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, 1999.
/ / 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25th and Lennox Streets, Easton, Pennsylvania 18044-0348
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(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
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. [X]
State issuer's revenues for its most recent fiscal year: $13,710,000
As of August 20, 1999, 2,378,520 shares of the registrant's common stock were
outstanding and the aggregate market value of such common stock held by
non-affiliates was approximately $2,158,197 based on the average of the bid and
asked prices on that date of $1.6875.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Proxy Statement for 1999 Annual Meeting of Stockholders
incorporated by reference in Part III, Items 9, 10, 11 and 12.
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TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-KSB - 1999
THE BETHLEHEM CORPORATION
PART I.........................................................................1
Item 1. Description of Business.........................................1
Item 2. Description of Property.........................................5
Item 3. Legal Proceedings...............................................6
Item 4. Submission of Matters to a Vote of Security Holders.............6
PART II........................................................................6
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters.............................................6
Item 6. Management's Discussion and Analysis or Plan of Operation.......6
Item 7. Financial Statements...........................................11
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure.........................11
PART III......................................................................11
Item 9. Directors, Executive Officers, Promotors and Control
Persons; Compliance with Section 16(a) of the Exchange Act.....11
Item 10. Executive Compensation.........................................11
Item 11. Security Ownership of Certain Beneficial Owners and Management.11
Item 12. Certain Relationships and Related Transactions.................11
PART IV.......................................................................11
Item 13. Exhibits, List and Reports on Form 8-K.........................11
SIGNATURES....................................................................14
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PART I
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 provides thermal
and filtration process solutions, equipment, systems and technology 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. 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. 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. In
addition, the Company, through Bethlehem Thermal, LLC ("Bethlehem Thermal")
provides metallized thermal coatings for a variety of industries using totally
automated thermal spray systems. Bethlehem Thermal also provides automated
systems technology and inspection services to provide long term solutions for
corrosion and erosion problems.
Thermal and Filtration Process Solutions, Equipment, Systems and Technology
The Company's customers include refineries, chemical, food,
pharmaceutical, petrochemical and environmental 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 thermal and filtration process
solutions, equipment systems and technology, 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.
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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 Toll Processing--contract heat treating and thermal processing of
specialty materials.
o Furnace Manufacturing--design/engineering, manufacturing and
installation of specialty high temperature furnace systems.
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.
Bethlehem Thermal, LLC (Bethlehem Thermal)
Bethlehem Thermal provides metallized thermal solutions for a variety
of industries using totally automated thermal spray systems. Bethlehem Thermal's
sprayed metal coatings are designed to combat corrosion and erosion in severe
environments, as found in the pulp & paper, chemical, petrochemical, power and
marine industries. Using electric arc spray and high velocity oxy fuel "HVOF"
processes enables Bethlehem Thermal to provide coatings in a wide variety of
materials and alloys. Bethlehem Thermal's fully automated CNC Thermal Spray
Systems result in coatings extending equipment service life. As a complement to
Bethlehem Thermal's in-house capability, it provides on-site coating services at
its customer's plants and offers automated systems technology and inspection
services.
Strategy
The Company's business strategy is to continue the technological
development and marketing of its core thermal and filtration process solutions,
equipment, systems and technology. 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.
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Customers; Existence of Short-Term Contracts
The Company's principal customers for thermal and filtration process
solutions, equipment, systems and technology are domestic and foreign
manufacturers of chemicals, pharmaceuticals, foods, plastics, petrochemicals and
environmental firms. BAM's principal customers for its tolling services and high
temperature furnaces are domestic and foreign manufacturers of carbon and
graphite structures, and other advanced ceramic composite structures. Bethlehem
Thermal's principal customers for its metallized thermal coatings are domestic
and foreign manufacturers of chemicals, petrochemicals, pulp and paper.
Currently, a major portion of the Company's sales for its thermal and
filtration process solutions, equipment and systems, and as metallized thermal
coatings, are made under short term or one time contracts, which contracts are
not subject to renewal. Although such contracts may afford the Company
flexibility in responding to changing market conditions, a market for the
Company's products and services 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.
In November of 1998, BAM entered into an agreement with an existing
customer (AlliedSignal, Inc.) to continue toll processing their materials for
five years commencing January 1, 1999. The Company estimates that the value of
this contract will be approximately $20 million dollars over the five years
commencing January 1, 1999.
The Company's active customers for thermal filtration process
solutions, equipment, systems and technology include Oiltools International
Limited, SK Chemicals, Dow Belgium N.V., Ford, Bacon & Davis, LLC, Mexicana De
Cobra, S.A. de C.V., PPG Industries, Inc., Chem Eng Contracts Pty Ltd, Kemwater
Brasil S.A., Daesang Corporation, Greenway Environmental, Inc. and Celotex
Corporation. Sales to Universal Process Equipment, Inc. ("UPE"), a significant
shareholder of the Company accounted for less than 1% of total sales in 1999 and
approximately 8% of total sales in 1998. The Company's active customers for high
temperature furnaces and tolling services are Allied Signal Inc. and Graphite
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 thermal and filtration process
solutions, equipment and technologies products, metallizing coating solutions
and services, and in Knoxville, Tennessee for its high temperature furnace
products and tolling services. In June 1999, the Company entered into an
agreement with Oiltools International Group ("Oiltools"), whereby Oiltools will
serve as the exclusive representative of the Company's thermal desorption
systems for the treatment of oil and gas drilling wastes in all areas of the
world except for North and South America.
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 2% of total sales for the year ended May 31,
1999 and approximately 10% of total sales for the year ended May 31, 1998 and it
is anticipated that the percentage of sales for the year ending May 31, 2000
will be approximately 5%.
Backlog
As of August 20, 1999, the Company had a backlog of orders equaling
$22.5 million compared to $4.7 million for the same period last year. The $22.5
million includes $19.5 million from the toll processing customer described under
"Description of Business -- Customers; Existence of Short Term Contracts."
Orders comprising current backlog are expected to be filled during the fiscal
years ending May 31, 2000 to May 31, 2004.
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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. For metallized thermal
coatings, the basic raw materials are alloy wire and powders. 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, 1999 were, Bush Miller,
MG Industries Inc., Penn Stainless Products Inc. and, in connection with the
high temperature furnace business, Graybar Electric Co., M.G.P. Inc., and UCAR
Carbon Company, Inc.
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 filed a patent application for a new generation of its tower filter
product line in 1998. 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 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, 1999, the Company's two largest customers
individually accounted for 12% and 20% of the Company's sales (32% in the
aggregate). The customers are Dow Belgium, N.V. and Allied Signal, Inc.
Employees
As of August 20, 1999, the Company had 105 full-time employees,
including 29 employees of BAM. Of these, 82 are engaged in manufacturing and
technical services, 11 in marketing and sales and 12 in administrative
functions.
The production employees at the Easton, Pennsylvania facility (36
persons) are represented by their own
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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 of various exhaust streams, designed to comply with applicable laws
and regulations. The plant produces air emissions that are regulated and
permitted by the Knox County Department of Air Quality Management (the
"KCDAQM"). 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 KCDAQM additional permits necessary to expand its operations to allow
increased carbon processing and the operation of two additional afterburners.
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.
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 20, 1999, 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 access to major interstate highways and
an 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 $9,000. The Company is a guarantor of payment
on this lease. In March 1999, the Company purchased a tract of land of
approximately 1.08 acres adjacent to the facility and entered into an option
agreement to purchase the facility. The option expires December 12, 1999. In May
1999, BAM leased 1,530 square feet of office space and 2,470 square feet of
warehouse space. The lease is for one year and has a monthly base rate of
$2,350. This lease has the option to renew for an additional period of one year
at $2,450 per month. In addition, BAM leased an additional 5,000 square feet of
unimproved warehouse space. The lease is for one year and has a monthly base
rate of $1,500. This lease has the option to renew for an additional period of
one year at $1,550 per month.
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<PAGE>
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II
Item 5 Market for the Company's Common Equity and Related Stockholder Matters.
The Company's Common Stock, no par value, (the "Common Stock") is
traded under the symbol "BET" on the American Stock Exchange ("AMEX"). The
following table sets forth the high and low sales prices for the Common Stock,
for the periods indicated, as reported by the AMEX.
Low ($) High ($)
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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
1999 Fiscal Year
First Quarter 1.63 2.75
Second Quarter 1.19 2.00
Third Quarter 1.25 3.50
Fourth Quarter 1.63 3.00
As of August 20, 1999, there were approximately 819 holders of record
of the Company's Common Stock.
On May 6, 1999, 90,000 shares of the Company's common stock were issued
to a former Vice President of the Company. These shares were in full
consideration for the balance owed to him pursuant to the Company's unfunded
nonqualified deferred compensation plan. Such shares were issued pursuant to the
exemption continued in section 4(d) of the Securities Act of 1933, as mentioned.
The Company did not declare any cash dividends on its Common Stock
during Fiscal 1999 or Fiscal 1998. The Company's financing agreement with PNC
Bank, N.A., 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 provides thermal and filtration process
solutions, equipment, systems and technology 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. 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. In addition, the Company, through Bethlehem Thermal,
provides metallized thermal coatings for a variety of industries using totally
automated thermal spray systems.
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
markets 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 can 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 results of operations, or cash flows.
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Results of Operations
Fiscal Year Ended May 31, 1999 ("1999") Compared to Fiscal Year Ended May 31,
1998 ("1998")
The Company's total sales were $13,710,000 for 1999, compared to sales
of $16,271,000 for 1998, a decrease of $2,561,000 or 16%. Gross profit was
$4,539,000 or 33% of sales for 1999 compared to gross profit of $5,119,000 or
31% of sales for 1998. Decreased sales in the Company's Thermal Process
Equipment Unit was a factor for the lower sales. Both sales activity and sales
in the Company's core Thermal Process Equipment Unit decreased through the third
quarter of 1999 due to a worldwide decline of the purchasing of capital goods in
the chemical industry and other process industries that the Company serves.
During the fourth quarter of Fiscal 1999 and the first quarter of Fiscal 2000,
the Company increased its advertising and marketing activities to try and
capture more sales in the Thermal Process Equipment Unit. Additionally, the
Company elected to focus on its core business and not on contract machining and
fabrication as in prior years. The Company is also focusing on the expansion of
specialty high temperature furnace systems and toll processing services for
select advanced materials markets.
The Company's largest customers individually accounted for 12% and 20%
of the Company's sales for 1999. The Company's export sales equaled $5,674,000
for 1999 compared to $5,436,000 for 1998. All sales were denominated in US
Dollars, therefore, currency fluctuations did not affect the transactions.
Operating expenses for 1999 were $3,655,000 or 27% of sales, compared
to $3,631,000 or 22% of sales, for 1998. In 1999, the Company recognized
approximately $116,000 of compensation expense for the issuance of stock options
in late 1998 to James L. Leuthe (a Director) and Salvatore J. Zizza (Chairman of
the Board) compared to $32,000 in 1998. The balance of the options' fair values
of approximately $219,000 will be expensed as services are rendered over the
next two-year vesting period. 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. Operating income equaled
$884,000 for 1999 or 6% of sales compared to operating income of $1,488,000 or
9% of sales for 1998.
Other expense totaled $495,000 for 1999 compared to $1,067,000 for
1998. Interest expense was $693,000 in 1999 compared to $822,000 for 1998. The
decrease relates to lower interest rates on refinanced outstanding debt with PNC
Bank, N.A., the agreement for which was executed in July 1998. In addition, the
amortization of deferred financing fees decreased to $78,000 compared to
$159,000 in 1998. Financing charges related to the issuance and amortization of
options to UPE decreased to $100,000 from $296,000 in 1998. A grant of 350,000
options to UPE was approved by the Company's stockholders in April of 1998, and
the values ascribed to such options were allocated between existing and prior
guarantees in 1998. The Company amortizes the remaining capitalized costs of
this grant and a grant of 175,000 options to UPE in 1999 (totaling $200,000 at
May 31, 1999) over the estimated term of the guarantees. The Company recognized
$298,000 in 1999 in other income compared to other income of $46,000 in 1998.
The increase is principally composed of a gain on the sale of equipment in the
amount of $170,000 and increased rental income of $16,000. Income before income
taxes totaled $389,000 for 1999 compared to $421,000 for 1998.
The Company's benefit for income taxes totaled $20,000 for 1999
compared to $110,000 for 1998. The 1999 benefit was comprised of a Federal
benefit of $64,000 and a net state provision of $44,000. Net income for 1999 was
$409,000 compared to $531,000 for 1998.
Liquidity and Capital Resources
During 1999, $1,740,000 of cash was used in operating activities
compared to $363,000 of cash provided by operating activities in 1998. The
company's accounts receivable increased $855,000, costs and estimated profits in
excess of billings increased $785,000, and inventories increased $880,000. The
increase was due to increased billings and increased percentage of completion
contract projects in place at May 31, 1999 compared to May 31, 1998. The Company
recorded non cash compensation expense and a financing charge for issuance and
amortization of options totaling $216,000 in 1999 compared to $454,000 in 1998.
Cash flow used for investing activities, principally capital
expenditures, was $3,421,000 in 1999 compared to $385,000 in 1998. The Company
has been building and upgrading the high temperature furnaces needed to support
the long term contract secured by Bethlehem Advanced Materials ("BAM"). The
capital expenditures also included energy
-8-
<PAGE>
efficiency upgrades, upgrades to existing plant equipment, office buildings and
new plant equipment.
Cash flow provided by financing activities was $5,233,000 for 1999
compared to $27,000 in 1998. Proceeds from the PNC Bank National Association
("PNC") and NationsBank agreements signed in 1999 provided approximately $7.1
million of funds, which were offset by payments against outstanding borrowings
of $1.8 million. 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 was used for capital improvements and working
capital purposes. As of August 20, 1999, the amount outstanding under the loan
was $1,959,000.
On June 3, 1998, the Company entered into a loan agreement with PNC for
a $4 million line of credit and term loan, secured by a first lien on the
Company's (excluding BAM) 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. On July 31, 1999, the agreement
with PNC was amended. The amended 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 $3,450,000 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 July 31, 2000. The line of credit
will be reduced to an amount equal to $3,200,000 after November 1, 1999. As of
August 20, 1999, the amount outstanding under the facility (including the term
loan) was $3,994,000. The loan agreement contains certain covenants which among
other criteria, 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 September 1998, the Company entered into a $250,000 non revolving
and committed equipment line of credit with PNC. The purpose of the facility is
to provide funding for acquisition of equipment from time to time, in aggregate
amounts not exceeding the sum of $250,000. The maximum amount of each advance
made under the facility shall be equal to the lesser of; (1) the then current
unadvanced portion of the facility or, (2) ninety percent (90%) of the price
paid by the Company to acquire the equipment. The rate bears interest of a
maximum rate of 9.40% and a minimum rate of 9.15%. Borrowings under the facility
are secured by a lien on all of the collateral advanced. Borrowings under this
facility are fully amortized with fixed equal payments of $5 not to exceed a
term of 60 months. The amount outstanding as of August 20, 1999 under the
facility was $216,000.
On January 21, 1999, the Company entered into a loan agreement with
NationsBank for a $3 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 this credit facility are being used to finance
capital expenditures at the BAM facility to support the contract received during
the third quarter of 1999. On July 31, 1999, the credit line was converted to a
seven-year term loan requiring $36,000 principal payments plus interest at prime
plus one half of one percent. The loan agreement contains certain covenants,
which among other criteria will require the Company to maintain a specified
level of net worth. As of August 20, 1999, the amount outstanding under the
facility is $3,000,000.
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. As of May 31,
1999, $787,000 of these advances remains outstanding.
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, 2000, and principal repayments on debt obligations (See Note 7 to
the Consolidated Financial Statements) as they become due.
-9-
<PAGE>
Backlog of $22,500,000 at August 20, 1999, compares to backlog of
$4,700,000 for the same period last year. This increase is primarily due to the
Company's five-year contract with AlliedSignal, Inc. See "Business -- Customers
Existence of Short Term Contracts".
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, 1999 the Company had approximately $3.2 million of unused
federal net operating loss carryforwards and $.3 million of federal alternative
minimum tax ("AMT") and 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 2000 through 2002.
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. The Company formed a committee to
identify Year 2000 target areas. All target areas were completely identified in
May of 1999 and have been evaluated and assessed for any potential problems. The
Company is presently addressing any potential financial disruptions. The
Company's current plan is to have all Year 2000-related issues adequately
handled by the end of the Company's fiscal quarter ending November 30, 1999.
Year to date, the Company has not incurred any material expenses in
connection with evaluating Year 2000 compliance issues. Presently, the Company
cannot assess the financial impact of the Year 2000 compliance issues. Although
the Company considers a material adverse impact on its financial condition or
results of operations or liquidity unlikely, the Company cannot at this time
state with a high degree of certainty that the Year 2000 compliance issues will
not have a material impact due to the fact that the Company is in the beginning
stages of evaluating Year 2000 exposure.
Effects of Recently Issued Accounting Pronouncements
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. 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.
-10-
<PAGE>
Item 7. Financial Statements.
Provided following the signature page.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
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 1999 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 1999 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 1999 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 1999 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.
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,
-11-
<PAGE>
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.
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)
-12-
<PAGE>
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 (Incorporated by
reference to Exhibit 10(u) to the Company's 1998 form 10-KSB.
10(v) Mortgage agreement dated December 12, 1997 by the Company to
Ocwen Federal Bank (Incorporated by reference to Exhibit 10(v)
to the Company's 1998 Form 10-KSB).
10(w) Amended and Restated Loan agreement dated January 21, 1999
between the Company and PNC Bank, N.A.
10(x) Second Amended and Restated loan agreement dated July 31, 1999
between the Company and PNC Bank, N.A.
10(y) Amended and Restated Committed Line of Credit Note dated July
31, 1999 between the Company and PNC Bank, N.A.
10(z) Loan agreement dated January 21, 1999 between the Company and
Nations Bank, N.A.
11(a) Amended loan agreement dated July 31, 1999 between the Company
and Nations Bank, N.A.
27 Financial Data Schedule Year ended May 31, 1999
-13-
<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 26, 1999 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 President, Director and August 26, 1999
- --------------------------- Chief Executive Officer
Alan H. Silverstein (Principal Executive Officer)
/s/ Antoinette L. Martin Chief Financial Officer August 26, 1999
- --------------------------- (Principal Financial Officer)
Antoinette L. Martin
/s/ Salvatore J. Zizza Chairman of the Board August 26, 1999
- ---------------------------
Salvatore J. Zizza
/s/ Ronald H. Gale Director August 26, 1999
- ---------------------------
Ronald H. Gale
/s/ Jan P. Gale Director August 26, 1999
- ---------------------------
Jan P. Gale
/s/ James L . Leuthe Director August 26, 1999
- ---------------------------
James L. Leuthe
/s/ Harold Bogatz Director August 26, 1999
- ---------------------------
Harold Bogatz
/s/ B. Ord Houston Director August 26, 1999
- ---------------------------
B. Ord Houston
/s/ James F. Lomma Director August 26, 1999
- ---------------------------
James F. Lomma
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
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, 1999....................................................F-4 - F-5
Statements of Income
for the Years Ended May 31, 1999 and 1998 ............................F-6
Statements of Stockholders' Equity (Deficit)
for the Years Ended May 31, 1999 and 1998 ............................F-7
Statements of Cash Flows
for the Years Ended May 31, 1999 and 1998 ............................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, 1999 and the related consolidated
statements of income, stockholders' equity and cash flows for the years ended
May 31, 1998 and 1999. 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, 1999, and the results of their
operations and their cash flows for the years ended May 31, 1998 and 1999 in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
Woodbridge, New Jersey
August 26, 1999
F-3
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1999 (amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash $ 113
Accounts receivable (net of allowance for doubtful
accounts of $47) 2,342
Costs and estimated profit in excess of billings
on long-term contracts 1,618
Inventories 5,092
Prepaid expenses and other current assets 113
Deferred tax asset 375
-------
Total Current Assets 9,653
-------
PROPERTY, PLANT AND EQUIPMENT, at cost less
accumulated depreciation and amortization 5,917
OTHER ASSETS:
Inventories, non current 750
Intangibles (net of $122 of accumulated amortization) 275
Intangible pension and deferred compensation plan assets 145
Deferred financing costs 382
Other 115
-------
Total Other Assets 1,667
-------
Total Assets $17,237
=======
</TABLE>
F-4
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
MAY 31, 1999 (amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C>
Current maturities of long-term debt and capital leases $ 1,209
Note payable - related party 787
Accounts payable 3,545
Accounts payable (net) - related party 24
Accrued liabilities 565
Billings in excess of costs and estimated profit
on long-term contracts 239
--------
Total Current Liabilities 6,369
--------
LONG TERM LIABILITIES:
Long-term debt and capital leases, net of current maturities 8,266
Deferred compensation and other pension liabilities 491
--------
Total Long-Term Liabilities 8,757
--------
COMMITMENTS AND CONTINGENCIES (Notes 5, 11 and 12)
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;
2,378,532 shares issued and 2,378,520 shares outstanding 1,189
Additional paid-in capital 6,557
Accumulated deficit (5,635)
--------
Less - treasury stock, at cost, 12 shares --
Total Stockholders' Equity 2,111
--------
Total Liabilities and Stockholders' Equity $ 17,237
========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------
1999 1998
<S> <C> <C>
NET SALES $ 13,710 $ 16,271
COST OF GOODS SOLD 9,171 11,152
-------- --------
GROSS PROFIT 4,539 5,119
-------- --------
OPERATING EXPENSES:
Selling 1,250 1,078
General and administrative 2,289 2,395
Stock Compensation Expense -0- 126
Non-Employee Stock Option Expense 116 32
-------- --------
3,655 3,631
-------- --------
Operating income 884 1,488
-------- --------
OTHER INCOME (EXPENSE):
Interest expense (693) (822)
Financing charge - issuance and amortization of stock options (100) (296)
Interest income -- 5
Other income 298 46
-------- --------
(495) (1,067)
-------- --------
Income before income taxes 389 421
INCOME TAX BENEFIT 20 110
-------- --------
NET INCOME $ 409 $ 531
======== ========
EARNINGS PER SHARE DATA:
Basic $ .18 $ .27
======== ========
Diluted $ .12 $ .15
======== ========
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 2,295 1,975
======== ========
Diluted 3,304 3,435
======== ========
</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>
Additional
Common Stock Paid-In Accumulated Treasury Shares
Shares Amount Capital Deficit Shares Amount Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1997 1,938,532 $ 969 $ 4,995 $ (6,575) 12 - $ (611)
Issuance of Common Stock
In Exchange for Inventory 350,000 175 672 - - - 847
Value of Stock Option Grants
to Non-Employees - - 456 - - - 456
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
Issuance of Common Stock in 90,000 45 146 - - - 191
settlement of liability
Value of Stock Option Grants
To Non-Employees - - 288 - - - 288
Net Income for the Year
Ended May 31, 1999 - - - 409 - 409
----------------------------------------------------------------------------------------------
2,378,532 $ 1,189 $ 6,557 $ (5,635) 12 - $ 2,111
===============================================================================================
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(amounts in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended May 31,
1999 1998
-----------------------------
CASH FLOWS PROVIDED BY (USED IN):
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 409 $ 531
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 467 543
Gain on sale of fixed assets (169) --
Accrued loss on contracts and obsolete inventory 126 56
Deferred tax benefit (75) (200)
Non cash compensation expense 116 158
Financing charge - issuance and amortization of options 100 296
Changes in operating assets and liabilities:
Accounts receivable (855) 1,302
Inventories (780) (27)
Prepaid expenses and other current assets 114 (133)
Costs and estimated profits in excess of billings (785) 472
Other assets (160) (139)
Accounts payable (25) (616)
Accounts payable (net)- related party (289) 77
Accrued liabilities (5) (444)
Billings in excess of costs and estimated profits 79 (1,229)
Deferred compensation and other pension liabilities (8) (284)
------- -------
Net Cash Provided by (Used in) Operating Activities (1,740) 363
------- -------
INVESTING ACTIVITIES:
Purchase and construction of property, plant and equipment (3,468) (385)
Proceeds from sales of fixed assets 47 --
------- -------
Net Cash Used in Investing Activities (3,421) (385)
------- -------
FINANCING ACTIVITIES:
Net proceeds from (repayments on) line of credit 6,007 (262)
Proceeds from debt borrowings 1,049 2,000
Repayments on debt borrowings and capital leases (1,828) (1,563)
Proceeds from notes payable - related party 75
Repayment of notes payable - related party 5 (223)
------- -------
Net Cash Provided by Financing Activities 5,233 27
------- -------
NET INCREASE IN CASH 72 5
CASH
BEGINNING OF PERIOD 41 36
------- -------
CASH
END OF PERIOD $ 113 $ 41
======= =======
</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 provides thermal and filtration process
solutions, equipment, systems and technology for a variety of industrial
applications. 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. In addition, Bethlehem Thermal, LLC, a wholly owned
subsidiary, formed in March 1999, provides metallized thermal coating using
automated thermal spray systems.
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, 1999 ("1999") and for the year ended May 31, 1998
("1998").
Principles of Consolidation:
The consolidated financial statements include the accounts of The Bethlehem
Corporation and its wholly owned subsidiaries (collectively the "Company"). All
intercompany 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 in relation 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.
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 principal 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 1999 and 1998.
Intangibles:
The excess of the purchase price of BAM over tangible net assets 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 $30 and $34 for the years ended May 31, 1999 and 1998,
respectively.
Deferred Financing Costs:
Direct costs incurred in obtaining financing have been capitalized and are being
amortized over the term of the related debt. The amortization of deferred
financing costs was $78 and $159 for 1999 and 1998, 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, 10 and 12).
Income Taxes:
The Company utilizes the liability method of accounting for income taxes, which
requires the recognition of deferred tax assets and liabilities for 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:
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. The Company has reserved
2,978,000 of common shares for various stock option plans and awards. Issuance
of such common shares will dilute basic earnings per share in the future.
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
affect 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; accrued liabilities; 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 1999 and 1998 (See Note 10 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 1999
presentation.
Effect of Recently Issued Accounting Standard:
The Company adopted SFAS No. 130 "Reporting Comprehensive Income", No. 131
"Disclosures About Segments of an Enterprise and Related Information" and No.
132 "Employers Disclosures About Pensions and Other Post Retirement Benefits".
Adoption of these statements had no material effects on the Company's financial
position, results of operations or cash flows or the related disclosures are
presented in Notes to the Consolidated Financial Statements.
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. 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.
F-11
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 2 - ACCOUNTS RECEIVABLE:
- --------------------------------------------------------------------------------
Accounts receivable are comprised of the following at May 31, 1999:
Billed (net of allowance for doubtful accounts of $47) $ 2,226
Retention on contracts 116
--------
$ 2,342
========
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 year ending May 31, 1999.
During 1999, the Company recognized bad debt expense of $68 and charged off
uncollectible accounts receivable of $171.
- --------------------------------------------------------------------------------
NOTE 3 - LONG TERM CONTRACTS:
- --------------------------------------------------------------------------------
At May 31, 1999, costs, estimated profit, and billings on uncompleted long-term
contracts accounted for by the percentage of completion method are summarized as
follows:
Costs incurred on long term contracts $ 3,101
Estimated profit 1,568
--------
4,669
Less: billings to date (3,290)
---------
$ 1,379
========
These amounts are included in the accompanying
consolidated balance sheet under
the following captions:
Costs and estimated profit in excess of
billings on long-term contracts $ 1,618
Billings in excess of costs and estimated
profit on long term contracts (239)
--------
$ 1,379
========
F-12
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 4 - INVENTORIES:
- --------------------------------------------------------------------------------
The components of inventories are comprised of the following at May 31, 1999:
Raw materials and components $ 274
Work in process 2,954
Finished goods 2,769
Less: reserve for obsolete inventory (155)
--------
5,842
Less: Non-Current Inventory (750)
---------
$ 5,092
=========
At May 31, 1999, 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, 13%
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 impairments of specific raw material and finished goods
inventory to net realizable value in the amounts of $126 and $175 in 1999 and
1998, respectively, and charged off $146 and $105 of such inventory in 1999 and
1998, 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.
- --------------------------------------------------------------------------------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT (See Note 7):
- --------------------------------------------------------------------------------
At May 31, 1999, property, plant and equipment consists of the following:
Land $ 448
Buildings and improvements 1,510
Machinery and equipment 8,592
Equipment under capital leases 140
Construction in progress 2,879
---------
13,569
Less: accumulated depreciation
and amortization (7,652)
---------
Property, plant and equipment,
net of accumulated depreciation $ 5,917
=========
Depreciation and amortization expense on property, plant and equipment was $348
and $350 in 1999 and 1998, respectively, which included $30 and $26 of expense
related to equipment subject to capital leases. The Company also has the option
to purchase the building that is currently leased by BAM (accounted for as an
operating lease). The option expires on December 12, 1999.
Included in "Other Income" in the 1999 Statements of Operations are gains from
the sale of fixed assets totaling $169.
F-13
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 6 - ACCRUED LIABILITIES:
- --------------------------------------------------------------------------------
At May 31, 1999, accrued liabilities consist of the following:
Salaries and benefits $ 284
Current portion of deferred compensation 86
Purchases 125
Other 70
-------
$ 565
=======
- --------------------------------------------------------------------------------
NOTE 7 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
- --------------------------------------------------------------------------------
At May 31, 1999, long-term debt and capital lease obligations consists of the
following:
Note payable - Ocwen Federal Bank $ 1,959
Line of Credit - PNC Bank, N.A. 3,017
Term Loan - PNC Bank, N.A. 653
Note Payable - PNC Bank, N.A. 226
Note Payable - Nations Bank, N.A. 2,994
Note payable - Harrisburg Authority 570
Capital lease obligations 56
---------
9,475
Less: current maturities (1,209)
---------
Total $ 8,266
=========
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 10 and 12).
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. The
Company has granted Ocwen a first lien and security interest on all land and
related improvements owned by the Company at its Pennsylvania facility. During
1999 and 1998, the Company recorded $222 and $94 in interest expense
respectively, related to this loan agreement.
F-14
<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)
- --------------------------------------------------------------------------------
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. On July 31, 1999 the agreement with PNC was amended. 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. Such assets
serve as collateral for outstanding balances under the agreement. 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 (9.25% at May 31, 1999.) The proceeds from this financing agreement
were used to pay a predecessor institution's term loan and credit facility
balances outstanding at June 3, 1998. The amended PNC agreement provides for the
following: 1) The term loan requires monthly principal payments of $13 through
May 2002. 2) The revolving credit facility matures on July 31, 2000. Interest
expense related to the agreement totaled $321 in 1999. As part of the 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 is recognizing a charge for the fair values of these
options over the estimated three-year term of these guarantees.
PNC Bank, N.A. - Non Revolving and Committed Equipment Line of Credit
In September 1998, the Company entered into a $250 non-revolving and committed
equipment line of credit with PNC. The purpose of the facility is to provide
funding for acquisition of equipment from time to time, in aggregate amounts not
exceeding the sum of $250. The maximum amount of each advance made under the
facility shall be an amount equal to the lesser of the then current unadvanced
portion of the facility or an amount equal to ninety percent (90%) of the price
paid by the Company to acquire the equipment. The rate bears interest of a
maximum rate of 9.40% and a minimum rate of 9.15%. During 1999, the Company
recorded $16 in interest expense. Borrowings under the facility are secured by a
lien on all of the collateral advanced. Borrowings under this facility are fully
amortized with fixed equal payments of $5 not to exceed a term of 60 months. The
balance outstanding at May 31, 1999 is $226.
Nations Bank, N.A. - Note Payable
On January 21, 1999, the Company entered into a loan agreement with NationsBank,
N.A. ("NationsBank") for a $3,000 line of credit and term loan, secured by a
first lien on BAM's inventory, accounts receivable, machinery and equipment and
other assets. The proceeds of this credit facility are being used to finance
capital expenditures at the BAM facility. The balance outstanding at May 31,
1999 is $2,994. On July 31, 1999, the credit line outstanding of $3,000 was
converted to a seven-year term loan requiring $36 monthly principal payments
plus interest at prime plus one half of one percent. The loan agreement contains
certain covenants, which among other criteria, require the Company and BAM to
maintain a specified level of net worth. During 1999, the Company recorded $48
in interest expense related to this loan agreement.
Harrisburg Authority - Note Payable
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.
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)
- --------------------------------------------------------------------------------
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, secured by a second lien on the Company's
owned real estate. Interest expense on this debt totaled $8 and $17 in 1999 and
1998, respectively. The note's remaining principal payment provisions at May 31,
1999 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.
Debt Maturities:
Long-term debt maturities for the next five fiscal years and thereafter
(reflecting the effects of the July 31, 1999 PNC and NationsBank amendments) are
as follows:
Year Ending May 31,
------------------------
2000 $ 1,177
2001 3,704
2002 687
2003 2,475
2004 441
2005 and thereafter 936
-----------
$ 9,420
===========
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, 1999:
Year Ending May 31,
2000 $ 37
2001 18
2002 3
2003 2
--------------
Minimum lease payments 60
Less: imputed interest (5)
--------------
Present value of minimum
lease payments 55
Less: current portion (32)
--------------
Long term portion $ 23
==============
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:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------
Current:
<S> <C> <C>
Federal $(153) $ (280)
State (55) (117)
Recognition of net operating losses 153 307
--------------------------------------------------------------------------
(55) (90)
--------------------------------------------------------------------------
Deferred:
Federal 64 170
State 11 30
--------------------------------------------------------------------------
75 200
--------------------------------------------------------------------------
Income tax benefit $ 20 $ 110
==========================================================================
</TABLE>
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.
1999 1998
U.S. Federal income tax $ (132) $ (143)
provision at statutory rates
State income taxes, net of (29) (33)
Federal benefit
Utilization of net operating loss 153 178
carryforwards
Decrease in beginning of the 75 134
period valuation allowance
Other, net (47) (26)
-----------------------
Income tax benefit $ 20 $ 110
=======================
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:
May 31,
1999 1998
----------- -------------------------
Deferred Tax Assets:
Receivables $ 19 $ 60
Inventory 130 100
Net operating loss
carryforwards 1,077 1,252
AMT and tax credits 119 119
Lawsuit settlement 216 216
Deferred compensation
and retirement benefit 216 203
Stock option compensation 268 183
Other 20 20
------------------------------------
Total Gross Deferred Tax Assets 2,065 2,153
Valuation allowance (1,480) (1,663)
--------------------------------------
Total Deferred Tax Assets 585 490
Deferred Tax Liability:
Property, plant and equipment (210) (190)
--------------------------------------
Net Deferred Tax Asset $ 375 $ 300
======================================
Based on an assessment of all available evidence, including historical trends
and expected earnings on existing contracts and job orders and the Company's
related ability to generate taxable income in future periods, management
considers realization of the net deferred tax asset at May 31, 1999 to be more
likely than not. Realization of the gross deferred tax assets relates directly
to the Company's ability to generate taxable income over an extended period of
time which may be significantly affected by various factors and uncertainties
including, but not limited to, the expiration dates in which to utilize net
operating losses, future domestic and foreign market conditions, the
concentration of sales in a limited number of customers and the effects of
technological advances in the marketplace. Further reductions to the valuation
allowance established against deferred tax assets could be recognized in future
periods if the Company concludes that further realization of such deferred tax
assets is considered more likely than not.
At May 31, 1999, the Company has approximately $3.2 million of unused federal
net operating loss carryforwards and $.3 million of federal alternative minimum
tax ("AMT") and 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 will expire during the years 2000 through 2002.
- --------------------------------------------------------------------------------
NOTE 9 - DEFERRED COMPENSATION, PENSION AND OTHER POSTRETIREMENT PLANS:
- --------------------------------------------------------------------------------
PLAN DESCRIPTIONS
Deferred Compensation Plan
The Company has an unfunded nonqualified deferred compensation plan for certain
employees which provides 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 plan's 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, PENSION AND OTHER POST 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.
During 1999, the Company settled a retirement plan obligation at an individual's
request through the issuance of 90,000 shares of common stock. The number of the
shares was based on the fair market value of the common stock at the settlement
date and approximated the present value of the retirement obligation.
Pension Plans
The Company maintains two noncontributory defined benefit retirement plans
(collectively, the "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.
Other Postretirement 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.
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 effect of raising health care cost trend rates 1% for each future year would
increase the accumulated benefit obligation by approximately $85 and increase
the aggregate service and interest cost components of net periodic
postretirement health care benefit costs by approximately $7.
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 following provides a reconciliation of benefit obligations, plan assets, and
funded status of the plans described above:
F-19
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 9 - DEFERRED COMPENSATION, PENSION AND OTHER POST RETIREMENT PLANS:
(Continued)
- --------------------------------------------------------------------------------
Change in benefit obligations
<TABLE>
<CAPTION>
Pension Other
Plans RISP Benefits
----- ---- --------
<S> <C> <C> C>
Benefit obligation at May 31, 1998 $ (2,742) $ (463) (1,135)
Service Cost - - (6)
Interest Cost (208) (33) (83)
Plan participants' contributions 87
Actuarial Loss (616) (117) (33)
Benefits paid 287 106
Settlement - 170
-----------------------------------------------
Benefit obligation at May 31, 1999 $ (3,279) $ (337) $ (1,170)
-----------------------------------------------
Change in plan assets
Fair value of plan assets at May 31, 1998 $ 3,209 $ -
Actual return on plan assets 504
Contributions $ 303
Benefits paid (287) (297)
------------------------------------------------
Fair value of plan assets at May 31, 1999 $ 3,426 $ 6 $ -
================================================
</TABLE>
Plan assets are stated at fair value and are comprised primarily of common stock
and corporate bonds.
<TABLE>
<CAPTION>
Funded Status
<S> <C> <C>
Unrecognized actuarial (gain) loss $ 701 $ (109)
Unrecognized prior service cost (8) (67) $ (332)
----------------------------------------------
Net amount recognized $ 693 $ (176) $ (332)
==============================================
</TABLE>
Amounts recognized in the
May 31, 1999 consolidated balance sheet
consist of:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Accrued benefit liability $ (200) $ (330) $ (47)
Intangible asset 34 111 -
----------------------------------------------
Net amount recognized at May 31, 1999 $ (166) $ (219) $ (47)
==============================================
</TABLE>
At May 31, 1999, plans with accumulated benefits in excess of plan assets have
accumulated benefit obligations and projected benefit obligations of $2,747 and
plan assets of $2,228.
Weighted-average assumptions as of May 31, 1999
<TABLE>
<CAPTION>
Pension Other
Plans RISP Benefits
----- ---- --------
<S> <C> <C> <C>
Discount Rate 8% 8% 8%
Expected return on plan assets 8% 8% N/A
</TABLE>
F-20
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 9 - DEFERRED COMPENSATION, PENSION AND OTHER POSTRETIREMENT PLANS:
(Continued)
- --------------------------------------------------------------------------------
For measurement purposes, a 13.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999. The rate was assumed to
decrease gradually to 6% for 2009 and remain at that level thereafter.
For the year ended May 31, 1999
Pension Other
Plans RISP Benefits
----- ---- --------
Service cost $ - $ - $ 6
Interest cost 208 33 83
Expected return on plan assets (245) (1)
Amortization or prior service costs 7 (10) (26)
Recognized net actuarial loss (18) 32 59
Expected contributions from retirees - - (87)
----------------------------------------
Net periodic benefit cost (benefit) $ (48) $ 54 $ 35
========================================
For the year ended May 31, 1998
Pension Other
Plans RISP Benefits
Service cost $ 5
Interest cost $ 207 $ 38 68
Expected return on plan assets (530) 33 -
Amortization of prior service costs (9) (26)
Recognized net actuarial loss 58
Net amortization and deferral 328 - -
Expected contributions from retirees (49)
------------------------------------------
Net periodic benefit cost $ 5 $ 62 $ 56
==========================================
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, 1999, the Company's liability to
the plan approximated $32. The Company's expense related to the plan was $21 and
$70 for 1999 and 1998, respectively.
F-21
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' EQUITY:
- --------------------------------------------------------------------------------
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 1999 and 1998.
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 1999 and 1998.
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
1999 and 1998.
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 117,500 and 85,000 shares have been issued under this plan in
fiscal 1999 and 1998, respectively.
F-22
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 10 - 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 cost for the related services. 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 1999 and 1998
totaled $116 and $32 respectively. 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 financing
charges totaled $43 and $296 for 1999 and 1998, respectively.
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 ($172) will be amortized over the estimated
three-year term of the guarantee. The financing charges totaled $57 in 1999.
The Company estimated the fair values 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 46.5% (1999) and 31.4% (1998);
risk free interest rates of 5.4% (1999) and 6.1% (1998) and expected lives of
ten years. Such fair values also encompassed the excess of the fair market
values of the stock, as adjusted for liquidity and dilution factors, less the
exercise price of the options issued to the Company's Chairman, Director and UPE
in April 1998. The options vest over a three year period.
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, no dividend
yield; expected volatility of 46.5% risk-free interest rates of 5.32% (1999) and
6.42% (1998) and expected lives of 10 years for the options.
Under the accounting provisions of SFAS 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.
1999 1998
---------------------
Net Income:
As reported $409 $ 531
Pro-forma $331 $ 450
Basic earnings per share:
As reported $.18 $ .27
Pro-forma $.14 $ .23
Diluted earnings per share:
As reported $.12 $ .15
Pro-forma $.10 $ .13
F-23
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' EQUITY: (Continued)
- --------------------------------------------------------------------------------
The pro forma effect on net income and earnings per share for 1999 and 1998 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 and warrants as of
May 31, 1999 and 1998 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
May 31, 1999 May 31, 1998
----------------------------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
--------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 2,685,500 1.12 1,995,000 $ .90
Granted 292,500 1.68 738,000 1.82
Exercised - - - -
Forfeited - (47,500) $ 2.56
-------------- -------------------
Outstanding-end of year 2,978,000 . 2,685,500
============== ===================
Options exercisable -year-end 1,286,076 532,493
============== ===================
Weighted-average fair value of
options granted during the year $ 1.08 $ 1.22
============== ===================
</TABLE>
Options issued to employees in 1998 and 1999 expire in 2007 and 2008,
respectively, and are exercisable immediately. At May 31, 1999, the Company has
47,500 shares of common stock available for grant under various option plans.
The following table summarizes information about stock options and warrants
outstanding at May 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------- -------------------------------------------
Range of Weighted-Average Weighted- Weighted-
Exercise Number Outstanding Remaining Contractual Average Number Exercisable Average
Prices at May 31, 1999 Life Exercise Price at May 31, 1999 Exercise Price
- ----------------------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.33 to 0.94 1,700,000 .5 years $0.67 250,000 $0.94
$1.78 100,000 9.5 $1.78 192,500 $1.63
$1.63 192,500 9.2 $1.63 100,000 $1.78
$1.81 653,000 9 $1.81 459,417 $1.81
$1.87 to 2.88 272,500 5 $1.99 175,000 $1.88
$2.50 50,000 4 $2.50 76,659 $2.27
$3.15 10,000 8 $3.15 32,500 $2.88-$3.15
---------- ---------
$0.33 to 3.15 2,978,000 3.7 $2.02 1,286,076 $1.68
========== =========
</TABLE>
F-24
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' EQUITY: (Continued)
- --------------------------------------------------------------------------------
Warrants:
In July 1995, the Company granted warrants to a financial institution to
purchase 50,000 shares of the Company's common stock at $1.87 per share, the
fair market value of the stock on the date the warrants were granted.
- --------------------------------------------------------------------------------
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
- --------------------------------------------------------------------------------
Legal Matters
The Company is party to litigation, claims and assessments 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. BAM also leases 1,530 square feet of office space and
2,470 square beet of warehouse space. The lease is for one year and has a
monthly base rate of $2. This lease has the option to renew for an additional
period of one year at $2 per month. In addition, BAM leased an additional 5,000
square feet of unimproved warehouse space. The lease is for one year and has a
monthly base rate of $2. This lease has the option to renew for an additional
period of one year at $2 per month. The Company also leases certain equipment
and automobiles. Rent expense under all operating lease arrangements was
approximately $168 and $130 in 1999 and 1998, respectively. At May 31, 1999, the
future minimum lease payments on these operating leases are as follows:
Year Ended May 31,
-----------------------
2000 $ 197
2001 136
2002 12
-------
$ 345
=======
Employment Agreement
The Company has an employment contract with an officer resulting in future
commitments for payments of approximately $185 in each of the fiscal years
ending May 31, 2000 and 2001.
- --------------------------------------------------------------------------------
NOTE 12 - 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
1999 and 1998.
F-25
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 12 - RELATED PARTY TRANSACTIONS: (Continued)
- --------------------------------------------------------------------------------
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 totaled $256 in 1998. In May 1998 this agreement was
terminated when all equipment under this agreement was transferred to UPE.
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, 1999
-------------------------------------------------------
Accounts
Receivable Accounts Payable
(Related Parties) (Related Parties)
-------------------------------------------------------
<S> <C> <C>
UPE (Owned by Ronald & Jan
Gale through Universal Baling &
Processing, Inc. UPE's parent) $ 74 $ 258
Universal Industrial Gases, Inc.
(U.I.G.) (100% owned by UPE) 99 3
Universal Industrial Refrigeration, Inc.
(U.I.R.) (80% owned by UPE) 11 119
Universal Glastell Equipment
(U.G.E.) (50% owned by Gale Glass) 39 -
R. Simon Dryers, Ltd. (Directors are
Ronald & Jan Gale) 120 (13)
-------------------------------------------------------
$ 343 $ 367
=======================================================
</TABLE>
Since the right of offset exists between the Company, UPE and related parties, a
net amount payable to related parties is presented in the accompanying May 31,
1999 balance sheet.
Related party sales were as follows:
Year Ended May 31,
1999 1998
--------------------------------------------
UPE $ 12 $ 1,318
U.I.G. 28 -
--------------------------------------------
$ 40 $ 1,318
============================================
Rental income from related parties totaled $55 and $39 in 1999 and 1998,
respectively.
The Company purchases equipment and services from UPE and its affiliates. These
purchases total approximately 11% and 10% of the total cost of goods sold for
1999 and 1998, respectively.
F-26
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 12 - RELATED PARTY TRANSACTIONS: (Continued)
- --------------------------------------------------------------------------------
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
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 and for services rendered at that time, 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, if any, 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 10, in March 1996 and August 1998, the Board of Directors
approved the issuance of an aggregate 525,000 stock options to UPE in exchange
for consideration for guarantees provided on the Company's various debt
obligations. The ascribed fair values to these options approximated $596. Such
costs were allocated to current and future periods based on existing and prior
guarantees. Of this amount, $100 and $296 was expensed as a financing charge in
the 1999 and 1998 statements of income, and $200 remains capitalized at May 31,
1999.
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 13 - CONCENTRATION OF CREDIT RISKS:
- --------------------------------------------------------------------------------
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 18% and 28% of the
accounts receivable balance at May 31, 1999. 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 14 - MAJOR CUSTOMERS AND EXPORT SALES:
- --------------------------------------------------------------------------------
In 1999, two customers individually represented 12% and 20% of consolidated
sales. In 1998, five customers represented 11% to 17% of consolidated sales and,
in the aggregate, accounted for 68% of consolidated sales.
For 1999 and 1998, export sales were as follows:
Year Ended May 31,
Customer 1999 1998
----------------------------------------------------------------
Australia $ 142 $ -
Belgium 1,681 -
Brazil 388 -
Canada 37 53
Estonia - 195
Hong Kong 420 -
Japan - 8
Korea 687 -
Mexico 711 620
Netherlands 27 72
Russia - 145
Scotland 63 2,096
Singapore 1,110 -
South Africa 63 127
Spain 264 -
Taiwan - 1,781
United Kingdom 46 -
All Others 35 339
------------------------------
$ 5,674 $ 5,436
==============================
- --------------------------------------------------------------------------------
NOTE 15 - SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES:
- --------------------------------------------------------------------------------
Year Ended May 31,
1999 1998
-----------------------
Cash paid for interest $ 662 $ 660
=======================
Cash paid for income taxes $ 51 $ 90
=======================
Noncash investing and financing activities:
During 1999, the Company settled a retirement obligation through the issuance of
90,000 shares of common stock.
In April 1998, the Company issued 350,000 shares of common stock to UPE in
exchange for a 50% interest in used inventory (see Note 12).
In connection with a transfer of inventory in 1998 (see Note 12), 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 and per share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 15 - SUPPLEMENTAL CASH FLOW STATEMENT DISCLOSURES: (Continued)
- --------------------------------------------------------------------------------
In 1999, the Company acquired $24 of fixed assets subject to capital lease
obligations.
- --------------------------------------------------------------------------------
NOTE 16 - EARNINGS PER SHARE:
- --------------------------------------------------------------------------------
Basic and Diluted earnings per share for 1999 and 1998 have been computed as
follows:
1999
Net Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------------------------------------
Basic Earnings Per Share $ 409 2,295 $ .18
Effect of dilutive securities
Warrants and options - 1,009 -
Diluted Earnings Per Share $ 409 3,304 $ .12
1998
Net Income Shares Per Share
(Numerator) (Denominator) Amount
-------------------------------------------------------------------------
Basic Earnings Per Share $ 531 1,975 $ .27
Effect of dilutive securities
Warrants and options - 1,460 -
Diluted Earnings Per Share $ 531 3,435 $ .15
Options to purchase 122,500 shares of common stock, (exercisable at between
$2.00 and $3.15 per share) in 1999 and 80,000 shares of common stock
(exercisable at between $2.87 and $3.15) in 1998, were outstanding 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.
F-29
<PAGE>
THE BETHLEHEM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 17 - 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 10 and 12, 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 in 1998.
F-30
AMENDED AND RESTATED COMMITTED LINE OF CREDIT NOTE
$3,450,000 July 31, 1999
FOR VALUE RECEIVED, THE BETHLEHEM CORPORATION, with an address at 25th & Lennox
Street, Easton, Pennsylvania 18045 (the "Borrower") promises to pay to the order
of PNC BANK, NATIONAL ASSOCIATION at its offices located at 1600 Market Street,
Philadelphia, Pennsylvania 19103, or at such other location as the Bank may
designate from time to time, (the "Bank"), in lawful money of the United States
of America in immediately available funds the principal sum of Three Million
Four Hundred and Fifty Thousand Dollars ($3,450,000) (the "Facility") or such
lesser amount as may be advanced to or for the benefit of the Borrower
hereunder, together with interest accruing on the outstanding principal balance
from the date hereof, as provided below. (This Amended and Restated Committed
Line of Credit Note, amends, restates and replaces in its entirety, but does not
repay the similar Committed Line of Credit Note from the Borrower to the Bank
dated June 2, 1998 in the original face amount of $3,200,000.)
1. Rate of Interest. Amounts outstanding under this Note will bear interest at
a rate per annum which is at all times one and one-half percentage points
(1.50%) in excess of the Prime Rate. Interest will be calculated on the basis of
a year of 360 days for the actual number of days in each interest period. As
used herein, "Prime Rate" shall mean the rate publicly announced by the Bank
from time to time as its prime rate. The Prime Rate is not tied to any external
rate or index and does not necessarily reflect the lowest rate of interest
actually charged by the Bank to any particular class or category of customers.
If and when the Prime Rate changes, the rate of interest on this Note will
change automatically without notice to the Borrower, effective on the date of
any such change. In no event will the rate of interest hereunder exceed the
maximum rate allowed by law.
2. Advances. The Borrower may borrow, repay and reborrow hereunder until the
Expiration Date, subject to the terms and conditions of this Note and the Loan
Documents (as defined herein) including, without limitation, the requirement
that the Borrower permanently reduce the maximum unpaid principal balance due
under this Note to an amount not to exceed Three Million Two Hundred Thousand
Dollars ($3,200,000) on October 31, 1999. The "Expiration Date" shall mean July
31, 2000, or such later date as may be designated by the Bank by written notice
from the Bank to the Borrower. The Borrower acknowledges and agrees that in no
event will the Bank be under any obligation to extend or renew the Facility or
this Note beyond the initial Expiration Date. However, the Bank agrees to make
every reasonable effort to provide the Borrower with at least sixty (60) days
prior written notice of its decision not to extend or renew the Facility. In no
event shall the aggregate unpaid principal amount of advances under this Note
exceed the face amount of this Note.
3. Advance Procedures. A request for advance made by telephone must be
promptly confirmed in writing by such method as the Bank may require. The
Borrower authorizes the Bank to accept telephonic requests for advances, and the
Bank shall be entitled to rely upon the authority of any person providing such
instructions. The Borrower hereby indemnifies and
<PAGE>
holds the Bank harmless from and against any and all damages, losses,
liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) which may arise or be created by the acceptance of such telephone
requests or making such advances. The Bank will enter on its books and records,
which entry when made will be presumed correct, the date and amount of each
advance, as well as the date and amount of each payment made by the Borrower.
4. Payment Terms. Accrued interest will be due and payable on the 1st day of
each month, beginning with the payment due on August 1, 1999. The outstanding
principal balance and any accrued but unpaid interest shall be due and payable
on the Expiration Date. If any payment under this Note shall become due on a
Saturday, Sunday or public holiday under the laws of the State where the Bank's
office indicated above is located, such payment shall be made on the next
succeeding business day and such extension of time shall be included in
computing interest in connection with such payment. The Borrower hereby
authorizes the Bank to charge the Borrower's deposit account at the Bank for any
payment when due hereunder by accepting the benefits of this Note and the Bank
hereby agrees to make every reasonable effort to do so. Should the Bank fail to
do so at a point in time when sufficient funds to make the necessary payment are
on deposit therein, the Bank shall be precluded from declaring an Event of
Default under the Loan Documents based solely upon the failure of the Borrower
to make the scheduled payment in question. Notwithstanding the foregoing, the
Bank agrees to make every reasonable effort to provide the Borrower with at
least five (5) days prior written notice before charging such account for any
amount other than principal and interest. Payments received will be applied to
charges, fees and expenses (including attorneys' fees), accrued interest and
principal in any order the Bank may choose, in its sole discretion.
5. Late Payments; Default Rate. If the Borrower fails to make any payment of
principal, interest or other amount coming due pursuant to the provisions of
this Note within ten (10) calendar days of the date due and payable, the
Borrower also shall pay to the Bank a late charge equal to the lesser of five
percent (5.00%) of the amount of such payment or $500. Such ten (10) day period
shall not be construed in any way to extend the due date of any such payment.
The late charge is imposed for the purpose of defraying the Bank's expenses
incident to the handling of delinquent payments and is in addition to, and not
in lieu of, the exercise by the Bank of any rights and remedies hereunder, under
the other Loan Documents or under applicable laws, and any fees and expenses of
any agents or attorneys which the Bank may employ. Upon maturity, whether by
acceleration, demand or otherwise, and at the option of the Bank upon the
occurrence of any Event of Default (as hereinafter defined) and during the
continuance thereof, this Note shall bear interest at a rate per annum (based on
a year of 360 days and actual days elapsed) which shall be three percentage
points (3.00%) in excess of the interest rate in effect from time to time under
this Note but not more than the maximum rate allowed by law (the "Default
Rate"). The Default Rate shall continue to apply whether or not judgment shall
be entered on this Note.
2
<PAGE>
6. Prepayment. The indebtedness evidenced by this Note may be prepaid in whole
or in part at any time without penalty.
7. Other Loan Documents. This Note is issued in connection with the Loan
Agreement between the Borrower and the Bank dated of even date herewith (the
"Loan Agreement"), the terms of which are incorporated herein by reference,
together with each of the documents and instruments executed and delivered in
connection therewith (collectively, the "Loan Documents"), and is secured by the
property described in the Loan Documents (if any) and by such other collateral
as previously may have been or may in the future be granted to the Bank to
secure this Note.
8. Events of Default. The occurrence of any of the events set forth in Article
7 of the Loan Agreement will be deemed to be an "Event of Default" under this
Note, subject to the applicable notice and cure periods specified in the Loan
Agreement.
Upon the occurrence of an Event of Default: (a) the Bank shall be under no
further obligation to make advances hereunder; (b) if an Event of Default
specified in clause (iii) or (iv) above shall occur, the outstanding principal
balance and accrued interest hereunder together with any additional amounts
payable hereunder shall be immediately due and payable without demand or notice
of any kind; (c) if any other Event of Default shall occur, the outstanding
principal balance and accrued interest hereunder together with any additional
amounts payable hereunder, at the option of the Bank and without demand or
notice of any kind, may be accelerated and become immediately due and payable;
(d) at the option of the Bank, this Note will bear interest at the Default Rate
from the date of the occurrence of the Event of Default; and (e) the Bank may
exercise from time to time any of the rights and remedies available to the Bank
under the Loan Documents or under applicable law.
9. Power to Confess Judgment. The Borrower hereby empowers any attorney of any
court of record, after the occurrence of any Event of Default hereunder, to
appear for the Borrower and, with or without complaint filed, confess judgment,
or a series of judgments, against the Borrower in favor of the Bank or any
holder hereof for the entire principal balance of this Note, all accrued
interest and all other amounts due hereunder, together with costs of suit and an
attorney's commission of the greater of 10% of such principal and interest or
$1,000 added as a reasonable attorney's fee, and for doing so, this Note or a
copy verified by affidavit shall be a sufficient warrant. Any attorneys' fees
attempted to be recovered under this Section 9 shall be reasonable and based on
the actual time expended by counsel for the Bank and calculated based on
reasonable hourly charges under the circumstances. The Borrower hereby forever
waives and releases all errors in said proceedings and all rights of appeal and
all relief from any and all appraisement, stay or exemption laws of any state
now in force or hereafter enacted. Interest on any such judgment shall accrue at
the Default Rate.
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No single exercise of the foregoing power to confess judgment, or a series of
judgments, shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable, or void, but the
power shall continue undiminished and it may be exercised from time to time as
often as the Bank shall elect until such time as the Bank shall have received
payment in full of the debt, interest and costs.
10. Right of Setoff. In addition to all liens upon and rights of setoff against
the money, securities or other property of the Borrower given to the Bank by
law, the Bank shall have, with respect to the Borrower's obligations to the Bank
under this Note and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against, and the Borrower
hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower, provided that an Event of Default
has occurred hereunder and remains uncured. Every such right of setoff shall be
deemed to have been exercised immediately upon the occurrence of an Event of
Default hereunder without any action of the Bank, although the Bank may enter
such setoff on its books and records at a later time.
11. Miscellaneous. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered to
be a waiver of any such right or power, nor shall the Bank's action or inaction
impair any such right or power. The Borrower agrees to pay on demand, to the
extent permitted by law, all costs and expenses incurred by the Bank in the
enforcement of its rights in this Note and in any security therefor, including
without limitation reasonable fees and expenses of the Bank's counsel, 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. If any
provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect. The Borrower and
all other makers and indorsers of this Note hereby forever waive presentment,
protest, notice of dishonor and notice of non-payment. The Borrower also waives
all defenses based on suretyship or impairment of collateral. If this Note is
executed by more than one Borrower, the obligations of such persons or entities
hereunder will be joint and several. This Note shall bind the Borrower and its
heirs, executors, administrators, successors and assigns, and the benefits
hereof shall inure to the benefit of the Bank and its successors and assigns.
This Note 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 NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE
BANK AND THE BORROWER
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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. The
Borrower 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 currently located, and consents that all service of process
be sent by nationally recognized overnight 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 Note 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 Borrower acknowledges and agrees 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 Note.
12. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE
BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the waiver of jury trial, and has been advised by counsel
as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
[CORPORATE SEAL] THE BETHLEHEM CORPORATION,
a Pennsylvania corporation
Attest:______________________________ By:__________________________(SEAL)
Alan H. Silverstein
President & Chief Executive Officer
5
Second Amended and Restated Loan Agreement
THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") is
entered into as of July 31, 1999 between THE BETHLEHEM CORPORATION, a
Pennsylvania corporation (the "Borrower") and PNC BANK, NATIONAL ASSOCIATION, a
national banking association (the "Bank"). It amends, restates and replaces in
it entirety the similar Amended and Restated Loan Agreement between the Borrower
and the Bank dated January 21, 1999.
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:
$3,450,000 Committed Line of Credit, to be automatically reduced to an
amount equal to $3,200,000 from and after November 1, 1999 (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: July 31, 2000, 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 has previously paid to the Bank a
facility fee in the amount of $48,000. In addition, the Borrower
shall pay a renewal fee to the Bank in an amount equal to $15,000
on or before July 31, 1999.
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(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.
(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 as the Bank shall
reasonably require (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.
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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).
(c) Facility Fee: The Borrower has previously paid to the Bank
a facility fee in the amount of $12,000, which was paid 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".
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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 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 twelve month period which ended
on May 31, 1999 (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
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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 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
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<PAGE>
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.
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
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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 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)
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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 separate and unconsolidated
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.
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
-8-
<PAGE>
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).
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 set forth on the Addendum, subject to all applicable
cure periods set forth herein, with the understanding that such
compliance shall be determined based on the then-current
segregated and non-consolidated financial condition of the
Borrower.
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
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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 and for
a security interest in the Borrower's capital stock in Bethlehem
Advanced Materials Corporation in favor of NationsBank, N.A.,
which is hereby expressly authorized notwithstanding any
expressed or implied restrictions to the contrary in any of the
Loan Documents, 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 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 or
investments in the ordinary course of the Borrower's business and
except for the Borrower's existing loan in the original principal
amount of $1,086,717 in favor of Bethlehem Advanced Materials
Corporation.
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,
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<PAGE>
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.
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.
-11-
<PAGE>
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, or
the occurrence of an Event of Default under the Loan Documents
which now exist or which may hereafter exist in connection with
any present or future loan transaction between NationsBank, N.A.
and Bethlehem Advanced Materials Corporation..
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.
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.
-12-
<PAGE>
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 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.
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<PAGE>
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
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
1201 Market Street, 21st Floor 1620 Pond Road, Suite 301
Wilmington, DE 19801 Allentown, PA 18104
Facsimile No.: (302) 425-6464 Facsimile No.: (610) 366-0955
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<PAGE>
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.
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",
-15-
<PAGE>
"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 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
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<PAGE>
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
- 17 -
<PAGE>
ADDENDUM to that certain Second Amended and Restated Loan Agreement
dated July 31, 1999 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.
B) 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.)
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<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
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<PAGE>
EXHIBIT A
Borrowing Base Rider
THIS BORROWING BASE RIDER ("Rider") is executed this 31st day
of July 1999, 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 Second Amended and Restated Loan Agreement dated July 31, 1999,
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
<PAGE>
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.
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)
either $3,450,000 at all times on or before October 31, 1999 or $3,200,000 at
all times thereafter (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 either
$2,500,000 at all times on or before October 31, 1999 or $2,250,000 at all times
thereafter 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
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<PAGE>
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.
"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;
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<PAGE>
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 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;
- 23 -
<PAGE>
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;
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
- 24 -
<PAGE>
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.
"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
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<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 -
$5,000,000 between July 31, 1999
and October 31, 1999) $________________
6) Borrowing Base Availability - Inventory
(Lesser of 50% of Line 3 or $2,250,000 -
$2,500,000 between July 31, 1999 and
October 31, 1999) $________________
7) Total Borrowing Base Availability
- 27 -
<PAGE>
(Lesser of Line 4 plus Line 6 or $3,200,000 -
$3,450,000 between July 31, 1999 and
October 31, 1999) $_______________
8) Revolving Loan Outstanding
(Not to exceed Line 7) $________________
9) Borrowing Base Availability
($3,200,000 minus Line 7 - $3,450,000
between July 31, 1999 and October 31,
1999) $________________
- --------------------------------------------------------------------------------
To induce PNC Bank, National Association ("PNC Bank") to grant advances
or other financial accommodations to us pursuant to the terms of our Second
Amended and Restated Loan Agreement dated as of July 31, 1999 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; (4) there exists no Default or Event of
Default under the Credit Agreement; and (5) the current unpaid balance of all
principal and interest due in connection with all existing loans or advances
from The Bethlehem Corporation to Bethlehem Advanced Materials Corporation is
$___________________.
DATE: ________________ THE BETHLEHEM CORPORATION,
a Pennsylvania corporation
By:_________________________________
Antoinette Martin
Chief Financial Officer
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<PAGE>
EXHIBIT B
FORM OF ACCOUNTS RECEIVABLE AND INVENTORY REPORT
The Exhibit B attached to the original Loan Agreement by and between
the Borrower and the Bank dated June 2, 1998 is hereby incorporated by reference
into this Agreement as Exhibit B hereto.
- 29 -
MASTER SECURED PROMISSORY NOTE
$3,000,000 Knoxville, Tennessee January 21, 1999
FOR VALUE RECEIVED, on or before July 30, 1999 (the "Maturity Date"),
the undersigned BETHLEHEM ADVANCED MATERIALS CORPORATION, a Pennsylvania
corporation (referred to herein as "Maker"), promises to pay to the order of
NATIONSBANK, N.A., a national banking association organized under the laws of
the United States of America ("Payee"; Payee and any subsequent holder[s] hereof
are hereinafter referred to collectively as "Holder"), without grace, at the
office of Payee at 550 Main Street, Knoxville, Tennessee 37902, or at such other
place as Holder may designate to Maker in writing form time to time, the
principal sum of THREE MILLION AND NO/100THS DOLLARS ($3,000,000), or such other
amount as may hereafter be outstanding hereunder pursuant to that certain Loan
Agreement of even date herewith between Maker and Payee (the "Loan Agreement"),
whichever is less, together with interest on the outstanding principal balance
hereof from date at an annual rate equal to the interest rate designated from
time to time by Payee as its "Prime Rate", plus one-half of one percent (.50%),
which rate shall be adjusted on each day that said Prime Rate changes; provided
that in no event shall the rate of interest payable in respect of the
indebtedness evidenced hereby exceed the maximum rate of interest from time to
time allowed to be charged by applicable law (the "Maximum Rate"). Interest
shall be calculated at the basis of a 360-day year for each day that all or any
part of the indebtedness evidenced hereby shall be outstanding, to the extent
permitted by applicable law.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on
February 1, 1999 and subsequent installments being payable on the first day of
each succeeding month thereafter until the Maturity Date, at which time the
entire outstanding principal balance hereof, together with all accrued and
unpaid interest, shall be due and payable in full; provided, however, that in
the event the Maker executes and delivers to the Payee the Term Note and the
Revolving Credit Line Note (as defined in the Loan Agreement) on or before the
Maturity Date, the indebtedness evidenced hereby shall thereafter be evidenced
by the Term Note and the Revolving Credit Line Note.
All payments in respect to the indebtedness evidenced hereby shall be
made in collected funds, and shall be applied to principal, accrued interest and
charges and expenses owing under or in connection with this Note in such order
as Holder elects.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty or premium.
Any advance by Payee to Maker that is not evidenced by another
instrument or agreement between the parties shall be conclusively presumed to
have been made hereunder when such advance is either (1) deposited or credited
to an account of Maker with Payee, notwithstanding that such advance was
requested, orally or in writing, by someone other than Maker or that someone
other than Maker is authorized to draw on such account and may or does withdraw
the whole or part of such advance, or (2) made in accordance with the oral or
written instructions of Maker. The entire balance of all advances hereunder that
may be outstanding from time to time shall constitute a single
<PAGE>
indebtedness, and no single advance increasing the outstanding balance hereof
shall itself be considered a separate loan, but rather an increase in the
aggregate outstanding balance of the indebtedness evidenced hereby.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest
when due as stipulated above; or in the event that any Event of Default, as
defined in the Loan Agreement, shall occur; or should any default or event of
default occur under any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby
subject to any applicable cure periods; then and in such event, the entire
outstanding principal balance of the indebtedness evidence hereby, together with
any other sums advanced hereunder, under the Loan Agreement or under any other
instrument, document or agreement now or hereafter evidencing securing or in any
way relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall at the option of Holder and without notice to
Maker, at once become due and payable and may be collected forthwith, regardless
of the stipulated date of maturity. Upon the occurrence of any default as set
forth herein, at the option of Holder and without notice to Maker, all accrued
and unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at a rate (the "Default Rate") equal to the
lesser of (i) the rate that is four percentage points (4%) in excess of Payee's
Prime Rate, as it varies from time to time, or (ii) the Maximum Rate, regardless
of whether there has been an acceleration of the payment of principal as set
forth herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default.
To the extend permitted by applicable law, Maker shall pay to Holder a
late charge equal to four percent (4%) of any payment hereunder that is not
received by Holder within fifteen (15) days of the date on which it is due, in
order to cover the additional expenses incident to the handling and processing
of delinquent payments; provided, however, that nothing in this provision shall
be deemed to waive any other right or remedy of the Holder hereof by reason of
Maker's failure to make payments when due hereunder.
In the event this Note is placed in the hands of an attorney for
collection or for enforcement or protection of the security, or if Holder incurs
any costs incident to the collection of the indebtedness evidenced hereby or the
enforcement or protection of the security, Maker and any endorsers hereof agree
to pay a reasonable attorney's fee, all court and other costs, and the
reasonable costs of any collection efforts.
Presentment for payment, demand, protest and nonpayment are hereby
waive by Maker and all other parties hereto. No failure to accelerate the
indebtedness evidenced hereby by reason of default hereunder, acceptance of a
past-due installment or other indulgences granted from time to time, shall be
construed as a novation of this Note or as a waiver of such right of
acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note or to prevent the exercise of such right
of acceleration or any other right granted hereunder or by applicable laws.
Unless otherwise specifically agreed by Holder in writing, the liability of
Maker and all other persons now or hereafter liable for payment of the
indebtedness evidenced hereby, or any portion thereof, shall not be affected by
(1) any renewal hereof or other extension of the time for
2
<PAGE>
payment of the indebtedness evidenced hereby or any amount due in respect
thereof, (2) the release of all or any part of any collateral now or hereafter
securing the payment of the indebtedness evidenced hereby or any portion
thereof, or (3) the release of or resort to any person now or hereafter liable
for payment of the indebtedness evidenced hereby or any portion thereof. This
Note may not be changed orally, but only by an agreement in writing signed by
the party against whom enforcement of any waiver, change, modification or
discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced and/or secured by a (1) Pledge Agreement from The Bethlehem
Corporation for the benefit of Payee of even date herewith, (2) a Security
Agreement between the Maker and Payee of even date herewith, and (3) certain
other instruments and documents as more particularly described in the Loan
Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the interest and loan
charges agreed to be paid to Holder for the use of the money advanced or to be
advanced hereunder exceed the maximum amounts collectible under applicable laws
in effect from time to time. If for any reason whatsoever the interest or loan
charges paid or contracted to be paid in respect of the indebtedness evidenced
thereby shall exceed the maximum amounts collectively under applicable laws in
effect from time to time, then, ipso facto, the obligation to pay such interest
and/or loan charges shall be reduced to the maximum amounts collectible under
applicable laws in effect from time to time, and any amounts collected by Holder
that exceed such maximum amounts shall be applied to the reduction of the
principal balance remaining unpaid hereunder and/or refunded to Maker so that at
no time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced hereby exceed the maximum amounts permitted from time to
time by applicable law. This provision shall control every other provision in
any and all other agreements and instruments now existing or hereafter arising
between Maker and Holder with respect to the indebtedness evidenced hereby.
This Note has been negotiated, executed and delivered in the State of
Tennessee, and is intended as a contract under and shall be construed and
enforceable in accordance with the laws of said state, except to the extent that
Federal law may be applicable to the determination of the Maximum Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law. In the event that
more than one person, firm or entity is a maker hereunder then all reference to
"Maker" shall be deemed to refer equally to each of said persons, firms, or
entities, all of whom shall be jointly and severally liable for all of the
obligations of Maker hereunder.
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE MAKER AND THE LENDER,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS INSTRUMENT, AGREEMENT OR
DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE
3
<PAGE>
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR ARBITRATION OF
COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF AN
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH
THIS INSTRUMENT, AGREEMENT OR DOCUMENT RELATES IN ANY COURT HAVING JURISDICTION
OVER SUCH ACTION.
THE ARBITRATION SHALL BE CONDUCTED IN KNOX COUNTY, TENNESSEE,
AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OR CAUSE, BE PERMITTED TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
NOTHING IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C.ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. THE LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING
OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF ANY ACTION FOR FORECLOSURE OR FOR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
Maker represents to Lender that the proceeds of this Note are to be
used primarily for business, commercial or agricultural purposes. Maker
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note.
4
<PAGE>
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned Maker has caused this Note to be
executed by its duly authorized officer as of the date first above written.
MAKER:
BETHLEHEM ADVANCED MATERIALS
CORPORATION
By: ________________________________
Title:______________________________
5
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), made and entered into as of the 21st
day of January, 1999, by and between BETHLEHEM ADVANCED MATERIALS CORPORATION, a
Pennsylvania corporation with principal offices in Knoxville, Tennessee
("Borrower"), and NATIONSBANK, N.A., a national banking association with offices
in Knoxville, Tennessee ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender make available to Borrower
a loan in the original principal amount not exceeding $3,000,000 (the "Loan") on
the terms and conditions hereinafter set forth, and for the purposes hereinafter
set forth; and
WHEREAS, in order to induce Lender to make the Loan to Borrower,
Borrower has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrower, has agreed to make the Loan upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE I
THE LOAN
1.1 Loan Advances. So long as the Notes, as herein defined, have not
matured, no Event of Default has occurred and is continuing hereunder, and
Lender's obligation to make advances has not otherwise been terminated
hereunder, Lender shall advance Loan proceeds to Borrower from time to time upon
request by Borrower in compliance with Section 1.2 hereof, up to the maximum
amount of the Loan, but not to exceed amounts permitted pursuant to Sections 1.2
and 5.14 hereof.
1.2 Evidence of Indebtedness; Repayment.
(a) For the period from the date hereof until July 31, 1999
(the "Interest-Only Period"), the Loan shall be evidenced by a Master Secured
Promissory Note of even date herewith, in the original principal amount not
exceeding Three Million and No/100 Dollars ($3,000,000.00), made and executed by
Borrower, payable to the order of Lender, in substantially the form attached
hereto as Exhibit A-1 (the "Initial Note"). During the Interest-Only Period, the
Loan shall be payable in accordance with the terms of the Initial Note.
<PAGE>
(b) On July 30, 1999 (the "Conversion Date"), the Borrower
shall execute and deliver to Lender (i) a Secured Promissory Note in a principal
amount equal to the total disbursements of the Loan for the Furnace
Improvements, as defined in Section 1.3 below, through the Conversion Date,
payable to the order of Lender, in substantially the form attached hereto as
Exhibit A-2 (together with any extensions, modifications, renewals and/or
replacements thereof, herein referred to as the "Term Note"); and (ii) a Master
Secured Promissory Note in a principal amount equal to $3,000,000 minus the
principal amount of the Term Note but in any event no greater than $500,000,
payable to the order of Lender, in substantially the form attached hereto as
Exhibit A-3 (together with any extensions, modifications, renewals and or
replacements thereof, herein referred to as the "Revolving Credit Line Note" the
Initial Note, Term Note and Revolving Credit Line Note are herein referred to
collectively as the "Notes"). Upon delivery of the Term Note and Revolving
Credit Line Note to the Lender, the Lender shall deliver to the Borrower the
Initial Note marked "paid." After the Conversion Date, the maximum amount that
Lender shall be required to advance in the aggregate to the Borrower under
Section 1.1 shall be the maximum amount of the Revolving Credit Line Note.
(c) The indebtedness of Borrower to Lender in connection with
the Loan shall be payable in accordance with the terms of the Notes.
1.3 Purposes of Loan and Requests for Advances on Loan.
(a) The purposes of the Loan shall be to (i) finance the
acquisition and installation of a high temperature furnace identified as Model
50 Bottom Loading Carbonization Furnace "Big Linda" (the "Existing Furnace
Project") and the acquisition and installation of two new high temperature
furnaces, each identified as Dual Bottom Loading Carbonization Furnaces Model
HT66110BL (the "New Furnace Project"); the Existing Furnace Project and the New
Furnace Project are herein referred to collectively as the "Furnace Projects",
and (ii) provide working capital to Borrower on a revolving basis, provided,
however, that (A) after the Conversion Date, the Borrower shall only be
permitted to use the proceeds of the Loan for working capital and (B) the amount
that the Borrower may borrow to finance working capital shall at all times not
exceed $500,000. The proceeds of the Loan shall not be used for any other
purpose.
(b) If required by Lender, Borrower shall request all advances
under the Loan in writing, and in any event, Borrower shall request all advances
under the Loan prior to the Conversion Date in writing. Prior to the Conversion
Date, each request for an advance under the Initial Note shall identify the
amount that is being drawn to finance working capital and the amount that is
being drawn to finance the Furnace Projects. If any amount is being requested to
finance the New Furnace Project, Borrower must also certify at the time of the
advance that one of the benchmarks toward the completion of the particular
Furnace Projects has been met, which benchmarks are set forth on Exhibit C
attached hereto. Lender shall be entitled to verify independently whether the
benchmark has been met, and Borrower shall pay all costs reasonably incurred by
Lender in connection with such verification. All advances shall be subject to
the limitations of Section 5.14.
2
<PAGE>
(c) Draws against the Revolving Credit Line Note shall not be
less than $100,000 per draw unless Borrower participates in Lender's cash
management program known as AutoBorrow, in which event there shall be no
required minimum for draws against the Revolving Credit Line Note.
1.4 Closing Fee. In consideration of Lender's agreement to make the
Loan, the Borrower shall pay to the Lender a non-refundable closing fee in the
amount of $30,000. This fee shall be payable on the date hereof.
1.5 Unused Commitment Fee. Beginning on July 30, 1999 and in addition
to the fee payable under Section 1.4 above, the Borrower shall pay to the Lender
a fee equal to, on an annualized basis, .50% (calculated on the basis of a year
of 360 days and payable for the actual number of days elapsed) of the principal
amount of the Revolving Credit Line Note less the average daily balance of the
amount actually drawn by Borrower thereunder, payable quarterly in arrears, with
the first payment due on September 28, 1999 and continuing thereafter on the
twenty-eighth day of the last month of each succeeding calender quarter and on
the Termination Date.
1.6 Automatic Payment. Borrower hereby authorizes the Lender to effect
payment of sums due under this Agreement and the Notes by means of debiting the
Borrower's principal checking account or any other account which Borrower may
have with Lender subsequent to the date hereof. This authorization shall not
affect the obligation of the Borrower to pay such sums when due, without notice,
if there are insufficient funds in such account to make such payments in full in
the due date thereof, or if Lender fails to debit the account or accounts.
1.7 Rate Protection. Borrower will mitigate the risk of changes in
interest rates due to its variable interest rate debt by entering into, prior to
the Conversion Date, an interest rate cap agreement, interest rate swap
agreement or other hedge product acceptable to Lender (the "Interest Rate
Hedge") with a counterparty that is Lender or an affiliate thereof or another
financial institution with a long-term debt rating from a nationally recognized
rating agency that is equal to or greater than the long-term debt rating of
Lender. Such Interest Rate Hedge shall be applicable to at least one-half of
Borrower's funded debt that is bearing interest at a variable rate of interest
including the Loan made hereunder and the Subordinated Note. The Interest Rate
Hedge shall remain in effect until the earlier of the payment of the Loan or
until the funded debt coverage ratio set forth in Section 5.22 hereof is less
than 2.00:1.00 for four consecutive fiscal quarters.
ARTICLE II
SECURITY
2.1 Security. The Obligations (as hereinafter defined) shall be secured
by the following:
(a) Security Agreement. A Security Agreement of even date
herewith, between the Borrower and the Lender whereby Borrower grants
the Lender a security interest in the collateral described therein (the
"Security Agreement").
3
<PAGE>
(b) Pledge Agreement. The Pledge Agreement of even date
herewith, executed by The Bethlehem Corporation (the "Parent"),
pledging to Lender all of the issued and outstanding stock of Borrower
(the "Pledge Agreement")
This Security Agreement and the Pledge Agreement and any other
instruments, documents or agreements now or hereafter securing the
Obligations are herein referred to individually as a "Security
Instrument" and individually and collectively as the "Security
Instruments". The Security Instruments, together with this Agreement,
the Notes and any other instruments and documents now or hereafter
evidencing, securing or in any way related to the indebtednesses
evidenced by the Notes are herein referred to individually as a "Loan
Document" and individually and collectively as the "Loan Documents".
2.2 Obligations. Without limiting any of the provisions thereof, the
Security Instruments shall secure:
(a) The full and timely payment of the indebtednesses
evidenced by the Notes, together with interest thereon, and any
extensions, modifications and/or renewals thereof and any notes given
in payment thereof,
(b) The full and prompt performance of all of the obligations
of Borrower to Lender under the Loan Documents to which Borrower is a
party,
(c) The full and prompt payment of all court costs, expenses
and costs of whatever kind incident to the collection of the
indebtednesses evidenced by the Notes, the enforcement or protection of
the security interests of the Security Instruments and/or the exercise
by Lender of any rights or remedies of Lender with respect to the
indebtednesses evidenced by the Notes, including but not limited to
reasonable attorney's fees and expenses incurred by Lender, all of
which Borrower agrees to pay to Lender upon demand, and
(d) The full and prompt payment and performance of any and all
other indebtednesses and other obligations of Borrower to Lender,
direct or contingent (including but not limited to obligations incurred
as indorser, guarantor or surety), or the obligation to reimburse
Lender with respect to any draws on letters of credit issued by the
Lender on Borrower's behalf, however evidenced or denominated, and
however and whenever incurred, including but not limited to
indebtednesses incurred pursuant to any present or future commitment of
Lender to Borrower.
All of the foregoing indebtedness and other obligations are herein collectively
referred to as the "Obligations".
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ARTICLE III
CONDITIONS PRECEDENT
3.1 Condition Precedent to Loans. The obligation of Lender to advance
the proceeds of the Loan to or for the account of Borrower is subject to the
condition precedent that Lender shall have received each of the following, in
form and substance satisfactory to the Lender and its counsel:
(a) Notes. The Initial Note, duly executed by Borrower, which
Initial Note shall be deemed delivered as of the date all of the other
conditions precedent set forth in this Section 3.1 have been met;
(b) Security Instruments. The Security Instruments, duly
executed by the parties thereto, together with: (1) acknowledgment
copies of financing statements duly filed under the Uniform Commercial
Code of all jurisdictions necessary or, in the opinion of Lender,
desirable to perfect the security interests created by the Security
Instruments or such other documents, such as certificates of title with
Lender's lien noted thereon, that are necessary to perfect Lender's
security interest; and (2) evidence of the public recording or filing
of such of the Security Instruments as Lender deems it necessary or
desirable to record or file publicly, in such offices as Lender shall
require, together with evidence satisfactory to Lender of the priority
of the liens, security titles and/or security interests of such
Security Instruments;
(c) Title to Assets. Evidence satisfactory to Lender
demonstrating that Borrower is the owner of the collateral security
described in the Security Instruments, free and clear of defects
therein or claims thereto by persons other than Lender;
(d) Comfort Letter. A letter from the Parent to Lender
acknowledging the Lender's extension of the Loan to Borrower and
containing certain other representations and agreements which Lender
may request.
(e) Subordination Agreement. Execution and delivery by Parent
to Lender of a subordination agreement in form satisfactory to the
Lender whereby the Parent subordinates all indebtedness of the Borrower
to Parent to the Borrower's repayment of the Loan (the "Subordination
Agreement"), including the indebtedness evidenced by that certain
Promissory Note from Borrower to Parent dated as of the date hereof
(the "Subordinated Note").
(f) Consent of PNC Bank. Written consent from PNC Bank to the
extension of the Loan to the Borrower and to the Parent's execution and
delivery of the Pledge Agreement and the Subordination Agreement to the
Lender.
(g) Insurance. Evidence satisfactory to Lender of the
existence of the policies of insurance required by the provisions of
Article V of this Agreement and by the Security Instruments;
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(h) Evidence of Corporate Action by Borrower and Parent.
Certified (as of the date of this Agreement) copies of all corporate
action taken by Borrower and Parent, including resolutions of their
board of directors, authorizing the execution, delivery and performance
of the Loan Documents to which each is a party and each other document
to be delivered by Borrower or Parent pursuant to this Agreement;
(i) Incumbency and Signature Certificates. A certificate
(dated as of the date of this Agreement) of the Secretary or an
Assistant Secretary of Borrower and Parent certifying the names and
true signatures of the officers of Borrower and Parent authorized to
sign the Loan Documents to which it is a party and the other documents
to be delivered by Borrower or Parent under this Agreement;
(j) Organizational Documents. Copies of the corporate charter
and other publicly filed organizational documents of Borrower and
Parent, certified by the Secretary of State or other appropriate public
official in the jurisdiction in which Borrower or Parent is
incorporated and a copy of Borrower's and Parent's bylaws;
(k) Evidence of Legal Existence/Good Standing. A certificate
as to the legal existence and good standing of Borrower and Parent,
issued by the Secretary of State or other appropriate public official
in the jurisdiction in which Borrower or Parent is incorporated;
(l) Evidence of Foreign Qualifications. Certificates of the
Secretaries of State or other appropriate public officials as to
Borrower's and Parent's qualification to do business and good standing
in each jurisdiction in which a failure to be so qualified would have a
material adverse effect on Borrower's financial position or its ability
to conduct its business in the manner now conducted and as hereafter
intended to be conducted;
(m) Closing Fee. Borrower shall have paid to Lender a closing
fee in the amount of $30,000 and the other expenses of Lender relating
to making the Loan; and
(n) Legal Opinion. An opinion of counsel to Borrower addressed
to Lender as to the enforceability of the Loan Documents and such other
matters as Lender may request.
3.2 Additional Condition(s) Precedent to Loans. The obligation of
Lender to make each advance of Loan proceeds to or for the account of Borrower
(including the initial advance or advances) is subject to the further
condition(s) precedent that on and as of the date of such advance:
(a) Representations and Warranties True; Absence of Default.
The following statements shall be true, and Borrower's request for such
advance shall constitute an affirmation by Borrower that:
(i) The representations and warranties contained in
Article IV of this Agreement are correct on and as of the date
of such advance as though made on and as of such date; and
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(ii) Neither an Event of Default (as hereinafter
defined), nor any event that with the giving of notice or the
passage of time or both would constitute an Event of Default,
has occurred and is continuing, or would result from such
advance; and
(b) Additional Documentation. Lender shall have received such
other approvals, opinions and documents as Lender reasonably may
request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender as follows:
4.1 Corporate Status. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Pennsylvania; and
has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement and the other Loan Documents to which it is a party. Borrower is
duly qualified to do business and is in good standing in the State of Tennessee
and in each state in which a failure to be so qualified would have a material
adverse effect on Borrower's financial position or its ability to conduct its
business in the manner now conducted.
4.2 Authorization. Borrower has full legal right, power and authority
to conduct its business and affairs in the manner contemplated by the Loan
Documents, and to enter into and perform its obligations thereunder, without the
consent or approval of any other person, firm, governmental agency or other
legal entity. The execution and delivery of this Agreement, the loan hereunder,
the execution and delivery of each Loan Document to which Borrower is a party,
and the performance by Borrower of its obligations thereunder are within the
corporate powers of Borrower and have been duly authorized by all necessary
corporate action properly taken, have received all necessary governmental
approvals, if any were required, and do not and will not contravene or conflict
with any provision of law, any applicable judgment, ordinance, regulation or
order of any court or governmental agency, the charter or by-laws of Borrower or
any agreement binding upon Borrower or its properties. The officer(s) executing
this Agreement, the Notes and all of the other Loan Documents to which Borrower
is a party are duly authorized to act on behalf of Borrower.
4.3 Validity and Binding Effect. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of the parties thereto,
enforceable in accordance with their respective terms, subject to bankruptcy and
other creditor's rights laws and equitable principles.
4.4 Other Transactions. There are no prior loans, liens, security
interests, agreements or other financings upon which Borrower is obligated or by
which Borrower is bound that will in any way permit any third person to have or
obtain priority over Lender as to any of the collateral security granted to
Lender pursuant to this Agreement and the Security Instruments. Consummation of
the transactions hereby contemplated and the performance of the obligations of
Borrower under and by
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virtue of the Loan Documents to which Borrower is a party will not result in any
breach of, or constitute a default under, any mortgage, security deed or
agreement, deed of trust, lease, bank loan or credit agreement, corporate
charter or by-laws, agreement or certificate of limited partnership, partnership
agreement, license, franchise or any other instrument or agreement to which
Borrower is a party or by which Borrower or its properties may be bound or
affected.
4.5 Litigation. There are no actions, suits or proceedings pending, or,
to the knowledge of Borrower, threatened, against or affecting Borrower or
involving the validity or enforceability of any of the Loan Documents or the
priority of the liens thereof, at law or in equity, or before any governmental
or administrative agency, except actions, suits and proceedings that are fully
covered by insurance and that, if adversely determined, would not impair the
ability of Borrower to perform each and every one of its obligations under and
by virtue of the Loan Documents; and to Borrower's knowledge, Borrower is not in
default with respect to any order, writ, injunction, decree or demand of any
court or any governmental authority.
4.6 Financial Statements. All financial statements of Borrower
heretofore delivered to Lender are true and correct in all material respects,
have been prepared in accordance with generally accepted accounting principles
consistently applied, and fairly present the financial conditions of the
subjects thereof as of the dates thereof. No material adverse change has
occurred in the financial condition of Borrower since the dates thereof, and no
additional borrowings have been made by Borrower since the date thereof.
4.7 No Defaults. No default or event of default by Borrower exists
under this Agreement or any of the other Loan Documents, or under any other
instrument or agreement to which Borrower is a party or by which Borrower or its
properties may be bound or affected, and no event has occurred and is continuing
that with notice or the passage of time or both would constitute a default or
event of default thereunder.
4.8 Compliance With Law. To the best of its knowledge, Borrower has
obtained all necessary licenses, permits and governmental approvals and
authorizations necessary or proper in order to conduct its business and affairs
as heretofore conducted and as hereafter intended to be conducted. Borrower is
in compliance with all laws, regulations, decrees and orders applicable to it
(including but not limited to laws, regulations, decrees and orders relating to
environmental, occupational and health standards and controls, antitrust,
monopoly, restraint of trade or unfair competition), except to the extent that
noncompliance, in the aggregate, cannot reasonably be expected to have a
material adverse effect on its business, operations, property or financial
condition and will not materially adversely affect its ability to perform its
obligations under the Loan Documents to which it is a party. Borrower has not
received, and does not expect to receive, any order or notice of any violation
or claim of violation of any law, regulation, decree, rule, judgment or order of
any governmental authority or agency relating to the ownership and/or operation
of its properties, as to which the cost of compliance is or might be material
and the consequences of noncompliance would or might be materially adverse to
its business, operations, property or financial condition, or which would or
might impair its ability to perform its obligations under the Loan Documents to
which it is a party.
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4.9 Environmental Matters.
(a) As used in this Section 4.9 and in Section 5.11 hereof,
the following terms shall have the indicated meanings:
"Business" means all of Borrower's assets, both real and
personal, tangible and intangible, now existing or hereafter
acquired and wherever located, and all of Borrower's current
and future business operations at all locations and in all
jurisdictions.
"Environmental Authorities" means all federal, state and local
governmental bodies, authorities or agencies and all public
corporations created and/or empowered to administer, regulate
and/or enforce Environmental Laws, including without
limitation the U.S. Environmental Protection Agency.
"Environmental Laws" means any and all federal, state,
regional, county or local laws, statutes, rules, regulations
or ordinances relating to the generation, recycling, use,
reuse, sale, storage, handling, transport, treatment or
disposal of Hazardous Materials, including without limitation
the Comprehensive Environmental Response Compensation
Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. ss.9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act of
1976, as amended by the Solid and Hazardous Waste Amendments
of 1984, 42 U.S.C. ss.6901 et seq. ("RCRA"), the Tennessee
Hazardous Waste Management Act, T.C.A. ss.68-46-101 et seq.,
and any rules, regulations and guidance documents promulgated
or published thereunder, and any state, regional, county or
local statute, law, rule, regulation or ordinance relating to
public health, safety or the discharge, emission or disposal
of Hazardous Materials or Hazardous Wastes in or to air,
water, land or groundwater, to the withdrawal or use of
groundwater, to the use, handling or disposal or asbestos,
polychlorinated biphenyls, petroleum, petroleum derivatives or
by-products, other hydrocarbons or urea formaldehyde, to the
treatment, storage, disposal or management of Hazardous
Materials, to exposure to Hazardous Materials, to the
transportation, storage, disposal, management or release of
gaseous or liquid substances, and any regulation, order,
injunction, judgment, declaration, notice or demand issued
thereunder.
"Hazardous Materials" means any hazardous, toxic or dangerous
materials, substances, chemicals, waste or pollutants that
from time to time are defined by or pursuant to or are
regulated under any Environmental Laws, including without
limitation asbestos, polychlorinated biphenyls, petroleum,
petroleum derivatives or by-products, other hydrocarbons, urea
formaldehyde and any material, substance, pollutant or waste
that is defined as a hazardous waste under RCRA or defined as
a hazardous substance under CERCLA.
"Hazardous Wastes" means Hazardous Materials that are or
become "wastes" or "solid wastes" as such terms are used in
RCRA.
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"Property" means all real property now or hereafter
constituting a part of, or otherwise used or operated by
Borrower in connection with, the Business.
(b) Borrower represents and warrants to Lender as follows:
(i) The Property is being operated by Borrower in
material compliance with Environmental Laws, and Borrower has
obtained, maintained and is in good standing under all
approvals, consents, certificates, licenses and permits
required by Environmental Laws with respect to the Property.
(ii) To Borrower's knowledge, the Property is free of
all Hazardous Wastes and is free of all Hazardous materials
other than those maintained therein or thereon in full
compliance with Environmental Laws. Borrower has not caused or
permitted the Property to be used to generate, manufacture,
refine, transport, treat, store, handle, dispose, transfer,
produce or process Hazardous Materials except in full
compliance with Environmental Laws.
(iii) Borrower has not received notice, and has no
knowledge, of any material noncompliance with or violation of
any Environmental Laws with respect to the Property or the
Business.
4.10 No Burdensome Restrictions. No instrument, document or agreement
to which Borrower is a party or by which it or its properties may be bound or
affected materially adversely affects, or may reasonably be expected so to
materially and adversely affect, the business, operations, property or financial
condition thereof.
4.11 Taxes. Borrower has filed or caused to be filed all tax returns
that to its knowledge are required to be filed (except for returns that have
been appropriately extended), and has paid all taxes shown to be due and payable
on said returns and all other taxes, impositions, assessments, fees or other
charges imposed on it by any governmental authority, agency or instrumentality,
prior to any delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith by
appropriate proceedings, for which appropriate amounts have been reserved). To
the best of Borrower's knowledge, no tax liens have been filed against Borrower
or any of the property thereof.
4.12 Year 2000 Representations and Warranties.
(a) Borrower has (i) begun analyzing the operations of
Borrower and its subsidiaries and affiliates that could be adversely affected by
failure to become Year 2000 compliant (that is, that computer applications,
imbedded microchips and other systems will be able to perform date-sensitive
functions prior to and after December 31, 1999) and; (ii) developed a plan for
becoming Year 2000 compliant in a timely manner, the implementation of which is
on schedule in all material respects. Borrower reasonably believes that it will
become Year 2000 compliant for its operations and those of its subsidiaries and
affiliates on a timely basis except to the extent that a
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failure to do so could not reasonably be expected to have a material adverse
effect upon the financial condition of Borrower.
(b) Borrower reasonably believes any suppliers and vendors
that are material to the operations of Borrower or its subsidiaries and
affiliates will be Year 2000 compliant for their own computer applications
except to the extent that a failure to do so could not reasonably be expected to
have a material adverse effect upon the financial condition of Borrower.
(c) Borrower will promptly notify Bank in the event Borrower
determines that any computer application which is material to the operations of
Borrower, its subsidiaries or any of its material vendors or suppliers will not
be fully Year 2000 compliant on a timely basis, except to the extent that such
failure could not reasonably be expected to have a material adverse effect upon
the financial condition of Borrower.
ARTICLE V
COVENANTS AND AGREEMENTS
Borrower covenants and agrees that during the term of this Agreement:
5.1 Payment of Obligations. Borrower shall pay the indebtednesses
evidenced by the Notes according to the tenor thereof, and shall timely pay or
perform, as the case may be, all of the other Obligations.
5.2 Further Assurances. Borrower will take all actions requested by
Lender to create and maintain in Lender's favor valid liens upon, security
titles to and/or perfected security interests in the collateral security
described in the Security Instruments and all other security for the Obligations
now or hereafter held by or for Lender. Without limiting the foregoing, Borrower
agrees to execute such further instruments (including financing statements and
continuation statements) as may be required or permitted by any law relating to
notices of, or affidavits in connection with, the perfection of Lender's
security interests, and to cooperate with Lender in the filing or recording and
renewal thereof.
5.3 Financial Statements. Borrower shall furnish to Lender:
(a) as soon as practicable and in any event within the earlier
of one-hundred twenty (120) days after the end of each fiscal year of
Borrower and Parent or five (5) days after such items are filed with
the United States Securities Exchange Commission ("SEC") or delivered
to the Borrower's or Parent's shareholders (i) a consolidated and
consolidating balance sheet of Borrower and Parent as of the close of
such fiscal year, the related statements of income, cash flow and
shareholders' equity for such fiscal year and all notes to such
financial statements, all in reasonable detail, prepared in accordance
with generally accepted accounting principles consistently applied,
audited in accordance with generally accepted auditing standards by
independent certified public accountants satisfactory to Lender, and
accompanied by the unqualified favorable opinion of such accountants,
and (ii)
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a certificate of the chief financial officer of Borrower, stating that
Borrower has kept, observed, performed and fulfilled each covenant,
term and condition of this Agreement and the other Loan Documents
during the preceding fiscal year and that no Event of Default hereunder
has occurred and is continuing (or if an Event of Default has occurred
and is continuing, specifying the nature of same, the period of
existence of same and the action Borrower proposes to take in
connection therewith) together with a schedule in form satisfactory to
Lender of the computations used by Borrower in determining, as of the
end of such fiscal year, compliance with all financial covenants
contained herein;
(b) as soon as practicable and in any event within the earlier
of forty-five (45) days after the end of each fiscal quarter of
Borrower's and Parent's fiscal year or five (5) days after such items
are filed with the SEC or delivered to Borrower's or Parent's
shareholders, (i) a consolidated and consolidating balance sheet of
Borrower and Parent as of the close of such fiscal quarter, and the
related statements of income, cash flow and shareholders' equity for
such fiscal quarter, all in reasonable detail, and prepared in
accordance with generally accepted accounting principles consistently
applied, certified by the chief financial officer of Borrower, and (ii)
a certificate of the chief executive or chief financial officer of
Borrower, stating that Borrower has kept, observed, performed and
fulfilled each covenant, term and condition of this Agreement and the
other Loan Documents during the preceding month and that no Event of
Default hereunder has occurred and is continuing (or if an Event of
Default has occurred and is continuing, specifying the nature of same,
the period of existence of same and the action Borrower proposes to
take in connection therewith) together with a schedule in form
satisfactory to Lender of the computations used by Borrower in
determining, as of the end of such fiscal quarter, compliance with all
financial covenants contained herein;
(c) as soon as practicable and in any event within twenty (20)
days after the end of each month, (i) a complete listing, in form
acceptable to Lender, of all of Borrower's receivables (by obligor, age
of receivable and dollar value per obligor and age category), (ii) a
contract report and backlog report, (iii) a report setting forth the
percentage of completion of all Furnace Projects financed with the
proceeds of the Loan, and (iv) a completed Borrowing Base Certificate
in the form attached hereto as Exhibit B; all as of the end of the
immediately preceding month, and, where applicable, in sufficient
detail to allow Lender to verify the calculations set forth in the
Borrowing Base Certificate;
(d) promptly upon receipt thereof, copies of all accountants'
reports and accompanying financial reports submitted to Borrower by
independent accountants in connection with each annual examination of
Borrower;
(e) to the extent not delivered pursuant to the foregoing
subsections of this Section 5.3, within five (5) days of their delivery
to the SEC or the Parent's or Borrower's shareholders, all Form 10-Ks,
Form 10-Qs and other filings made by Borrower or Parent with the SEC
and all annual reports and proxy statements with regard to Borrower and
Parent;
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(f) with reasonable promptness, such other financial data as
Lender reasonably may request.
5.4 Maintenance of Books and Records; Inspection. Borrower shall
maintain its books, accounts and records in accordance with generally accepted
accounting principles consistently applied, and permit any person designated by
Lender in writing to visit and inspect any of its properties (including but not
limited to the collateral security described in the Security Instruments),
corporate books and financial records, and to discuss its accounts, affairs and
finances with Borrower or the principal officers of Borrower during reasonable
business hours, all at such times as Lender reasonably may request.
5.5 Insurance. Without limiting any of the requirements of any of the
other Loan Documents, Borrower will maintain, in amounts satisfactory to Lender
(a) commercial general liability insurance on an "occurrence" basis, against
claims for "personal injury" (including but not limited to bodily injury, death
or property damage), (b) worker's compensation insurance (or maintained a
legally sufficient amount of self insurance against workers' compensation
liabilities, with adequate reserves, under a plan approved by Lender), (c)
"all-risk" casualty insurance with standard exceptions on its properties
(including but not limited to the collateral security now or hereafter securing
payment and performance of the Obligations), against such hazards and in at
least such amounts as is customary in Borrower's business, (d) rent or business
interruption insurance against loss of income arising out of damage or
destruction by such hazards as presently are included in so-called "all-risk
coverage", and (e) such other insurance in such amounts as Lender from time to
time may reasonably require against other insurance hazards that the time are
commonly insured against by persons engaged in enterprises or activities similar
to those of Borrower. At the request of Lender, Borrower will deliver forthwith
a certificate executed by a duly authorized officer of Borrower, specifying the
details of such insurance in effect. All policies of casualty insurance shall
provide that such insurance shall be payable to Borrower and Lender as their
respective interests may appear, and that at least thirty (30) days' prior
written notice of cancellation or modification of the policy shall be given to
Lender by the insurer. Borrower agrees that there shall be no recourse against
Lender for the payment of premiums, commissions, assessments or advances in
respect of any such policy, and at Lender's request will provide Lender with the
agreement of the insurer(s) to this effect. At the request of Lender, all such
policies shall be delivered to and held by Lender. Upon an Event of Default,
Lender may, at its option, act as attorney for Borrower in obtaining, adjusting,
settling and canceling such insurance and endorsing any drafts with respect
thereto, and this power, being coupled with an interest, shall be irrevocable
prior to payment in full of the Obligations and performance of all of the
obligations of Borrower to Lender in connection therewith.
5.6 Taxes and Assessments; Tax Indemnity. Borrower will (a) file all
tax returns and appropriate schedules thereto that are required to be filed
under applicable law, prior to the date of delinquency, (b) pay and discharge
all taxes, assessments and governmental charges or levies imposed upon Borrower,
upon its income and profits or upon any properties belonging to it, prior to the
date on which penalties attach thereto, and (c) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that Borrower in good faith may
contest any such tax, assessment, governmental charge or levy so long as
appropriate reserves are maintained with respect thereto. If any tax is or may
be
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imposed by any governmental entity in respect of sales of Borrower's inventory
or the merchandise that is the subject of such sales, or as a result of any
other transaction of Borrower, which tax Lender is or may be required to
withhold or pay, Borrower agrees to indemnify Lender and hold Lender harmless in
connection with such taxes, and Borrower will immediately reimburse Lender for
any such taxes paid by Lender and added to the Obligations pursuant to the terms
hereof.
5.7 Corporate Existence. Borrower shall maintain its corporate
existence and good standing in the state of its incorporation, and its
qualification and good standing as a foreign corporation in Tennessee and in
each other jurisdiction in which such qualification is necessary pursuant to
applicable law.
5.8 Compliance with Law and Other Agreements. Borrower shall maintain
its business operations and property owned or used in connection therewith in
compliance with (a) all applicable federal, state and local laws, regulations
and ordinances governing such business operations and the use and ownership of
such property, and (b) all agreements, licenses, franchises, indentures and
mortgages to which Borrower is a party or by which Borrower or any of its
properties is bound. Without limiting the foregoing, Borrower will pay all of
its indebtedness promptly in accordance with the terms thereof.
5.9 Notice of Default. Borrower shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
5.10 Notice of Litigation. Borrower shall give notice, in writing, to
Lender of (a) any actions, suits or proceedings wherein the amount at issue is
in excess of $100,000 and is not covered by insurance, instituted by any persons
whomsoever against Borrower, or affecting any of Borrower's assets in connection
with any applicable federal, state or local laws or regulations, and (b) any
dispute, not resolved within sixty (60) days of the commencement thereof,
between Borrower on the one hand and any governmental regulatory body on the
other hand, which dispute might interfere with the normal operations of
Borrower.
5.11 Environmental Matters.
(a) Borrower will cause the Property to remain free of all
Hazardous Wastes, and to remain free of all Hazardous Materials other
than those maintained therein or thereon in full compliance with
Environmental Laws. Borrower will not cause or permit the Property to
be used to generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce or process Hazardous Materials
except in full compliance with Environmental Laws.
(b) Borrower will notify lender immediately if it receives any
notice or obtains knowledge of any noncompliance with or violation of
any Environmental Laws with respect to the Property or the Business.
(c) In the event that Hazardous Materials unrelated to the
Business, or Hazardous Wastes, are discovered on or are brought onto
the Property, Borrower will cause such
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Hazardous Materials or Hazardous Wastes to be removed and disposed of
promptly and in full compliance with Environmental Laws. Borrower will
provide Lender prior written notice of such removal and disposal
actions.
(d) Borrower will comply with all Environmental Laws in all
jurisdictions in which Borrower operates, now or in the future, and
will comply with all environmental Laws that in the future become
applicable to the Property or the Business.
5.12 ERISA Plan. If Borrower has in effect, or hereafter institutes
(with Lender's consent, as hereinafter provided), a pension plan that is subject
to the requirements of Title IV of the Employee Retirement Income Security Act
of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat. 829, 29 U.S.C.A. ss.
1001 et seq. (1975), as amended from time to time ("ERISA"), then the following
warranty and covenants shall be applicable during such period as any such plan
(the "Plan") shall be in effect: (a) Borrower hereby warrants that no fact that
might constitute grounds for the involuntary termination of the Plan, or for the
appointment by the appropriate United States District Court of a trustee to
administer the Plan, exists at the time of execution of this Agreement, (b)
Borrower hereby covenants that throughout the existence of the Plan, Borrower's
contributions under the Plan will meet the minimum funding standards required by
ERISA and Borrower will not institute a distress termination of the Plan, (c)
Borrower hereby covenants that the Plan's annual financial and actuarial
statements and the Plan's annual Form 5500 information return will be timely
filed with the Internal Revenue Service and a copy delivered to Lender upon
Lender's request and (d) Borrower covenants that it will send to Lender a copy
of any notice of a reportable event (as defined in ERISA) required by ERISA to
be filed with the Labor Department or the Pension Benefit Guaranty Corporation,
at the time that such notice is so filed.
No Plan shall be instituted by Borrower unless Lender shall have given
its written consent thereto, which consent shall not be unreasonably withheld.
5.13 Obligations of Borrower With Respect to Receivables. By the
execution of this Agreement, Lender shall not be obligated to do or perform any
of the acts or things provided in any contracts subject to the security interest
granted by the Security Instruments to be done or performed by Borrower, but
upon the occurrence of an Event of Default, Lender may, at its election, perform
some or all of the obligations provided in said contracts to be performed by
Borrower, and if Lender incurs any liability or expenses by reason thereof, same
shall be payable by Borrower upon demand and same shall also be secured by this
Agreement and the other Loan Documents. Upon the occurrence of an Event of
Default, Borrower will, on request from Lender, submit to Lender duplicate
copies of all invoices on outstanding receivables subject to Lender's security
interest. Lender shall have the right to notify the account debtors obligated on
any or all of Borrower's receivables to make payment thereof direct to Lender,
and to take control of all proceeds of any such receivables, which right Lender
may exercise at any time whether or not Borrower is then in default hereunder or
was theretofore making collections thereon. Until such time as Lender elects to
exercise such right by giving Borrower written notice thereof, Borrower is
authorized, as agent of Lender, to collect and enforce said receivables. If
Lender requests, Borrower will forthwith on receipt of all checks, drafts, cash
and other remittances in payment of inventory sold, or in payment on account of
Borrower's receivables, deposit the same in a special bank account maintained
with
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Lender over which Lender alone has power of withdrawal. Said proceeds shall be
deposited in precisely the form received, except for the indorsement of Borrower
where necessary to permit collection of items, which indorsement Borrower agrees
to make, and which Lender is also hereby authorized to make on Borrower's
behalf. Pending such deposit, Borrower agrees that it will not commingle any
such checks, drafts, cash or other remittances with any of Borrower's other
funds or property, but will hold them separate and apart therefrom and in trust
for Lender until deposit thereof is made in the special account. The funds in
said account shall be held by Lender as additional security for the Obligations.
Lender will, at least once a week, apply the whole or any part of the collected
funds on deposit in the special account against the Obligations; the amount,
order and method of such application to be in the discretion of Lender. Any
portion of said funds on deposit in the special account that Lender elects not
to so apply or that exceed the amount owed to Lender hereunder shall, at the
election of Lender, be paid over by Lender to Borrower or held by Lender as
security for the Obligations.
5.14 Borrowing Base and Other Limitations on Advances.
(a) As used in this Section 5.14, the following terms shall have the
definitions set forth below:
"Approved Eligible Receivables" shall refer to Eligible
Receivables (as defined below) arising from contracts that are between
Borrower and another party of sufficient credit strength that such
other party is approved in writing by Lender;
"Eligible Inventory" shall refer to Borrower's inventory
computed on a "first in, first out" basis, excluding inventory that in
Lender's judgment is obsolete or otherwise unmarketable. Inventory
shall be valued at the lesser of cost or market, with such adjustments
thereto as Lender shall deem necessary or appropriate;
"Eligible Receivables" shall refer to Borrower's accounts
receivable that are due and payable not more than ninety (90) days
after the invoice date, including accounts receivable that relate to
payments that the obligor is legally required to make in advance of
performance by Borrower but excluding accounts receivable that are more
than ninety (30) days past due and further excluding all returns,
allowances, discounts, credits and intra-company items, all items
payable from any account obligor from whom twenty-five percent (25%) or
more of such obligor's aggregate outstanding balance on all items owed
to Borrowers are more than ninety (90) days past due, the amount by
which the aggregate amount owing from any account obligor exceeds ten
percent (10%) of Borrowers' total receivables, and all other items
Lender reasonably determines to be ineligible;
"Loan" shall refer to the aggregate of the outstanding
principal balance of, and all past due interest on, the Initial Note
for the period from the date hereof through July 31, 1999, and
thereafter the aggregate of the outstanding principal balance of, and
all past due interest on, the Term Note and the Revolving Line Note;
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"New Equipment" shall refer to equipment owned by Borrower
that has not been placed in service prior to its acquisition by
Borrower and has not been placed in service by Borrower more than nine
(9) months prior to the date hereof; and
"Used Equipment" shall refer to all equipment owned by the
Borrower other than New Equipment.
(b) At no time will the Loan, exceed the sum of (a) eighty-five percent
(85%) of Approved Eligible Receivables, plus (b) eighty percent (80%) of
Eligible Receivables (exclusive of Approved Eligible Receivables), plus (c)
fifty percent (50%) of Eligible Inventory, plus (d) the lesser of (i)
seventy-five percent (75%) of the fair market value of New Equipment as
determined by an appraisal satisfactory to Lender, or (ii) one hundred percent
(100%) of the cost of New Equipment, plus (e) fifty percent (50%) of the orderly
liquidation value, as determined by an appraisal satisfactory to Lender, of all
Used Equipment.
(c) Notwithstanding any other provision to the contrary, upon
Borrower's satisfaction of all conditions precedent in this Agreement, Lender
shall advance to Borrower one hundred percent (100%) of the costs incurred by
Borrower for the Existing Furnace Project, including costs incurred prior to the
date hereof, up to 75% of the appraised value of the Existing Furnace Project.
Also notwithstanding any other provision hereof, the amount advanced relative to
each furnace constituting the New Furnace Project shall not exceed the lesser of
(i) 75% of the percentage of completion for the benchmark for which the advance
relates as shown on Exhibit C multiplied by the appraised value of the furnace
or (ii) 100% of the costs incurred by Borrower relative to such furnace since
the last advance (if any) to pay the costs of such furnace.
5.15 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, Borrower will not (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (d) create any subsidiaries nor convey any of its assets to any
subsidiary.
5.16 Management; Ownership. The ownership, executive staff and
management of Borrower and Parent are material factors in Lender's willingness
to institute and maintain a lending relationship with Borrower. Borrower will
not permit any significant change in the ownership, executive staff or
management of Borrower or Parent without the prior written consent of Lender.
5.17 Guaranties; Loans. Borrower shall not guarantee nor be liable in
any manner, whether directly or indirectly, or become contingently liable after
the date of this Agreement in connection with the obligations or indebtedness of
any person or persons whomsoever, except for the indorsement of negotiable
instruments payable to Borrower for deposit or collection in the ordinary course
of business. Borrower shall not make any loan, advance or extension of credit to
any person other than in the normal course of its business.
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5.18 Debt. Without the prior written consent of Lender, Borrower shall
not create, incur, assume or suffer to exist indebtedness of any description
whatsoever, excluding (a) the indebtednesses evidenced by the Notes, (b) trade
accounts payable and accrued expenses incurred in the ordinary course of
business, (c) the indorsement of negotiable instruments payable to Borrower for
deposit or collection in the ordinary course of business, (d) bonds or other
indebtedness incurred in connection with any self-insurance plans, (e) debt
subordinated to the Loan in payment and priority by writing satisfactory to
Lender, and (f) other indebtedness not to exceed the aggregate amount of $25,000
per year.
5.19 Prepayment of Indebtedness. Borrower shall not pay or prepay any
long-term indebtedness (other than the indebtedness evidenced hereby and by the
Notes) prior to the time that the same is due and payable according to its
stated terms. For purposes of this Section 5.19, "long-term indebtedness" shall
mean debt obligations with a term of one year or more.
5.20 Dividends and Redemptions. Without the prior written consent of
Lender, Borrower shall not (a) declare or pay, or set aside any sum for the
payment of, any dividends or make any other distribution upon any shares of its
capital stock of any class, or (b) purchase, redeem or otherwise acquire for
value any shares of its capital stock of any class, or commit to do any of same,
or set aside any sum therefor, or permit any subsidiary to purchase or acquire
for value any shares of its capital stock of any class, or commit do to any of
the same, or set aside any sum therefor.
5.21 Debt to Worth Ratio. Borrower at all times will maintain a ratio
of total liabilities less the principal amount of the Subordinated Note to
tangible net worth plus the principal amount of the Subordinated Note of not
more than 2.50 to 1.0 for the period from the date hereof through May 31, 2000,
2.25 to 1.0 for the period from June 1, 2000 through May 31, 2001 and 2.00 to
1.0 for the period from June 1, 2001 and thereafter. For purposes of this
Section 3.21, "tangible net worth" shall refer to the excess of Borrower's total
assets over the sum of its intangible assets, all determined in accordance with
generally accepted accounting principles consistently applied.
5.22 Fixed Charge Coverage Ratio. Borrower will maintain, as of the end
of each fiscal quarter, for such fiscal quarter and the immediately preceding
three fiscal quarters in the aggregate, a ratio of net income before interest
expense, income taxes, depreciation and amortization to interest expense
(including interest expense on the Subordinated Note) plus scheduled principal
payments (including principal payments on the Subordinated Note) plus capital
lease expenses plus capital expenditures (but excluding capital expenditures
funded with the proceeds of the Loan) plus income taxes, all determined in
accordance with generally accepted accounting principles consistently applied,
of not less than (a) 1.15 to 1.0 for the period from the date hereof through May
31, 2001, and (b) 1.20 to 1.0 for the period from June 1, 2001 and thereafter.
5.23 Funded Debt Coverage Ratio. Beginning on June 1, 1999, Borrower
will maintain, as of the end of each fiscal quarter for such fiscal quarter and
the immediately preceding three fiscal quarters in the aggregate, a ratio of
funded debt to net income before interest expense, income taxes, depreciation
and amortization, all determined in accordance with generally accepted
accounting principles consistently applied, of not greater than (a) 3.50 to 1.0
for the period from the date hereof through May 31, 2000, (b) 3.00 to 1.0 for
the period from June 1, 2000 through May 31, 2001, and
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(c) 2.50 to 1.0 for the period from June 1, 2001 and thereafter. For purposes of
this covenant, "funded debt" shall mean all indebtedness for which the Borrower
and its creditors have entered into a contractual arrangement for repayment and
compensation for risk, including, but not limited to, the Loan.
5.24 Current Ratio. Borrower at all times will maintain a ratio of
current assets to current liabilities of not less than (a) .30 to 1.00 for the
period from the date hereof through May 31, 2000, and (b) .50 for the period
from June 1, 2000 and thereafter. For purposes of this covenant, "current
assets" shall refer to cash, accounts receivable and marketable securities but
not inventory, and "current liabilities" shall refer to any indebtedness due and
payable within one year from the date of Borrower's most recent quarterly
balance sheet, all determined in accordance with generally accepted accounting
principles consistently applied.
ARTICLE VI
DEFAULT AND REMEDIES
6.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Failure to make payment of any principal of or interest on
the indebtedness evidenced by the Notes in accordance with the terms of
the Notes;
(b) Any representation by Borrower as to any material matter
hereunder or under any of the other Loan Documents, or delivery by
Borrower of any schedule, statement, resolution, report, certificate,
notice or writing to Lender that is untrue in any material respect on
the date as of which the facts set forth therein are stated or
certified;
(c) The Borrower shall breach or fail to perform any term,
covenant warranty or agreement contained in Section 5.7 ("Corporate
Existence"), Section 5.15 ("Mergers, Consolidations, Acquisitions and
Sales"), Section 5.21 ("Debt to Worth Ratio"), Section 5.22 ("Fixed
Charge Coverage Ratio"), Section 5.23 ("Funded Debt Coverage Ratio"),
or Section 5.24 ("Current Ratio");
(d) Failure of Borrower to perform any of its obligations
under this Agreement, the Notes, any of the Security Instruments or any
of the other Loan Documents other than those described in (a), (b) or
(c) above, provided, however, that such failure shall not constitute a
default if such failure is remedied within fifteen (15) days of notice
of such default from Lender;
(e) Borrower (i) shall generally not pay or shall be unable to
pay its debts as such debts become due; or (ii) shall make an
assignment for the benefit of creditors or petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for it
or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute
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of any jurisdiction, whether now or hereafter in effect; or (iv) shall
have had any such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act
or omission, its consent to, approval of or acquiescence in any such
petition, application, proceeding or order for relief or the
appointment of a custodian, receiver or trustee for it or a substantial
part of its assets; or (vi) shall suffer any such custodianship,
receivership or trusteeship to continue undischarged for a period of
thirty (30) days or more;
(f) Borrower shall be liquidated, dissolved or terminated, or
the charter or certificate of authority thereof shall expire or be
revoked;
(g) A default or event of default shall occur under any of the
other Loan Documents subject to any applicable cure periods;
(h) Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrower now or hereafter
owed to Lender, subject to any applicable cure period;
(h) Parent shall default in any obligation it may have to PNC
Bank; or
(i) Lender shall reasonably suspect the occurrence of one or
more of the aforesaid Events of Default and Borrower, upon the request
of Lender, shall fail to provide evidence reasonably satisfactory to
Lender that such event or Events of Default have not in fact occurred.
6.2 Acceleration of Maturity; Remedies. Upon the occurrence of any
Event of Default described in subsection 6.1(e) hereof as it relates to
Borrower, the indebtednesses evidenced by the Notes as well as any and all other
indebtedness of Borrower to Lender shall be immediately due and payable in full;
and upon the occurrence of any other Event of Default described above, Lender at
any time thereafter may at its option accelerate the maturity of the
indebtednesses evidenced by the Notes as well as any and all other indebtedness
of Borrower to Lender; all without notice of any kind. Upon the occurrence of
any such Event of Default and the acceleration of the maturity of the
indebtednesses evidenced by the Notes:
(a) any obligation of Lender to advance any theretofore
undisbursed proceeds of the Loan shall immediately cease and be of no
further force nor effect, and Lender shall be immediately entitled to
exercise any and all rights and remedies possessed by Lender pursuant
to the terms of the Security Instruments and all of the other Loan
Documents;
(b) Lender shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as adopted in the State
of Tennessee; and
(c) Lender shall have any and all other rights and remedies
that Lender may now or hereafter possess at law, in equity or by
statute.
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6.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
6.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
First, to the costs and expenses, including reasonable
attorney's fees, incurred by Lender in connection with the exercise of
its remedies;
Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole discretion, to
cure the default that has occurred;
Third, to the payment of the Obligations, including but not
limited to the payment of the principal of and interest on the
indebtednesses evidenced by the Notes, in such order of priority as
Lender shall determine in its sole discretion; and
Fourth, the remainder, if any, to Borrower or to any other
person lawfully thereunto entitled.
ARTICLE VII
MISCELLANEOUS
7.1 Performance By Lender.
(a) Lender may file one or more financing statements
disclosing Lender's security interests under this Agreement and the
other Loan Documents, and Borrower shall pay the costs of, or
incidental to, any recording or filing of any financing statements
concerning the collateral security described in the Security
Instruments. Borrower agrees that a carbon, photographic, photostatic
or other reproduction of this Agreement or any other Security
Instrument or of a financing statement is sufficient as a financing
statement.
(b) If Borrower shall default in the payment, performance or
observance of any covenant, term or condition of this Agreement, Lender
may, at its option, pay, perform or observe the same, and all payments
made or costs or expenses incurred by Lender in
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connection therewith (including but not limited to reasonable
attorney's fees), with interest thereon at the greatest default rate
provided in the Notes (if none, then at the maximum rate from time to
time allowed by applicable law), shall be immediately repaid to Lender
by Borrower and shall constitute a part of the Obligations secured by
the Security Instruments until fully repaid. Lender shall be the sole
judge of the necessity for any such actions and of the amounts to be
paid.
7.2 Successors and Assigns Included in Parties. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
7.3 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or otherwise would be within the limitations of, another covenant shall not
avoid the occurrence of an Event of Default if such action is taken or condition
exists.
7.4 Integration. This Agreement and the Loan Documents contain the
entire agreement among the parties relating to the subject matter hereof and
supersede all oral statements and prior writings with respect thereto. The
execution and delivery of this Agreement and the other Loan Documents by
Borrower were not based upon any facts or materials provided by Lender, nor was
Borrower induced or influenced to execute and deliver this Agreement or any
other Loan Document by any representation, statement, analysis or promise made
by Lender.
7.5 Amendments, Etc. No amendment, modification, termination or waiver
of any provision of any Loan Document to which Borrower is a party, nor consent
to any departure by Borrower from compliance with the terms of any Loan Document
to which it is a party, shall be effective unless the same shall be in writing
and signed on behalf of Lender by a duly authorized officer of Lender, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
7.6 Costs and Expenses. Lender shall not incur any cost or expense
whatsoever in connection with the making, administration, servicing or
collection of the Loan. Borrower agrees to pay on demand all costs and expenses,
including but not limited to filing fees, recording taxes, insurance premiums
and reasonable attorney's fees, promptly upon demand of Lender.
7.7 Assignment. The Notes, this Agreement and the other Loan Documents
may be endorsed, assigned and/or transferred in whole or in part by Lender, and
any such holder and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent transferred
and assigned. Lender may grant participations in all or any portion of its
interest in the indebtednesses evidenced by the Notes. Borrower shall not assign
any
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of its rights nor delegate any of its duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender.
7.8 Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrower hereunder and under all
of the other Loan Documents.
7.9 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
7.10 Article and Section Headings; Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limited any of the provisions of this
Agreement.
7.11 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing and shall be
delivered personally, telecopied or sent by certified mail or nationally
recognized courier service (such as Federal Express) to the other party at the
address set forth below, or at such other address as may be supplied in writing
and of which receipt has been acknowledged in writing. The date of personal
delivery or telecopy or the date of mailing (or delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purposes of this Agreement:
The address of Lender is:
NationsBank, N.A.
550 Main Street
Knoxville, Tennessee 37902
Attention: Michael S. Brown
Telecopy Number: (423) 546-2865
The address of Borrower is:
Bethlehem Advanced Materials Corporation
25th and Lennox Streets
Easton, Pennsylvania 18045
Attention: Antoinette Martin
Telecopy Number: (610) 258-8154
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with a copy to:
Bethlehem Advanced Materials Corporation
10536 Lexington Drive
Knoxville, Tennessee 37932
Attention: Daniel Hensley
Telecopy Number: (423) 671-2494
7.12 Interest and Loan Charges Not to Exceed Maximum Amounts Allowed by
Law. Anything in this Agreement, the Notes, the Security Instruments or any of
the other Loan Documents to the contrary notwithstanding, in no event
whatsoever, whether by reason of advancement of proceeds of the Loan,
acceleration of the maturity of the unpaid balance of the Loan or otherwise,
shall the interest and loan charges agreed to be paid to Lender for the use of
the money advanced or to be advanced hereunder exceed the maximum amounts
collectible under applicable laws in effect from time to time. It is understood
and agreed by the parties that, if for any reason whatsoever the interest or
loan charges paid or contracted to be paid by Borrower in respect of the Loan
shall exceed the maximum amounts collectible under applicable laws in effect
from time to time, then ipso facto, the obligation to pay such interest and/or
Loan charges shall be reduced to the maximum amounts collectible under
applicable laws in effect from time to time, and any amounts collected by Lender
that exceed such maximum amounts shall be applied to the reduction of the
principal balance of the Loan and/or refunded to Borrower so that at no time
shall the interest or Loan charges paid or payable in respect of this Loan
exceed the maximum amounts permitted from time to time by applicable law.
7.13 ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
BORROWER AND THE LENDER, INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR ARBITRATION OF COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND
MEDIATION SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF AN INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING ANY ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS INSTRUMENT, AGREEMENT OR DOCUMENT RELATES IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.
(A) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN KNOX
COUNTY, TENNESSEE, AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR.
IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION,
THEN THE AMERICAN ARBITRATION
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ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY
(90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY,
UPON A SHOWING OR CAUSE, BE PERMITTED TO EXTEND THE COMMENCING OF SUCH HEARING
FOR AN ADDITIONAL SIXTY (60) DAYS.
(B) RESERVATION OF RIGHTS. NOTHING IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED
IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY THE LENDER OF
THE PROTECTION AFFORDED TO IT BY 12 U.S.C.ss.91 OR ANY SUBSTANTIALLY EQUIVALENT
STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP
REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY
REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL
OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE LENDER MAY EXERCISE SUCH SELF
HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER
THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF ANY
ACTION FOR FORECLOSURE OR FOR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE
A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
7.14 FINAL AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
7.15 Miscellaneous. This Agreement shall be construed and enforced
under the laws of the State of Tennessee. No amendment or modification hereof
shall be effective except in a writing executed by each of the parties hereto.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
NATIONSBANK, N.A.
By:________________________________
Title: ______________________________
BORROWER:
BETHLEHEM ADVANCED MATERIALS
CORPORATION
By:________________________________
Title:_______________________________
ATTEST:
By:_______________________________
Title:______________________________
26
<PAGE>
EXHIBIT A-1
MASTER SECURED PROMISSORY NOTE
$3,000,000 Knoxville, Tennessee January 21, 1999
FOR VALUE RECEIVED, on or before July 30, 1999 (the "Maturity Date"),
the undersigned BETHLEHEM ADVANCED MATERIALS CORPORATION, a Pennsylvania
corporation (referred to herein as "Maker"), promises to pay to the order of
NATIONSBANK, N.A., a national banking association organized under the laws of
the United States of America ("Payee"; Payee and any subsequent holder[s] hereof
are hereinafter referred to collectively as "Holder"), without grace, at the
office of Payee at 550 Main Street, Knoxville, Tennessee 37902, or at such other
place as Holder may designate to Maker in writing form time to time, the
principal sum of THREE MILLION AND NO/100THS DOLLARS ($3,000,000), or such other
amount as may hereafter be outstanding hereunder pursuant to that certain Loan
Agreement of even date herewith between Maker and Payee (the "Loan Agreement"),
whichever is less, together with interest on the outstanding principal balance
hereof from date at an annual rate equal to the interest rate designated from
time to time by Payee as its "Prime Rate", plus one-half of one percent (.50%),
which rate shall be adjusted on each day that said Prime Rate changes; provided
that in no event shall the rate of interest payable in respect of the
indebtedness evidenced hereby exceed the maximum rate of interest from time to
time allowed to be charged by applicable law (the "Maximum Rate"). Interest
shall be calculated at the basis of a 360-day year for each day that all or any
part of the indebtedness evidenced hereby shall be outstanding, to the extent
permitted by applicable law.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on
February 1, 1999 and subsequent installments being payable on the first day of
each succeeding month thereafter until the Maturity Date, at which time the
entire outstanding principal balance hereof, together with all accrued and
unpaid interest, shall be due and payable in full; provided, however, that in
the event the Maker executes and delivers to the Payee the Term Note and the
Revolving Credit Line Note (as defined in the Loan Agreement) on or before the
Maturity Date, the indebtedness evidenced hereby shall thereafter be evidenced
by the Term Note and the Revolving Credit Line Note.
All payments in respect to the indebtedness evidenced hereby shall be
made in collected funds, and shall be applied to principal, accrued interest and
charges and expenses owing under or in connection with this Note in such order
as Holder elects.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty or premium.
Any advance by Payee to Maker that is not evidenced by another
instrument or agreement between the parties shall be conclusively presumed to
have been made hereunder when such advance is either (1) deposited or credited
to an account of Maker with Payee, notwithstanding that such
A-1
<PAGE>
advance was requested, orally or in writing, by someone other than Maker or that
someone other than Maker is authorized to draw on such account and may or does
withdraw the whole or part of such advance, or (2) made in accordance with the
oral or written instructions of Maker. The entire balance of all advances
hereunder that may be outstanding from time to time shall constitute a single
indebtedness, and no single advance increasing the outstanding balance hereof
shall itself be considered a separate loan, but rather an increase in the
aggregate outstanding balance of the indebtedness evidenced hereby.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest
when due as stipulated above; or in the event that any Event of Default, as
defined in the Loan Agreement, shall occur; or should any default or event of
default occur under any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby
subject to any applicable cure periods; then and in such event, the entire
outstanding principal balance of the indebtedness evidence hereby, together with
any other sums advanced hereunder, under the Loan Agreement or under any other
instrument, document or agreement now or hereafter evidencing securing or in any
way relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall at the option of Holder and without notice to
Maker, at once become due and payable and may be collected forthwith, regardless
of the stipulated date of maturity. Upon the occurrence of any default as set
forth herein, at the option of Holder and without notice to Maker, all accrued
and unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at a rate (the "Default Rate") equal to the
lesser of (i) the rate that is four percentage points (4%) in excess of Payee's
Prime Rate, as it varies from time to time, or (ii) the Maximum Rate, regardless
of whether there has been an acceleration of the payment of principal as set
forth herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default.
To the extend permitted by applicable law, Maker shall pay to Holder a
late charge equal to four percent (4%) of any payment hereunder that is not
received by Holder within fifteen (15) days of the date on which it is due, in
order to cover the additional expenses incident to the handling and processing
of delinquent payments; provided, however, that nothing in this provision shall
be deemed to waive any other right or remedy of the Holder hereof by reason of
Maker's failure to make payments when due hereunder.
In the event this Note is placed in the hands of an attorney for
collection or for enforcement or protection of the security, or if Holder incurs
any costs incident to the collection of the indebtedness evidenced hereby or the
enforcement or protection of the security, Maker and any endorsers hereof agree
to pay a reasonable attorney's fee, all court and other costs, and the
reasonable costs of any collection efforts.
Presentment for payment, demand, protest and nonpayment are hereby
waive by Maker and all other parties hereto. No failure to accelerate the
indebtedness evidenced hereby by reason of default hereunder, acceptance of a
past-due installment or other indulgences granted from time to time, shall be
construed as a novation of this Note or as a waiver of such right of
acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note or to
A-2
<PAGE>
prevent the exercise of such right of acceleration or any other right granted
hereunder or by applicable laws. Unless otherwise specifically agreed by Holder
in writing, the liability of Maker and all other persons now or hereafter liable
for payment of the indebtedness evidenced hereby, or any portion thereof, shall
not be affected by (1) any renewal hereof or other extension of the time for
payment of the indebtedness evidenced hereby or any amount due in respect
thereof, (2) the release of all or any part of any collateral now or hereafter
securing the payment of the indebtedness evidenced hereby or any portion
thereof, or (3) the release of or resort to any person now or hereafter liable
for payment of the indebtedness evidenced hereby or any portion thereof. This
Note may not be changed orally, but only by an agreement in writing signed by
the party against whom enforcement of any waiver, change, modification or
discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced and/or secured by a (1) Pledge Agreement from The Bethlehem
Corporation for the benefit of Payee of even date herewith, (2) a Security
Agreement between the Maker and Payee of even date herewith, and (3) certain
other instruments and documents as more particularly described in the Loan
Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the interest and loan
charges agreed to be paid to Holder for the use of the money advanced or to be
advanced hereunder exceed the maximum amounts collectible under applicable laws
in effect from time to time. If for any reason whatsoever the interest or loan
charges paid or contracted to be paid in respect of the indebtedness evidenced
thereby shall exceed the maximum amounts collectively under applicable laws in
effect from time to time, then, ipso facto, the obligation to pay such interest
and/or loan charges shall be reduced to the maximum amounts collectible under
applicable laws in effect from time to time, and any amounts collected by Holder
that exceed such maximum amounts shall be applied to the reduction of the
principal balance remaining unpaid hereunder and/or refunded to Maker so that at
no time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced hereby exceed the maximum amounts permitted from time to
time by applicable law. This provision shall control every other provision in
any and all other agreements and instruments now existing or hereafter arising
between Maker and Holder with respect to the indebtedness evidenced hereby.
This Note has been negotiated, executed and delivered in the State of
Tennessee, and is intended as a contract under and shall be construed and
enforceable in accordance with the laws of said state, except to the extent that
Federal law may be applicable to the determination of the Maximum Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law. In the event that
more than one person, firm or entity is a maker hereunder then all reference to
"Maker" shall be deemed to refer equally to each of said persons, firms, or
entities, all of whom shall be jointly and severally liable for all of the
obligations of Maker hereunder.
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE MAKER AND THE LENDER,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS
A-3
<PAGE>
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR ARBITRATION OF COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND
MEDIATION SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF AN INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING ANY ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS INSTRUMENT, AGREEMENT OR DOCUMENT RELATES IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.
THE ARBITRATION SHALL BE CONDUCTED IN KNOX COUNTY, TENNESSEE,
AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OR CAUSE, BE PERMITTED TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
NOTHING IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C.ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. THE LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING
OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF ANY ACTION FOR FORECLOSURE OR FOR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
A-4
<PAGE>
Maker represents to Lender that the proceeds of this Note are to be
used primarily for business, commercial or agricultural purposes. Maker
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note.
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned Maker has caused this Note to be
executed by its duly authorized officer as of the date first above written.
MAKER:
BETHLEHEM ADVANCED MATERIALS
CORPORATION
By:______________________________
Title:___________________________
A-5
<PAGE>
EXHIBIT A-2
TERM PROMISSORY NOTE
$____________ Knoxville, Tennessee July 30, 1999
FOR VALUE RECEIVED, on or before the February 1, 2006 (the "Maturity
Date"), the undersigned, BETHLEHEM ADVANCED MATERIALS CORPORATION, a
Pennsylvania corporation (referred to herein as "Maker"), promises to pay to the
order of NATIONSBANK, N.A., a national banking association organized under the
laws of the United State of America ("Payee"; Payee and any subsequent holder[s]
hereof are hereinafter referred to collectively as "Holder"), without grace, at
the office of Payee at 550 Main Street, Knoxville, Tennessee 37902, or at such
other place as Holder may designate to Maker in writing from time to time, the
principal sum of _________________________ DOLLARS AND 00/100THS
($_____________), together with interest on the outstanding principal balance
hereof from the date hereof until the Maturity Date at an annual rate equal to
the interest rate designated from time to time by Payee as its "Prime Rate",
plus one-half of one percent (.50%), which rate shall be adjusted on each day
that said Prime Rate changes; provided that in no event shall the rate of
interest payable in respect of the indebtedness evidenced hereby exceed the
maximum rate of interest from time to time allowed to be charged by applicable
law (the "Maximum Rate"). Notwithstanding the foregoing, however, in the event
Maker and The Bethlehem Corporation maintain compliance with all financial and
reporting covenants set forth in the Loan Agreement between Maker and Payee
dated January 21, 1999 (the "Loan Agreement") and the other documents relating
to the indebtedness described therein for a one year period commencing on the
date of the Loan Agreement, the amount of "one-half of one percent (.50%)" in
the foregoing sentence shall be replaced with the amount of "one-quarter of
one-percent (.25%)" beginning on the first day succeeding such one year period.
Interest shall be calculated on the basis of a 360-day year for each day that
all or any part of the indebtedness evidenced hereby shall be outstanding, to
the extent permitted by applicable law.
The aforesaid principal amount shall be payable in seventy-eight (78)
monthly payments on the 1st day of each successive month commencing on September
1, 1999, the amount of which monthly payments shall be calculated so as to fully
amortize the principal balance of this Note in equal monthly principal payments
over an assumed amortization period of seven (7) years commencing as of
September 1, 1999, provided, however, that the full principal balance hereof and
all accrued interest thereon shall be due and payable, in any event, on the
Maturity Date. Accrued interest shall also be paid at the same time as each
monthly principal payment.
Notwithstanding the foregoing, commencing on October 1, 1999 and
continuing on each October 1st thereafter, Maker shall apply fifty percent (50%)
of its excess cash flow (as hereinafter defined) from the fiscal year ending
immediately prior to such date to prepayment of this Note. "Excess cash flow" as
used in the foregoing sentence shall mean earnings before interest expense,
taxes, depreciation and amortization minus scheduled principal payments,
interest expense and state and local income taxes. In addition to the foregoing,
Maker may prepay this Note at any time without premium or penalty except in the
event the source of the funds of such prepayment is other
A-6
<PAGE>
indebtedness and such prepayment occurs on or before July 1, 2000, in which
event Maker shall pay Holder a penalty equal to one percent (1%) of the
principal balance of this Note at the time of such prepayment. All prepayments
of principal shall be applied in the inverse order of maturity, or in such other
order as the Payee shall determine in its sole discretion.
All payments in respect of the indebtedness evidenced hereby shall be
made in collected funds, and shall be applied to principal, accrued interest and
charges and expenses owing under or in connection with this Note in such order
as Holder elects.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest
when due as stipulated above; or in the event that any Event of Default, as
defined the Loan Agreement, shall occur; or should any default or event of
default occur under any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby,
subject to any applicable cure periods; then, and in such event, the entire
outstanding principal balance of the indebtedness evidenced hereby, together
with any other sums advanced hereunder, under the Loan Agreement or under any
other instrument, document or agreement now or hereafter evidencing, securing or
in any way relating to the indebtedness evidenced hereby, together with all
unpaid interest accrued thereon, shall, at the option of Holder and without
notice to Maker, at once become due and payable and may be collected forthwith,
regardless of the stipulated date of maturity. Upon the occurrence of any
default as set forth herein, at the option of Holder and without notice to
Maker, all accrued and unpaid interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding principal
balance, as so adjusted, shall bear interest thereafter until paid at a rate
(the "Default Rate") equal to the lesser of (i) the rate that is four percentage
points (4%) in excess of Payee's Prime Rate, as it varies from time to time, or
(ii) the Maximum Rate, regardless of whether there has been an acceleration of
the payment of principal as set forth herein. All such interest shall be paid at
the time of and as a condition precedent to the curing of any such default.
To the extent permitted by applicable law, Maker shall pay to Holder a
late charge equal to four percent (4%) of any payment hereunder that is not
received by Holder within fifteen (15) days of the date on which it is due, in
order to cover the additional expense incident to the handling and processing of
delinquent payments; provided however that nothing in this provision shall be
deemed to waive any other right or remedy of the Holder hereof by reason of
Maker's failure to make payments when due hereunder.
In the event this Note is placed in the hands of an attorney for
collection or for enforcement or protection of the security, or if Holder incurs
any costs incident to the collection of the indebtedness evidenced hereby or the
enforcement or protection of the security, Maker and any indorsers hereof agree
to pay a reasonable attorney's fee, all court and other costs and the reasonable
costs of any other collection efforts.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
A-7
<PAGE>
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. Unless otherwise specifically agreed by Holder in writing, the liability
of Maker and all other persons now or hereafter liable for payment of the
indebtedness evidenced hereby, or any portion thereof, shall not be affected by
(1) any renewal hereof or other extension of the time for payment of the
indebtedness evidenced hereby or any amount due in respect thereof, (2) the
release of all or any part of any collateral now or hereafter securing the
payment of the indebtedness evidenced hereby or any portion thereof, or (3) the
release of or resort to any person now or hereafter liable for payment of the
indebtedness evidenced hereby or any portion thereof. This Note may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced and/or secured by a (1) Pledge Agreement from The Bethlehem
Corporation for the benefit of Payee dated January 21, 1999, (2) a Security
Agreement between the Maker and Payee dated January 21, 1999, and (3) certain
other instruments and documents as more particularly described in the Loan
Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the interest and loan
charges agreed to be paid to Holder for the use of the money advanced or to be
advanced hereunder exceed the maximum amounts collectible under applicable laws
in effect from time to time. If for any reason whatsoever the interest or loan
charges paid or contracted to be paid in respect of the indebtedness evidenced
hereby shall exceed the maximum amounts collectible under applicable laws in
effect from time to time, then, ipso facto, the obligation to pay such interest
and/or loan charges shall be reduced to the maximum amounts collectible under
applicable laws in effect from time to time, and any amounts collected by Holder
that exceed such maximum amounts shall be applied to the reduction of the
principal balance remaining unpaid hereunder and/or refunded to Maker so that at
no time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced hereby exceed the maximum amounts permitted from time to
time by applicable law. This provision shall control every other provision in
any and all other agreements and instruments now existing or hereafter arising
between Maker and Holder with respect to the indebtedness evidenced hereby.
This Note has been negotiated, executed and delivered in the State of
Tennessee, and is intended as a contract under and shall be construed and
enforceable in accordance with the laws of said state, except to the extent that
Federal law may be applicable to the determination of the Maximum Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law. In the event that
more than one person, firm or entity is a maker hereunder, then all references
to "Maker" shall be deemed to refer equally to each of said persons, firms, or
entities, all of whom shall be jointly and severally liable for all of the
obligations of Maker hereunder.
A-8
<PAGE>
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE MAKER AND THE LENDER,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS INSTRUMENT, AGREEMENT OR
DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
ARBITRATION OF COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF AN INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY
OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS INSTRUMENT, AGREEMENT OR DOCUMENT RELATES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
THE ARBITRATION SHALL BE CONDUCTED IN KNOX COUNTY, TENNESSEE,
AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OR CAUSE, BE PERMITTED TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
NOTHING IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C.ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. THE LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING
OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF ANY ACTION FOR FORECLOSURE OR FOR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
A-9
<PAGE>
Maker represents to Lender that the proceeds of this Note are to be
used primarily for business, commercial or agricultural purposes. Maker
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note.
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned Maker has caused this Note to be
executed by its duly authorized officer as of the date first above written.
MAKER:
BETHLEHEM ADVANCED
MATERIALS CORPORATION
By:_____________________________
Title:_______________________
A-10
<PAGE>
EXHIBIT A-3
MASTER SECURED PROMISSORY NOTE
(Revolving Note)
$__________ Knoxville, Tennessee July 30, 1999
FOR VALUE RECEIVED, on or before July 31, 2001 (the "Maturity Date"),
the undersigned BETHLEHEM ADVANCED MATERIALS CORPORATION, a Pennsylvania
corporation (referred to herein as "Maker"), promises to pay to the order of
NATIONSBANK, N.A., a national banking association organized under the laws of
the United States of America ("Payee"; Payee and any subsequent holder[s] hereof
are hereinafter referred to collectively as "Holder"), without grace, at the
office of Payee at 550 Main Street, Knoxville, Tennessee 37902, or at such other
place as Holder may designate to Maker in writing form time to time, the
principal sum of _________________________ DOLLARS ($_________), or such other
amount as may hereafter be outstanding hereunder pursuant to that certain Loan
Agreement of even date herewith between Maker and Payee, whichever is less,
together with interest on the outstanding principal balance hereof from date at
an annual rate equal to the interest rate designated from time to time by Payee
as its "Prime Rate", plus one-quarter of one percent (.25%), which rate shall be
adjusted on each day that said Prime Rate changes; provided that in no event
shall the rate of interest payable in respect of the indebtedness evidenced
hereby exceed the maximum rate of interest from time to time allowed to be
charged by applicable law (the "Maximum Rate"). Interest shall be calculated at
the basis of a 360-day year for each day that all or any part of the
indebtedness evidenced hereby shall be outstanding, to the extent permitted by
applicable law.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on
September 1, 1999 and subsequent installments being payable on the first day of
each succeeding month thereafter until the Maturity Date, at which time the
entire outstanding principal balance hereof, together with all accrued and
unpaid interest, shall be due and payable in full.
All payments in respect to the indebtedness evidenced hereby shall be
made in collected funds, and shall be applied to principal, accrued interest and
charges and expenses owing under or in connection with this Note in such order
as Holder elects.
Subject to the provisions of the Loan Agreement regarding prepayment,
the indebtedness evidenced hereby may be prepaid in whole or in part, at any
time and from time to time, without penalty or premium, and in the absence of
default Maker may reborrow up to the maximum amount hereof in accordance with
the Loan Agreement.
Any advance by Payee to Maker that is not evidenced by another
instrument or agreement between the parties shall be conclusively presumed to
have been made hereunder when such advance is either (1) deposited or credited
to an amount of Maker with Payee, notwithstanding that such
A-11
<PAGE>
advance was requested, orally or in writing, by someone other than Maker or that
someone other than Maker is authorized to draw on such account and may or does
withdraw the whole or part of such advance, or (2) make in accordance with the
oral or written instructions of Maker. The entire balance of all advances
hereunder that may be outstanding from time to time shall constitute a single
indebtedness, and no single advance increasing the outstanding balance hereof
shall itself be considered a separate loan, but rather an increase in the
aggregate outstanding balance of the indebtedness evidenced hereby.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest
when due as stipulated above; or in the event that any Event of Default, as
defined in that certain Loan Agreement dated January 21, 1999, by and between
Maker and Payee (the "Loan Agreement"), shall occur; or should any default or
event of default occur under any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby,
subject to any applicable cure periods; then and in such event, the entire
outstanding principal balance of the indebtedness evidence hereby, together with
any other sums advanced hereunder, under the Loan Agreement or under any other
instrument, document or agreement now or hereafter evidencing securing or in any
way relating to the indebtedness evidenced hereby, together with all unpaid
interest accrued thereon, shall at the option of Holder and without notice to
Maker, at once become due and payable and may be collected forthwith, regardless
of the stipulated date of maturity. Upon the occurrence of any default as set
forth herein, at the option of Holder and without notice to Maker, all accrued
and unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at a rate (the "Default Rate") equal to the
lesser of (I) the rate that is four percentage points (4%) in excess of Payee's
Prime Rate, as it varies from time to time, or (ii) the Maximum Rate, regardless
of whether there has been an acceleration of the payment of principal as set
forth herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default.
To the extend permitted by applicable law, Maker shall pay to Holder a
late charge equal to four percent (4%) of any payment hereunder that is not
received by Holder within fifteen (15) days of the date on which it is due, in
order to cover the additional expenses incident to the handling and processing
of delinquent payments; provided, however, that nothing in this provision shall
be deemed to waive any other right or remedy of the Holder hereof by reason of
Maker's failure to make payments when due hereunder.
In the event this Note is placed in the hands of an attorney for
collection or for enforcement or protection of the security, or if Holder incurs
any costs incident to the collection of the indebtedness evidenced hereby or the
enforcement or protection of the security, Maker and any endorsers hereof agree
to pay a reasonable attorney's fee, all court and other costs, and the
reasonable costs of any collection efforts.
Presentment for payment, demand, protest and nonpayment are hereby
waive by Maker and all other parties hereto. No failure to accelerate the
indebtedness evidenced hereby by reason of default hereunder, acceptance of a
past-due installment or other indulgences granted from time to time, shall be
construed as a novation of this Note or as a waiver of such right of
acceleration or of
A-12
<PAGE>
the right of Holder thereafter to insist upon strict compliance with the terms
of this Note or to prevent the exercise of such right of acceleration or any
other right granted hereunder or by applicable laws. Unless otherwise
specifically agreed by Holder in writing, the liability of Maker and all other
persons now or hereafter liable for payment of the indebtedness evidenced
hereby, or any portion thereof, shall not be affected by (1) any renewal hereof
or other extension of the time for payment of the indebtedness evidenced hereby
or any amount due in respect thereof, (2) the release of all or any part of any
collateral now or hereafter securing the payment of the indebtedness evidenced
hereby or any portion thereof, or (3) the release of or resort to any person now
or hereafter liable for payment of the indebtedness evidenced hereby or any
portion thereof. This Note may not be changed orally, but only by an agreement
in writing signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced and/or secured by a (1) Pledge Agreement from The Bethlehem
Corporation for the benefit of Payee dated January 21, 1999, (2) a Security
Agreement between the Maker and Payee dated January 21, 1999, and (3) certain
other instruments and documents as more particularly described in the Loan
Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the interest and loan
charges agreed to be paid to Holder for the use of the money advanced or to be
advanced hereunder exceed the maximum amounts collectible under applicable laws
in effect from time to time. If for any reason whatsoever the interest or loan
charges paid or contracted to be paid in respect of the indebtedness evidenced
thereby shall exceed the maximum amounts collectively under applicable laws in
effect from time to time, then, ipso facto, the obligation to pay such interest
and/or loan charges shall be reduced to the maximum amounts collectible under
applicable laws in effect from time to time, and any amounts collected by Holder
that exceed such maximum amounts shall be applied to the reduction of the
principal balance remaining unpaid hereunder and/or refunded to Maker so that at
no time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced hereby exceed the maximum amounts permitted from time to
time by applicable law. This provision shall control every other provision in
any and all other agreements and instruments now existing or hereafter arising
between Maker and Holder with respect to the indebtedness evidenced hereby.
This Note has been negotiated, executed and delivered in the State of
Tennessee, and is intended as a contract under and shall be construed and
enforceable in accordance with the laws of said state, except to the extent that
Federal law may be applicable to the determination of the Maximum Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law. In the event that
more than one person, firm or entity is a maker hereunder then all reference to
"Maker" shall be deemed to refer equally to each of said persons, firms, or
entities, all of whom shall be jointly and severally liable for all of the
obligations of Maker hereunder.
A-13
<PAGE>
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE MAKER AND THE LENDER,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS INSTRUMENT, AGREEMENT OR
DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
ARBITRATION OF COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF AN INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY
OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS INSTRUMENT, AGREEMENT OR DOCUMENT RELATES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
THE ARBITRATION SHALL BE CONDUCTED IN KNOX COUNTY, TENNESSEE,
AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OR CAUSE, BE PERMITTED TO EXTEND THE
COMMENCING OF SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
NOTHING IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C.ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF THE LENDER: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. THE LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON
SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING
OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF ANY ACTION FOR FORECLOSURE OR FOR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
A-14
<PAGE>
Maker represents to Lender that the proceeds of this Note are to be
used primarily for business, commercial or agricultural purposes. Maker
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note.
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned Maker has caused this Note to be
executed by its duly authorized officer as of the date first above written.
MAKER:
BETHLEHEM ADVANCED MATERIALS
CORPORATION
By:___________________________
Title:________________________
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<PAGE>
EXHIBIT B
BORROWING BASE AND COMPLIANCE CERTIFICATE
Dated as _____________, ______
To: NationsBank, N.A.
Commercial Loans
550 Main Street
Knoxville, Tennessee 37902
Attn: Michael S. Brown
Re: Loan Agreement dated January 21, 1999 (the "Loan Agreement") by and
among Bethlehem Advanced Materials Corporation ("Borrower") and
NationsBank, N.A. ("Lender").
1. Computation of Borrowing Base and Availability under the Loan.
(a) Approved Eligible Receivables
as defined in Section 5.14 of the
Loan Agreement $_____________________
X85%
Total Borrowing Base from Approved
Eligible Receivables $_____________________
(b) Eligible Receivables (other than Approved Eligible
Receivables) as defined in Section 5.14 of the
Loan Agreement $_____________________
X80%
Borrowing Base from Other
Eligible Receivables $_____________________
(c) Eligible Inventory as defined in
Section 5.14 of the Loan Agreement $_____________________
X50%
Total Borrowing Base from
Eligible Inventory $_____________________
B-1
<PAGE>
(d) The lesser of:
(i) the fair market value of New Equipment
as defined in Section 5.14 of the Loan
Agreement $_____________________
X75%; or
(ii) the cost of New Equipment $_____________________
X100%
Total Borrowing Base from New Equipment $_____________________
(e) The fair market value of Used Equipment as defined in Section
5.14 of the
Loan Agreement $_____________________
X50%
Total Borrowing Base from
Used Equipment $_____________________
Total Borrowing Base from Section 1(a), 1(b), 1(c), 1(d) and
1(e) above (not to exceed total amount of
Loan). $_____________________
Less Total Outstanding Under Loan $_____________________
AVAILABILITY UNDER LOAN $_____________________
2. Attached as Exhibit A hereto is a true and correct aging and listing of
all of Borrower's accounts receivable.
3. As of the date hereof, all of the representations and warranties set
forth in Article IV of the Loan Agreement are and remain true and
correct with the same effect as though such representations and
warranties had been made on and as of this date.
4. As of the date hereof, Borrower is in full compliance with all of the
terms and provisions set forth in the Loan Agreement, including without
limitation the covenants and agreements set forth in Article V of the
Loan Agreement, and all of the instruments and documents executed in
connective therewith, and no Event of Default, as defined in Article VI
of the Loan Agreement, or any event which, upon notice, lapse of time
or both, would constitute an Event of Default, has occurred or is
continuing.
The undersigned certifies that the information set out herein and the
Exhibit attached hereto is true and correct in all material respects as of the
date hereof. The undersigned further certifies that the figures set forth out of
Paragraph 1 hereof pertain only the Approved Eligible Receivables, Other
B-2
<PAGE>
Eligible Receivables, Eligible Inventory, New Equipment and Used Equipment as
those terms are defined in the Loan Agreement.
BETHLEHEM ADVANCED MATERIALS
CORPORATION
By:_________________________________
Title:______________________________
B-3
<PAGE>
EXHIBIT C
BENCHMARKS FOR FURNACE PROJECTS
Benchmarks for New Furnace Project
First Benchmark Percentage of Completion
Completion of Facility modification 20% of total
oGround pits
oConcrete work for floor & piers
oElectrical upgrades
oNatural gas system enhancement
oNitrogen bulk system and distribution lines
Second Benchmark Percentage of Completion
Completion of Furnace computer control system 40% of total
oMain vessel
oInstrumentation, controls and safety
oFurnace support structure
Third Benchmark Percentage of Completion
Completion of Furnace internals 20% of total
oCarbon/Carbon liners
oCarbon insulation
oHeating elements & graphite internals
oSpacer plates & hearth
Fourth Benchmark Percentage of Completion
Completion of Furnace support systems 20% of total
oVacuum pumping systems
oAfterburner
oCooling water safety system
oHeat exchanger
C-1
Amended and Restated Loan Agreement
THIS AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") is entered
into as of January 21, 1999 between THE BETHLEHEM CORPORATION, a Pennsylvania
corporation (the "Borrower") and PNC BANK, NATIONAL ASSOCIATION, a national
banking association (the "Bank"). It amends, restates and replaces in it
entirety the similar Loan Agreement between the Borrower and the Bank dated June
2, 1998.
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,
<PAGE>
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.
(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 as the Bank shall reasonably
require (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 -
<PAGE>
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).
(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".
- 3 -
<PAGE>
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 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
- 4 -
<PAGE>
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 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
- 5 -
<PAGE>
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.
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
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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 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)
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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 separate and unconsolidated
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.
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
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<PAGE>
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).
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 set forth on the Addendum, subject to all applicable
cure periods set forth herein, with the understanding that such
compliance shall be determined based on the then-current
segregated and non-consolidated financial condition of the
Borrower.
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
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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 and for
a security interest in the Borrower's capital stock in Bethlehem
Advanced Materials Corporation in favor of NationsBank, N.A.,
which is hereby expressly authorized notwithstanding any
expressed or implied restrictions to the contrary in any of the
Loan Documents, 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 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 or
investments in the ordinary course of the Borrower's business and
except for the Borrower's existing loan in the original principal
amount of $1,082,717 in favor of Bethlehem Advanced Materials
Corporation.
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,
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<PAGE>
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.
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.
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<PAGE>
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, or
the occurrence of an Event of Default under the Loan Documents
which now exist or which may hereafter exist in connection with
any present or future loan transaction between NationsBank, N.A.
and Bethlehem Advanced Materials Corporation..
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.
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.
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<PAGE>
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 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.
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<PAGE>
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
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
1201 Market Street, 21st Floor 1620 Pond Road, Suite 301
Wilmington, DE 19801 Allentown, PA 18104
Facsimile No.: (302) 425-6464 Facsimile No.: (610) 366-0955
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<PAGE>
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.
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",
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<PAGE>
"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 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
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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
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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.
B) 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.)
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<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
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EXHIBIT A
Borrowing Base Rider
THIS BORROWING BASE RIDER ("Rider") is executed this 21st day
of January 1999, 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 Amended and Restated Loan Agreement dated January 21, 1999, 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
- 20 -
<PAGE>
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.
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
- 21 -
<PAGE>
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.
"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
- 22 -
<PAGE>
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 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
- 23 -
<PAGE>
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;
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
- 24 -
<PAGE>
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.
"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
- 25 -
<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) $__________________
- 26 -
<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; (4) there exists no Default or Event of Default under the
Credit Agreement; and (5) the current unpaid balance of all principal and
interest due in connection with all existing loans or advances from The
Bethlehem Corporation to Bethlehem Advanced Materials Corporation is
$___________________.
DATE: ________________ THE BETHLEHEM CORPORATION,
a Pennsylvania corporation
By:_________________________________
Antoinette Martin
Chief Financial Officer
- 27 -
<PAGE>
EXHIBIT B
FORM OF ACCOUNTS RECEIVABLE AND INVENTORY REPORT
The Exhibit B attached to the original Loan Agreement by and between
the Borrower and the Bank dated June 2, 1998 is hereby incorporated by reference
into this Agreement as Exhibit B hereto.
- 28 -
TERM PROMISSORY NOTE
$3,000,000.00 Knoxville, Tennessee July 30, 1999
FOR VALUE RECEIVED, ON OR BEFORE THE February 1, 2006 (the "Maturity
Date"), the undersigned, BETHLEHEM ADVANCED MATERIALS CORPORATION, a
Pennsylvania corporation (referred to herein as "Maker"), promises to pay to the
order of Bank of America, N.A., d/b/a NationsBank, N.A., successor to
NationsBank, N.A., a national banking association organized under the laws of
the United States of America ("Payee"; Payee and any subsequent holder(s) hereof
are hereinafter referred to collectively as "Holder"), without grace, at the
office of Payee at 550 Main Street, Knoxville, Tennessee 37902, or at such other
place as Holder may designate to Maker in writing from time to time the
principal sum of THREE MILLION DOLLARS AND 00/100THS ($3,000,000.00), together
with interest on the outstanding principal balance hereof from the date hereof
until the Maturity Date at an annual rate equal to the interest rate designated
from time to time by Payee as its "Prime Rate", plus one-half of one percent
(.50%), which rate shall be adjusted one each day that said Prime Rate changes;
provided that in no event shall the rate of interest payable in respect of the
indebtedness evidenced hereby exceed the maximum rate of interest from time to
time allowed to be charged by applicable law (the "Maximum Rate").
Notwithstanding the foregoing, however, in the event Maker and The Bethlehem
Corporation maintain compliance with all financial and reporting covenants set
forth in the Loan Agreement between Maker and Payee dated January 21, 1999 (the
"Loan Agreement") and the other documents relating to the indebtedness described
therein for a one year period commencing on the date of the Loan Agreement, the
amount of "one-half of one percent (.50%)" in the foregoing sentence shall be
replaced with the amount of "one quarter of one-percent (.25%)" beginning on the
first day succeeding such one year period. Interest shall be calculated on the
basis of a 360-day year for each day that all or any part o f the indebtedness
evidenced hereby shall be outstanding, to be extent permitted by applicable law.
The aforesaid principal amount shall be payable in seventy-eight (78)
monthly payments on the 1st day of each successive month commencing on September
1, 1999, the amount of which monthly payments shall be calculated so as to fully
amortize the principal balance of this Note in equal monthly principal payments
over an assumed amortization period of seven (7) years commencing as of
September 1, 1999, provided, however, that the full principal balance hereof and
all accrued interest thereon shall be due and payable, in any event, on the
Maturity date. Accrued interest shall also be paid at the same time as each
monthly principal payment.
Notwithstanding the foregoing, commencing on October 1, 1999 and
continuing on each October 1st thereafter, Make shall apply fifty percent (50%)
of its excess cash flow (as hereinafter defined) from the fiscal year ending
immediately prior to such date to prepayment of this Note. "Excess cash flow" as
used in the foregoing sentence shall mean earnings before interest expense,
taxes, depreciation and amortization minus scheduled principal payments,
<PAGE>
interest expense and state and local income taxes. In addition to the foregoing,
Maker may repay this Note at any time without premium or penalty except in the
event the source of the funds of such prepayment is other indebtedness and such
prepayment occurs on or before July 1, 2000, in which event Maker shall pay
Holder a penalty equal to one percent (1%) of the principal balance of this Note
at the time of such prepayment. All prepayments of principal shall be applied in
the inverse order of maturity, or in such other order as the Payee shall
determine in its sole discretion.
All payments in respect of the indebtedness evidence hereby shall be
made in collected funds, and shall be applied to principal, accrued interest and
charges and expenses owing under or in connection with this Note in such order
as Holder elects.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest
when due as stipulated above; or in the event that any Event of Default, as
defined the Loan Agreement, shall occur; or should any default or event of
default occur any other instrument or document now or hereafter evidencing,
securing or otherwise relating to the indebtedness evidenced hereby, subject to
any applicable cure periods; then, and in such event, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any other
sums advanced hereunder, under the Loan Agreement or under any other instrument
document or agreement now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby, together with all unpaid interest
accrued thereon, shall, at the option of Holder and without notice to Maker, at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, at the option of Holder and without notice to Maker, all accrued and
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at a rate (the "Default Rate") equal to lesser of
(i) the rate that is four percentage points (4%) in excess of Payee's Prime
Rate, as it varies from time to time, or (ii) the Maximum Rate, regardless of
whether there has been an acceleration of the payment of principal as set forth
herein. All such interest shall be paid at the time of and as a condition
precedent to the curing of any such default.
To the extent permitted by applicable law, Maker shall pay to Holder a
late charge equal to four percent (4%) of any payment hereunder that is not
received by Holder within fifteen (15) days of the date on which it is due, in
order to cover the additional expense incident to the handling and processing of
delinquent payments; provided however that nothing in this provision shall be
deemed to waive any other right or remedy of the Holder hereof by reason of
Maker's failure to make payments when due hereunder.
In the event this Note is placed in the hands of an attorney for
collection or for enforcement or protection of the security, or if Holder incurs
any costs incident to the collection of the indebtedness evidence hereby or the
enforcement or protection of the security, Maker and
-2-
<PAGE>
any indorsers hereof agree to pay a reasonable attorney's fee, all court and
other costs and the reasonable costs of any other collection efforts.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of past-due installment or other indulgences granted from
time to time, shall be construed as a novation of this Note or as a waiver of
such right of acceleration or of the right of Holder thereafter to insist upon
strict compliance with the terms of this Note or to prevent the exercise of such
right of acceleration or any other right granted hereunder or by applicable
laws. Unless otherwise specifically agreed by Holder in writing, the liability
of Maker and all other persons now or hereafter liable for payment of the
indebtedness evidenced hereby, or any portion thereof, shall not be affected by
(1) any renewal hereof or other extension of the time for payment of the
indebtedness evidenced hereby or any amount due in respect thereof, (2) the
release of all or any part of any collateral now or hereafter securing the
payment of the indebtedness evidenced hereby or any portion thereof, or (3) the
release of or resort to any person ow or hereafter liable for payment of the
indebtedness evidenced hereby or any portion thereof. This Note may not be
changed orally, but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced and/or secured by a (I) Pledge Agreement from The Bethlehem
Corporation for the benefit of Payee dated January 21, 1999, (2) a Security
Agreement between the Maker and Payee dated January 21, 1999, and (3) certain
other instruments and documents as more particularly described in the Loan
Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the interest and loan
charges agreed to be paid to Holder for the use of the money advanced or to be
advanced hereunder exceed the maximum amounts collectible under applicable laws
in effect from time to time. If for any reason whatsoever the interest or loan
charges paid or contracted be paid in respect of the indebtedness evidenced
hereby shall exceed the maximum amounts collectible under applicable laws in
effect from time to time then ipso facto the obligation to pay such interest
and/or loan charges shall be reduced to the maximum amounts collectible under
applicable laws in effect from time to time, and any amounts collected by Holder
that exceed such maximum amounts shall be applied to the reduction of the
principal balance remaining unpaid hereunder and/or refunded to Maker so that at
no time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced hereby exceed the maximum amounts permitted from time to
time by applicable law. This provision shall control every other provision in
any and all other agreements and instruments now existing or hereafter arising
between Maker and Holder with respect to the indebtedness evidenced hereby.
-3-
<PAGE>
This Note has been negotiated, executed and delivered in the State of
Tennessee, and is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the Maximum Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law. In the event that
more than one person, firm or entity is a maker hereunder, then all references
to "Maker" shall be deemed to refer equally to each of said persons, firms, or
entities, all of whom shall be jointly and severally liable for all of the
obligations of Maker hereunder.
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE MAKER AND THE LENDER,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF THIS INSTRUMENT, AGREEMENT OR
DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
ARBITRATION OF COMMERCIAL DISPUTES OF THE JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. (J.A.M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF AN INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING ANY ACTION, INCLUDING A SUMMARY
OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS INSTRUMENT, AGREEMENT OR DOCUMENT RELATES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
THE ARBITRATION SHALL BE CONDUCTED IN KNOX COUNTY, TENNESSEE, AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR
SHALL ONLY, UPON A SHOWING OR CAUSE, BE PERMITTED TO EXTEND THE COMMENCING OF
SUCH HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
NOTHING IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT SHALL BE DEEMED TO
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT;
OF (II) BE A WAIVER BY THE LENDER OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C.ss.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT
OF THE LENDER: (A) TO
-4-
<PAGE>
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT,
AGREEMENT OR DOCUMENT. NEITHER THE EXERCISE OR SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF ANY ACTION FOR FORECLOSURE OR FOR PROVISIONAL OR
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
Maker represents to Lender that the proceeds of this Note are to be
used primarily for business, commercial or agricultural purposes. Maker
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note.
THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned Maker has caused this Note to be
executed by its duly authorized officer as of the first date first above
written.
MAKER
BETHLEHEM ADVANCED
MATERIALS CORPORATION
By:/s/ Antoinette L. Martin
------------------------------------
Title: Chief Financial Officer
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27 (A)
This schedule contains summary financial information extracted from the Company
10-KSB for the year ended May 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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0
0
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