchange for a total of $750 in
additional payments.
As discussed in Note 11, in March 1996, the Board of Directors approved the
issuance of 350,000 stock options with an exercise price of $1.81 to UPE in
exchange for consideration for guarantees on the Company's various debt
obligations. In April 1998, the grant of options received stockholders'
approval. The ascribed fair value to these options approximated $424. Such costs
were allocated to current and future periods based on existing and prior
guarantees. Of this amount, $296 was expensed as a financing charge in the 1998
statement of income, and $128 was capitalized (included in "Other Assets") at
May 31, 1998.
In March of 1996, the Board of Directors authorized the Company to enter into an
agreement with UPE to purchase a 50% interest in inventory in exchange for
350,000 shares of the Company's common stock. In April 1998, the transaction
received stockholder approval. At the date of stockholder approval, the 350,000
shares of common stock had an ascribed fair market value of approximately $847,
while the appraised fair market value of the Company's 50% share of the
inventory amounted to $721. The excess of the common stock's fair value over the
inventory fair value amounted to approximately $126, which was recorded as an
operating expense in the 1998 statement of income.
In May 1998 the Company transferred its inventory with a book value of
approximately $1,924 to UPE As part of the transaction, UPE assumed obligations
of $1,390 and $534 of related bank debt. This transaction did not result in a
gain or loss in the 1998 statement of income.
- --------------------------------------------------------------------------------
NOTE 14 - CONCENTRATION OF CREDIT RISK:
- --------------------------------------------------------------------------------
TRADE ACCOUNTS RECEIVABLE:
The Company designs, manufactures, sells and services a product line of capital
equipment used to process materials to a variety of domestic and international
customers. The Company's accounts receivable (excluding related parties) include
a concentration of two customer balances which represent 20% and 17% of the
accounts receivable balance at May 31, 1998. Accounts receivable are primarily
composed of unsecured balances. The Company does not require collateral as a
condition of sale.
================================================================================
F-27
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 15 - MAJOR CUSTOMERS AND EXPORT SALES:
- --------------------------------------------------------------------------------
In 1998, five customers individually represented 11% to 17% of consolidated
sales and, in the aggregate, accounted for 68% of consolidated sales. In 1997
one customer accounted for approximately 35% of the Company's consolidated
sales.
For the years ended May 31, 1998 and 1997, export sales were as follows:
YEAR ENDED MAY 31,
CUSTOMER 1998 1997
--------------------------------------------------------------
Scotland $ 2,096 $ -
Netherlands 72 2,723
Brazil - 1,149
Taiwan 1,781 1,566
Indonesia - 620
Mexico 620 534
Japan 8 352
Estonia 195 38
Russia 145 -
Chile - 138
South Africa 127 -
Israel - 33
Canada 53 6
All Others 339 6
-----------------------------------------
$ 5,436 $ 7,165
=========================================
- --------------------------------------------------------------------------------
NOTE 16 - SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES:
- --------------------------------------------------------------------------------
YEAR ENDED MAY 31,
1998 1997
--------------- ---------------
Cash paid for interest $ 660 $ 591
=============== ===============
Cash paid for income taxes $ 90 $ -
=============== ===============
NONCASH INVESTING AND FINANCING ACTIVITIES:
In April 1998, the Company issued 350,000 shares of common stock to a related
party in exchange for a 50% interest in used inventory (see Note 13).
In connection with a transfer of inventory (see Note 13), UPE assumed $534 of
the Company's bank debt.
================================================================================
F-28
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
================================================================================
- --------------------------------------------------------------------------------
NOTE 17 - EARNINGS PER SHARE
- --------------------------------------------------------------------------------
Basic and Diluted earnings per share for 1998 and 1997 have been computed as
follows:
<TABLE>
<CAPTION>
1998
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Net Income $ 531 1,975 $ .27
Effect of dilutive securities
Warrants and options - 1,460 -
Diluted Earnings Per Share
Net Income $ 531 3,435 $ .15
</TABLE>
<TABLE>
<CAPTION>
1997
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Net Income $ 713 1,939 $ 0.37
Effect of dilutive securities
Warrants and options - 1,322 -
Diluted Earnings Per Share
Net Income $ 713 3,261 $ .22
</TABLE>
Options to purchase 80,000 and 50,000 shares of common stock, exercisable at
between $2.87 and $3.15 per share in 1998 and $2.50 and $3.15 in 1997, were
outstanding at May 31, 1998 and 1997 respectively, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common stock underlying the
options.
- --------------------------------------------------------------------------------
NOTE 18 - FOURTH QUARTER ADJUSTMENTS:
- --------------------------------------------------------------------------------
In the fourth quarter of 1998, the Company recognized a deferred tax benefit
related to a reduction in the deferred tax asset valuation allowance of $96. As
discussed in Notes 11 and 13, in the fourth quarter of 1998, the Company's
stockholders approved the issuance of common stock and stock options to UPE and
certain directors. As a result, the Company recognized an operating and
financing charge of $158 and $296, respectively.
- --------------------------------------------------------------------------------
NOTE 19 - SUBSEQUENT EVENT:
- --------------------------------------------------------------------------------
On July 31, 1998, the Company entered into a new collective bargaining agreement
with the Bethlehem Corporation Employees Association, which represents
approximately 44 workers at the Company's main production facility located in
Easton, Pennsylvania. This agreement has a three year term due to expire on July
31, 2001.
================================================================================
F-29
AGREEMENT BETWEEN
THE BETHLEHEM CORPORATION
AND
THE BETHLEHEM CORPORATION EMPLOYEES ASSOCIATION
EFFECTIVE DATES:
AUGUST 1, 1998 TO JULY 31, 2001
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
- ------- ----
I Intent and Purpose 3
II Recognition, Association Membership and Check-off 3
III Management 4
IV Wages 6
V Hours of Work 7
VI Travel Time and Expenses 10
VII Holidays 12
VIII Paid Vacations 14
IX Seniority 17
X Promotion Outside Bargaining Unit 22
XI Adjustments and Grievances 23
XII Suspension and Discharge 25
XIII Safety and Health 26
XIV Funeral Leave 27
XV Miscellaneous 28
XVI Insurance and Pensions 28
2
<PAGE>
XVII Association Responsibility 32
XVIII Saving Clause 32
XIX Termination Date 32
XX Supplemental Agreement 34
THIS AGREEMENT executed and effective as of August 1, 1998, by
THE BETHLEHEM CORPORATION, its successors or assigns, hereinafter referred to as
the CORPORATION, and THE BETHLEHEM CORPORATION EMPLOYEE ASSOCIATION, hereinafter
referred to as the ASSOCIATION, as the agent for and acting on behalf of the
Corporation's "employees" as the term is defined in Article I hereof, witnesseth
that the parties have agreed as follows:
ARTICLE I
INTENT AND PURPOSE
SECTION A. It is the intent and purpose of the parties hereto
to promote and improve industrial and economic relationships and to set forth
herein the basic agreement covering rates of pay, hours of work and conditions
of employment to be observed between the parties hereto. It is understood and
agreed that the term "employees" for the purpose of this Agreement shall include
the full time and regular part-time production and maintenance employees of The
Bethlehem Corporation fabrication and machining operations at its Easton,
Pennsylvania facility, including truck drivers, store clerks, shipping and
receiving clerks and inspectors; but excluding dispatchers, timekeepers, office
clerical employees, guards and supervisors as defined in the Act.
SECTION B. It is the continuing policy of the Corporation and
the Association that the provisions of this Agreement shall be applied to all
employees in accordance with its terms without regard to race, sex, color,
religious creed or national origin.
ARTICLE II
RECOGNITION ASSOCIATION MEMBERSHIP AND CHECK-OFF
SECTION A. RECOGNITION. The Corporation recognizes the
Association as the sole collective bargaining agency for all of its employees as
defined in Article I of
3
<PAGE>
this Agreement at the Corporation's Easton plant. During work hours, the
Association will not conduct any business which is not specifically identified
with the joint administration of the Labor Agreement.
SECTION B. ASSOCIATION MEMBERSHIP. Each employee who on August
1,1998 is a member of the Association in good standing and each employee who
becomes a member after that date shall, as a condition of employment, maintain
the employee's membership in the Association for the duration of this Agreement.
All applicants for employment who are hired and qualify as "employees" under
Article I, Section A, shall become a member of the Association not later than
thirty working days following the beginning of the employee's employment. The
foregoing provisions shall be effective in accordance and consistent with the
applicable provisions of federal and state law.
(a) At the time of an employee's employment the Corporation
will suggest that each new employee voluntarily execute an authorization for the
check-off of Association dues in the form agreed upon. A copy of such
authorization card for the check-off of Association dues shall be forwarded to
the Treasurer of the Association.
(b) For the purpose of this Section, employees shall not be
deemed to have lost their membership in the Association in good standing until
the Treasurer of the Association shall have determined that the membership of
such employee in the Association is not in good standing as provided for in this
Article, and shall have given the Corporation notice in writing of that fact.
ARTICLE III
MANAGEMENT
SECTION A. The management of the shops and the direction of
the working forces, including the right to hire, suspend, or discharge for
proper cause, or to transfer, classify, assign work to employees, the right to
relieve employees from duty because of lack of work, to maintain order and
efficiency in its plants and operations, to control the use of all equipment and
other property of the Corporation, to determine manufacturing methods, processes
and products, and to contract out work presently being performed by employees,
shall vest exclusively in the Corporation. The Corporation shall meet and
discuss any proposed rules and regulations with the committee of the Association
in advance of adoption. The rules and regulations shall not be inconsistent or
in conflict with the provisions of this agreement.
SECTION B. The Corporation shall have the right to establish,
maintain and enforce reasonable rules and regulations to insure orderly plant
operations, it being understood and agreed that such rules and regulations shall
not be inconsistent or in conflict with the provisions of this Agreement. The
Corporation shall furnish the
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Association with a copy of all such rules and regulations as well as all changes
therein. The Corporation shall meet and discuss any proposed rules and
regulations with the Committee of the Association in advance of adoption.
Discipline shall be administered without discrimination to all employees subject
to discipline.
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ARTICLE IV
WAGES
SECTION A. The basic hourly rates for the term of this
Agreement shall be as follows:
Hourly Rate Hourly Rate Hourly Rate
Saturday Sunday Tuesday
LABOR GRADE AUGUST 1, 1998 AUGUST 1, 1999 AUGUST 1, 2000
----------- -------------- -------------- --------------
1 $ 9.97 $ 10.27 $ 10.57
2 10.18 10.48 10.78
3 10.71 11.01 11.31
4 11.41 11.71 12.01
5 11.88 12.18 12.48
6 12.41 12.71 13.01
7 13.19 13.49 13.79
8 13.67 13.97 14.27
9 14.64 14.94 15.24
10 15.27 15.57 15.87
11 15.55 15.85 16.15
12 15.83 16.13 16.43
SECTION B. In the event an individual employee's regular wage
rate is changed, the Chief Shop Steward and the Recording Secretary must be
notified in writing by the Corporation of such change.
SECTION C. SHIFT DIFFERENTIAL. The shift differential for the
second shift is thirty-five Cents ($.35) per hour and Forty Cents ($.40) per
hour for the third shift.
(a) Any employee regularly scheduled to commence work between
12:00 noon and 9:59 p.m. shall be considered an employee of the second shift.
Any employee regularly scheduled to commence work between 10:00 p.m. and 4:49
a.m. shall be considered an employee of the third shift.
(b) In computing overtime on a daily and weekly basis, the
wage allowances described hereinabove, respectively, shall be used in addition
to the regular hourly basic rate, and such wage allowances shall also be used in
computing the vacation pay of employees.
SECTION D. ALLOWANCE FOR JURY SERVICE. An employee who is
called for jury service shall be excused from work for the days on which he or
she serves, and the employee shall receive, for each such day of jury service on
which the employee otherwise would have worked, the difference between eight (8)
times the employee's
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regular straight-time hourly day-rate (as computed for holiday allowance) and
the payment the employee receives for jury service. The employee will present
proof of service and the amount of pay received therefor.
ARTICLE V
HOURS OF WORK
SECTION A. (a) A normal work day shall consist of eight (8) consecutive hours,
exclusive of lunch period, within a calendar day or twenty-four (24) hour
period. The normal hours of work are:
MANUFACTURING SHOPS LUNCH BREAK COFFEE BREAK
7:00 a.m. - 3:30 p.m. 12:00 - 12:30 p.m. 9:00 - 9:10 a.m.
(30 min. unpaid)
3:30 p.m. - 11:30 p.m. 8:30 - 8:40 p.m. 5:30 - 5:40 p.m.
(10 min. paid)
11:30 p.m. - 7:00 a.m. 3:30 - 3:40 a.m. 2:00 - 2:10 a.m.
(10 min. paid)
(8 hrs. Monday through Friday)
Normal hours of work can be changed by mutual agreement
between the Corporation and the Association. The Corporation reserves the right
to increase the hours on any shift and adjust the starting times of the shifts
to meet production needs. The Association must be notified of these changes.
(b) A normal work week shall consist of five (5) consecutive
work days beginning on Monday and ending on Friday.
(c) The foregoing provisions of this Section A shall not be
construed as guaranteeing to any employee any number of hours of work per day or
per week.
SECTION B. There shall be a recognized and controlled ten (10)
minute coffee break on each shift. The shop whistle will signal the start and
stop of the break period. No other coffee break other than this ten (10) minute
period will be permitted.
SECTION C. The last ten (10) minutes of each shift shall be
designated as wash-up time, and during this period each employee is to
straighten up his or her work area, put tools away and wash up. Additional time
will be granted to those employees,
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only by the direction of their immediate supervisor, where it is necessary for
them to take care of cleaning up work areas and equipment and returning large
quantities of tools either to the tool room or their tool boxes. This additional
time will be completely at the discretion and direction of the employee's
immediate supervisor.
SECTION D. (a) Time and one-half shall be paid for all time
worked by an employee:
(i) in excess of eight (8) hours in any one day,
exclusive of lunch period, commencing when the employee
starts to work.
(ii) in excess of forty (40) hours within any one week.
(iii) for all work performed on shifts starting on
Saturday including the third shift which begins at 11:30
p.m. Friday.
(iv) during scheduled lunch periods. Unscheduled lunch
periods taken by employees who have performed work
during scheduled lunch periods, shall not be paid for by
the Corporation, unless mutually agreed upon.
(b) Double time shall be paid for all time worked by an employee:
(i) on shifts starting on Sunday including the third
shift which begins at 11:30 p.m. Saturday night, but
excluding the third shift which begins at 11:30 p.m.
Sunday night.
(ii) in excess of twelve (12) consecutive hours in any
one day provided the employee is not already on double
time. For the purposes of this subsection (ii), an
employee will be considered as having worked in excess
of twelve (12) consecutive hours even though he or she
has taken a break of two (2) hours or less with the
approval of the employee's foreman.
SECTION E. REPORTING PAY. (a) In the event an employee is not
notified not to report for work and does report for work and upon reporting
finds there is no work to be performed, he or she shall receive four (4) hours
pay at the employee's regular hourly rate, except where the employee was absent
from work on the previously scheduled working day, unless on that previously
scheduled working day the employee notified the Corporation that he or she would
be available for work on the next scheduled work day. In the event an employee
reports for work and actually begins work and works less than four (4) hours
because of lack of work, he or she shall receive four (4) hours pay at the
employee's regular hourly rate, except in cases of emergency, fire, flood,
strikes, acts of God or other similar causes beyond the control of the
Corporation. This exception applies to this entire paragraph. Such employees,
however, have the option to perform such work as they may be reasonably expected
to perform
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when offered to them by the Corporation, or they may conclude their shift and be
paid for actual hours worked only.
(b) An employee who is scheduled to work for a specified
number of hours on either a Saturday or Sunday shall be entitled to work for the
number of hours so scheduled. The Corporation reserves the right to assign other
work which the employee is capable of performing in order to provide sufficient
work for the scheduled hours. The employee has the option of performing these
work duties to which assigned or concluding the employee's shift and being paid
for actual hours worked only.
SECTION F. CALL-IN PAY. In cases of emergency, when an
employee has left the plant and is called back to work at times other than the
employee's scheduled shift, he or she shall receive the greater amount of either
four (4) hours at the employee's regular straight time rate, or time and
one-half for hours actually worked. In the event the call-out runs into the
employee's scheduled shift, he or she shall receive the applicable overtime rate
from the time employee begins work until the beginning of employee's scheduled
shift.
SECTION G. (a) Overtime work shall be divided as equally as
practicable among the employees in their respective departments who perform
similar work.
A record of all such weekly overtime worked by the employees
will be kept by the Corporation and shall be available for inspection by the
shop employees. An audit of overtime records may be conducted each quarter by
the Grievance Committee.
An employee who is requested to work overtime in accordance
with the "notice-in-advance" provision outlined in paragraph (b), and who
refuses to work, will be charged with the scheduled amount of overtime worked by
the employee accepting the overtime assignment. An employee requested to work
overtime but not provided with "notice-in-advance", and who refuses to work will
not be charged with any overtime for that particular day.
Overtime worked out of an employee's regular classification
shall be charged against the employee's regular classification.
Employees working on jobs during regular hours shall have
preference for overtime occurring during the normal work day on the same jobs.
(b) The parties recognize that the needs of the operation of
the business and plant of the Corporation from time to time require work in
excess of the scheduled hours; therefore, the parties agree to cooperate in such
instances giving due recognition to the needs of the Corporation, and the
employees agree to perform such overtime work unless the employees so requested
to work overtime would be inconvenienced. The Corporation will, whenever
practicable give employees asked to work beyond the end of their scheduled
hours, two (2) hours' notice in advance of the
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end of their scheduled hours. An employee not regularly scheduled for Saturday
work will, whenever practicable, when asked to work Saturday, be notified before
the end of the employee's scheduled hours on the preceding Thursday. An employee
not regularly scheduled for Sunday or holiday work will, whenever practicable,
be notified forty-eight (48) hours in advance of any Sunday or holiday to be
worked.
(c) Overtime payments shall not be duplicated, and the
employee shall not be paid twice for the same hours worked.
SECTION H. When an employee has worked in excess of ten (10)
hours on any shift, the Corporation will provide the employee with food at a
cost not in excess of Five Dollars ($5.00) together with any tax imposed thereon
provided the employee has not been given a reasonable opportunity to arrange in
advance for the food. In the event the Corporation does not provide food for the
employee, the Corporation will pay the employee Five Dollars ($5.00).
SECTION I. To insure orderly operation of the plant, the
Association recognizes the responsibility of all employees to report regularly
for work unless prevented by illness or other justifiable reasons. Employees who
are expected to report for work on Saturday and/or Sunday shall also be required
to report off.
Employees are required to notify the shop in which they work
by telephone of their absence and the reason therefor on the first day thereof,
except in case of an emergency when this is not possible. All such notifications
must be made prior to the start of the shift in which the employee is scheduled
to work. Employees should call in to Telephone Number (610) 258-7111.
SECTION J. Any employee who is scheduled to or actually works
twelve (12) hours or more in any day shall receive a thirty (30) minute paid
lunch period.
SECTION K. Pay days will be on alternate Thursdays. Such days
may be changed by the Corporation for reasons beyond its control including, but
not limited to, machine breakdown or one or more holidays occurring during the
week. Pay checks will be distributed no later than 2:30PM on pay days.
ARTICLE VI
TRAVEL TIME AND EXPENSES
SECTION A. Travel on Corporation assignments shall be
compensated for actual time spent on such travel at the employees' regular
straight time rate of pay. Such compensation shall be paid for the hours an
employee is traveling during the period when the employee is normally scheduled
to work. The time and method of travel shall be subject to instructions by the
Corporation.
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SECTION B. When an employee is required to be away from home
overnight on Corporation assignments, he or she shall be compensated for all
hours worked and travel time subject to the provisions of Section A of this
Article VI. In no event shall such employee receive less pay than if that
employee had worked at the Corporation's plant where he or she is regularly
assigned. Beginning on the third consecutive day that an employee has been away
from the plant the employee shall receive an additional Ten Per Cent (10%) of
his or her regular straight time rate for all hours worked and travel time until
the employee returns to the plant. If an employee is away from the plant on a
Saturday or a Sunday and does not either work or travel on such days, he or she
shall receive eight (8) hours pay at the employee's regular straight time rate
of pay.
SECTION C. The Corporation shall reimburse all pre-approved
living expenses incurred by the employee while away from the plant to which the
employee is regularly assigned, provided that no such reimbursement shall be
made for any particular day unless the employee is required to use a hotel or a
motel because the distance between the employee's work at the end of the day and
the employee's home prohibits the employee's return.
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ARTICLE VII
HOLIDAYS
SECTION A. The following shall be recognized as paid holidays:
1. New Year's Day
2. Good Friday
3. Memorial Day
4. Independence Day
5. Labor Day
6. Thanksgiving Day
7. The day after Thanksgiving
8. December 24th
9. Christmas
10. December 31st
11. One (1) Floating Holiday each Contract Year'
The one (1) additional floating holiday each contract year
shall be chosen by each employee upon at least twenty-four (24) hours advance
notice to the Corporation. It is further agreed that the scheduling of the
holiday is subject to the operating requirements of the Corporation.
SECTION B. When a paid holiday falls on a Sunday, then the
following Monday shall be recognized as the legal paid holiday unless the State
or Nation proclaims another date, in which event that date shall be observed.
When a paid holiday falls on a Saturday, then the previous Friday shall be
recognized as the legal holiday, unless the State or Nation proclaims another
date, in which event that date shall be observed.
SECTION C. PAID HOLIDAYS. (a) Each employee who qualified as
provided in (c) who does not work on the holiday, will be paid eight (8) hours
at the employee's straight time hourly rate for each of the holidays enumerated
in Section A hereof, unless the employee has voluntarily quit or has been
discharged prior to observance of such holiday.
(b) Each employee who qualified as hereinafter provided in (c)
who performs work on a shift starting on any holiday enumerated in Section A,
will be paid double time for work performed on the holiday shift, and in
addition will be paid eight (8) hours' holiday pay at his regular straight time
rate.
(c) In order for an employee to qualify for the holiday pay:
(i) New employees must have no less than seventy (70)
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calendar days seniority to his or her credit as of the
date of the occurrence of the holiday.
(ii) The employee must be actively employed and not in a
state of lay-off, leave of absence, or other condition
which makes his or her service unavailable (except for
compensable injury under Pennsylvania Workmen's
Compensation Law or sickness and accident) to the
Corporation.
(iii) The employee must have worked or have an approved
absence in the pay period in which the holiday is
observed, except those employees who have been recalled
from lay-off after having been laid off more than
twenty-eight (28) days unless recalled to work prior to
the day on which the holiday is observed.
(iv) An employee who has been laid off because of lack
of work shall be eligible for holiday pay provided the
employee worked within twenty-eight (28) days prior to
the date on which the holiday occurred.
(v) Employees who are scheduled to work on a holiday and
who have been notified of such scheduling in accordance
with Article V, Section G, and who agree to work on a
holiday, but who fail to work as scheduled and agreed,
shall not receive holiday pay for said holiday. However,
failure to work as agreed because of an unforeseen
situation beyond the control of the employee, will not
result in loss of holiday pay.
(vi) The Corporation and the Association must mutually
agree to change the date on which a holiday is to be
observed.
(d) A holiday for which the employee receives pay will be
considered as a day worked when computing vacation and pension benefits only.
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ARTICLE VIII
PAID VACATIONS
SECTION A. The Corporation agrees that during each vacation
year June 1 to May 31 of this Agreement such employees as qualify in accordance
with the following requirements shall receive a vacation of either one (1), two
(2), three (3), four (4), or five (5) weeks depending upon length of continuous
service completed prior to June 1st of each calendar year. A week's vacation
shall consist of seven (7) consecutive days.
SECTION B. Effective with the June 1, 1994 vacation period,
all currently active employees as of July 23, 1994 had the option of being
grandfathered into the existing Vacation Schedule which is designated "Schedule
A". All employees hired after July 23, 1994 will be governed by "Schedule B" for
vacation purposes.
SCHEDULE A"
Years of Continuous Service Vacation Time
On Or Before 5/31/94 Off With Pay
-------------------- ------------
Less than 6 months 0
6 mos. but less than 1 yr 3 days
1 yr. but less than 2 yrs 1 week
2 yrs. but less than 3 yrs 1 week & 1 day
3 yrs. but less than 4 yrs 1 week & 2 days
4 yrs. but less than 5 yrs 1 week & 3 days
5 yrs. but less than 6 yrs 2 weeks
6 yrs. but less than 7 yrs 2 weeks & 1 day
7 yrs. but less than 8 yrs 2 weeks & 2 days
8 yrs. but less than 9 yrs 2 weeks & 3 days
9 yrs. but less than 10 yrs 2 weeks & 4 days
10 yrs. but less than 15 yrs 3 weeks
15 yrs. but less than 25 yrs 4 weeks
25 yrs. and over 5 weeks
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"SCHEDULE B"
Years of Continuous Service Vacation Time
On Or Before 5/31/94 Off With Pay
-------------------- ------------
Less than 6 months 0 days
6 mos. but less than 1 yr 1 week
1 yr. but less than 7 yrs 2 weeks
7 yrs. but less than 15 yrs 3 weeks
After 15 years 4 weeks
SECTION C. Vacation pay will be computed once each year for
each employee. The Corporation will use the following two methods to compute
vacation pay, and the employee will be paid the greater amount:
(1) Vacation pay for the entire vacation period June 1 to May
31 shall be a percentage of the individual employee's earnings for the full year
ending with the pay period immediately preceding June 1st of each calendar year,
subject to Section D of Article VIII. This method of calculation will be
eliminated for all employees hired after 8/1/98. For current employees, and any
employees on layoff for two (2) years prior to 8/1/98, the Corporation agrees to
abide by the current contract language.
Vacation Time Percentage Amount
Off With Pay Of Vacation Pay
------------ ---------------
3 days 1.2%
1 week 2.0%
------ ----
1 week & 1 day 2.4%
1 week & 2 days 2.8%
1 week & 3 days 3.2%
2 weeks 4.0%
------- ----
2 weeks & 1 day 4.4%
2 weeks & 2 days 4.8%
2 weeks & 3 days 5.2%
2 weeks & 4 days 5.6%
3 weeks 6.0%
------- ----
4 weeks 8.0%
------- ----
5 weeks 10.0%
or,
(2) Vacation pay shall be based upon the employee's hourly
rate on May 31st. Vacation pay is computed on basis of eight (8) straight time
hours equals one day and forty (40) straight time hours equals one week. To be
eligible for a full vacation in any
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vacation year during the term of this Agreement, an employee must (a) have six
(6) months of continuous service prior to May 31st of any calendar year; (b)
have worked at least 1,500 hours in the twelve (12) month period from June 1st
to May 31st. If an employee works in excess of 1,000 hours but less than 1,500
hours in the twelve (12) month period from June 1st to May 31st, the employee
shall be entitled to a pro rata vacation based upon the ratio that the
employee's hours worked bear to 2,000 multiplied by the applicable vacation
entitlement set forth.
An employee who works less than 1,000 hours from June 1st to
May 31st shall not be entitled to a vacation. For the purpose of determining
hours worked, time lost for sickness or compensable accidents shall be counted
as hours worked up to eight (8) hours per day.
Vacation time for which the employee receives pay will be
considered as time worked when computing vacation and pension benefits only.
Employees may use up to a maximum of five (5) of his or her
vacation days per year as sick days without prior approval, as normally required
for vacation purposes providing reporting-off procedures are followed.
SECTION D. (a) All vacations must be taken between June 1st
and May 31st of the following year, and whenever possible the employee shall
have the privilege of selecting the time within said period which the employee
desires for his or her vacation, but the final selection rests with the
Corporation in order to insure an orderly operation of the plant.
(b) The Corporation will limit vacation shutdown to a one week
period falling between Christmas and New Year's holiday.
SECTION E. (a) Employees who prior to June 1st of any year
quit, take a leave of absence or are discharged and have not worked in excess of
1,000 hours in the twelve (12) month period June 1st to May 31st shall not be
eligible to receive any benefits under this article.
(b) Employees who are otherwise eligible for a vacation but
are laid off shall receive such vacation pay as is due them.
(c) Employees who retire or die prior to June 1st of any year
shall be entitled to vacation pay prorated as of the date of retirement or
death, and paid at the next available pay period.
(d) Retired employees shall be paid at the time of retirement
for any vacation to which they may then be entitled, and paid at the next
available or reasonable pay period.
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Should an employee die at the time the employee has not taken
his or her full vacation or when the employee is otherwise entitled to vacation
pay, the employee's beneficiary shall receive the balance of the vacation pay to
which the deceased employee was entitled.
SECTION F. Paid holidays as listed in Article VII of this
Agreement falling within an employee's vacation period are also to be counted as
vacation days for which the employee shall receive payment in accordance with
the provisions of said Article VII.
ARTICLE IX
SENIORITY
SECTION A. (a) Seniority shall be based upon and defined as
the length of service of the employees employed by the Corporation, beginning
with the last hiring date of the employee involved. The "last hiring date" as
herein provided shall be defined to mean the period of time since such date,
during which any such employee's seniority has not been canceled as provided and
defined in Section 1 of this Article IX or any other applicable collective
bargaining agreement entered into by the Corporation and any collective
bargaining representative. Seniority shall be maintained and applied as to
layoffs, increase of forces, transfer and promotion to non-supervisory jobs on a
plant-wide basis as herein and hereinafter provided.
(b) Employees shall have a preference as to shift assignment
according to their seniority within their job classification. However, nothing
in this section shall limit the right of the Corporation to assign employees to
any shift in order to maintain efficiency through a balance of necessary skills
and experience.
SECTION B. LAYOFFS AND RECALLS. (a) It is understood and
agreed between the parties hereto that in all cases of increases and decreases
of the working forces length of continuous service shall be the determining
factor, providing the employee involved has the ability to perform the work
required.
However, any employee before being laid off may bump back to
any equal or lower rated job within any occupation which the employee had
previously held or to any other equal or lower rated job which the employee is
capable of performing within any occupation providing his or her seniority is
greater than the employee on that particular job.
(b) DIVISION OF WORK. When work becomes unavailable for one or
more employees performing the same type of work, on any calendar day of the
week, the senior employee or employees shall be retained unless they are
reassigned to other duties by the Corporation. If they are not reassigned, and
provided they are competent to do the work, said employees may exercise their
seniority in a bump fashion by bumping junior employees in the same or lower
labor grade.
If an error is made in administering the bumping procedure, or
if there is not
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sufficient time to contact and assign each employee affected in a one-day bump,
the Corporation and Association will then meet for the purpose of attempting to
provide a solution for any problem which might have arisen.
(c) If, as a result of a decrease in work other than decreases
which may occur from day to day, the average scheduled hours of work of the
employees throughout the plant shall be reduced for a period of one month to
thirty-two (32) hours per week and if, in the judgment of the Management, that
level of work will continue for an extended period of time, the plant manager
will discuss with the appropriate Association officials the question whether a
decrease of the working force shall be effected in accordance with the
provisions of this article or whether the available hours of work shall be
distributed among the employees in such unit so far as shall be practicable with
due regard for the particular skills and abilities required to perform the work
available there. If the plant manager and such Association officials shall fail
to agree, the working force shall be reduced to an extent which shall be
sufficient to enable the remaining employees to average-forty (40) hours of work
per week.
(d) An employee shall not be reassigned to perform the same
type of work on a different shift until at least twenty-four (24) hours have
elapsed since the regularly scheduled starting time of the said employee on the
last shift worked by him; provided, however, that in the interest of maintaining
uninterrupted and economic production, the Corporation may so schedule an
employee. An employee can be reassigned to perform the same type of work on the
same shift on which the employee was regularly scheduled despite the fact that
twenty-four (24) hours have not elapsed since the regularly scheduled starting
time of said employee on the last shift worked by the employee and that by so
doing the Corporation would be obliged to pay overtime under the terms of this
Agreement.
(e) When plant operations resume on a normal or increased
schedule, the employees affected shall be restored to their previous or normal
status or recalled in the reverse order in which they were laid off. An employee
will have the option to refuse recall if the job to which the employee is being
recalled is not his or her regular job.
When reasonably possible; the Corporation will notify the
Chief Shop Steward about an employee who is being recalled from lay-off, on the
same day that the Corporation notifies the Employee.
(f) In all cases of increase or decrease of the working forces
the following local Association officers: President, Vice President, Chief Shop
Steward, Recording Secretary and Treasurer, the members of the Grievance
Committee and the Shop Stewards, shall be given preference without regard for
seniority, provided there is work available in the plant which they are capable
of doing. Such preferential seniority for Shop Stewards shall be confined to the
departments in which they function as Shop Stewards.
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(g) TEMPORARY EMERGENCY LAY-OFF. Defined as the relieving of
any employee from duty or the temporary laying off of an employee because of a
temporary emergency brought about by reason of power breakdown, flood, fire, or
other problems beyond the reasonable control of the Corporation which require
temporary cessation of one or more operations.
In the interest of maintaining uninterrupted and economic
production, the Corporation shall not be obligated to lay off the employees in
the strict order of their seniority, but it must make a reasonable effort to lay
off the employees in the strict order of their seniority. A temproray emergency
layoff shall not be more than 3 days, after which normal lay-off procedures will
be followed.
(h) An employee shall be given two (2) work days' notice
before being laid off out of the plant.
(i) An employee who requests an out-of-turn lay-off, and
providing the Corporation grants such request, must sign a statement in which
the employee waives employee's recall rights to all jobs except the employee's
regular job.
SECTION C. INCAPACITATED EMPLOYEES. If employees become
incapable of doing their regular work through no fault of their own, the
employee so affected shall be entitled to other work in the plant in accordance
with their seniority status, provided they have the necessary ability required
to perform such work, and do not displace any other employee.
SECTION D. TRANSFER AND PROMOTIONS. Seniority as it shall be
maintained and applied to promotions, transfer and promotional transfers: (a)(i)
In the event a vacancy occurs on any permanent job, or should a new job be
established within the scope of the bargaining unit, notification of such
vacancy or establishment of such new job shall be posted on the department
bulletin board for a period of three (3) days. Upon request from the
Association, the Corporation will extend the job posting for two (2) additional
days to provide time for the Association to contact an employee who is absent
from work or laid off. A vacancy will not be deemed to exist if there is an
employee either on lay-off or in a lower rated job who formerly held the job now
open and who lost it by reason of a shortage of work. The notification shall
contain the job title, the grading and the shift to which the job is presently
assigned.
Such jobs shall be filled by employees throughout the plant
whenever possible. In all such cases, the length of service (seniority rank)
shall be the determining factor providing the employee is qualified to perform
the work. Transfers under this provision shall represent a promotional
opportunity for the employee involved.
Not withstanding any provision of this Section D (a)(i) to the
contrary, an employee having in excess of ten (10) years' seniority shall be
entitled to bid upon a vacancy that occurs in any permanent job or newly
established job of equal or lower
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rank in the plant. Such employee shall be awarded the job if (1) the employee's
seniority in the plant is greater than the other employees under consideration
for the job and (2) the employee's fitness and ability are substantially equal
to such other employees. If such employee is awarded the job, the employee shall
not be eligible again for promotion under this Section D and shall remain in the
job for twelve (12) full months before he or she may bid on another job vacancy.
(ii) Eligible employees not claiming such posted jobs
within the agreed upon time shall forfeit their right in
such cases and wait until the next job posting occurs.
(iii) In the event of disputes, the job in question
shall be considered only temporarily filled until the
matter is properly disposed of through the established
grievance procedure. In no case shall this provision
involve back pay beyond the date on which the grievance
was filed.
(b) The Corporation for its convenience may from time to time
make transfers of employees from one job classification to another in accordance
with the rules set forth in paragraph 5 of the Supplemental Agreement of July
23, 1994. The reasons for such transfer may include but are not limited to the
following:
(i) To fill vacancies on a temporary basis pending
permanent filling of such vacancies under the job
posting procedure;
(ii) To replace the employees who are absent or on
vacation or who have failed to-report for work as
scheduled;
(iii) To provide for the remainder of the employee's
shift for an employee who has no work remaining in the
employee's regular job classification. The employee has
the option of performing assigned work duties or
concluding his or her shift and being paid for actual
hours worked only.
(iv) To fill a job pending the recall of an employee
from lay-off;
(v) To provide additional workers needed for particular
work. Such workers shall be selected from among the
employees in equal or lower-rated job classifications
from the job classification usually performing such
work.
(vi) To perform work of an intermittent nature not
requiring an employee for a full shift.
(vii) A temporary transfer is defined as being
forty-five (45) work days. The parties, by mutual
consent, can extend the 45-work day limit.
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<PAGE>
SECTION E. NEW EMPLOYEES. New employees must have accumulated
seventy (70) calendar days of service before they have seniority rights. Upon
completion of such seventy (70) calendar days, their seniority shall date from
the original date of employment. During such seventy (70) calendar day period, a
new employee may be transferred, laid off or discharged as the Corporation may
determine but not in any manner that will deprive any other employee of his or
her rights under this Agreement.
SECTION F. SENIORITY LISTS. (a) Seniority lists showing the
proper seniority dates of the employees must be posted on April 1st and October
1st of each year in the appropriate departments, and shall be changed by the
Corporation semi-annually so as to include the names of new employees who have
attained seniority status, or corrections that have been noted, since the date
of last semiannual posting.
The Corporation will provide the Association's Secretary with
an expanded copy of the Seniority List.
SECTION G. LEAVES OF ABSENCE. Leaves of absence shall be
permitted in cases mutually agreed to be worthy, and in such cases the
employee's seniority shall continue to accumulate.
SECTION H. MILITARY SERVICE. Employees, other than temporary
employees, who enter the armed forces of the United States or who have left or
who subsequent to the date hereof leave their positions for the purpose of being
inducted into, enlisting in, determining their physical fitness to enter or to
perform training duty in said armed forces, shall be reinstated in accordance
with the applicable Federal statutes.
Except as may be otherwise provided in the applicable Federal
statutes, any employee who voluntarily re-enlists for additional service at the
end of the employee's initial term of active service shall not have any
seniority or other rights under this clause.
SECTION I. CANCELLATION OF SENIORITY. The seniority of an
employee shall be canceled under any of the following circumstances: if the
employee
(a) Is justifiably discharged;
(b) Voluntarily quits;
(c) Is absent for any reason, which absence continues for more
than two (2) years. In cases where sickness and accident, or Workman's
Compensation is involved, then the two (2) years shall start after coverage has
been exhausted;
21
<PAGE>
(d) Does not return to work within five (5) working days after
written notice by the Corporation to the employee's last address appearing on
the Corporation's records. The Corporation shall notify the Association in
writing at the same time the employee is notified to return to work;
(e) Fails to return to work at the proper time after leave of
absence;
(f) Is absent from work for five (5) consecutive working days
without giving notice to the Corporation;
SECTION J. The Corporation shall give written notification to
the Association of all promotions to non-supervisory jobs, layoffs, transfers,
recalls, discharges or disciplinary actions. If no written protest is received
by the Corporation from the Association or from the individuals involved within
five (5) working days from the date such notification is received by the
Association, no further grievance relative thereto shall be valid. Retroactive
pay in such cases shall not be for a period greater than the day on which the
written grievance was filed.
SECTION K. The seniority provisions of this Article IX shall
be applied to Working Leaders as follows:
(a) For purposes of lay-off and recall, a Working Leader's
seniority shall be based upon and defined as the length of service.
(b) For purposes of lay-off and recall, a Working Leader will
be considered to be an occupant of the job classification which the employee
held immediately prior to the employee's promotion to Working Leader.
(c) Each Working Leader will participate in overtime
opportunities in accordance with the employee's departmental seniority.
(d) Working Leaders are not employed to supervise, but in
addition to working are asked to convey the foremen's instructions to their
group, and to make such reports as to the progress of the job and maintenance as
are required by the foreman. Working Leaders are not to discipline any employee.
ARTICLE X
PROMOTION OUTSIDE BARGAINING UNIT
Whenever possible, Management will consider bargaining unit
members for promotion to positions outside the bargaining unit.
To allow such employees some measure of seniority security in
accepting promotion outside the bargaining unit, it is agreed that an employee
accepting a
22
<PAGE>
promotion will retain his or her seniority which the employee accumulated as a
bargaining unit member for a period of one (1) year from the date of such
promotion.
At the expiration of such one-year period the employee will
lose his or her seniority unless the Corporation and Association mutually agree
to continue the employee's seniority.
Employees who accepted a position outside the bargaining unit
prior to the date of this Agreement shall retain their seniority in accordance
with the provisions of the collective bargaining agreement in effect at the time
of their promotion.
A non-bargaining unit employee who returns to the bargaining
unit cannot upon the employee's return to the unit displace any bargaining unit
employee currently at work. Conditions of the employee's return to the
bargaining unit will be mutually agreed to by the Corporation and Association.
ARTICLE XI
ADJUSTMENTS AND GRIEVANCES
SECTION A. Should any differences arise between the
Corporation and the Association as to the meaning and application of the
provisions of this Agreement or as to any question relating to wages, hours of
work and other conditions of employment of any employee, there shall not be any
suspension of work because of such differences, but an earnest effort shall be
made to settle them promptly and in accordance with the provisions of this
Agreement in the manner hereinafter set forth.
If an employee shall believe that the employee has a
justifiable request or complaint, the employee must discuss such request or
complaint with his or her foreman within twenty-four (24) hours after the
incident occurs, with the steward of employee's department being present, in an
attempt to satisfactorily settle the request or complaint. Any such request or
complaint which shall not be disposed of within two (2) work days and which
shall be presented in writing, as hereinafter provided, shall constitute a
grievance and shall be handled under the procedure set forth in this Article.
STEP NO. 1. Such grievance shall be stated in writing on a
form to be furnished by the Corporation, which shall be dated and signed by the
employee involved, and two (2) copies of such grievance shall be delivered by
the steward of such shop to the foreman involved. Such foreman shall note in the
appropriate place on such form the employee's disposition of such grievance and
shall sign and date the notation and return one (1) copy of such grievance to
the steward and deliver or send one (1) copy thereof to the Personnel Manager.
Any grievance which shall not be disposed of within one (1) work day after it
shall have been so presented to the foreman may be appealed to Step No. 2 of the
grievance procedure.
23
<PAGE>
STEP NO. 2. Unless such grievance shall be appealed to the
General Foreman for such shop or other designated Corporation representative
within three (3) work days after such disposition thereof by such foreman, such
grievance shall be deemed to have been settled in accordance with such
disposition and no appeal therefrom shall thereafter be taken.
If such grievance shall be so appealed, it shall be discussed
by the General Foreman for such shop and Personnel Manager, or other designated
representative, and the Chief Steward and Departmental Steward thereof in an
effort to settle such grievance. The discussion shall be held, and such General
Foreman and Personnel Manager, or other designated representative, shall dispose
of such grievance within not more than five (5) work days after the date on
which such grievance shall have been so appealed. If the General Foreman and
Personnel Manager, or other designated representative, shall fail to provide an
opportunity for discussion or fail to dispose of such grievance within the five
(5) work days, such grievance may be appealed to Step No. 3 of the grievance
procedure.
STEP NO. 3. Unless such grievance shall be appealed to Step
No. 3 within five (5) work days of such disposition in Step No. 2, such
grievance shall. be deemed to have been settled in accordance with such
disposition and no appeal therefrom shall thereafter be taken.
If such grievance shall be so appealed, a meeting between the
Personnel Manager and Plant Manager, or other designated representative, and the
designated Grievance Committee of the Association shall be held within five (5)
work days of such appeal in an effort to settle such grievance. If such
grievance shall not have been disposed of within eight (8) work days of such
appeal to Step No. 3, such grievance may be appealed to Step No. 4 of this
grievance procedure.
STEP NO. 4. Unless such grievance shall be appealed within
five (5) work days of such disposition in Step No. 3, it shall be deemed to be
settled in accordance with such disposition, and no appeal therefrom shall
thereafter be taken.
If agreement cannot be reached in the manner set forth above
on such grievance, the matter shall then be immediately referred to arbitration
in the following manner:
(a) If the Corporation and the Association cannot agree upon
an impartial arbitrator, on demand of either of the parties to this Agreement,
the American Arbitration Association shall appoint an impartial arbitrator who
shall arbitrate the disputed matter in accordance with its rules and
regulations. Once a disputed matter has been so appealed, such appointment and
the decision of the arbitrator so made shall be final and binding on each of the
parties hereto including the aggrieved employee or employees.
24
<PAGE>
The Arbitrator shall have the power to interpret the terms and
provisions of this Agreement and to render decisions on disputes thereunder,
except, however, no Arbitrator shall have the power to render decisions that
would expand or nullify any of the terms and provisions of this Agreement.
(b) The cost of the impartial Arbitrator shall be shared
equally by both parties. All other costs incidental to the arbitration
proceedings shall be borne by the party incurring the cost.
(c) No post hearing brief will be filed by either party.
SECTION B. The time elements in the preceding grievance
procedure shall have meant to exclude Saturdays, Sundays and holidays. Any
extension of time in any step of this procedure must be by mutual agreement. For
purposes of counting days, the day of disposition shall be excluded, but the
last day for filing an appeal shall be included.
SECTION C. An employee who claims to have a grievance shall
present such grievance orally to the foreman involved within twenty-four (24)
hours after the event has occurred giving rise to the grievance. If the employee
could not reasonably have known of such event due to his or her absence from the
plant, the employee shall file the grievance within twenty-four (24) hours after
his or her return to the plant.
No grievance shall be made retroactive prior to five (5) work
days prior to the date such grievance was first submitted in written form in
Step No. 1.
SECTION D. The Grievance Committee shall consist of the
President of the Association, the Chief Shop Steward and three (3) elected
members of the Association who will be elected according to the by-laws of the
Association. The President or the Chief Shop Steward shall have the right to go
from one shop to another on grievances without loss of pay upon approval of
their respective foremen. A reasonable effort shall be made to conduct this
business during the normal lunch period.
SECTION E. Members of the Grievance Committee will not be paid
by the Corporation for attending grievance meetings. No grievance meeting will'
be scheduled to begin after 1:00 p.m.
ARTICLE XII
SUSPENSION AND DISCHARGE
In the event an employee is suspended or discharged and the
employee believes he or she has been unjustly dealt with, the employee may file
a grievance and such grievance shall be processed under Article XI of this
Agreement, beginning with the third step thereof.
25
<PAGE>
The grievance shall contain the date and nature of the
suspension or discharge, and the employee shall have five (5) work days from the
date of such suspension or discharge to file the grievance. In no case following
the expiration of five (5) work days referred to herein may a grievance
regarding suspension or discharge be presented. The Corporation will meet with
the Grievance Committee before it discharges any employee.
The Corporation will disregard any disciplinary record in an
employee's personnel file after twelve (12) months have elapsed from the date of
the employee's most recent disciplinary infraction.
ARTICLE XIII
SAFETY AND HEALTH
The Corporation shall continue to make such provisions that
are required for the safety and health of its employees during the hours of
employment.
A plant safety team shall be established consisting of two (2)
members of Management and three (3) members appointed by the Association. This
safety team must meet at least once each thirty (30) days for the purpose of
reviewing and resolving the problems and conditions which involve the safety of
the employees. The safety team shall send a report, signed by all of the members
present, to the Plant Manager, the Vice President of Operations, and the
Association's Secretary.
All accidents that result in personal injury and/or property damage, regardless
of how minor, must be reported to a supervisor.
The minutes of each monthly Safety Committee Meeting shall be
posted not later than seven (7) working days after each meeting.
If reasonable action is not taken to an unsafe condition, the
Association has the right to present a grievance starting in Step No. 3 of the
grievance procedure.
No employee shall be required to work on any job which, in the
opinion of the majority of the safety committee, is unsafe, nor shall any
employee be penalized for failure to work under such conditions. Notice of such
unsafe conditions shall be given to the Corporation immediately upon its
discovery by the safety committee.
An employee who uses prescription glasses in the performance
of employee's job duties will be reimbursed Fifty ($50.00) Dollars by the
Corporation once each twelve (12) months upon presenting verification of
purchase of safety prescription glasses
26
<PAGE>
which meet or exceed the standard set
forth in Z-87.1-1989 of the American National Standards Institute.
ARTICLE XIV
FUNERAL LEAVE
SECTION A. When a death occurs in the immediate family, the
employee shall be permitted three (3) days' absence without loss of pay.
Reimbursement of pay shall be twenty-four (24) hours at the employee's straight
time hourly rate. The immediate family shall constitute a husband, wife, father,
mother, sister, brother, son, daughter, father-in-law, mother-in-law and
grandparents of the employee. One (1) day's paid absence shall be permitted for
stepmother, step-father for funeral leave.
An employee who attends the funeral of an aunt or uncle (or
spouse's aunt or uncle), brother-in law, sister-in-law, step son/daughter, will
be granted a one (1) day unpaid excused absence.
Saturday and Sunday shall not be considered as working days.
Proof of time of death and burial must be submitted to the Accounting Department
in order to be compensated for the lost time outlined above.
If an employee is on vacation and a death occurs in employee's
immediate family, his or her vacation will be extended by the number of week
days lost, due to the above incident, not to exceed three (3) days.
If during a normal work week as defined in Article V, a paid
holiday is observed not earlier than the date of death nor later than the date
of burial, the employee can extend the employee's funeral leave by eight (8)
working hours for each paid holiday observed, beginning on date of death to and
including date of burial.
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<PAGE>
ARTICLE XV
MISCELLANEOUS
SECTION A. One special bulletin board for the use of the
Association shall be erected in each Department at such places as shall be
agreed upon by the President of the Association and the designated
representative of the Corporation. Said bulletin board may be used only to
notify Association members of official Association business, except that notices
of a non-partisan civic nature may be posted if first submitted to the
designated Corporation representative and approved by him. The decision of the
Corporation shall be final and binding. All notices of official Association
business-shall be signed by the President, Secretary or Chief Shop Steward of
the Association.
SECTION B. FOREMEN AND OTHER SUPERVISORS. The primary function
of a foreman and other supervisors is supervision. Foreman and other supervisors
shall not perform work customarily assigned to members of the bargaining unit
when their performance of such work will cause members of the bargaining unit to
be sent home or prevent the recall of laid-off members or the hiring of new
employees.
SECTION C. The Corporation will provide, and split the cost
with the Employee Association, for copies of this contract in mini-booklet form
to all existing employees and new hires during the contract period.
ARTICLE XVI
INSURANCE AND PENSIONS
SECTION A. The Corporation agrees to provide life insurance
coverage for each employee as follows:
August 1, 1998 $15,000
Each new employee shall not be eligible for such life
insurance until the first of the month following thirty (30) days' employment
with the Corporation.
Each employee shall be required to pass a pre-employment
physical examination. Employees who are re-hired or laid off for more than a
thirty-day (30) period may also be required to take a physical examination.
Upon death for any cause, whether on or off the job, the
beneficiary named on the employee's policy shall receive the amount of insurance
stated on such employee's policy.
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<PAGE>
An employee who completes at least twenty (20) years of employment and has
attained the age of at least sixty-five (65) years may retire with a paid-up
life insurance policy in the amount of Two Thousand Five Hundred Dollars
($2,500.00).
An hourly employee who has completed at least twenty-five (25)
years of credited service and- has attained the age of at least sixty-two (62)
years may retire with a paid-up life insurance policy in the amount of One
Thousand Two Hundred Fifty Dollars ($1,250.00).
In case of a temporary lay-off of thirty (30) days or less,
the Corporation shall keep the employee's life insurance in effect. All
insurance's shall cease at termination of employment, except for employees under
eligible retirement as defined hereinbefore.
SECTION B. The Corporation agrees to provide insurance for
each employee for accidents or sickness off the job that prevents the employee
from working. Employees shall receive weekly payments for a maximum of
twenty-six (26) weeks beginning on the day of the accident or on the eighth day
of illness. For new cases only, on each one of the three following effective
dates the Corporation will pay:
August 1, 1998 $325 per week for the life of this agreement
In cases of illness or accident off the job, the employee must
report employee's absence from work to the Personnel Manager and request the
proper report form, provided by the insurance company, be mailed to him. The
employee's doctor shall fill out what is required on such form. The form shall
be returned to the Corporation for completion and forwarding to the insurance
company.
Upon release by employee's physician, the employee shall
report to the Dispensary before employee may return to work. The Corporation may
require the employee to be examined by the Corporation's physician. The above
insurance ceases upon termination of employment.
SECTION C. Effective August 1, 1998, the Corporation will
absorb the entire cost of providing U. S. Healthcare or its equivalent for the
duration of this Agreement. An employee may elect to be covered under either of
two (2) U. S. Health Care Plans as follows:
1. Premiere
2. Patriot XV Liberty D
(1) The limitation on the amount of benefits provided under
the Major Medical Plan is One Million Dollars ($1,000,000.00).
(2) For employees who retire at age 62 up to age 65 on or
after August l, 1998, the Corporation agrees to purchase for such retired
employees U. S. Healthcare, or
29
<PAGE>
equivalent coverage under one of the Corporation's approved plans where the
Corporation's contribution shall be limited to $115.00 per month if married and
$58.00 per month if single.
(3) The Corporation agrees to purchase for employees age 65 or
older who retire on or after August 1, 1998 coverage U.S. Healthcare Medicare V,
or equivalent. The Corporation's contribution shall not exceed $115.00 per month
if an employee is married and $58.00 per month if single. Any subsequent
increase in the cost of the retiree's medical insurance plan will be paid in
total by the retiree.
(4) In the event an employee is out on leave which is covered
by the Corporation's accident and sickness policy, the Corporation will continue
to provide medical coverage on the following basis:
(a) After one (l) year of service -- 50% of the premium cost
that the Corporation was contributing prior to the leave.
(b) After two (2) years of service or more -- 100% of the
premium cost that the Corporation, under the U.S. Healthcare Premium Plan or its
equivalent, was contributing prior to the leave.
If the employee remains on sickness and accident leave beyond
the twenty-six (26) week maximum coverage period, the Corporation will continue
to provide medical coverage in accordance with the above standards for a period
not to exceed two (2) years provided the employee's seniority has not been
canceled and that the employee elects medical coverage under the U. S. Health
Care "Premier Plan" on the earliest date that such employee may elect to
transfer to the Premier Plan. In the event the employee was already enrolled in
the Premier Plan, the employee must remain in the Premier Plan or lose the right
to the Corporation's contribution.
For those employees and/or their families covered by the Corporation's present
carrier, where the employee co-pay charge is twenty five dollars, the
Corporation will reimburse the employees for every co-pay charge incurred by the
employee and /or his or her family (if family coverage is provided) over ten
such charges over a twelve month period. The employee will be responsible for
providing the Corporation with proof of same.
Durable medical coverage will continue.
SECTION D. The insurance coverage provided for in Section C
above shall be made effective in accordance with the terms and conditions
specified in the Agreements entered into by the Corporation with any insurance
carrier, or with U. S. Health Care.
30
<PAGE>
The foregoing program of social insurance benefits provided in
Sections A, B and C shall be in substitution for any and all other plans
providing for insurance benefits to covered employees for sickness and accident
and hospitalization benefits. It is intended that the provisions for sickness
and accident benefits which shall be included in such program of social
insurance benefits shall comply with and be in substitution for provisions for
similar benefits which shall be provided for under such law or laws, the cost to
the Corporation of such benefits under such law or laws, shall be deducted from
the amount which the Corporation is required to contribute to the program of
social insurance benefits as provided for herein and an appropriate readjustment
shall be made in the benefits provided for under such program.
SECTION E. (1) The Corporation and the Association have
entered into two pension Agreements. One pension agreement (The Bethlehem
Corporation Retirement Income Plan, commonly referred to as the Easton Hourly
Pension Plan) dated as of June 8, 1964 and as amended as of June 15, 1967, June
15, 1970, June 22, 1974, November 16, 1975, June 23, 1977, June 15, 1979, July
21, 1980, June 12, 1984, August 12, 1987, July 23, 1991 and July 23, 1994.
and
one pension agreement (The Bethlehem Corporation Employees' Association Pension
Plan, commonly referred to as The Bethlehem Hourly Pension Plan) dated as of
January 2, 1970 and amended as of October 1, 1970, October 1, 1974, June 23,
1977, June 15, 1979, July 21, 1980, June 12, 1984, August 12, 1987, July 23,
1991 and July 23, 1994.
References therein to the "Existing Agreement" shall be taken
as reference to the Agreement dated July 23, 1994. Each pension agreement, as
amended, shall become effective as of that date and remain in effect in
accordance with its terms.
(2) The pension agreements shall be amended so that no further
benefits will accrue after December 31, 1994 and the retirement benefits accrued
as of that date will be fully protected. The Corporation will fully fund the
pension plans in accordance with ERISA guidelines.
(3) Effective January 1, 1995, the Corporation has established
a 401(k) plan which will have provisions in accordance with the Plan Summary
dated July 18, 1994. Payroll deductions will be transferred into the 401 K
accounts within two weeks following payday. All contributions by the Corporation
shall be delivered to the trustee not later than the date fixed by law for the
filing of the Corporation's Federal Income Tax return (including any extensions
of time granted by the Internal Revenue Service for filing such return). The
Federal tax return is due September 15th of each year.
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ARTICLE XVII
ASSOCIATION RESPONSIBILITY
The parties hereto agree that this Agreement provides an
orderly and expeditious method for the adjustment of differences that might
arise between them during the tenure of this Agreement; therefore, the
Association agrees it will not authorize any strikes of the employees at the
Plants of the Corporation for its duration.
In the event of an unauthorized strike, work stoppage or
interruption or impeding of work on the part of any employee or employees during
the life of this Agreement, the Association agrees that it will immediately
(within twenty-four [24] hours after notification by the Corporation, by
registered mail or personal messenger, that a strike is in progress) disavow
responsibility for the strike and order the striking employee or employees to
return to work promptly. Therefore, consistent with the above, the Corporation
agrees that it will not bring legal action against the Association or any of its
officers, agents, or members to establish responsibility for such unauthorized
strike or any damage resultant therefrom. The sole recourse and exclusive remedy
for the Corporation in such an event shall be to impose disciplinary measures
upon the employees involved, in accordance with the provisions of this
Agreement.
In the event that any employee fails to return to work
promptly after such disavowal and order to return to work, the Corporation will
be free to discharge or otherwise discipline employee without necessarily
discharging or disciplining all employees so involved and such action shall not
be held to be discriminatory. Any arbitration case shall be limited only to the
question of whether the employee did or did not encourage or participate in the
strike and the extent of the disciplinary penalty cannot be questioned.
ARTICLE XVIII
SAVINGS CLAUSE
If any Article, Section or Paragraph of this Agreement shall
be rendered null and void as a result of any Federal, State, County or Municipal
legislation, only that Article, Section or Paragraph so affected shall be
re-negotiated to conform to said State or Federal laws, and the other provisions
of this Agreement shall not be affected.
ARTICLE XIX
TERMINATION DATE
SECTION A. This Agreement and the two Pension Agreements dated
January 2, 1970, as amended, and June 22, 1964, as amended, shall constitute the
entire agreement between the Corporation and the Association. This Agreement
shall remain in full force and effect until 11:59 p.m. July 31, 2001, and shall
thereafter be continued for one (1) year and from year to year thereafter unless
notice of termination in writing via registered mail is given by either party at
least sixty (60) days before the next annual expiration date.
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<PAGE>
SECTION B. TO CHANGE, AMEND OR SUPPLEMENT. Should either party
desire to change, amend, or supplement this Agreement of August 1, 1998, or as
of any subsequent date thereto, such party may do so by giving the other party
written notice of at least thirty (30) calendar days prior to the date upon
which it desires to do so, and such party shall state in such notice the
specific Article, Section or Sub-Section thereof it desires to change, amend or
supplement. Within thirty (30) days after the receipt of such notice by either
of the parties hereto, a conference date shall be mutually agreed upon.
33
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these presents to be signed by
its duly authorized agents and said Association has caused these presents to be
executed by the signatures of its duly authorized agents this first day of
August 1998.
THE BETHLEHEM CORPORATION THE BETHLEHEM CORPORATION
EMPLOYEES ASSOCIATION
------------------------------ -----------------------------
Clark Gable Paul A. Geisewite
------------------------------ -----------------------------
Donald A. Fehr Bradley D. Smith, Sr.
------------------------------
Dennis Pfeiffer
------------------------------
Dale Stocker
------------------------------
David King, Jr.
------------------------------
Richard Freeman
------------------------------
Stephen Domyan
------------------------------
Ronald S. Ardelean
Addendum
SUPPLEMENTAL AGREEMENT
This Supplemental Agreement dated as of July 23, 1994 is entered into between
The Bethlehem Corporation, Easton, PA (hereinafter referred to as the
"Corporation") and The Bethlehem Corporation Employees' Association (hereinafter
referred to as the "Association") on behalf of itself and its members who are
employees of the Corporation.
34
<PAGE>
NOW, THEREFORE, THIS AGREEMENT WlTNESSETH:
1. Effective as of July 23, 1994 the minimum hiring-in rate for trainees will be
Labor Grade 1 for the first four months. Trainees shall progress in accordance
with the following progression schedule and subject to the following
regulations:
A. The parties recognize the need for a clearly defined Trainee Progression
Schedule under which an inexperienced employee may advance as he increases his
knowledge of the job until he attains the rate of the grade in which his job is
classified. The method of selection of trainees is as follows:
Whenever a TRAINEE opening is available, the Corporation will
not post such opening in the traditional sense, but rather will post a notice
inviting all interested employees to apply for such opening.
The General Foreman of the department involved and the Plant
Manager, together with the Personnel Manager, will compare the qualifications of
all the interested applicants. The final selection of candidates will be made
based on the capability each candidate is considered to have for eventually
acquiring the skill of the particular job.
TRAINEE PROGRESSION SCHEDULE
Automatic Progression Merit Progression
<TABLE>
<CAPTION>
Hire 4 8 12 18 24 30 36 42 48 54 60 66
Gr. Gr. Mos. Mos. Mos. Mos. Mos. Mos. Mos. Mos. Mos. Mos. Mos. Mos.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LABOR GRADE
1 1
2 1 2
3 1 2 3
4 1 2 3 4
5 1 2 3 4 5
6 1 2 3 4 5 6
7 1 2 3 4 5 6 7
8 1 2 3 4 5 6 7 8
9 1 2 3 4 5 6 7 8 9
10 1 2 3 4 5 6 7 8 9 10
11 1 2 3 4 5 6 7 8 9 10 11
12 1 2 3 4 5 6 7 8 9 10 11 12
13 1 2 3 4 5 6 7 8 9 10 11 12 13
</TABLE>
NOTE: Advancement of a Trainee shall be by automatic progression in any grade up
to and including Grade 4. Thereafter, such advancement shall be on a merit
basis.
35
<PAGE>
If there are no applicants indicating interest in the TRAINEE
opportunity or if no applicants are deemed sufficiently qualified for such
TRAINEE job, the Corporation may fill such opening by assigning or hire new
employees at its discretion.
While in training, all TRAINEES will be considered to hold the
job classification of the job for which they are being trained, and such job
classification will determine a trainee's rights as to transfer and promotion,
layoffs and recalls.
B. Within the limitations of the Trainee Progression Schedule the
Corporation may:
(i) hire a new employee at any rate at or
between the Hire Rate and the Job Rate for
the grade in which the employee's job is
classified according to the employee's
previous experience.
(ii) progress trainees in Grades 2, 3 and 4 on an
automatic basis in accordance with the
intervals and increases specified in the
Trainee Progression Schedule.
(iii) progress trainees in the first four steps of
Grades 5 to 13 that is up to and including a
basic rate of Labor Grade 4 or an automatic
basis in accordance with the intervals and
increases specified in the Trainee
Progression Schedule.
(iv) progress trainees in all steps subsequent to
the fourth step of Grades 5 to 13 that is
after attainment of a basic rate of Labor
Grade 4 on a merit basis in accordance with
the intervals and increases specified in the
Trainee Progression Schedule.
(v) progress a trainee at a faster rate, if such
trainee's performance warrants it.
C. The Corporation may, at its discretion, withhold an automatic progression
increase if, in its judgment, a trainee's progress does not warrant such
increase, provided the Corporation does not require the trainee to continue as a
trainee on the job on which he was previously being trained and in connection
with which he was being considered for a progression increase.
D. Whenever a merit progression increase is withheld under the Trainee
Progression Schedule, the Plant Manager shall submit his reasons therefor in
writing to the Personnel Manager of the Corporation, who shall within ten (10)
days thereafter advise the President of the Association of the name of the
trainee and the reasons why the merit progression increase was withheld. In such
cases, the trainee's progress shall be reviewed three months thereafter to
determine whether he shall be given the merit progression increase previously
withheld.
36
<PAGE>
E. The determination as to whether a trainee shall receive a merit progression
increase shall not be subject to the Grievance Procedure unless such merit
progression increase has been withheld after being reviewed at the end of two
regular six-month review periods.
F. If a trainee has progressed through the first four steps of any grade and is
receiving a rate of Labor Grade 4 or more on the job for which he is being
trained and he is subsequently taken off such a job because of lack of work and
transferred to another job which carries a basic rate of more than Labor Grade 4
he shall begin work as a trainee on the job to which he is transferred at a rate
of Labor Grade 4. If the basic rate for the job to which he is transferred is
Labor Grade 4 or less, he shall begin work at the basic rate for the job.
2. The Corporation and the Association have agreed on the classification of all
existing jobs in the Corporation into thirteen (13) labor grades.
3. The Corporation and the Association have copies of job descriptions for all
jobs in the Corporation as of July 21, 1980. The job descriptions are not
intended to describe or set out in complete detail all the duties and
responsibilities which go with any job. The job descriptions set forth the
general duties considered necessary to evaluate the job in the factors of skill,
effort, responsibility and job conditions and shall not be construed as a
detailed description or statement of all the work requirements that may be
inherent in the job. No grievance may be filed in connection with approved job
descriptions. Jobs referred to herein as "craft jobs" have been designated as
such on the job description.
(a) The association will submit a list of jobs to the Corporation. These jobs
are to be reviewed and approved by the parties within a mutually agreed time
period.
4. No employee who prior to July 21, 1980 has a personal rate above the basic
rate established for his job will be reduced unless reclassified into a
different job through the operation of the "Seniority" section of the present
Agreement. An employee reclassified in accordance with these provisions upon
being transferred back into the job in which he had a personal rate shall have
it restored. An employee whose connection with the Corporation is terminated
under conditions whereby his seniority is canceled in accordance with the
"Seniority" section of the present Agreement will not have his personal rate
restored on re-hire.
5. Transfers of employees from one job classification to another may be made
from time to time for the convenience of the Corporation. These transfers can be
made during any scheduled shift including Saturdays and Sundays. An employee who
is temporarily transferred for the convenience of the Corporation shall receive
the rate of the job to which he is transferred or the rate of the job on which
he has been working, whichever is higher. An employee who is transferred in lieu
of lay-off shall receive the rate of the job to which he is transferred.
37
<PAGE>
6. The Corporation may establish a new job or change the work assignment of an
existing job so as to require a change in grade. In such event, the following
procedure shall apply:
A. As promptly as practicable but not later than sixty (60) days after the new
or changed job goes into operation, the Corporation will prepare a job
description and a proposed classification by grade and submit them to the
Association.
B. Within seven (7) calendar days thereafter, the Association shall return said
description and classification by grade with his approval noted thereon or with
its disapproval noted thereon and accompanied by a request for a conference.
C. If the Association approved said description and classification by grade or
fails to return them in seven (7) calendar days, said description and
classification by grade shall become effective as of the day the new job is
filled or the change made.
D. If after the conference called for in paragraph B above, the Corporation and
the Association are unable to agree, the description and classification by grade
shall be put into effect subject to paragraph E below.
E. Any employee or employees, affected by the establishment of a new job or a
change in the description or an existing job and the classification by grade of
such new or changed job, may file a grievance through a member of the
Association's Grievance Committee as provided in the Third Step procedure
established by the Grievance Section of the present Agreement, unless prior to
its filing said description and classification by grade have been accepted by
the Association.
F. Any revised job description and classification by grade resulting from a
conference between the Corporation and the Association shall be retroactive to
the date the new job is filled or the change made, except that such
retro-activity shall not extend back for more than ninety (90) days prior to the
date of the Corporation's submission of the job description and proposed
classification by grade. Any revised job description and classification by grade
resulting from the filing and processing of a grievance shall be retroactive to
the date the new job is filled or the change made, except that such
retro-actively shall not extend back for more than ninety (90) days prior to the
date of the filing of the grievance.
7. The job description and labor grades established by this Supplemental
Agreement, except as modified pursuant to Section 6 above, shall continue in
full force and effect unless the Corporation terminates any job or such job
remains continuously unfilled for the period of a calendar year.
8. The Corporation shall have the sole right to determine the number of
employees required in each and every job classification throughout the plant.
38
<PAGE>
9. For the purposes of training employees for higher rated job classifications,
an employee in a lower rated job classification shall accept temporary
assignments of work normally performed by employees in a higher rated job
classification. While performing such work, the employee shall receive the rate
of pay for his regular job classification or a higher rate of pay based upon the
efficiency and ability of the employee to perform the work temporarily assigned.
39
NOTE
US $2,000,000.00 Easton, Pennsylvania
December 19,1997
FOR VALUE RECEIVED, the undersigned ("BORROWER") promise to pay
OCWEN FEDERAL BANK FSB or its successors or assigns ("Lender"), or order, the
principal sum of Two Million Dollars ($2,000,000.00), with interest on the
unpaid principal balance from the date of this Note ("NOTE"), until paid, at the
rate of eleven and one quarter percent (11.25%) per annum. The principal and
interest shall be payable at P.O. Box 16071, New Brunswick, New Jersey
089066071, or such other place as the holder hereof may designate in writing, in
consecutive monthly installments of twenty thousand, nine hundred eighty-five
dollars and twelve cents (US $20,985.12) on the first (I st) day of each month
beginning February, 1998, until the entire indebtedness evidenced hereby is
fully paid, except that any remaining indebtedness, if not sooner paid, shall be
due and payable on January 1, 2003.
Borrower shall have no right to make a prepayment of the outstanding
principal balance of this Note in whole or in part during the first twelve (12)
months of the term of this Note. In months thirteen (13) through twenty-four
(24), the Loan may be prepaid in whole but not in part, upon thirty (30) days
prior written notice to Lender, provided that such prepayment is accompanied by
a prepayment consideration equal to three percent (3%) of the amount of
principal prepaid. In months twenty-five (25) through thirty-six (36), the Loan
may be prepaid in whole but not in part, upon thirty (30) days prior written
notice to Lender, provided that such prepayment is accompanied by a prepayment
consideration equal to one and one-half percent (1.5%) of the amount of
principal prepaid. In months thirty-seven (37) through forty-eight (48), the
Loan may be prepaid in whole but not in part, upon thirty (30) days prior
written notice to Lender, provided that such prepayment is accompanied by a
prepayment consideration equal to one-half percent (.5%) of the amount of
principal prepaid. After the forty-eighth (48th) month following the date of
Closing, Borrower may prepay the Loan in whole or in part, upon thirty (30) days
written notice to Lender without a prepayment consideration. Borrower shall pay
the prepayment premium due under this paragraph whether the prepayment is
voluntary or involuntary (in connection with Lender's acceleration of unpaid
principal balance of the Note) or whether the Mortgage is satisfied or released
by foreclosure (whether by power of sale or judicial proceeding), deed in lieu
of foreclosure or by any other means. Notwithstanding any other provision of
this Note, the Borrower shall not be required to pay any prepayment premium in
connection with any prepayment occurring as a result of the application of
insurance proceeds or condemnation award pursuant to the Mortgage.
The term "LOAN DOCUMENTS" when used in this Note shall mean,
collectively, the following documents: (i) the Open-Mortgage, Assignment of
Rents and Security Agreement (the "INSTRUMENT") executed of even date herewith
to secure the Note; (ii) this Note; and (iii) all other documents or agreements
arising under, related to, or made in connection with, the loan evidenced by the
Note (the "LOAN") as such Loan Documents may be amended from time to time.
Capitalized terms not otherwise defined herein shall have the meaning set forth
in the Instrument and if not contained therein in the Loan Documents.
If any installment under this Note is not paid on the due date, and
if after ten (10) days written notice of non-payment has been given to Borrower
that installment has still not been paid, then an Event of Default shall be
deemed to have occurred hereunder, as a result of which the entire principal
amount outstanding hereunder and accrued interest thereon shall at once
1
<PAGE>
become due and payable, at the option of the holder hereof. The holder hereof
may exercise this option to accelerate upon any Event of Default by the
undersigned regardless of any prior forbearance. Upon the occurrence of an Event
of Default in connection with payment of installments under this Note, and if
the same is referred to an attorney at law for collection or any action at law
or in equity is brought with respect hereto, the undersigned shall pay the
holder hereof all reasonable expenses and costs, including, but not limited to,
attorney's fees.
If any installment under this Note is not received by the holder
hereof within five (5) calendar days after the installment is due, the
undersigned shall pay to the holder hereof a late charge of five (5%) percent of
such installment, such late charge to be immediately due and payable without
demand by the holder hereof. Upon the occurrence of an Event of Default, in
order to compensate the Lender for its increased administrative costs associated
with such Event of Default, the outstanding principal balance of this Note shall
bear interest at a rate of eighteen percent (18%) per annum.
From time to time, without affecting the obligation of the
undersigned or the successors or assigns of the undersigned to pay the
outstanding principal balance of this Note and observe the covenants of the
undersigned contained herein, without affecting the guaranty of any person,
corporation, partnership or other entity for payment of the outstanding
principal balance of this Note, without giving notice to or obtaining the
consent of the undersigned, the successors or assigns of the UNDERSIGNED OR
GUARANTORS, AND WITHOUT LIABILITY ON THE PART of the holder hereof, the holder
hereof may, at the option of the holder hereof, extend the time for payment of
said outstanding principal balance or any part thereof, reduce the payments
thereon, release anyone liable on any of said outstanding principal balance,
accept a renewal of this Note, modify the terms and time of payment of said
outstanding principal balance, join in any extension or subordination agreement,
release any security given herefore, take or release other or additional
security, and agree in writing with the undersigned to modify the rate of
interest or period of amortization of this Note or change the amount of the
monthly installments payable hereunder.
Presentment, notice of dishonor, and protest are hereby waived by
all makers, sureties, guarantors and endorsers hereof. This Note shall be the
joint and several obligation of all makers, sureties, guarantors and endorsers,
and shall be binding upon them and their successors and assigns.
The indebtedness evidenced by this Note is secured by the
Instrument, and reference is made thereto for rights as to acceleration of the
indebtedness evidenced by this Note. This Note, the Instrument and all other
documents executed in connection with the Loan shall be governed by the law of
the jurisdiction in which the property subject to the Instrument is located (the
"PROPERTY"). Accordingly, and notwithstanding the fact that Borrower may be a
foreign citizen, Borrower consents and submits to the jurisdiction of the
federal and state courts within the state in which the Property is located.
ADDITIONAL COVENANTS.
I. NOTICE. No notice or other communication shall be deemed given
unless sent in any of the manners, and to the persons, specified IN THIS SECTION
1. All notices and other communications hereunder shall be in writing and shall
be deemed given: (a) upon receipt if delivered personally (unless subject to
clause (b)) or if mailed by registered or certified mail
2
<PAGE>
return receipt requested, postage prepaid; (b) at noon on the business day after
dispatch if sent by a nationally recognized overnight courier or (c) upon the
completion of transmission (which is confirmed by telephone or by a statement
generated by the transmitting machine) if transmitted by telecopy or other means
of facsimile which provides immediate or near immediate transmission to
compatible equipment in the possession of the recipient, in any case to the
parties at the following addresses or telecopy numbers (or at such other address
or telecopy number for a party as will be specified by like notice):
if to Borrower:
The Bethlehem Corporation
25th and Lennox Streets
Easton, Pennsylvania 18045
Attention: Antoinette L. Martin, Treasurer
Telecopy Number: (610) 515-1341
with a copy to:
Kevin Fogerty, Esquire
1620 Pond Road - Suite 301
Allentown, Pennsylvania 18104
TELECOPY NUMBER: (610) 366-0955
or if to Lender:
Ocwen Federal Bank FSB
1675 Palm Beach Lakes Blvd.
Suite 530
West Palm Beach, Florida 33401
ATTENTION: Small Commercial Discount Loans
Telecopy Number: (561) 681-8153
2. EFFECTIVE RATE OF INTEREST. The Borrower agrees to pay an
effective rate of interest that is equal to the rate set forth in the Note plus
any additional rate of interest resulting from any other charges paid or to be
paid in connection with the Note being deemed under applicable law to be in the
nature of interest. The Note is subject to the express condition that at no time
shall the Borrower be obligated or required to pay interest on the principal
balance due hereunder at a rate which could subject the Lender to either civil
or criminal liability as a result of being in excess of the maximum interest
rate which the Borrower is permitted by applicable law to contract or agree to
pay. If by the terms of the Note, the Borrower is at any time required or
obligated to pay interest on the principal balance due hereunder at a rate in
excess of such maximum rate, the rate of interest under the Note shall be deemed
to be immediately reduced to such maximum rate and all previous payments in
excess of the maximum rate shall be deemed to have been payments in reduction of
principal and not on account of the interest due hereunder, provided, however,
that any portions of such previous payments applied to reduction of the
principal shall not trigger or cause Borrower to be liable or responsible for
any prepayment penalty under this Note.
3
<PAGE>
3. BORROWER'S EXCULPATION. Subject to the provisions of Section 4
of this Note, and notwithstanding any other provision in the Note, the personal
liability of the Borrower to pay any and all amounts due and owing on the Loan
(including, without limitation, principal and interest, costs of collection and
attorneys fees) set forth in any of the Loan Documents shall be limited to:
a. The real and personal property described as the Property in the
Instrument (the "PROPERTY");
b. The rents, profits, issues, products and income of the Property,
derived from the sale, lease or other disposition or transfer of the Property,
but not profits from the operation of Borrower's business, received or collected
by or on behalf of Borrower (the "RENTS AND PROFITS") to the extent that such
receipts are necessary first, to pay the reasonable expenses of operating,
managing, maintaining and repairing the Property, including but not limited to
real estate taxes, utilities, assessments, insurance premiums, repairs,
replacements and ground rents, if any (the "OPERATING EXPENSES") then due and
payable as of the time of receipt of the Rents and Profits and then, to pay the
principal and interest due under the Note and any other sums due under the
Instrument or any other loan document (including but not limited to deposits or
reserves due under any Collateral Agreement) except to the extent that the
Borrower did not have the legal right because of a bankruptcy, receivership or
similar judicial proceeding, to direct the disbursement of such sums;
C. The personal property described in or pledged under any
Collateral Agreement executed in connection with the Loan; and
d. Any other collateral given to secure the Note.
Except as provided in Section 4 of this Note, the Lender shall not seek:
(i) Any judgment for a deficiency against the Borrower or the
Borrower's officers and directors, legal representatives, successors or assigns,
in any action to enforce any right or remedy under the Instrument, or
(ii) Any judgment on the Note except as may be necessary in any
action brought under the Instrument to enforce the lien against the Property or
to exercise any remedies under any Collateral Agreement.
4. EXCEPTIONS TO NON-RECOURSE LIABILITY. If, without obtaining the
Lender's prior written consent: (a) a Transfer shall occur which, pursuant to
Section 19 of the Instrument, gives the Lender the right, at its option, to
declare all sums secured by the Instrument immediately due and payable; or (b)
the Borrower shall encumber the Property with the lien of any subordinate
instrument in connection with any financing by the Borrower, any of such events
shall constitute a default by the Borrower under the Note, the Instrument and
the other Loan Documents, and if such event shall continue for thirty (30) days,
an Event of Default shall be deemed to have occurred hereunder, and SECTION 3 of
this Note shall not apply from and after the date which is thirty (30) days
after such event and the Borrower shall be personally liable for full recourse
liability under the Note, the Instrument and the other Loan Documents.
4
<PAGE>
Notwithstanding Section 3 of this Note, the Borrower shall be
personally liable to the Lender in the amount of any loss, damage or cost
(including but not limited to attorney's fees) resulting from: (a) fraud or
intentional misrepresentation by the Borrower in connection with obtaining the
Loan or in complying with any of the Borrower's obligations under the Loan
Documents; (b) insurance proceeds, condemnation awards, security deposits from
tenants or other sums or payments attributable to the Property not applied in
accordance with the provisions of the Instrument, except to the extent that the
Borrower did not have the legal right, because of a bankruptcy, receivership or
similar judicial proceeding, to direct disbursement of such sums or payments;
(c) all Rents and Profits, (except to the extent that the Borrower did not have
the legal right, because of a bankruptcy, receivership or similar judicial
proceeding, to direct the disbursement of such sums) not applied, first, to the
payment of the reasonable Operating Expenses as such Operating Expenses become
due and payable, and then, to the payment of principal and interest then due and
payable under the Note and any other sums due under the Instrument and any other
Loan Documents (including but not limited to deposits or reserves payable under
any Collateral Agreement); provided, however, that Borrower shall have no
liability for Rents and Profits which were distributed in any previous fiscal
year, if Borrower paid: (i) all of the Operating Expenses; (ii) all other
amounts due under the Instrument and any other Loan Documents and (iii) all
other debt service relating to the Property and the Borrower for that fiscal
year; (d) the Borrower's failure to pay transfer fees and charges due to the
Lender under the Note or the Instrument in connection with any transfer of all
or any part of the Property, or any interest therein, from the Borrower to the
Borrower's transferee, or transfer of beneficial interest in the Borrower (if
the Borrower is not a natural person or persons but is a corporation,
partnership, trust or other legal entity); (e) failure by the Borrower, or any
member of the Borrower, to comply with the covenants, obligations, liabilities,
warranties and representations contained in SECTION 39 ("ENVIRONMENTAL HAZARDS")
of the Instrument due to the intentional or grossly negligent acts or omissions
of the Borrower or the Borrower's agents or employees; (f) the Borrower's
failure following an Event of Default under any of the Loan Documents to deliver
to the Lender on demand all Rents and Profits, security deposits, books and
records relating to the Property; or (g) material breach of any representation
or warranty contained in any of the Loan Documents.
No provision of SECTION 3 of the Note or this SECTION 4 shall: (a)
affect any guaranty or similar agreement executed in connection with the Loan;
(b) release or reduce the debt evidenced by the Note; (c) impair the lien of the
Instrument or (d) impair the rights of the Lender to enforce the provisions of
SECTION 39 ("ENVIRONMENTAL HAZARDS") of the Instrument or subparagraphs (f)
through (i) of SECTION 38 ("INDEMNIFICATION") of the Instrument.
5. NO ORAL MODIFICATION, INTEGRATION. THE NOTE AND ALL THE OTHER
LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT OF BORROWER AND LENDER AND
SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF BORROWER AND
LENDER.
5
<PAGE>
THERE ARE NO ORAL AGREEMENTS BETWEEN BORROWER AND LENDER. The Note may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of the Borrower or the Lender, but only
by an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
6. CALCULATION OF INTEREST. Interest on the principal sum of the
Note shall be calculated on the basis of a 360 day year consisting of twelve
(12) months of thirty (30) days each. Interest on the Note shall be paid in
arrears except that interest due and payable for a period less than a full month
shall be calculated by multiplying the actual number of days elapsed in such
period by a daily rate based on a 365 day year and shall be paid in advance.
7. EVENT OF DEFAULT. The Borrower shall be in default under this
Note, the Instrument and the other Loan Documents upon the occurrence of any of
the following. events, circumstances, or conditions (an "Event of Default"): (a)
a failure by the Borrower to pay within ten (10) days after written notice
thereof, any amount required to be paid by the Borrower to the Lender or to any
third party under the Note, the Instrument, or any other Loan Document; (b) the
Borrower's default, breach or failure to comply with any of the covenants, terms
or conditions of the Note, the Instrument, or any other Loan Document (other
than the defaults described in SECTION 18 OF the Instrument and SECTIONS 7(A)
AND c hereof) which default, breach or failure is not cured within ten (10) days
after Lender forwards written notice of such default, breach or failure in
accordance with Section 20 of the Instrument, and farther provided that if such
default can not reasonably be cured within such ten (10) day period, that
Borrower commences to cure such default within ten (10) days, and completes such
cure within a total of thirty (30) days, or if such cure cannot reasonably be
completed within that time, has commenced cure during that period, and is
diligently pursuing same to completion; or (c) the making or furnishing of any
verbal or written representation, statement or warranty by or on behalf of the
Borrower to the Lender, in connection with the Loan which is known by Borrower
or shall have been known by Borrower to be false or incorrect in any material
respect.
8. WAIVER OF JURY TRIAL. Borrower and Lender, upon advice from
their respective counsel, hereby intentionally, knowingly, voluntarily,
expressly and mutually waive the right to trial by jury of any claim, demand,
action or cause of action (i) arising under this Note; or (ii) in any way
connected with or related or incidental to the dealings of the parties hereto or
any of them with respect to this Note or the Loan Documents. In each case
whether now existing or hereafter arising and whether in contract or tort or
otherwise, each party hereby agrees and consents that any such claim, demand,
action or cause of action shall be decided by a court trial without a jury and
that any party to this Note may file this original Note or a copy thereof with
any court as written evidence of the consent of the parties hereto to the waiver
of their right to a trial by jury.
9. CONFESSION OF JUDGMENT. BORROWER HEREBY AUTHORIZES AND EMPOWERS
ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR IN ANY OTHER JURISDICTION WHICH PERMITS THE ENTRY OF JUDGMENT
BY CONFESSION, TO APPEAR FOR BORROWER AT ANY TIME AFTER THE OCCURRENCE OF AN
EVENT OF DEFAULT IN ANY ACTION BROUGHT
6
<PAGE>
AGAINST BORROWER ON THIS NOTE OR THE LOAN DOCUMENTS AT THE SUIT OF BANK, WITH OR
WITHOUT COMPLAINT OR DECLARATION FILED, WITHOUT STAY OF EXECUTION, AS OF ANY
TERM OR TIME, AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST BORROWER FOR THE
ENTIRE UNPAID OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AND ALL OTHER SUMS TO BE
PAID BY BORROWER TO OR ON BEHALF OF BANK PURSUANT TO THE TERMS HEREOF OR OF THE
LOAN DOCUMENTS AND ALL ARREARAGES OF INTEREST THEREON, TOGETHER WITH ALL COSTS
AND OTHER EXPENSES AND AN ATTORNEY'S COLLECTION COMMISSION OF FIFTEEN PERCENT
(15%) OF THE AGGREGATE AMOUNT OF THE FOREGOING SUMS, BUT IN NO EVENT LESS THAN
$5,000.00, PROVIDED, HOWEVER, THAT ANY ATTORNEYS' FEES SOUGHT TO BE RECOVERED IN
CONNECTION WITH CONFESSION OF JUDGMENT PROCEEDING SHALL BE REASONABLE IN LIGHT
OF TIME ACTUALLY EXPENDED BY SAID ATTORNEYS, AND THEIR BILLING RATE; AND FOR SO
DOING THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT
WARRANT.
THE AUTHORITY GRANTED HEREIN TO CONFESS JUDGMENT SHALL NOT BE
EXHAUSTED BY ANY EXERCISE THEREOF BUT SHALL CONTINUE FROM TIME TO TIME AND AT
ALL TIMES UNTIL PAYMENT IN FULL OF ALL THE AMOUNTS DUE HEREUNDER. BORROWER
ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION WITH THE
EXECUTION AND DELIVERY OF THIS NOTE AND THAT IT KNOWINGLY WAIVES ITS RIGHT TO BE
HEARD PRIOR TO THE ENTRY OF SUCH JUDGMENT AND UNDERSTANDS THAT, UPON SUCH ENTRY,
SUCH JUDGMENT SHALL BECOME A LIEN ON ALL REAL PROPERTY OF BORROWER IN THE COUNTY
WHERE SUCH JUDGMENT IS ENTERED.
Executed under seal on the date and year first above written.
Witnesseth: THE BETHLEHEM CORPORATION, BORROWER
_____________________________ By: _________________________________
Helen Castner Assistant Secretary Antoinette L. Martin, Treasurer
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT"), is entered into as of June
2, 1998, between THE BETHLEHEM CORPORATION, a Pennsylvania corporation (the
"BORROWER") and PNC BANK, NATIONAL ASSOCIATION, a national banking association
(the "BANK").
The Borrower and the Bank with the intent to be legally bound, agree
as follows:
1. LOAN. The following loan and credit facilities (collectively
referred to as the "LOAN"), shall be subject to and governed by this
Agreement:
$3,200,000 Committed Line of Credit (the "COMMITTED LINE OF CREDIT")
$ 800,000 Term Loan (the "TERM LOAN")
The proceeds of each of the Committed Line of Credit and the Term Loan shall be
used to refinance the outstanding balance of term and revolving debt that the
Borrower presently owes to CIT Group/Credit Finance and to finance the ongoing
general corporate and general working capital needs of the Borrower, except as
otherwise set forth herein.
2. TERMS AND CONDITIONS. Subject to the terms and conditions hereof and
relying upon the representations and warranties herein set forth,
the Bank agrees to make the Loan to the Borrower at any time or from
time to time on or after the date hereof in accordance with the
terms of this Agreement.
2.1 COMMITTED LINE OF CREDIT. The Committed Line of Credit shall
have the following terms:
(a) MATURITY DATE: June 1, 1999, or such later date as may be
designated by the Bank by written notice to the Borrower.
(b) INTEREST RATE: Prime Rate (as defined hereinafter) plus one and
one-half percent (1.50%) per annum, but in no event greater than the
maximum rate permitted by law. (As used herein, the "PRIME RATE"
shall be the rate of interest per annum announced by the Bank from
time to time as its Prime Rate.)
(c) FACILITY FEE: The Borrower shall pay to the Bank the remaining
unpaid half of a facility fee in the amount of $48,000, payable at
closing on the entire amount of the facility.
(d) BORROWING BASE/AVAILABILITY: The Committed Line of Credit shall
be available in amounts determined in accordance with the Borrowing
Base Rider in the form attached hereto as EXHIBIT A. Of such
amounts, not more than $500,000 will be made available to the
Borrower in the form of issued and outstanding letters of credit
drawn to or for the account of the Borrower, with maturity dates
that do not exceed the then-current Maturity Date.
<PAGE>
(e) REQUESTS. Except as otherwise provided herein, the Borrower may
from time to time prior to the Maturity Date request the Bank to
make a Loan under the Committed Line of Credit by delivering to the
Bank, not later than 2:00 p.m. Eastern Standard or Daylight Savings
Time, as may be in effect at the time the request for an advance is
made, a request by telephone immediately confirmed in writing by
letter, facsimile or telex in such form (a "LOAN REQUEST"), it being
understood that the Bank may rely on the authority of any individual
making such a telephonic request without the necessity of receipt of
such written confirmation. Each Loan Request shall be irrevocable
and shall specify (i) the proposed borrowing date; and (ii) the
aggregate amount of the proposed Loan. Upon the receipt by the Bank
of a timely and complete Loan Request, the Bank shall make every
reasonable effort to fund the proposed Loan on the date that it
receives such Loan Request, and shall not charge interest thereon
until such time as the proceeds thereof are in fact made available
to the Borrower.
(f) COMMITTED LINE OF CREDIT NOTE. The Obligation of the Borrower to
repay the aggregate unpaid principal amount of the Committed Line of
Credit, together with interest thereon, shall be evidenced by a
promissory note of the Borrower ("COMMITTED LINE OF CREDIT NOTE")
payable to the order of the Bank in a face amount equal to the
maximum amount of the Committed Line of Credit.
(g) LOCKBOX. The Bank, in its discretion, may establish a lockbox at
the Bank to which account debtors of the Borrower will submit all
payments in respect of the Borrower's accounts receivable.
(h) LETTER OF CREDIT FEES; RENEWAL FEES. Should the Bank
subsequently elect to extend the term of the Committed Line of
Credit (which decision shall be made at the request of the Borrower
and in the sole and absolute discretion of the Bank), the fee due
and payable to the Bank in connection therewith shall not exceed
one-half percent (0.50%). In addition, the Bank shall charge fees of
one and one-half percent per annum on stand-by letters of credit and
one-eighth of one percent (0.125%) per annum on trade letters of
credit.
2.2 TERM LOAN. The Term Loan shall have the following terms:
(a) MATURITY DATE: June 1, 2003.
(b) INTEREST RATE: The rate of interest specified in Section 1 of
the Term Note (as such term is defined below).
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(c) FACILITY FEE: The Borrower shall pay to the Bank a facility fee
in the amount of $12,000, payable at closing on the entire amount of
the facility.
(d) TERM NOTE. The Obligation of the Borrower to repay the aggregate
unpaid principal amount of the Term Loan, together with interest
thereon, shall be evidenced by a promissory note of the Borrower
(the "TERM NOTE" and together with the Committed Line of Credit
Note, the "NOTES") payable to the order of the Bank in a face amount
equal to the maximum amount of the Term Loan.
3. SECURITY. The security for repayment of the Loan shall include but
not be limited to the collateral, guaranties and other documents
heretofore, contemporaneously or hereafter executed and delivered to
the Bank (the "SECURITY DOCUMENTS"), which shall secure repayment of
the Loan, the Notes and all other loans, advances, debts,
liabilities, obligations, covenants and duties owing by the Borrower
to the Bank of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether arising
under any agreement, instrument or document, whether or not for the
payment of money, whether arising by reason of an extension of
credit, opening of a letter of credit, loan or guarantee or in any
other manner, whether arising out of overdrafts on deposit or other
accounts or electronic funds transfers (whether through automatic
clearing houses or otherwise) or out of the non-receipt of or
inability to collect funds or otherwise not being made whole in
connection with depository transfer check or other similar
arrangements, whether direct or indirect (including those acquired
by assignment or participation), absolute or contingent, joint or
several, due or to become due, now existing or hereafter arising,
and any amendments, extensions, renewals or increases and all costs
and expenses of the Bank incurred in the documentation, negotiation,
modification, enforcement, collection or otherwise in connection
with any of the foregoing, including but not limited to reasonable
attorneys' fees and expenses, but excluding all such expenses and
costs relating to the salaried employees of the Bank, and related
administrative and overhead expenses (hereinafter referred to
collectively as the "OBLIGATIONS"). This Agreement (including the
Addendum and any Riders thereto), the Notes and the Security
Documents are collectively referred to as the "LOAN DOCUMENTS".
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby makes the
following representations and warranties to the Bank which shall be
true and correct as of the date of this Agreement and the date of
the making of a Loan, and which shall be true and correct except as
otherwise set forth on the Addendum attached hereto and incorporated
herein by reference (the "ADDENDUM").
4.1. EXISTENCE, POWER AND AUTHORITY. The Borrower is duly
organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania and has the power and
authority to own and operate its assets and to conduct its
business as now or proposed to be
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<PAGE>
carried on, and is duly qualified, licensed and in good
standing to do business in all jurisdictions where its
ownership of property or the nature of its business requires
such qualification or licensing, except where the failure to
be so qualified or licensed would not have a material adverse
effect on the business, operations or financial condition of
the Borrower. The Borrower is duly authorized to execute and
deliver the Loan Documents, all necessary action to authorize
the execution and delivery of the Loan Documents has been
properly taken, and the Borrower is and will continue to be
duly authorized to borrow under this Agreement and to perform
all of the other terms and provisions of the Loan Documents.
4.2. FINANCIAL STATEMENTS. The Borrower has delivered or caused to
be delivered to the Bank its balance sheet and income
statement for the eleven month period which ended on APRIL 30,
1998 (the "Historical Financial Statements"). The Historical
Financial Statements are true, complete and accurate in all
material respects and fairly present the financial condition,
assets and liabilities, whether accrued, absolute, contingent
or otherwise and the result of the Borrower's operations for
the period specified therein. The Historical Financial
Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied
from period to period subject in the case of interim
statements to normal year-end adjustments and to any comments
and notes acceptable to the Bank.
4.3 NO MATERIAL ADVERSE CHANGE. Since the date of the Historical
Financial Statements, the Borrower has not suffered any
damage, destruction or loss to its assets, and no event or
condition has occurred or exists, which has resulted or could
reasonably be expected to result in a material adverse change
in its business, assets, operations, financial condition or
result of operation.
4.4. BINDING OBLIGATIONS. The Borrower has full power and authority
to enter into the transactions provided for in this Agreement
and has been duly authorized to do so by appropriate action of
its Board of Directors; and the Loan Documents, when executed
and delivered by the Borrower, will constitute the legal,
valid and binding obligations of the Borrower enforceable in
accordance with their terms.
4.5. NO DEFAULTS OR VIOLATIONS. There does not exist any Event of
Default under this Agreement or any material default or
violation by the Borrower of or under any of the terms,
conditions or obligations of: (i) its articles or certificate
of incorporation, regulations or bylaws; (ii) any material
indenture, mortgage, deed of trust, franchise, permit,
contract, agreement, or other instrument to which it is a
party or by which it is bound other than trade payables and
any legitimately disputed matter in litigation with any vendor
or customer, in each case where the amount in controversy does
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not exceed $15,000 and where the amount in controversy does
not exceed $100,000 on a collective basis and those litigation
matters listed in the Addendum; or (iii) any law, regulation,
ruling, order, injunction, decree, condition or other
requirement applicable to or imposed upon it by any law, the
action by any court or any governmental authority or agency;
and the consummation of this Agreement and the transactions
set forth herein will not result in any such default or
violation.
4.6. TITLE TO ASSETS. The Borrower has valid title to the assets
reflected on the Historical Financial Statements, free and
clear of all liens and encumbrances, except for (i) current
taxes and assessments not yet due and payable, (ii) liens and
encumbrances, if any, reflected or noted in the Historical
Financial Statements, (iii) assets disposed of by the Borrower
in the ordinary course of business since the date of the
Historical Financial Statements, and (iv) those liens or
encumbrances specified on the Addendum.
4.7. LITIGATION. There are no actions, suits, proceedings or
governmental investigations pending or, to the Borrower's
knowledge, threatened against the Borrower, which could
reasonably be expected to result in a material adverse change
in its business, assets, operations, financial condition or
results of operations and there is no basis known to the
Borrower for any action, suit, proceedings or investigation
which could reasonably be expected to result in such a
material adverse change. All pending or threatened litigation
against the Borrower of which Borrower has knowledge is listed
on the Addendum.
4.8. TAX RETURNS. The Borrower has filed all returns and reports
that are required to be filed by it in connection with any
federal, state or local tax, duty or charge levied, assessed
or imposed upon it or its property or withheld by it,
including unemployment, social security and similar taxes and
all of such taxes, have been either paid or adequate reserve
or other provision has been made.
4.9. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which
the Borrower may have any liability complies in all material
respects with all applicable provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA"), including
minimum funding requirements, and (i) no Prohibited
Transaction (as defined under ERISA) has occurred with respect
to any such plan, (ii) no Reportable Event (as defined under
Section 4043 of ERISA) has occurred with respect to any such
plan which would cause the Pension Benefit Guaranty
Corporation to institute proceedings under Section 4042 of
ERISA, (iii) the Borrower has not withdrawn from any such plan
or initiated steps to do so, and (iv) no steps have been taken
to terminate any such plan.
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<PAGE>
4.10. ENVIRONMENTAL MATTERS. The Borrower is in compliance, in all
material respects, with all Environmental Laws, including,
without limitation, all Environmental Laws in jurisdictions in
which the Borrower owns or operates, or has owned or operated,
a facility or site, stores Collateral, arranges or has
arranged for disposal or treatment of hazardous substances,
solid waste or other waste, accepts or has accepted for
transport any hazardous substances, solid waste or other
wastes or holds or has held any interest in real property or
otherwise. Except as otherwise disclosed on the Addendum, no
litigation or proceeding arising under, relating to or in
connection with any Environmental Law is pending or, to the
best of the Borrower's knowledge, threatened against the
Borrower, any real property which the Borrower holds or has
held an interest or any past or present operation of the
Borrower. No release, threatened release or disposal of
hazardous waste, solid waste or other wastes is occurring, or
to the best of the Borrower's knowledge has occurred, on,
under or to any real property in which the Borrower holds any
interest or performs any of its operations, in material
violation of any Environmental Law. As used in this Section,
"LITIGATION OR PROCEEDING" means any demand, claim notice,
suit, suit in equity, action, administrative action,
investigation or inquiry whether brought by a governmental
authority or other person, and "ENVIRONMENTAL LAWS" means all
provisions of laws, statutes, ordinances, rules, regulations,
permits, licenses, judgments, writs, injunctions, decrees,
orders, awards and standards promulgated by any governmental
authority concerning health, safety and protection of, or
regulation of the discharge of substances into, the
environment.
4.11. INTELLECTUAL PROPERTY. The Borrower owns or has the right to
use all patents, patent rights, trademarks, trade names,
service marks, copyrights, intellectual property, technology,
know-how and processes necessary for the conduct of its
business as currently conducted that are material to the
condition (financial or otherwise), business or operations of
the Borrower.
4.12. REGULATORY MATTERS. No part of the proceeds of the Loan will
be used for "PURCHASING" or "CARRYING" any "MARGIN STOCK"
within the respective meanings of each of the quoted terms
under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time in effect or for
any purpose which violates the provisions of the Regulations
of such Board of Governors.
4.13. SOLVENCY. As of the date hereof and after giving effect to the
transactions contemplated by the Loan Documents, the Borrower
will have sufficient cash flow to enable it to pay its debts
as they mature.
4.14. DISCLOSURE. None of the Loan Documents contains or will
contain any untrue statement of material fact or omits or will
omit to state a material fact necessary in order to make the
statements contained in this Agreement
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<PAGE>
or the Loan Documents not misleading. There is no fact known
to the Borrower which materially adversely affects or, so far
as the Borrower can now reasonably foresee, might materially
adversely affect the business, assets, operations, financial
condition or results of operation of the Borrower and which
has not otherwise been fully set forth in this Agreement or in
the Loan Documents.
5. AFFIRMATIVE COVENANTS. The Borrower agrees that from the date of
execution of this Agreement until all Obligations have been fully
paid and any commitments the Bank to the Borrower have been
terminated, the Borrower will:
5.1. BOOKS AND RECORDS. Maintain books and records in accordance
with GAAP and give representatives of the Bank access thereto
at all reasonable times following notice from the Bank,
including permission to examine, copy and make abstracts from
any of such books and records and such other information as
the Bank may from time to time reasonably request, and the
Borrower will make available to the Bank for examination
copies of any reports, statements or returns which the
Borrower may make to or file with any governmental department,
bureau or agency, federal or state.
5.2. INTERIM FINANCIAL STATEMENTS AND REPORTS; CERTIFICATE OF NO
DEFAULT; ACCOUNTS RECEIVABLE. Furnish the Bank within ten (10)
days after the end of each month a detailed report on its
accounts receivable and inventory status in such reasonable
detail consistent with the form currently used by the
Borrower's management. A copy of the most recently prepared
such form is attached hereto as EXHIBIT B. In addition, the
Borrower shall also furnish the Bank with current work in
process reports within fifteen (15) days after the end of each
month. The Borrower shall also provide within forty-five (45)
days from the end of each of its fiscal quarters its Financial
Statements (as defined hereinafter) for such period, in
reasonable detail, certified by the President, Chief Executive
Officer or Chief Financial Officer of the Borrower and
prepared in accordance with GAAP applied from period to
period. The Borrower shall also deliver, within forty-five
(45) days from the end of its fiscal quarters, a certificate
signed by such officer which verifies compliance with
applicable financial covenants for the period then ended and
whether any Event of Default exists, and, if so, the nature
thereof and the corrective measures the Borrower proposes to
take. "FINANCIAL STATEMENTS" means the Borrower's consolidated
and, if required by the Bank in its reasonable discretion,
consolidating balance sheets, income statements and statements
of cash flows for the year, month or (excepting statements of
cash flows) quarter together with year-to-date figures and
comparative figures for the corresponding periods of the prior
year.
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<PAGE>
5.3. ANNUAL FINANCIAL STATEMENTS AND FISCAL BUDGET. Furnish the
Borrower's Financial Statements and its then-current fiscal
budget for the immediately succeeding fiscal year of the
Borrower to the Bank within ninety (90) days after the end of
each fiscal year. Those Financial Statements will be prepared
in accordance with GAAP and audited by an independent
certified public accountant selected by the Borrower and
satisfactory to the Bank. Audited Financial Statements shall
contain the unqualified opinion of an independent certified
public accountant and its examination shall have been made in
accordance with GAAP consistently applied from period to
period. Annual fiscal budgets shall be in such form, format
and detail as shall be reasonably acceptable to the Bank. The
Borrower will also provide filings made with any regulatory
authority and such other information reasonably requested by
the Bank, from time to time.
5.4. PAYMENT OF TAXES AND OTHER CHARGES. Pay and discharge when due
all indebtedness and all taxes, assessments, charges, levies
and other liabilities imposed upon the Borrower, its income,
profits, property or business, except those which currently
are being contested in good faith by appropriate proceedings
and for which the Borrower shall have set aside adequate
reserves in accordance with GAAP or made other adequate
provision with respect thereto acceptable to the Bank.
5.5. MAINTENANCE OF EXISTENCE, OPERATION AND ASSETS. Do all things
necessary to maintain, renew and keep in full force and effect
its organizational existence and all rights, permits and
franchises necessary to enable it to continue its business;
continue in operation in substantially the same manner as at
present; keep its properties in good operating condition and
repair; and make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto.
5.6. INSURANCE. Maintain with financially sound and reputable
insurers, insurance with respect to its property and business
against such casualties and contingencies, of such types and
in such amounts as is customary for established companies
engaged in the same or similar business and similarly
situated. (As of the date of this Agreement, the existing
insurance coverage of the Borrower has been reviewed and
approved by the Bank.) In the event of a conflict between the
provisions of this Section and the terms of any Security
Documents relating to insurance, the provisions in the
Security Documents will control.
5.7. COMPLIANCE WITH LAWS. Comply in all material respects with all
laws applicable to the Borrower and to the operation of its
business (including any statute, rule or regulation relating
to employment practices and pension benefits or to
environmental, occupational and health standards and
controls).
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<PAGE>
5.8. BANK ACCOUNTS. Establish and maintain at the Bank all of the
Borrower's primary depository accounts.
5.9. FINANCIAL COVENANTS. Comply with all of the financial and
other covenants, if any, set forth on the Addendum, subject to
all applicable cure periods set forth herein.
5.10. ADDITIONAL REPORTS. Provide prompt written notice to the Bank
of the occurrence of any of the following of which the
Borrower obtains knowledge (together with a description of the
action which the Borrower proposes to take with respect
thereto): (i) any Event of Default or potential Event of
Default, (ii) any litigation filed by or against the Borrower,
(iii) any Reportable Event or Prohibited Transaction with
respect to any Employee Benefit Plan(s) (as defined in ERISA)
or (iv) any event which might reasonably be expected to result
in a material adverse change in the business, assets,
operations, financial condition or results of operation of the
Borrower other than disputes with trade debtors and any
legitimately disputed matter in litigation with any vendor or
customer, in each case where the amount in controversy does
not exceed $15,000 and where the amount in controversy does
not exceed $100,000 on a collective basis.
6. NEGATIVE COVENANTS. The Borrower covenants and agrees that from the
date of execution of this Agreement until all Obligations have been
fully paid and any commitments of the Bank to the Borrower have been
terminated, the Borrower will not, except as set forth in the
Addendum, without the prior written consent of the Bank:
6.1. INDEBTEDNESS. Incur any indebtedness for borrowed money other
than: (i) the Loan and any subsequent indebtedness the Bank;
(ii) existing indebtedness disclosed on the Borrower's
Historical Financial Statements referred to in Section 4.2;
(iii) fully-subordinated loans (under terms and conditions
which have been approved in advance by the Bank) from
Universal Process Equipment, Inc. ("UPE"); (iv) capital and
operating leases where the aggregate obligations due
thereunder from the Borrower in any fiscal year of the
Borrower does not exceed $50,000 for capital leases and
$50,000 for operating leases; or (v) such payables incurred in
the ordinary course of business. (It is expressly acknowledged
and agreed that the Bank is familiar with and has approved the
terms of the loans from UPE to the Borrower that existed on
the date of this Agreement.)
6.2. LIENS AND ENCUMBRANCES. Except as provided in Section 4.6,
create, assume or permit to exist any mortgage, pledge,
encumbrance or other security interest or lien upon any assets
now owned or hereafter acquired or enter into any lease or any
arrangement for the acquisition of property
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subject to any conditional sales agreement, other than
purchase money security interests.
6.3. GUARANTEES. Guarantee, endorse or voluntarily become
contingently liable for the obligations of any person, firm or
corporation, except in connection with the endorsement and
deposit of checks in the ordinary course of business for
collection.
6.4. LOANS OR ADVANCES. Purchase or hold beneficially any stock,
other securities or evidences of indebtedness of any loans or
advances to, or make any investment or acquire any interest
whatsoever in, any other person, firm or corporation, except
investments disclosed on the Borrower's Historical Financial
Statements of investments in the ordinary course of the
Borrower's business.
6.5. MERGER OR TRANSFER OF ASSETS. Merge or consolidate with or
into any person, firm or corporation, but only if the
aggregate cash expenditure of the Borrower in connection with
any such merger or consolidation exceeds $100,000, or lease,
sell, transfer or otherwise dispose of property or assets,
whether now owned or hereafter acquired, except for asset
sales, leases and transfers in the ordinary course of the
Borrower's business.
6.6. CHANGE IN BUSINESS, MANAGEMENT OR OWNERSHIP. Make or permit
any material change in the nature of its business as carried
on as of the date hereof, in the composition of its current
executive management (including changes due to death or
disability), or in its equity ownership other than transfers
to heirs and beneficiaries of a stockholder upon the death of
a stockholder, changes due to the exercise of stock options
now or hereafter owned by employees or officers of the
Borrower and transfers of the publicly-traded common stock of
the Borrower. (For purposes of this Agreement, such current
executive management shall be limited to Alan H. Silverstein
and Antoinette Martin, unless the Bank provides the Borrower
with written notice of additions or deletions from such list.)
6.7. DIVIDENDS. Declare or pay any dividends on or make any
distribution with respect to any class of its equity or
ownership interest, or purchase, redeem, retire or otherwise
acquire any of its equity.
6.8. CAPITAL EXPENDITURES. Make capital expenditures in any fiscal
year of the Borrower which exceed an amount equal to $300,000
on an aggregate basis.
6.9. USE OF LOAN PROCEEDS. Directly or indirectly permit the
proceeds of the Loan or any part thereof to be used by
Bethlehem Advanced Materials Corporation.
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7. EVENTS OF DEFAULT. The occurrence of any of the following will be
deemed to be an "EVENT OF DEFAULT":
7.1. PAYMENT DEFAULT. The Borrower shall fail to pay any payment of
principal or interest within ten (10) calendar days following
the date when due, in respect of the Obligations.
7.2. MATERIAL ADVERSE CHANGE. There shall be a material adverse
change in the business, operations, assets, financial
condition or results of operations of the Borrower, which
default shall not have been cured within twenty (20) days from
the receipt by the Borrower of written notice thereof from the
Bank.
7.3. COVENANT DEFAULT. The Borrower shall default in the
performance of, or violate any of, the covenants or agreements
contained in this Agreement, which default shall not have been
cured within twenty (20) days from the receipt by the Borrower
of written notice thereof from the Bank.
7.4. BREACH OF WARRANTY. Any Financial Statement, representation,
warranty or certificate made or furnished by the Borrower to
the Bank in connection with this Agreement shall be materially
false, incorrect or incomplete when made.
7.5. BANKRUPTCY OR INSOLVENCY. A proceeding shall have been
instituted in a court having jurisdiction over the Borrower
seeking a decree or order for relief in respect of the
Borrower in an involuntary case under any applicable
bankruptcy, insolvency reorganization or other similar law and
such involuntary case shall remain undismissed or unstayed and
in effect for a period of ninety (90) consecutive days
(provided that the Bank shall have no obligation to advance
additional funds to the Borrower during such ninety (90) day
period), or the Borrower shall commence a voluntary case under
any such law or consent to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator,
conservator (or other similar official).
7.6. OTHER DEFAULT. The occurrence of an Event of Default as
defined in the Notes or any of the Security Documents, or a
violation of any of the requirements set forth in the
Borrowing Base Rider.
Upon the occurrence of an Event of Default, and at any time
thereafter, the Bank may declare all Obligations hereunder immediately due and
payable will have all rights and remedies (which are cumulative and not
exclusive) specified in the Notes and the Security Documents and available under
applicable law or in equity.
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<PAGE>
8. CONDITIONS. The Bank's obligation to make any advance or fund any
tranche under the Loan is subject to the following conditions being
satisfied as of the date of the advance:
8.1. NO EVENT OF DEFAULT. No Event of Default or event which with
the passage of time, provision of notice or both would
constitute an Event of Default shall have occurred and be
continuing.
8.2. AUTHORIZATION DOCUMENTS. The Borrower shall have furnished to
the Bank a Secretary's Certificate attesting to the Board of
Directors authorization of the execution of this Agreement,
the Notes or any of the Security Documents; or other proof of
authorization satisfactory to the Bank.
8.3. DELIVERY OF LOAN DOCUMENTS. The Borrower shall have delivered
to the Bank the Loan Documents and such other instruments and
documents which the Bank may reasonably request in connection
with the transactions provided for in this Agreement.
8.4. OPINION OF COUNSEL. Counsel for the Borrower shall have
delivered a written opinion, dated the Closing Date and in
form and substance satisfactory to the Bank and its counsel,
as to matters incident to the transactions contemplated herein
as the Bank may reasonably request.
8.5. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Borrower to the Bank shall be true and
correct in all respects.
8.6. SUBORDINATION AGREEMENT. The Bank shall have received from UPE
a Subordination Agreement containing terms and conditions
acceptable to the Bank whereby UPE shall subordinate its
claims against the Borrower for borrowed money (the
"SUBORDINATED DEBT") to the indebtedness of the Borrower to
the Bank, but only to the extent necessary to permit the
Borrower to comply with the effective net worth covenant
contained in this Agreement. All promissory notes evidencing
the Subordinated Debt shall have been marked with the legend
set forth in the Subordination Agreement.
8.7. EQUITY CONTRIBUTION FROM UPE. Receipt of evidence that UPE has
in fact unconditionally contributed additional equity to the
Borrower in the form of used equipment inventory that is
similar to the Borrower's Bethlehem-Type Equipment with a
fair-market value that is sufficient to cause the Borrower to
meet the minimum effective net worth and maximum leverage
covenants contained in this Agreement.
8.8. EQUIPMENT REPURCHASE AGREEMENT FROM UPE. Receipt of a signed
agreement from both UPE and the Borrower wherein UPE will be
required to either liquidate or otherwise purchase for its own
account the
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<PAGE>
Borrower's Eligible Inventory on behalf of the Borrower and
for the benefit of the Bank upon the occurrence of a payment
default under the Loan Documents within fifteen (15) months
from the date that the Bank provides UPE with written notice
of an Event of Default arising from the failure of the
Borrower to make timely payments of either principal or
interest due in connection with the Loan to the Bank, subject
in all respects to the terms, restrictions and provisions set
forth therein.
8.9. COLLATERAL ASSIGNMENT OF LIFE INSURANCE POLICY. Receipt of an
assignment of a $2,500,000 "key man" insurance policy to the
Bank on the life of Alan H. Silverstein within thirty (30)
days from the date of this Agreement.
8.10. MORTGAGEE WAIVER. Receipt of an executed copy of the Bank's
standard Mortgagee Waiver from Ocwen Federal Savings Bank in
its capacity as the holder of a mortgage on the Borrower's
Easton property.
9. INCREASED COSTS. Within twenty (20) days following written demand,
together with the written evidence of the justification therefor,
the Borrower agrees to pay the Bank all direct costs incurred and
any losses suffered or payments made by the Bank as a consequence of
making the Loan by reason of any change in law or regulation or its
interpretation imposing any reserve, deposit, allocation of capital
or similar requirement (including without limitation, Regulation D
of the board of Governors of the Federal Reserve System) on the
Bank, its holding company or any of their respective assets, but
only if similar payment demands are made by the Bank against all of
its then-currently similarly situated customers and borrowers.
10 MISCELLANEOUS.
10.1. NOTICES. All notices, demands, requests, consents, approvals
and other communications required or permitted hereunder must
be in writing and will be effective upon receipt if delivered
personally to such party, or if sent by facsimile transmission
with confirmation of delivery, or by nationally recognized
overnight courier service, to the address set forth below or
to such other address as any party may give to the other in
writing for such purpose:
To the Bank: To the Borrower:
PNC Bank, N.A. The Bethlehem Corporation
1035 Virginia Drive 25th & Lennox Streets
Fort Washington, PA 19034 Easton, PA 18045
Attention: Thomas R. Keiser Attention: Alan H. Silverstein
Facsimile No.: (215) 591-1022 Facsimile No.: (610) 515-1341
-13-
<PAGE>
With copies to: With copies to:
Kenneth J. Marino, Esquire Kevin T. Fogerty, Esquire
Blank Rome Comisky & McCauley LLP The Law Office of Kevin T. Fogerty
1220 Market Street, 8th Floor 1620 Pond Road, Suite 301
Wilmington, DE 19801 Allentown, PA 18104
Facsimile No.: (302) 425-6464 Facsimile No.: (610) 366-0955
10.2. PRESERVATION OF RIGHTS. No delay or omission on the part of
the Bank to exercise any right or power arising hereunder will
impair any such right or power or be considered a waiver of
any such right or power or any acquiescence therein, nor will
the action or inaction of the Bank impair any right or power
arising hereunder. The rights and remedies hereunder of the
Bank are cumulative and not exclusive of any other rights or
remedies which the Bank may have under other agreements, at
law or in equity.
10.3. ILLEGALITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby.
10.4. CHANGES IN WRITING. No modification, amendment or waiver of
any provision of this Agreement nor consent to any departure
by the Borrower therefrom, will in any event be effective
unless the same is in writing and signed by the Bank and then
such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or
demand on the Borrower in any case will entitle the Borrower
to any other or further notice or demand in the same, similar
or other circumstance.
10.5. ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein) constitutes the entire
agreement and supersedes all other prior agreements and
understandings, both written and oral, between the parties
with respect to the subject matter hereof.
10.6. COUNTERPARTS. This Agreement may be signed in any number of
counterpart copies and by the parties hereto on separate
counterparts, but all such copies shall constitute one and the
same instrument.
10.7. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon
and inure to the benefit of the Borrower and the Bank and
their respective, successors and assigns; PROVIDED, HOWEVER,
that the Borrower may not assign this Agreement in whole or in
part without the prior written consent of the Bank and the
Bank at any time may assign this Agreement in whole or in
part, upon prior written notice to Borrower.
-14-
<PAGE>
10.8. INTERPRETATION. In this Agreement, unless the Bank and the
Borrower otherwise agree in writing, the singular includes the
plural and the plural the singular; words importing any gender
include the other genders; references to statutes are to be
construed as including all statutory provisions consolidating,
amending or replacing the statute referred to; the word "or"
shall be deemed to include "and/or", the words "including",
"includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to articles, sections
(or subdivisions of sections) or exhibits are to those of this
Agreement unless otherwise indicated; and references to
agreements and other contractual instruments shall be deemed
to include all subsequent amendments and other modifications
to such instruments, but only to the extent such amendments
and other modifications are not prohibited by the terms of
this Agreement. Section headings in this Agreement are
included for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Unless otherwise specified in this Agreement, all accounting
terms shall be interpreted and all accounting determinations
shall be made in accordance with GAAP. If this Agreement is
executed by more than one party as Borrower, the obligations
of such persons or entities will be joint and several.
10.9. ASSIGNMENTS AND PARTICIPATION. Notwithstanding any other
provisions of this Agreement, the Bank may, at any time in its
sole discretion, without any notice to the Borrower, sell,
assign, transfer, negotiate, grant participation in, or
otherwise dispose of all or any part of the Bank's interest in
the Loan. The Borrower hereby authorizes the Bank to provide,
without any notice to the Borrower, any information concerning
the Borrower, including information pertaining to the
Borrower's financial condition, business operations or general
creditworthiness, to any person or entity which may succeed to
or participate in all or any part of the Bank's interest in
the Loan, provided that such person or entity agrees to
maintain the confidentiality of such information. The Bank
agrees that it will otherwise maintain the confidentiality of
any proprietary information in its possession concerning the
Borrower which is not otherwise available to the public.
10.10. GOVERNING LAW AND JURISDICTION. This Agreement has been
delivered to and accepted by the Bank and will be deemed to be
made in the Commonwealth of Pennsylvania. THIS AGREEMENT WILL
BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES
HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA, EXCLUDING ITS CONFLICT OF LAWS
RULES. The Borrower hereby irrevocably consents to the
exclusive jurisdiction of any state or federal court seated in
Philadelphia County, Pennsylvania, and consents that all
service of process be sent by nationally recognized overnight
-15-
<PAGE>
courier service directed to the Borrower at the Borrower's
address set forth herein and service so made will be deemed to
be completed on the business day after deposit with such
courier; provided that nothing contained in this Agreement
will prevent the Bank from bringing any action, enforcing any
award or judgment or exercising any rights against the
Borrower individually, against any security or against any
property of the Borrower within any other county, state or
other foreign or domestic jurisdiction. the Bank and the
Borrower agree that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The
Borrower waives any objection to venue and any objection based
on a more convenient forum in any action instituted under this
Agreement.
10.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK
IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING
TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH
DOCUMENTS. THE BORROWER AND THE BANK ACKNOWLEDGE THAT THE
FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the provisions of
this Agreement, including the waiver of jury trial, and has been advised by
counsel as necessary or appropriate.
WITNESS the due execution of this Loan Agreement as a document under
seal, as of the date first written above.
[CORPORATE SEAL] THE BETHLEHEM CORPORATION,
a Pennsylvania corporation
Attest:________________________ By:__________________________(SEAL)
Alan H. Silverstein
President & Chief Executive Officer
PNC BANK, NATIONAL ASSOCIATION,
a national banking association
Witness:______________________ By:__________________________(SEAL)
Thomas R. Keiser
Vice President
-16-
<PAGE>
ADDENDUM to that certain Loan Agreement dated June 2, 1998 between
THE BETHLEHEM CORPORATION as the Borrower and PNC BANK, NATIONAL ASSOCIATION as
the Bank.
I. FINANCIAL COVENANTS
A) MINIMUM FIXED CHARGE COVERAGE RATIO - On a continuous basis, to be
tested by the Bank at least quarterly as of the end of each fiscal
quarter of the Borrower, the Borrower's Fixed Charge Coverage Ratio
shall equal or exceed 1.20 to 1.00. (Herein, the term "Fixed Charge
Coverage Ratio" shall be determined in accordance with GAAP and
shall equal the sum of the Borrower's net income and depreciation
and amortization expenses for the immediately preceding twelve (12)
month period divided by the sum of the Borrower's unfunded capital
expenditures, interest expenses and current maturities of long-term
debt over that same twelve (12) month period.
MINIMUM EFFECTIVE NET WORTH - On a continuous basis, to be tested by the
Bank at least quarterly as of the end of each fiscal quarter of the
Borrower, the Borrower's Effective Net Worth shall equal or exceed
$1,000,000 at all times from and after the closing date through May
31, 1998, and thereafter an amount equal to the sum of $1,000,000
plus an amount equal to one hundred percent (100%) of the Borrower's
annual net income during each fiscal year of the Borrower from and
after the fiscal year ending on May 31, 1998. (Herein, the term
"Effective Net Worth" shall be determined in accordance with GAAP
and shall equal the sum of the shareholder equity of the Borrower
plus all fully-subordinated debt of the Borrower minus all of the
Borrower's intangible assets.)
C) MAXIMUM LEVERAGE RATIO - On a continuous basis, to be tested by the
Bank at least quarterly as of the end of each fiscal quarter of the
Borrower, the Borrower's Leverage Ratio shall not exceed (i) 14.00
to 1.00 from the closing date through May 30, 1998, (ii) 7.50 to
1.00 from May 31, 1998 through May 30, 1999 and (iii) 4.00 to 1.00
from and after May 31, 1999. (Herein, the term "Leverage Ratio"
shall be determined in accordance with GAAP and shall equal the sum
of the Borrower's total liabilities minus all fully-subordinated
debt divided by the sum of the Borrower's Effective Net Worth.)
-18-
<PAGE>
II. PERMITTED ENCUMBRANCES
None
III. PENDING LITIGATION
STEVEN RULE V. THE BETHLEHEM CORPORATION, ET AL., Civil Action No.
97003066 22-2 (C.C.P. Bucks) - This is a products liability action involving (at
this juncture) approximately eight Defendants and Additional Defendants at this
juncture; the primary Defendants are manufacturers of fire-protective garments
worn by the Plaintiff, when he was operating a piece of equipment -- allegedly
designed, manufactured and sold by the Bethlehem Corporation --, and a fire
resulted and he was burned; the case is in the discovery phase; it is believed
that the claims against Bethlehem are questionable, and that the Plaintiff's
primary focus is against the manufacturers of the protective clothing and
various component parts, which allegedly failed and resulted in burn injuries.
WESTINGHOUSE ELECTRIC CORP. V. BETHLEHEM CORP., Civil Action No.
1996-C- 8149 (C.C.P. Northampton) - Westinghouse has sued to recover $39,056.22
for services allegedly rendered; Bethlehem has counterclaimed for damages caused
by the poor quality of services rendered, and is also defending on the basis
that the services rendered by Westinghouse were of little or no value; the case
is in the middle of discovery.
SI HANDLING SYSTEMS, INC. V. THE BETHLEHEM CORPORATION - The
Complaint in this case was just filed on May 18, 1998; it is a suit for
$27,880.59 for goods and services allegedly rendered; Bethlehem intends to
assert by defense and counterclaim the poor quality of the services rendered,
and to recover damages resulting from failure to properly perform under the
agreement between the parties.
IV. ENVIRONMENTAL MATTERS
None
-19-
<PAGE>
EXHIBIT A
BORROWING BASE RIDER
THIS BORROWING BASE RIDER ("RIDER") is executed this 28th day of May
1998, by and between THE BETHLEHEM CORPORATION, a Pennsylvania corporation (the
"BORROWER"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association
(the "BANK"). This Rider is incorporated into and made part of that certain Loan
Agreement dated June 2, 1998, and also into such other financing documents and
security agreements as may be executed and delivered pursuant to said Loan
Agreement (all such documents including this Rider are collectively referred to
as the "LOAN DOCUMENTS"). All initially capitalized terms not otherwise defined
in this Rider shall have the same meanings ascribed to such terms in the other
Loan Documents.
Pursuant to the Loan Documents, the Bank has extended a "LOAN" to
the Borrower which includes a "COMMITTED LINE OF CREDIT," under which the
Borrower may borrow, repay and reborrow funds at any time prior to the Maturity
Date (such portion of the Loan being referred to together herein as the
"FACILITY"). As a condition to the Bank's willingness to extend the Facility to
the Borrower, the Bank and the Borrower are entering into this Rider in order to
set forth their agreement regarding the maximum amount which may be outstanding
under the Facility at any time, and for the other purposes set forth below:
NOW, THEREFORE, in consideration of the foregoing and intending to
be legally bound, the parties hereto covenant and agree as follows:
1. LIMITATIONS ON BORROWINGS UNDER FACILITY. Notwithstanding any
provisions to the contrary in any of the other Loan Documents, at no time shall
the aggregate principal amounts of indebtedness outstanding at any one time
under the Facility exceed the Borrowing Base at such time. If at any time the
aggregate principal amount of indebtedness outstanding under the Facility
exceeds the limitation set forth in this Section 1 for any reason, then the
Borrower shall immediately repay the amount of such excess to the Bank in
immediately available funds.
2. BORROWING BASE CERTIFICATES. In addition to any and all
provisions of the other Loan Documents which establish conditions to the
Borrower's ability to request and obtain any advance under the Facility, the
Borrower may not request an advance under the Facility unless a Borrowing Base
Certificate shall have been delivered to the Bank via telecopy by 2:00 p.m.
Eastern Standard or Daylight Savings Time, as may be in effect at the time the
request for an advance is made, on the date of such proposed advance. The
Borrower shall also deliver an updated Borrowing Base Certificate upon the
Bank's request and in no event later than on or before the 10th day of each
month or the first business day thereafter if such day falls on a weekend or
holiday, if no new advances have been requested by the Borrower under the
Facility since the date of the preceding Borrowing Base Certificate. Each such
Borrowing Base Certificate shall be in form and substance identical to the
attached SCHEDULE A hereto and shall separately track advances under the
Facility which are supported by each of the four (4) existing categories of
Eligible Inventory that are described below.
<PAGE>
3. CERTAIN DEFINED TERMS. In addition to the words and terms defined
elsewhere in this Rider or in the other Loan Documents, as used in this Rider,
the following words and terms shall have the following meanings:
"ACCOUNT" shall mean an "ACCOUNT" or a "GENERAL INTANGIBLE" as
defined in the Uniform Commercial Code as in effect in the jurisdiction whose
Law governs the perfection of the Bank's security interest therein, whether now
owned or hereafter acquired or arising.
"ACCOUNT DEBTOR" shall mean, with respect to any Account, each
Person who is obligated to make payments to the Borrower on such Account.
"AFFILIATE" of the Borrower or any Account Debtor shall mean (a) any
Person who (either alone or with a group of Persons, and either directly or
indirectly through one or more intermediaries) is in control of, is controlled
by or is under common control with the Borrower or such Account Debtor, (b) any
director, officer, partner, employee or agent of the Borrower or such Account
Debtor, and (c) any member of the immediate family of any natural person
described in the preceding clauses (a) and (b). A Person or group of Persons
shall be deemed to be in control of the Borrower or an Account Debtor when such
Person or group of Persons possesses, directly or indirectly, the power to
direct or cause the direction of the management or policies of the Borrower or
such Account Debtor, whether through the ownership of voting securities, by
contract or otherwise.
"BETHLEHEM-TYPE EQUIPMENT" shall mean the used resale equipment
inventory of the Borrower that is similar to the new resale equipment inventory
that is currently being manufactured by the Borrower except for the fact that it
was originally manufactured by an entity other than the Borrower
"BORROWING BASE" shall mean at any time the lesser of (a) $3,200,000
(the maximum principal amount of the Facility) and (b) the sum of (i) 60% of
Qualified Accounts at such time and (ii) the lesser of $2,250,000 or 50% of
Eligible Inventory at such time. The value at any time of the collateral
described in this definition shall be determined by reference to the most recent
Borrowing Base Certificate delivered by the Borrower to the Bank.
"BORROWING BASE CERTIFICATE" shall mean each Borrowing Base
Certificate to be delivered by the Borrower to the Bank pursuant to Section 2 of
this Rider, in substantially the form attached as EXHIBIT A to this Rider, with
blanks appropriately completed, as amended, supplemented or otherwise modified
from time to time. References in the Borrowing Base Certificate to the "Loan
Agreement" shall be deemed to be references to this Rider and the other Loan
Documents.
"ELIGIBLE INVENTORY" shall mean, collectively, all of the Borrower's
then-current Bethlehem-Type Equipment, New Bethlehem Equipment and Used
Bethlehem Equipment.
-21-
<PAGE>
"LAW" shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of any Official Body.
"LIEN" shall mean any mortgage, pledge, security interest, bailment,
encumbrance, claim, lien or charge of any kind, including any agreement to give
any of the foregoing, any conditional sale or other title retention agreement
and any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code.
"NEW BETHLEHEM EQUIPMENT" shall mean the new resale equipment
inventory of the Borrower that was manufactured by the Borrower but has not yet
been sold by the Borrower.
"OFFICIAL BODY" shall mean any government or political subdivision
or any agency, authority, bureau, central bank, commission, department or
instrumentality of any government or political subdivision, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
"PERSON" shall mean an individual, sole proprietorship, corporation,
partnership (general or limited), trust, business trust, limited liability
company, unincorporated organization or association, joint venture, joint-stock
company, Official Body, or any other entity of whatever nature.
"QUALIFIED ACCOUNTS" shall mean Accounts which are and at all times
continue to be acceptable to the Bank in its sole discretion. Standards of
acceptability include but are not limited to the following conditions:
a. The Account duly complies with all applicable Laws, whether
Federal, state or local, including but not limited to usury
Laws, the Federal Truth in Lending Act, the Federal Consumer
Credit Protection Act, the Fair Credit Billing Act, and
Regulation Z of the Board of Governors of the Federal Reserve
Systems;
b. The Account was not originated in or subject to the Laws of a
jurisdiction whose Laws would make the account or the grant of
the security interest in the Account to the Bank unlawful,
invalid or unenforceable;
c. The Account was originated by the Borrower in connection with
the sale of goods or the rendering of services by the Borrower
in the ordinary course of business under an enforceable
contract, and such sale has been consummated and such goods
have been delivered or such services have been rendered so
that the performance of such contracts has been completed by
the Borrower
-22-
<PAGE>
and by all parties other than the Account Debtor, or the cost
thereof has been billed to the Account Debtor prior to
delivery pursuant to an existing milestone or
installment-based billing arrangement;
d. The Account is evidenced by a written invoice or other
documentation and arises from a contract, all of which are in
form and substance satisfactory to the Bank;
e. The Account does not arise out of a contract with, or order
from, an Account Debtor that, by its terms, forbids or makes
void or unenforceable the grant of the security interest by
the Borrower to the Bank in and to the Account arising with
respect thereto;
f. The title of the Borrower to the Account and, except as to the
Account Debtor, to any related goods is absolute and is not
subject to any Lien except Liens in favor of the Bank;
g. The Account provides for payment in United States Dollars by
the Account Debtor;
h. The Account shall have amounts owing that are not less than
the amounts represented by the Borrower;
i. The portion of the Account for which income has not yet been
earned or which constitutes unearned discount, services
charges or deferred interest shall be ineligible;
j. The Account shall be eligible only to the extent that it is
not subject to any defense, claim of reduction, counterclaim,
set-off, recoupment, or any dispute or claim for credits,
allowances or adjustments by the Account Debtor because of
returned, inferior, damaged goods or unsatisfactory service,
or for any other reason;
k. The goods the sale of which gave rise to the Account were
shipped or delivered or provided to the Account Debtor on an
absolute sale basis or on a bill and hold sale basis, but not
on a consignment sale basis, a guaranteed sale basis, a sale
or return basis, or on the basis of any other similar terms
making the Account Debtor's payment obligations conditional,
or the cost thereof has been billed to the Account Debtor
prior to delivery pursuant to an existing milestone or
installment-based billing arrangement;
l. The Account Debtor has not returned, rejected or refused to
retain, or otherwise notified the Borrower of any dispute
concerning, or claimed nonconformity of, any of the goods from
the sale of which the Account arose;
-23-
<PAGE>
m. No default exists under the Account by any party thereto, and
all rights and remedies of the Borrower under the Account are
freely assignable by the Borrower;
n. The Account has not been outstanding for more than ninety (90)
days past the invoice date and is not subject to "dating"
terms;
o. The Account shall be ineligible to the extent that the
aggregate amount of all the Accounts of the Account Debtor and
its Affiliates exceed 70% of all of the Borrower's Accounts;
p. The Borrower has not received any note, trade acceptance,
draft, chattel paper or other instrument with respect to, or
in payment of, the Account, unless, if any such instrument has
been received, the Borrower immediately notifies the Bank and,
at the Bank's request, endorses or assigns and delivers such
instrument to the Bank;
q. The Borrower has not received any notice of (i) the filing by
or against the Account Debtor of any proceeding in bankruptcy,
receivership, insolvency, reorganization, liquidation,
conservatorship or any similar proceeding, or (ii) any
assignment by the Account Debtor for the benefit of creditors.
Upon receipt by the Borrower of any such notice, it will give
the Bank prompt written notice thereof;
r. The Account Debtor is not an Affiliate of the Borrower;
s. The Account shall be ineligible if the Account Debtor is an
Official Body, unless the Borrower shall have taken all
actions deemed necessary by the Bank in order to perfect the
Bank's security interest therein, including but not limited to
any notices or filings required under the Assignment of Claims
Act of 1940, as amended, or other applicable Laws; and
t. The Bank has not deemed such Account ineligible because of
uncertainty about the creditworthiness of the Account Debtor
(including, without limitation, unsatisfactory past
experiences of the Borrower or the Bank with the Account
Debtor) or because the Bank otherwise makes a reasonable
determination that the collateral value of the Account to the
Bank is impaired or that the Bank's ability to realize such
value is insecure.
Standards of acceptability shall be fixed and may be revised from
time to time by mutual agreement of Bank and Borrower. In the case of any
dispute about whether an Account is or has ceased to be a Qualified Account, the
decision of the Bank shall be final.
-24-
<PAGE>
"USED BETHLEHEM EQUIPMENT" shall mean the used resale equipment
inventory of the Borrower that was originally manufactured and sold by the
Borrower, but was subsequently re-acquired by the Borrower.
4. GOVERNING LAW. THIS RIDER WILL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA, EXCLUDING ITS CONFLICTS OF LAW RULES.
5. COUNTERPARTS. This Rider may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts, but all
such copies shall constitute one and the same instrument.
WITNESS the due execution of this Borrowing Base Rider as a document
under seal, as of the date first written above.
[CORPORATE SEAL] THE BETHLEHEM CORPORATION,
a Pennsylvania corporation
Attest:________________________ By:__________________________(SEAL)
Alan H. Silverstein
President & Chief Executive Officer
[CORPORATE SEAL] PNC BANK, NATIONAL ASSOCIATION,
a national banking association
Witness:______________________ By:__________________________(SEAL)
Thomas R. Keiser, Vice President
<PAGE>
SCHEDULE A
FORM OF BORROWING
BASE CERTIFICATE
1) Total Accounts Receivable $__________________
2) Less: Unqualified Receivables
C) Over 90 Days Due $________________
D) Retention $________________
E) Foreign Not Supported By
Letter of Credit $________________
F) Over-Concentration Limit $________________
G) Others $________________
TOTAL $__________________
3) Total Qualified Accounts
(Line 1 minus Line 2) $__________________
4) Borrowing Base Availability - Accounts Receivable
(60% of Line 3) $__________________
5) Total Qualified Inventory (By Sub-Category)
A) Bethlehem-Type Equipment $______________
B) New Bethlehem Equipment $______________
C) Used Bethlehem Equipment $______________
TOTAL (NOT TO EXCEED $4,500,000) $__________________
6) Borrowing Base Availability - Inventory
(Lesser of 50% of Line 3 or $2,250,000.) $__________________
7) Total Borrowing Base Availability
(Lesser of Line 4 plus Line 6 or $3,200,000) $__________________
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<PAGE>
8) Revolving Loan Outstanding
(Not to exceed Line 7) $___________________
9) Borrowing Base Availability
($3,200,000 minus Line 7) $___________________
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
To induce PNC Bank, National Association ("PNC Bank") to grant
advances or other financial accommodations to us pursuant to the terms of our
Loan Agreement dated as of June 2, 1998 with PNC Bank, as the same may be
extended, amended, and/or restated from time to time (the "Credit Agreement"),
we hereby certify, represent and warrant the following to the PNC Bank, all as
of the date hereof: (1) the foregoing statements of our accounts receivable and
inventory described above are true and complete; (2) the total eligible
collateral described above at Lines three (3) and five (5) represent only
Eligible Inventory and Qualified Accounts, as those terms are defined in the
Credit Agreement; (3) we are in compliance with all of the terms and provisions
of the Credit Agreement, and; (4) there exists no Default or Event of Default
under the Credit Agreement.
DATE: ________________ THE BETHLEHEM CORPORATION,
a Pennsylvania corporation
By:_________________________________
Antoinette Martin
Chief Financial Officer
-27-
<PAGE>
EXHIBIT B
FORM OF ACCOUNTS RECEIVABLE AND INVENTORY REPORT
-28-
<PAGE>
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "AGREEMENT") is entered into as of
the 2nd day of June, 1998, by and among PNC BANK, NATIONAL ASSOCIATION (the
"BANK"), THE BETHLEHEM CORPORATION (the "BORROWER") and UNIVERSAL PROCESS
EQUIPMENT, INC. (the "CREDITOR").
RECITALS
The Bank has established or is establishing a $3,200,000 Revolving
Credit facility and an $800,000 Term Loan facility for the benefit of the
Borrower, as evidenced by certain documents, instruments and agreements all
between the Bank and the Borrower (collectively, the "LOAN DOCUMENTS").
The Creditor has extended or is extending to the Borrower certain
loans, advances and extensions of credit, as evidenced by the Promissory Note
(as such term is defined herein, and also referred to herein as the "CREDITOR
DOCUMENTS").
The Bank and the Creditor hereby desire to set forth the respective
rights and obligations each has as against the other with respect to the
Borrower.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
"OBLIGATIONS" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Bank of any kind
or nature, present or future, whether or not evidenced by any note, guaranty or
other instrument, whether arising under any agreement, instrument or document,
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit, loan or guarantee or in any
other manner, whether arising out of overdrafts on deposit or other accounts or
electronic funds transfers (whether through automatic clearing houses or
otherwise) or out of the Bank's non-receipt of or inability to collect funds or
otherwise not being made whole in connection with depository transfer check or
other similar arrangements, whether direct or indirect (including those acquired
by assignment or participation), absolute or contingent, joint or several, due
or to become due, now existing or hereafter arising, and any amendments,
extensions, renewals or increases and all costs and expenses of the Bank
incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including but
not limited to reasonable attorneys' fees and expenses, exclusive of all such
costs and expenses relating to the salaried employees of the Bank, and all
related administrative and overhead expenses of the Bank.
"COLLATERAL" means any collateral now or in the future securing the
Obligations, including but not limited to claims against any guarantors of the
Obligations and any collateral securing such guarantees.
<PAGE>
"SUBORDINATED DEBT" means the indebtedness due and owing by the
Borrower to the Creditor, as evidenced by that certain Promissory Note to the
Creditor from the Borrower in the amount of $800,000 dated of even date herewith
(herein, the "Promissory Note").
2. SUBORDINATION. Subject to Section 3 hereof, the Creditor hereby
irrevocably subordinates and postpones the payment and the time of payment of
all the Subordinated Debt and all claims and demands arising therefrom to the
Obligations and directs that the Obligations be paid in full before the
Subordinated Debt.
3. PAYMENTS TO CREDITOR. Notwithstanding any other provision of this
Agreement, the Borrower shall be entitled to pay and the Creditor shall be
entitled to receive, prior to the date that the Creditor receives written notice
from the Bank either that an Event of Default has occurred under the Loan
Documents or would result from such payment, only all scheduled payments of
interest (at the current rate set forth in the Creditor Documents) under the
Subordinated Debt, and only when due. No payments of principal on the
Subordinated Debt or default interest thereon or costs and expenses shall be
permitted or made without the Bank's prior written consent. After the occurrence
of an Event of Default under the Loan Documents and receipt by the Creditor of
written notice thereof from the Bank to the Creditor, the Borrower shall not
make, and the Creditor shall not receive, any direct or indirect payments of
principal, interest, fees or expenses under the Subordinated Debt.
4. SECURITY. The Borrower shall not grant and the Creditor shall not take
any lien on or security interest in any of the Borrower's property, now owned or
hereafter acquired or created, without the prior written consent of the Bank,
except that the Borrower shall be permitted to grant a subordinate security
interest in the Borrower's intangible intellectual property assets and inventory
to collateralize both the Subordinated Debt and the non-subordinate debt due
from the Borrower to the Creditor, subject in all respects to the terms,
conditions and restrictions contained in this Agreement.
5. STANDBY LIMITATION. Notwithstanding any breach or default by the
Borrower under the Creditor Documents, the Creditor shall not at any time or in
any manner foreclose upon, take possession of, or attempt to realize on any
Collateral, or proceed in any way to enforce any claims it has or may have
against the Borrower unless and until the Obligations have been fully and
indefeasibly paid and satisfied in full.
6. BANKRUPTCY/PROBATE OF BORROWER. In the event a petition or action for
relief shall be filed by or against the Borrower under any federal bankruptcy
statute in effect from time to time, or under any other law relating to
bankruptcy, insolvency, reorganization, receivership, general assignment for the
benefit of creditors, general moratorium, general creditor composition,
arrangement or other similar relief for debtors, the Bank's claim (secured or
unsecured) against the assets or estate of the Borrower shall be indefeasibly
paid in full before any payment is made to the Creditor on the Subordinated
Debt, whether such payment is in cash, securities or any other form of property
or rights. The Obligations shall include interest accruing after the date of
commencement of any case or proceeding under any such bankruptcy statute or
related law, regardless of whether the Bank's claim for such interest is allowed
in such case or proceeding.
2
<PAGE>
The Bank may, in its discretion, file a proof of claim for or collect the
Creditor's claim on the Subordinated Debt first for the benefit of the Bank to
the extent of the unpaid Obligations and then for the benefit of the Creditor
(but without creating any duty or liability to the Creditor other than to remit
to the Creditor distributions, if any, actually received in such proceedings or
on either or both of the proofs of claim filed in connection with the claims of
either the Creditor and/or the Bank after the Obligations have been paid and
satisfied in full) directly from the receiver, trustee, custodian, liquidator or
representative of the Borrower's estate in such proceeding. The Borrower and the
Creditor shall furnish all assignments, powers or other documents requested by
the Bank to facilitate such direct collection by the Bank.
7. RECEIPT OF PAYMENTS BY CREDITOR. Should the Creditor directly or
indirectly receive any payment or distribution not permitted by the provisions
of this Agreement or any Collateral or proceeds thereof, prior to the full and
indefeasible payment and satisfaction of the Obligations and the termination of
all financing arrangements between the Bank and the Borrower, the Creditor will
deliver the same to the Bank in the form received (except for the endorsement or
assignment of the Creditor where necessary), for application to the Obligations
in such order and manner as the Bank may elect. Until so delivered, the Creditor
shall hold the same, IN TRUST, for the Bank as property of the Bank, and shall
not commingle such property of the Bank with any other property held by the
Creditor. In the event the Creditor fails to make any such endorsement or
assignment, the Bank, or any of its officers or employees on behalf of the Bank,
is hereby irrevocably authorized in its own name or in the name of the Creditor
to make such endorsement or assignment and is hereby irrevocably appointed as
the Creditor's attorney-in-fact for those purposes.
8. BANK'S RIGHTS.
(a) The Creditor hereby consents that at any time and from time to time,
without further consent of or notice to the Creditor and without in any manner
affecting, impairing, lessening or releasing any of the provisions of this
Agreement, the Bank may, in its sole discretion: (i) renew, compromise, extend,
expand, postpone, waive, accelerate, terminate, change the payment terms of, or
otherwise modify the Obligations or amend, renew, replace or terminate the Loan
Documents or any and all other agreements now or hereafter related to the
Obligations; (ii) extend credit to the Borrower in whatever amount on a secured
or unsecured basis or take other support for the Obligations and exchange,
enforce, waive, sell, transfer, collect, adjust or release any such security or
other support or any part thereof; (iii) apply any and all payments or proceeds
of such security or other support and in any order or manner as the Bank, in its
discretion, may determine; and (iv) release or substitute any party liable on
the Obligations, any guarantor of the Obligations, or any other party providing
support for the Obligations.
(a) This Agreement will not be affected, impaired or released by any delay
or failure of the Bank to exercise any of its rights and remedies against the
Borrower or any guarantor or under any of the Obligations or against any
Collateral, by any failure of the Bank to take steps to perfect or maintain its
lien on, or to preserve any rights to, any Collateral by any irregularity,
unenforceability or invalidity of any of the Obligations or any part thereof or
any
3
<PAGE>
security or guarantee therefor, or by any other event or circumstance which
otherwise might constitute a defense available to, or a discharge of, the
Borrower or a subordinated creditor. Except to the extent expressly stated in
Section 3 of this Agreement, the Creditor hereby waives demand, presentment for
performance, protest, notice of dishonor and of protest with respect to the
Subordinated Debt and the Collateral, notice of acceptance of this Agreement,
notice of the making of any of the Obligations and notice of default under any
of the Obligations.
(a) Nothing in this Agreement will obligate the Bank to grant credit to, or
continue financing arrangements with, the Borrower.
9. CONTINUING AGREEMENT. This is a continuing agreement and will remain in
full force and effect until all of the Obligations and all of the Creditor's
obligations to the Bank have been fully performed and indefeasibly satisfied and
until all the Loan Documents have been terminated. This Agreement will continue
to be effective or will be reinstated, as the case may be, if at any time
payment of all or any part of the Obligations is rescinded or must otherwise be
returned by the Bank upon insolvency, bankruptcy, or reorganization of the
Borrower or otherwise, all as though such payment had not been made.
10. NO CHALLENGE TO LIENS. The Creditor agrees that it will not make any
assertion, claim or argument in any action, suit or proceeding of any nature
whatsoever in any way challenging the priority, validity or effectiveness of the
liens and security interests granted to the Bank.
11. DISPOSITION OR RELEASE OF COLLATERAL.
(a) If at any time or from time to time the Collateral, or any portion
thereof, is in any manner sold or otherwise transferred, the Creditor's consent
to such disposition shall be automatically and irrevocably given if the Bank, in
its sole discretion and for any reason, consents to such disposition, and in any
event the Creditor shall not be entitled to receive any proceeds (cash or
non-cash) of such disposition unless and until the Obligations have been
indefeasibly paid in full.
(a) If, at any time and for any reason, the Bank releases its lien on the
Collateral, or any portion thereof, the Creditor shall likewise release its lien
on the property so released from the Bank's lien, if the Creditor has obtained
such a lien.
12. ORDER OF PROCEEDINGS. Nothing in this Agreement is intended to compel
the Bank or the Creditor at any time to declare the Borrower in default or
compel the Bank to proceed against or refrain from proceeding against any
Collateral in any order or manner. All rights and remedies of the Bank with
respect to the Collateral, the Borrower, and any other obligors concerning the
Obligations are cumulative and not alternative.
4
<PAGE>
13. REPLACEMENT FINANCING; LEGEND ON CREDITOR DOCUMENTS.
(a) The provisions hereof shall inure to the benefit of any financial
institution obtained by the Borrower or the Bank to provide replacement working
capital or other financing for the Borrower in place of the Bank, regardless of
whether any such replacement lender provides its own financing or succeeds to
the Bank's financing by assignment. If requested by such replacement lender, the
Creditor shall execute with such replacement lender a subordination agreement
substantially similar to this Agreement.
(a) The Creditor also agrees that as a prior condition of any assignment of
any of its interests under any of the Creditor Documents, the Creditor shall
require the assignee to acknowledge this Agreement and agree, in writing, to be
bound by the terms and conditions hereof.
(a) Each and every note now or hereafter issued as part of the Creditor
Documents shall bear the following legend:
This [Note or other instrument] is subject to the terms of a
Subordination Agreement dated as of June 2, 1998, in favor of PNC
Bank, National Association. Notwithstanding any contrary statement
contained in the within instrument, no payment on account of any
obligation arising from or in connection with the within
instrument or any related agreement (whether of principal,
interest or otherwise) shall be made, paid, received or accepted
except in accordance with the terms of said Subordination
Agreement.
14. FINANCING OF FIDUCIARY. In the event of a bankruptcy, reorganization,
other insolvency or court proceeding for the Borrower commences, the Bank shall
have the option (in its sole and absolute discretion) to continue to provide
financing (on terms acceptable to the Bank) of the trustee, other fiduciary, or
of the Borrower as a debtor-in-possession, if the Bank deems such financing to
be in its best interests. The subordination and lien priority provisions of this
Agreement shall continue to apply to all advances made during the pendency of
such court proceedings, so that the Bank shall have a prior lien on all
Collateral, created before or during such court proceeding, to secure all
Obligations, whether created before or during such court proceeding. The
Creditor hereby waives any right it may have to object to financing by the Bank
during the pendency of such court proceeding and the Creditor's consent to such
financing shall not be required regardless of whether the court supervising such
proceeding approves, grants or allows adequate protection to the Creditor.
15. INVESTIGATION OF PARTIES. The Creditor has entered into the Creditor
Documents with the Borrower and the Bank has entered into the Loan Documents
with the Borrower and the Creditor and the Bank have entered into this Agreement
each upon its own independent investigation, and each makes no warranty or
representation as to each other with respect to the financial condition of the
Borrower, or its ability to repay its loans to the Creditor or the Bank in the
future. Nothing in this Agreement shall be deemed to constitute this Agreement
as a security or create a joint venture or partnership between the Creditor and
the Bank for any purpose.
5
<PAGE>
16. IMPROPER ACTION BY CREDITOR. If the Creditor, the Borrower or both,
contrary to this Agreement, make, attempt to or threaten to allow the Creditor
to exercise its remedies against the Borrower under the Creditor Documents, or
make any payment or take any action contrary to this Agreement, the Bank may
restrain or enjoin the Creditor and the Borrower from so doing, it being
expressly understood and agreed by the Creditor and the Borrower that: (i) the
Bank's damages from their actions may at that time be difficult to ascertain and
may be irreparable, and (ii) the Creditor and the Borrower waive any defense or
claim that the Bank or the Borrower cannot demonstrate damages or can be made
whole by the awarding of damages.
17. NOTICES. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be
effective upon receipt if delivered personally to such party, or if sent by
facsimile transmission with confirmation of delivery, or by nationally
recognized overnight courier service, to the address set forth below or to such
other address as any party may give to the other in writing for such purpose:
TO THE BANK: PNC BANK, NATIONAL ASSOCIATION
1035 VIRGINIA DRIVE
FORT WASHINGTON, PENNSYLVANIA 19034
ATTENTION: THOMAS R. KEISER
FACSIMILE NO.: (215) 773-1022
WITH COPIES TO: BLANK ROME COMISKY & MCCAULEY LLP
1220 MARKET STREET, 8TH FLOOR
WILMINGTON, DE 19801
ATTENTION: KENNETH J. MARINO, ESQUIRE
FACSIMILE NO.: (302) 425-6464
TO THE CREDITOR: UNIVERSAL PROCESS EQUIPMENT, INC.
P.O. BOX 338
ROOSEVELT, NJ 08555-0338
ATTENTION: RONALD H. GALE, PRESIDENT
FACSIMILE NO.: (609) 259-0644
WITH COPIES TO: UNIVERSAL PROCESS EQUIPMENT, INC.
1180 ROUTE 130 SOUTH
ROBBINSVILLE, NJ 08691
ATTENTION: HAROLD BOGATZ, ESQUIRE
FACSIMILE NO.: (609) 259-0644
6
<PAGE>
TO THE BORROWER: THE BETHLEHEM CORPORATION
25TH & LENNOX STREET
EASTON, PENNSYLVANIA 18045
ATTENTION: ALAN H. SILVERSTEIN
FACSIMILE NO.: (610) 515-1341
WITH COPIES TO: THE LAW OFFICES OF KEVIN T. FOGERTY
1620 POND ROAD
ALLENTOWN, PA 18104
ATTENTION: KEVIN T. FOGERTY, ESQUIRE
FACSIMILE NO.: (610) 366-0955
18. PRESERVATION OF RIGHTS. No delay or omission on the part of the Bank to
exercise any right or power arising hereunder will impair any such right or
power or be considered a waiver of any such right or power or any acquiescence
therein, nor will the action or inaction of the Bank impair any right or power
arising hereunder. The Bank's rights and remedies hereunder are cumulative and
not exclusive of any other rights or remedies which the Bank may have under
other agreements, at law or in equity. Nothing in this Agreement is intended to
modify, alter, reduce or impair any rights which the Bank or the Creditor may
have against the Borrower under the Loan Documents or the Creditor Documents,
respectively, or under any other agreement between them, or either of them, and
the Borrower.
19. ILLEGALITY. In case any one or more of the provisions contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
20. CHANGES IN WRITING. No modification, amendment or waiver of any
provision of this Agreement nor consent to any departure by the Borrower or the
Creditor therefrom, will in any event be effective unless the same is in writing
and signed by the Bank, and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given.
21. ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
22. COUNTERPARTS. This Agreement may be signed in any number of counterpart
copies and by the parties hereto on separate counterparts, but all such copies
shall constitute one and the same instrument.
23. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and inure
to the benefit of the Borrower, the Creditor and the Bank and their respective
heirs, executors, administrators, successors and assigns; PROVIDED, HOWEVER,
that neither the Borrower nor the Creditor may assign this Agreement in whole or
in part without the prior written consent of the Bank and the Bank at any time
may assign this Agreement in whole or in part. No claims or rights are intended
to be created hereunder for the benefit of the Borrower or any alleged third
party beneficiary hereof.
7
<PAGE>
24. INTERPRETATION. In this Agreement, unless the parties otherwise agree
in writing, the singular includes the plural and the plural the singular; words
importing any gender include the other genders; the word "or" shall be deemed to
include "and/or", the words "including", "includes" and "include" shall be
deemed to be followed by the words "without limitation"; references to articles,
sections (or subdivisions of sections) or exhibits are to those of this
Agreement unless otherwise indicated; and references to agreements and other
contractual instruments shall be deemed to include all subsequent amendments and
other modifications to such instruments, but only to the extent such amendments
and other modifications are not prohibited by the terms of this Agreement.
Section headings in this Agreement are included for convenience of reference
only and shall not constitute a part of this Agreement for any other purpose. If
this Agreement is executed by more than one party as Borrower or by more than
one party as Creditor, the obligations of such persons or entities will be joint
and several.
25. GOVERNING LAW AND JURISDICTION. This Agreement has been delivered to
and accepted by the Bank and will be deemed to be made in the State where the
Bank's office indicated above is currently located. THIS AGREEMENT WILL BE
INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS
CURRENTLY LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. Each of the Borrower
and the Creditor hereby irrevocably consents to the exclusive jurisdiction of
any state or federal court for the county or judicial district where the Bank's
office indicated above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed to it at its
address set forth herein and service so made will be deemed to be completed on
the business day after deposit with such courier; provided that nothing
contained in this Agreement will prevent the Bank from bringing any action,
enforcing any award or judgment or exercising any rights against the Borrower or
the Creditor individually, against any security or against any property of the
Borrower within any other county, state or other foreign or domestic
jurisdiction. The parties hereto agree that the venue provided above is the most
convenient forum for each of the parties. Each of the Borrower and the Creditor
waives any objection to venue and any objection based on a more convenient forum
in any action instituted under this Agreement.
26. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE CREDITOR AND THE BANK
IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY
DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER, THE CREDITOR AND THE BANK
ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
8
<PAGE>
WITNESS the due execution hereof as a document under seal, as of the
date first written above.
[CORPORATE SEAL] THE BETHLEHEM CORPORATION,
a Pennsylvania corporation
Attest:______________________________ By:__________________________________
Alan H. Silverstein
President & Chief Executive Officer
[CORPORATE SEAL] UNIVERSAL PROCESS EQUIPMENT, INC.,
a New Jersey corporation
Attest:______________________________ By:__________________________________
Ronald H. Gale, President
PNC BANK, NATIONAL ASSOCIATION,
a national banking association
Witness:___________________________ By:__________________________________
Thomas R. Keiser, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (A)
NONFINANCIAL STATEMENT DISCLOSURES
REGULATION S-B
This schedule contains summary financial information extracted from the Company
10-QSB for the three months ended August 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1996
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 5,850
<ALLOWANCES> 137
<INVENTORY> 2,579
<CURRENT-ASSETS> 8,482
<PP&E> 9,364
<DEPRECIATION> 7,060
<TOTAL-ASSETS> 13,926
<CURRENT-LIABILITIES> 8,144
<BONDS> 0
<COMMON> 969
0
0
<OTHER-SE> (2,091)
<TOTAL-LIABILITY-AND-EQUITY> 13,926
<SALES> 4,003
<TOTAL-REVENUES> 4,003
<CGS> 2,758
<TOTAL-COSTS> 933
<OTHER-EXPENSES> (17)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 202
<INCOME-TAX> 0
<INCOME-CONTINUING> 202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202
<EPS-PRIMARY> .10
<EPS-DILUTED> .06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (B)
NONFINANCIAL STATEMENT DISCLOSURES
REGULATION S-B
This schedule contains summary financial information extracted from the Company
10-QSB for the three months ended November 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 52
<SECURITIES> 0
<RECEIVABLES> 6,460
<ALLOWANCES> 219
<INVENTORY> 2,061
<CURRENT-ASSETS> 8,404
<PP&E> 9,447
<DEPRECIATION> 7,149
<TOTAL-ASSETS> 13,819
<CURRENT-LIABILITIES> 7,814
<BONDS> 0
<COMMON> 969
0
0
<OTHER-SE> (1,957)
<TOTAL-LIABILITY-AND-EQUITY> 13,819
<SALES> 4,740
<TOTAL-REVENUES> 4,740
<CGS> 3,504
<TOTAL-COSTS> 914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> 134
<INCOME-TAX> 0
<INCOME-CONTINUING> 134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134
<EPS-PRIMARY> .07
<EPS-DILUTED> .04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (C)
NONFINANCIAL STATEMENT DISCLOSURES
REGULATION S-B
This schedule contains summary financial information extracted from the Company
10-QSB for the three months ended February 28, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 6,319
<ALLOWANCES> 135
<INVENTORY> 2,961
<CURRENT-ASSETS> 9,404
<PP&E> 9,692
<DEPRECIATION> 7,233
<TOTAL-ASSETS> 14,797
<CURRENT-LIABILITIES> 8,902
<BONDS> 0
<COMMON> 969
0
0
<OTHER-SE> (1,815)
<TOTAL-LIABILITY-AND-EQUITY> 14,797
<SALES> 4,077
<TOTAL-REVENUES> 4,077
<CGS> 2,852
<TOTAL-COSTS> 985
<OTHER-EXPENSES> 50
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-PRIMARY> .07
<EPS-DILUTED> .04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (D)
NONFINANCIAL STATEMENT DISCLOSURES
REGULATION S-B
This schedule contains summary financial information extracted from the Company
10-QSB for the three months ended August 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> AUG-31-1997
<CASH> 249
<SECURITIES> 0
<RECEIVABLES> 4,435
<ALLOWANCES> 120
<INVENTORY> 2,480
<CURRENT-ASSETS> 8,353
<PP&E> 10,166
<DEPRECIATION> 7,467
<TOTAL-ASSETS> 13,901
<CURRENT-LIABILITIES> 9,681
<BONDS> 0
<COMMON> 969
0
0
<OTHER-SE> (1,238)
<TOTAL-LIABILITY-AND-EQUITY> 13,901
<SALES> 4,706
<TOTAL-REVENUES> 4,706
<CGS> 3,402
<TOTAL-COSTS> 806
<OTHER-EXPENSES> 14
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167
<INCOME-PRETAX> 317
<INCOME-TAX> 25
<INCOME-CONTINUING> 342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 342
<EPS-PRIMARY> .18
<EPS-DILUTED> .11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (E)
NONFINANCIAL STATEMENT DISCLOSURES
REGULATION S-B
This schedule contains summary financial information extracted from the Company
10-QSB for the three months ended November 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 63
<SECURITIES> 0
<RECEIVABLES> 6,400
<ALLOWANCES> 132
<INVENTORY> 3,677
<CURRENT-ASSETS> 10,282
<PP&E> 10,280
<DEPRECIATION> 7,566
<TOTAL-ASSETS> 15,809
<CURRENT-LIABILITIES> 11,334
<BONDS> 0
<COMMON> 969
0
0
<OTHER-SE> (961)
<TOTAL-LIABILITY-AND-EQUITY> 15,809
<SALES> 3,479
<TOTAL-REVENUES> 3,479
<CGS> 2,174
<TOTAL-COSTS> 833
<OTHER-EXPENSES> (4)
<LOSS-PROVISION> 145
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 331
<INCOME-TAX> 54
<INCOME-CONTINUING> 277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277
<EPS-PRIMARY> .14
<EPS-DILUTED> .08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (F)
NONFINANCIAL STATEMENT DISCLOSURES
REGULATION S-B
This schedule contains summary financial information extracted from the Company
10-QSB for the three months ended February 28, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 379
<SECURITIES> 0
<RECEIVABLES> 5,784
<ALLOWANCES> 125
<INVENTORY> 4,231
<CURRENT-ASSETS> 10,683
<PP&E> 10,391
<DEPRECIATION> 7,654
<TOTAL-ASSETS> 16,204
<CURRENT-LIABILITIES> 11,152
<BONDS> 0
<COMMON> 969
0
0
<OTHER-SE> (873)
<TOTAL-LIABILITY-AND-EQUITY> 16,204
<SALES> 3,543
<TOTAL-REVENUES> 3,543
<CGS> 2,338
<TOTAL-COSTS> 944
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> 63
<INCOME-TAX> 25
<INCOME-CONTINUING> 88
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> .05
<EPS-DILUTED> .03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (G)
NONFINANCIAL STATEMENT DISCLOSURES
REGULATION S-B
This schedule contains summary financial information extracted from the Company
10-QSB for the twelve months ended May 31, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 41
<SECURITIES> 0
<RECEIVABLES> 1,515
<ALLOWANCES> 150
<INVENTORY> 4,687
<CURRENT-ASSETS> 7,453
<PP&E> 10,519
<DEPRECIATION> 7,747
<TOTAL-ASSETS> 11,565
<CURRENT-LIABILITIES> 5,706
<BONDS> 3,912
<COMMON> 1,144
0
0
<OTHER-SE> 79
<TOTAL-LIABILITY-AND-EQUITY> 11,565
<SALES> 16,271
<TOTAL-REVENUES> 16,271
<CGS> 11,152
<TOTAL-COSTS> 3,631
<OTHER-EXPENSES> (51)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,118
<INCOME-PRETAX> 421
<INCOME-TAX> 110
<INCOME-CONTINUING> 531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 531
<EPS-PRIMARY> .27
<EPS-DILUTED> .15
</TABLE>
