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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 0-822
THE OILGEAR COMPANY
(Exact name of registrant as specified in its charter)
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<S> <C>
WISCONSIN 39-0514580
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2300 SOUTH 51ST STREET, POST OFFICE BOX 343924, MILWAUKEE, WISCONSIN 53234-3924
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (414) 327-1700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$1.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 2, 1998, 1,934,918 shares of Common Stock were outstanding,
and the aggregate market value of the shares of Common Stock (based upon the
$17.50 last sale price on March 20, 1998 in the Nasdaq Stock Market) held by
non-affiliates (excludes a total of 1,012,107 shares reported as beneficially
owned by directors and officers or held by Company plans--does not constitute an
admission as to affiliate status) was approximately $16,149,193.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF FORM 10-K INTO WHICH PORTIONS OF DOCUMENT
ARE INCORPORATED
Annual Report to Shareholders for year ended
December 31, 1997 Parts I and II
Proxy Statement for Annual Meeting of Shareholders on Part III
April 21, 1998
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PART I
ITEM 1. BUSINESS.
The primary business of The Oilgear Company ("Oilgear" or the
"Registrant"; together with its subsidiaries, the "Company") and its
subsidiaries is the manufacture and distribution of systems and value engineered
components for a broad range of industrial machinery and industrial processes.
Oilgear was incorporated under the laws of Wisconsin in 1921. A business
description is also provided in Note 2 of "Notes to Consolidated Financial
Statements" on page 14 of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 ("1997 Annual Report") and is hereby
incorporated by reference.
Principal Products, Markets and Methods of Distribution
The Company's products primarily involve the flow, pressure, condition,
control and measurement of liquids, which the Company refers to as Fluid Power.
The Company provides advanced technology in the design and production of Fluid
Power components, systems and electronic controls. Its product line includes
hydraulic pumps, high pressure intensifier pumps, valves, controls, cylinders,
motors, and fluid meters. The Company manufactures both radial and axial piston
type hydraulic pumps in sizes delivering from approximately 4 gallons per minute
to approximately 230 gallons per minute at pressures ranging up to 15,000 pounds
per square inch. The intensifier pumps are reciprocating pumps operating at
pressures up to 120,000 pounds per square inch. The valves manufactured are
pressure control, directional control, servo valves and prefill valves for
pressures up to 15,000 pounds per square inch. The Company's pumps and valves
are controlled through the actions of manual, hydraulic, pneumatic, electric,
and electrohydraulic controls or control systems. The cylinders manufactured are
heavy duty special purpose cylinders operating at up to 3,500 pounds per square
inch. The Company's bent axis and axial piston motors are produced in sizes
ranging from .85 cubic inch per revolution to 44 cubic inches per revolution.
The Company offers an engineering and manufacturing team capable of
providing advanced technology in the design and production of unique fluid power
components, systems and electronic controls. The Company's global involvement
focuses its expertise on markets in which customers demand top quality, prompt
delivery, high performance and responsive aftermarket support. Its piston pumps,
motors, valves, controls, manifolds, electronic systems and components,
cylinders, reservoirs, skids, meters and other products are utilized in many
industries such as the primary metals, machine tool, automobile, petroleum,
construction equipment, chemical, plastic, glass, lumber, rubber and food
industries. The Company strives to serve those markets requiring high technology
and expertise where reliability, top performance and longer service life are
needed. The products are sold as individual components or integrated into high
performance systems. A portion of the Company's business comes from responsive,
high quality aftermarket sales and flexible rebuilding services which include
exchange, factory rebuild and field repair service, along with customer
education.
The Company's products are sold in the United States directly through
13 district sales offices and by a network of approximately 65 distributors.
Sales offices are located in Milwaukee, Wisconsin; Hot Springs Village,
Arkansas; Novi, Michigan; Cleveland, Ohio; Dallas and Longview, Texas; Laguna
Hills, California; Lynnwood, Washington; Atlanta, Georgia; Kansas City,
Missouri; St. George, Utah; Doylestown, Pennsylvania; and Piqua, Ohio. The
Company's international sales are generated directly by employees located in
Milwaukee, Wisconsin; Ajax, Ontario, Canada; Bedford and Leeds, England; Paris,
France; Hernani, Spain; Hattersheim-Eddersheim, Germany; Montirone, Italy; Taren
Point, Australia; Belgaum and Bangalore, India; Taejon City, South Korea; Sao
Paulo, Brazil; and Pachuca, Mexico; and by
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a worldwide network of approximately 20 distributors. An Oilgear licensee,
Oilgear Japan, is responsible for sales of all equipment sold in Japan. The
Company owns 51% of a joint venture company in India, Oilgear Towler Polyhydron
Pvt. Ltd., which distributes products manufactured in the United States, as well
as repairs and manufactures designated Oilgear products for the Indian market.
In 1997, the Company invested in a 51% ownership of another joint venture
company in India, Oilgear Harman Pvt. Ltd., which designs and manufactures a
wide array of process automation systems for global distribution.
Competition
The Company is a supplier of components for the capital goods industry.
Vigorous competition exists in this industry. The Company's products compete
worldwide against the products of a number of domestic and foreign firms
presently engaged in the industry, most of which are of greater overall size and
resources than the Company. The principal methods of competition include price,
product performance, product availability, service, and warranty.
Customers
No material part of the Company's business is dependent upon a single
customer or a very few customers.
Backlog
The Company's backlog of orders believed to be firm as of December 31,
1997 was approximately $24,019,000, an increase of approximately $6,062,000 from
the backlog of orders as of December 31, 1996, which was approximately
$17,957,000. The Company expects that substantially all such orders will be
filled in 1998. The Company's backlog is significant to its operations but is
not seasonal in any significant respect. Backlog is generally dependent upon
economic cycles affecting capital spending in the industries which utilize the
Company's products.
Raw Materials
During the year, iron and steel castings, bearings, steel and other raw
materials were generally available from a number of sources, and the Company is
generally not dependent on any one supplier.
Patents, Licenses, Franchises
The Company has a number of United States and foreign patents. It does
not consider its business to be materially dependent upon any patent, patent
application or patent license agreement.
Research and Development
The Company's research and development activities are conducted by
members of the engineering staff at its Milwaukee, Wisconsin and Leeds, England
plants, who spend a substantial amount of their time on research and
development. During 1997, the Company expended $2,543,000, and during 1996 and
1995, $2,315,000 and $2,127,000, respectively, on the research and development
activities of its engineering staff. The emphasis of the Company product
development efforts continues to be the expansion of its line of axial piston
pumps and the customizing of products to suit specific customer applications.
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Environmental Matters
To date, compliance with federal, state and local provisions which have
been enacted or adopted regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, has not
had any material effect on the capital expenditures, earnings and competitive
position of the Company. The Company does not presently anticipate that
compliance with such provisions will have any material effect on its capital
expenditures, earnings and competitive position in the future.
Employees
At December 31, 1997, the Company had 1,092 employees.
Seasonal Aspects of Business
The Company's business is not seasonal to any significant extent.
Industry Segments and Principal Products
The Company is engaged in one industry, the manufacture and
distribution of fluid power systems and components for industrial machinery and
industrial processes. The Company also provides repair parts and service for
most of the products it manufactures. See "Principal Products, Markets and
Methods of Distribution" above.
Foreign and Domestic Operations and Export Sales
Incorporated by reference to Note 2 of "Notes To Consolidated Financial
Statements" on page 14 of the 1997 Annual Report.
ITEM 2. PROPERTIES.
Oilgear owns a one-story general office and factory building located on
20 acres of land at 2300 South 51st Street in Milwaukee, Wisconsin. This
building is constructed of concrete, steel and brick and contains approximately
276,000 square feet of floor space.
Oilgear owns a manufacturing plant in Longview, Texas, constructed of
concrete block and steel, which contains approximately 44,000 square feet.
A 132,000 square foot manufacturing facility, which is subject to a
mortgage, is located in Fremont, Nebraska. To manage the increased demand for
the Company's new products, the Company expanded its Fremont, Nebraska facility
in 1995 by 21,000 square feet and in 1997 by 33,000 square feet. The 1997
expansion was financed through an industrial revenue bond issue. See Note 5 of
"Notes to Consolidated Financial Statements" on page 15 of the 1997 Annual
Report.
The Company's Oilgear GmbH subsidiary owns an approximately 25,000
square foot concrete block and steel manufacturing facility in
Hattersheim-Eddersheim, Germany, subject to a mortgage.
The Company's Oilgear Towler Ltd. subsidiary owns a one-story
manufacturing plant and two office buildings constructed of concrete, steel and
brick totaling approximately 62,000 square feet on six acres of
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land in Leeds, England, and an additional prefabricated facility being used by
the electrical engineering department.
The Company's Oilgear Towler Ltd. subsidiary also owns a small service
and sales facility in Bedford, England.
The Company's Oilgear Towler S.A. Spanish subsidiary owns a two-story
manufacturing plant and office constructed of concrete and brick totaling
approximately 35,000 square feet on approximately one acre of land in Hernani,
Spain.
The Company's Oilgear Towler S.A. French subsidiary owns, subject to a
mortgage, a 9,000 square foot office building constructed of prefabricated steel
materials located on approximately one-half acre of land in Paris, France.
The Company's Oilgear Towler S.r.l. Italian subsidiary owns a two-story
prefabricated concrete building on .6 acre of land in Montirone, Italy. The
facility is used to repair and assemble customer equipment, as well as house
sales and service functions.
These properties are maintained in good condition and are adequate for
present operations.
Borrowings under the Company's domestic and foreign loan agreements are
collateralized by substantially all domestic property, plant and equipment and
by substantially all assets of the applicable foreign subsidiaries,
respectively. See Notes 4 and 5 of "Notes To Consolidated Financial Statements"
on pages 14 - 15 of the 1997 Annual Report.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in several product liability actions which
it believes are adequately covered by insurance, and certain other litigation
incidental to its business.
The U.S. Environmental Protection Agency ("EPA") has identified the
Company as a potentially responsible party ("PRP") for response costs incurred
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund"), pertaining to the Osage Metals site in Kansas City,
Kansas. Oilgear was identified based upon a shipment made by it of 660 pounds of
waste capacitors in 1985 (the "Shipment").
The Shipment was originally sent to a facility owned by PCB Treatment,
Inc. in Kansas City. PCB Treatment is also a Superfund site in Kansas City,
Kansas and Missouri. By letter dated September 16, 1997, the EPA identified the
Company as a PRP for costs incurred under CERCLA at the PCB Treatment site as
well. Over 1,500 parties were identified as PRPs at the PCB Treatment site. (The
Osage Metal site and the PCB Treatment site are referred to collectively as the
"Sites.")
Based upon information recently obtained about the Sites, a de micromis
settlement will be offered to parties who contributed only a very small amount
of waste to the Sites. In order to qualify, a company must be responsible for
not more than 2,000 pounds of material. Since the Company has been identified as
a generator of 660 pounds, it should qualify for the de micromis settlement. The
de micromis settlement process should be completed during the summer of 1998,
although the terms of such settlement have not yet been determined. Until they
are, it is not certain what further action, if any, may be brought regarding the
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Sites, nor is it possible at this time to predict the ultimate outcome of any
litigation or further negotiation that might involve the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, offices and positions held, and periods of service in
their present offices, of all executive officers of the Registrant are listed
below. Except in the case of mid-term vacancies, officers are elected for
one-year terms at the Board of Directors meeting following the annual meeting of
shareholders each year.
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OFFICES AND POSITIONS PRESENT OFFICE
NAME AGE HELD WITH REGISTRANT HELD SINCE
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David A. Zuege 56 President and Chief Executive Officer; 1996(1)
Director; Member of Executive Committee
Gerhard W. Bahner 59 Vice President - Engineering; Director 1991(2)
Thomas J. Price 54 Vice President - Finance and Corporate 1994(3)
Secretary
Hubert Bursch 58 Vice President - European Operations; Director 1994(4)
Dale C. Boyke 47 Vice President - Marketing & Sales 1997(5)
Robert D. Drake 43 Vice President - Asian/Latin American 1997(6)
Operations
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(1) Mr. Zuege was Secretary - Treasurer from 1972 to 1978, Vice President -
Finance and Secretary from 1979 to 1993, Senior Vice President and
Secretary for a portion of 1993, and Executive Vice President and Chief
Operating Officer during the remainder of 1993 through 1995. He has
been a member of the Board of Directors since 1982.
(2) Mr. Bahner has been employed with the Company in the engineering
department since 1973. He has served as Director of Engineering from
1987 to 1991 and Managing Director of Oilgear's subsidiary, Oilgear
Towler Ltd., from 1989 to 1991. He has been a member of the Board of
Directors since 1992.
(3) Mr. Price has been employed in various positions with the Company since
1966. He served as Controller of the Company from 1977 to 1986, as
Treasurer/Controller from 1987 to 1993, and as Treasurer/Controller and
Secretary from 1993 to 1994.
(4) Mr. Bursch has been employed in various positions with the Company's
European operations since 1966. He served as Geschaftsfuhrer of Oilgear
GmbH (now Oilgear Towler GmbH) before his appointment as Chairman of
the Board of Management - Europe in 1991, which office he held until
January 1, 1994. He has been a member of the Board of Directors since
1997.
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(5) Mr. Boyke has been employed in various positions with the Company since
1973. He served as General Sales Manager for the United States and
Canadian region from 1989 to 1996.
(6) Mr. Drake has been employed in various positions with the Company since
1982. He served as Director of International Sales from 1988 to 1996.
CAUTIONARY FACTORS
This report contains various forward-looking statements concerning the
Company's prospects that are based on the current expectations and beliefs of
management. Forward-looking statements may also be made by the Company from time
to time in other reports and documents as well as oral presentations. When used
in written documents or oral statements, the words "anticipate," "believe,"
"estimate," "expect," "objective," and similar expressions are intended to
identify forward-looking statements. The statements contained herein and such
future statements involve or may involve certain assumptions, risks and
uncertainties, many of which are beyond the Company's control, that could cause
the Company's actual results and performance to differ materially from what is
expected. In addition to the assumptions and other factors referenced
specifically in connection with such statements, the following factors could
impact the business and financial prospects of the Company:
- - Factors affecting the Company's international operations, including
relevant foreign currency exchange rates, which can affect the cost to
produce the Company's products or the ability to sell the Company's
products in foreign markets, and the value in United States dollars of
sales made in foreign currencies. Other factors include foreign trade,
monetary and fiscal policies; laws, regulations and other activities of
foreign governments, agencies and similar organizations; and risks
associated with having major facilities located in countries, such as
India, Spain and Italy, which have historically been less stable than
the United States in several respects, including fiscal and political
stability.
- - Factors affecting the Company's ability to hire and retain competent
employees, including unionization of the Company's non-union employees
and changes in relationships with the Company's unionized employees.
- - The risk of strikes or other labor disputes at those locations which
are unionized which could affect the Company's operations.
- - Factors affecting the economy generally, including the financial and
business conditions of the Company's customers and the demand for
customers' products and services that utilize Company products.
- - Factors affecting the Company's financial performance or condition,
including tax legislation, unanticipated restrictions on the Company's
ability to transfer funds from its subsidiaries and changes in
applicable accounting principles or environmental laws and regulations.
- - The cost and other effects of claims involving the Company's products
and other legal and administrative proceedings, including the expense
of investigating, litigating and settling any claims.
- - Factors affecting the Company's ability to produce products on a
competitive basis, including the availability of raw materials at
reasonable prices.
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- - Unanticipated technological developments that result in competitive
disadvantages and create the potential for impairment of existing
assets.
- - Financial and information system problems resulting with the advent of
the twenty-first century and affecting the Company, its suppliers or
its customers.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Incorporated by reference to "Quarterly Financial Information" and
"Equity" on pages 7 and 8, respectively, of the 1997 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference to "5 Year Summary" on page 9 of the 1997
Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference to "Management's Discussion" on pages 6
through 9 of the 1997 Annual Report. The second, third and fourth paragraphs
under "Legal Proceedings" in Item 3 hereof are also incorporated herein in
response to this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial information
required by this item are set forth on pages 10 through 20 and under the heading
"Quarterly Financial Information" on page 7, respectively, of the 1997 Annual
Report and are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to "Election of Directors" on pages 2 and 3
of the Registrant's Proxy Statement, dated March 27, 1998, for its Annual
Meeting of Shareholders on April 21, 1998 ("1998 Annual Meeting Proxy
Statement"), and "Executive Officers of the Registrant" in Part I hereof.
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ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to "Executive Compensation" and "Compensation
Committee Interlocks and Insider Participation" on pages 5 through 10 and page
14, respectively, of the 1998 Annual Meeting Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to "Security Ownership of Certain Beneficial
Owners and Management" on pages 3 through 5 of the 1998 Annual Meeting Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed:
1. and 2. Financial Statements and Financial Statement
Schedules. See following "Index to Consolidated
Financial Statements and Schedule," which is
incorporated herein by reference.
3. Exhibits. See Exhibit Index included as last part
of this report, which index is incorporated
herein by reference. Each management contract or
compensatory plan or arrangement required to be
filed as an exhibit to this report is identified
in the Exhibit Index by two asterisks preceding
its exhibit number.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of
1997.
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THE OILGEAR COMPANY AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
The consolidated financial statements of The Oilgear Company and subsidiaries
together with the report thereon of KPMG Peat Marwick LLP dated March 2, 1998,
appearing on pages 10 through 20 of the 1997 Annual Report, are incorporated by
reference into this Annual Report on Form 10-K. The following additional
financial data should be read in conjunction with the consolidated financial
statements in the 1997 Annual Report.
ADDITIONAL FINANCIAL DATA
Independent Auditors' Report
Submitted:
II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or because the
required information is given in the consolidated financial statements and the
notes thereto.
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INDEPENDENT AUDITORS' REPORT
Shareholders and the Board of Directors
The Oilgear Company:
Under date of March 2, 1998, we reported on the consolidated balance sheets of
The Oilgear Company and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations and shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997,
which are incorporated by reference in the Company's annual report on Form 10-K
for the year ended December 31, 1997. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
financial statement schedule as listed in the accompanying index. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
March 2, 1998
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THE OILGEAR COMPANY AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
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Additions Deductions
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Balance at Charged to
beginning costs and Other Amounts written off, Balance at
of year expenses Adjustments(1) net of recoveries end of year
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Allowances for losses from obsolescence
which are deducted on the balance sheet
from inventories
Year ended
December 31, 1997 $2,599,771 251,835 (78,013) (277,689) 2,495,904
------------------------------------------------------------------------------------
Year ended
December 31, 1996 $3,166,114 20,895 42,002 (629,240) 2,599,771
------------------------------------------------------------------------------------
Year ended
December 31, 1995 $3,026,743 517,109 26,940 (404,678) 3,166,114
------------------------------------------------------------------------------------
Allowances for losses in collection which
are deducted on the balance sheet from
trade accounts receivable
Year ended
December 31, 1997 $218,154 163,178 (8,399) (161,561) 211,372
---------------------------------------------------------------------------------
Year ended
December 31, 1996 $313,885 183,831 (98) (279,464) 218,154
---------------------------------------------------------------------------------
Year ended
December 31, 1995 $275,893 16,201 9,756 12,035 313,885
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(f) Includes adjustments due to foreign currency translation.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE OILGEAR COMPANY
(Registrant)
By /s/ Thomas J. Price March 30, 1998
------------------------------------
Thomas J. Price, Vice President of
Finance and Corporate Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David A. Zuege and Thomas J. Price, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
----------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.*
/s/ David A. Zuege /s/ Randolph W. Carson
- ------------------------------------------------- ------------------------------
David A. Zuege, President Randolph W. Carson, Director
and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ Thomas J. Price /s/ Roger G. DeLong
- ------------------------------------------------- ------------------------------
Thomas J. Price, Vice President -Finance and Roger G. DeLong, Director
Corporate Secretary (Principal Financial Officer
and Principal Accounting Officer)
- ------------------------------------------------- ------------------------------
Carl L. Gosewehr, Chairman of the Board Thomas L. Misiak, Director
/s/ Gerhard W. Bahner /s/ Edward Neuwirth, Jr.
- ------------------------------------------------- ------------------------------
Gerhard W. Bahner, Director Edward Neuwirth, Jr., Director
/s/ Hubert Bursch /s/ Frank L. Schmit
- ------------------------------------------------- ------------------------------
Hubert Bursch, Director Frank L. Schmit, Director
- ---------------
*Each of these signatures is affixed as of March 30, 1998.
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THE OILGEAR COMPANY
(THE "REGISTRANT")
(COMMISSION FILE NO. 0-822)
* * * * *
EXHIBIT INDEX
1997 ANNUAL REPORT ON FORM 10-K
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<CAPTION>
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
<S> <C> <C> <C>
3.1 Restated Articles of Incorporation of The Exhibit 3.1 to Registrant's
Oilgear Company (as adopted March 18, 10-K for year ended
1969) December 31, 1994 ("1994
10-K")
3.2 Bylaws of The Oilgear Company (as Exhibit 3.2 to Registrant's
amended and restated by the Board of 10-K for year ended
Directors, effective January 1, 1992, to December 31, 1991 ("1991
reflect the revised Wisconsin Business 10-K")
Corporation Law)
*4
4.1 Loan Agreement between The Oilgear Exhibit 4.2 to Registrant's
Company and M&I Marshall & Ilsley Bank 10-Q for the quarterly
dated as of September 28, 1990, as amended period ended June 30, 1996
and restated as of June 17, 1996
(a) Amendment No. 1 to Loan Agreement dated X
October 11, 1996
(b) Amendment No. 2 to Loan Agreement dated X
January 23, 1997
(c) Amendment No. 3 to Loan Agreement dated X
July 21, 1997
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* Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant
agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of any unfiled instrument with respect to long-term
debt.
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<TABLE>
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EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
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(d) Amendment No. 4 to Loan Agreement dated X
October 7, 1997
**10.1 Consulting and Deferred Compensation Exhibit 10.1 to 1991 10-K
Agreement between Carl L. Gosewehr and
The Oilgear Company, dated as of January 1,
1992
**10.2 The Oilgear Company Key Employee Stock Exhibit 10.5(a) to
Purchase Plan, as amended and restated Registrant's 10-K for year
September 6, 1990 ended December 31, 1990
("1990 10-K")
**10.3
(a) The Oilgear Company Retirement Benefits Exhibit 10.6 to 1990 10-K
Equalization Plan, effective as of March 1,
1991
(b) Amendment to The Oilgear Company Retirement Exhibit 10.3(b) to
Benefits Equalization Plan adopted on Registrant's 10-K for year
December 13, 1995 ended December 31, 1995
("1995 10-K")
**10.4
(a) Oilgear Profit Sharing Program for Corporate Exhibit 10.4(b) to
Officers and Certain Executives, as amended Registrant's 10-K for year
effective January 1, 1993 ended December 31, 1992
(b) Oilgear Variable Compensation Program Exhibit 10.4(b) to 1994
10-K
</TABLE>
- --------
** Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
EI-2
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
<S> <C> <C>
**10.5
(a) Form of Deferred Compensation Agreement Exhibit 10.9 to Registrant's
with certain directors (December 8, 1971) 10-K for year ended
December 31, 1980
(b) The Oilgear Company Deferred Directors' Fee Exhibit 10.9(b) to
Plan, as amended and restated December Registrant's 10-K for year
14, 1983 ended December 31, 1983
(c) Amendment to The Oilgear Company Exhibit 10.5(c) to 1995
Deferred Directors' Fee Plan adopted on 10-K
December 11, 1991
**10.6 The Oilgear Company 1992 Stock Option Exhibit A to Registrant's
Plan 1993 Annual Meeting Proxy
Statement dated March 26,
1993
**10.7
(a) The Oilgear Company Directors' Stock Plan Exhibit 10.7 to Registrant's
10-K for year ended
December 31, 1993
(b) The Oilgear Company Amended and Exhibit 10.7(b) to 1994
Restated Directors' Stock Plan 10-K
**10.8 Consulting and Deferred Compensation Exhibit 10.8 to 1995 10-K
Agreement between Otto F. Klieve and The
Oilgear Company, dated as of January 1,
1996
10.9 Agreements executed by The Oilgear
Company in connection with an industrial
revenue bond issue by County of Dodge,
Nebraska:
</TABLE>
- -----------------
** Management contracts and executive compensation plans or arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.
EI-3
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
<S> <C> <C> <C>
(a) Lease Agreement between County of Dodge, X
Nebraska, as Lessor, and The Oilgear
Company, as Lessee, dated as of October 1,
1997
(b) Building Improvement Lease from The X
Oilgear Company, as Lessor, to County of
Dodge, Nebraska, as Lessee, dated as of
October 1, 1997
(c) Bond Guaranty Agreement by The Oilgear X
Company to Norwest Bank Wisconsin,
National Association, as Trustee and Paying
Agent, dated as of October 1, 1997
(d) Credit Agreement by and between The X
Oilgear Company and M&I Marshall &
Ilsley Bank, dated as of October 1, 1997
(e) Tax Regulatory Agreement among Norwest X
Bank Wisconsin, National Association, as
Trustee, County of Dodge, Nebraska, as
Issuer, and The Oilgear Company, as
Borrower, dated as of October 1, 1997
13 Portions of The Oilgear Company 1997 X
Annual Report incorporated by reference in
this Form 10-K (pages 6 through 20 thereof)
21 Subsidiaries of The Oilgear Company X
23 Consent of KPMG Peat Marwick LLP X
24 Power of Attorney Signatures
Page in
this
Report
27 (a) Financial Data Schedule for the year ended X
December 31, 1997
</TABLE>
EI-4
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED HEREIN FILED
NUMBER DESCRIPTION BY REFERENCE TO: HEREWITH
<S> <C> <C> <C>
(b) Restated Financial Data Schedule for the year X
ended December 31, 1996
99 Financial Statements and Exhibits furnished To be
in lieu of Form 11-K Annual Report for 1997 filed by
with respect to The Oilgear Salaried Savings Amend-
Plus Plan (including related consent of ment
KPMG Peat Marwick LLP)
</TABLE>
EI-5
<PAGE> 1
EXHIBIT 4.1(a)
(1997 10-K)
AMENDMENT NO. 1
This is Amendment No. 1 to an Amended and Restated Loan Agreement dated
as of June 17, 1996, between Oilgear Company ("Company") and M&I Marshall &
Ilsley Bank ("M&I"), (the "Agreement").
The Agreement is amended as follows:
1. SECTION 2.1 REVOLVING CREDIT LOANS.-SUBSECTION (C). The percent
contained in line three (3) of this section is amended by deleting
"2.25%" and inserting in its place "2.00%".
2. SECTION 2.3 SECOND TERM LOAN. SUBSECTION (B) The percent contained in
line four (4) of this section is amended by deleting "2.25%" and
inserting in its place "2.00%".
3. SECTION 5.4 INDEBTEDNESS. Subsection (g) is added in its entirety as
follows:
(g) and, the Company's guarantee of Subsidiaries debt not to exceed
500,000 Pounds Sterling.
These are the only changes in the Agreement and all other terms and
conditions are ratified and confirmed.
Dated: October 11, 1996
M&I Marshall & Ilsley Bank (SEAL) Oilgear Company (SEAL)
By:/s/ Mark Hogan By:/s/ Thomas J. Price
------------------------ -----------------------
Title:Senior Vice President Title:Vice President &
---------------------- Corporate Secretary
---------------------
By:/s/ Kathleen T. Coleman
------------------------
Title: Vice President
---------------------
<PAGE> 1
EXHIBIT 4.1(b)
(1997 10-K)
AMENDMENT NO. 2
This is Amendment No. 2 to an Amended and Restated Loan Agreement dated
as of June 17, 1996, and subsequently amended by Amendment No. 1 dated October
11, 1996, between Oilgear Company ("Company") and M&I Marshall & Ilsley Bank
("M&I"), (the "Agreement").
The Agreement is amended as follows:
1. SECTION 2.1 REVOLVING CREDIT LOANS.-SUBSECTION (C). The percent
contained in line three (3) of this section is amended by deleting
"2.00%" and inserting in its place "1.40%".
This is the only change in the Agreement and all other terms and
conditions are ratified and confirmed.
Dated: Jan. 23, 1997
M&I Marshall & Ilsley Bank (SEAL) Oilgear Company (SEAL)
By:/s/ Mark Hogan By:/s/ Thomas J. Price
------------------------ -----------------------
Title:Senior Vice President Title:Vice President &
---------------------- Corporate Secretary
-----------------------
By:/s/ Kathleen T. Coleman
-----------------------
Title: Vice President
---------------------
<PAGE> 1
EXHIBIT 4.1(c)
(1997 10-K)
AMENDMENT NO. 3
This is Amendment No. 3 to an Amended and Restated Loan Agreement dated
as of June 17, 1996, and subsequently amended, between Oilgear Company
("Company") and M&I Marshall & Ilsley Bank ("M&I"), (the "Agreement").
The Agreement is amended as follows:
1. ARTICLE I DEFINITIONS COMMITMENT. This section of the Agreement is
restated in its entirety as follows:
COMMITMENT. "Commitment" shall mean: (i) the commitment of M&I to make
Revolving Credit Loans to the Company under the Loan Agreement up to
the maximum principal amount of Sixteen Million and 00/100 Dollars
($16,000,000.00) through the Commitment Termination Date, or such
lesser amount resulting from a termination or reduction of the
Commitment pursuant to Section 2.13, 2.18 or 7.1 of this Loan
Agreement; and, (ii) the commitment of M&I to make Revolving Credit
Loans to the Company under the Loan Agreement up to the maximum
principal amount of Two Million and 00/100 Dollars ($2,000,000.00)
through the earlier of April 30, 1998, or the issuance by M&I of a
$4,150,000.00 standby letter of credit.
2. ARTICLE I DEFINITIONS COMMITMENT TERMINATION DATE. This section of the
Agreement is restated in its entirety as follows:
COMMITMENT TERMINATION DATES. "Commitment Termination Date" for the
$16,000,000.00 Commitment shall mean the earlier of (a) April 30, 2000
or (b) the date on which the Commitment is terminated pursuant to
Section 2.13, 2.18 or 7.1 of this Loan Agreement. "Commitment
Termination Date" for the $2,000,000.00 Commitment shall mean the
earlier of (a) April 30, 1998 or (b) the date of issuance by M&I of a
$4,150,000.00 standby letter of credit.
ARTICLE I DEFINITIONS POUND STERLING COMMITMENT TERMINATION DATE. The
date contained in line three (3) of this section is amended by deleting
"April 30, 1998" and inserting in its place "April 30, 2000".
ARTICLE I DEFINITIONS REVOLVING CREDIT NOTE. This section is restated
in its entirety as follows:
REVOLVING CREDIT NOTES. "Revolving Credit Notes" shall mean the
following promissory notes (a) the promissory note dated July 31, 1992,
as amended and restated on July 15,
<PAGE> 2
1994, on April 30, 1995 and on June 17, 1996, from the Company to M&I,
together with all extensions, renewals, amendments, modifications and
refinancings thereof and, (b) the Revolving Business Note dated July
____, 1997.
3. ARTICLE II COMMITMENTS; THE LOANS Section 2.1 REVOLVING CREDIT LOANS.
Subsection (A) is restated in its entirety as follows:
2.1 REVOLVING CREDIT LOANS. (a) From time to time prior to the
Commitment Termination Date, for the $16,000,000.00 Commitment and subject to
the terms and conditions set forth in this Loan Agreement, M&I agrees to make
Revolving Credit Loans to the Company; and from time to time prior to the
earlier of the April 30, 1998, or the issuance by M&I of a $4,150,000.00 standby
letter of credit for the $2,000,000.00 Commitment and subject to the terms and
conditions set forth in this Loan Agreement, M&I agrees to make Revolving Credit
Loans to the Company. The aggregate amount of Revolving Credit Loans outstanding
at any one time shall never exceed the Commitment. All Revolving Credit Loans
for the $16,000,000.00 Commitment shall be evidenced by the Revolving Credit
Note, all Revolving Credit Loans for the $2,000,000.00 Commitment shall be
evidenced by a Revolving Business Note in the form of Exhibit A attached to this
Amendment No. 3 properly completed and payable to the order of M&I, the Company
being obligated, however, to pay the amount of Revolving Credit Loans actually
made, together with interest on the amount which remains outstanding from time
to time. The Company may borrow, repay and reborrow under this Section subject
to the terms and conditions of this Loan Agreement.
These are the only changes in the Agreement and all other terms and
conditions are ratified and confirmed.
Dated: July 21, 1997
M&I Marshall & Ilsley Bank (SEAL) Oilgear Company (SEAL)
By:/s/ Mark Hogan By:/s/ Thomas J. Price
------------------------- ----------------------------
Title: Senior Vice President Title: V.P. Finance &
----------------------- Corporate Secretary
--------------------------
By:/s/ Kathleen T. Coleman
------------------------
Title: Vice President
---------------------
<PAGE> 1
EXHIBIT 4.1(d)
(1997 10-K)
AMENDMENT NO. 4 TO LOAN AGREEMENT
THIS AMENDMENT NO. 4 TO LOAN AGREEMENT is made as of October 7, 1997 by
and between THE OILGEAR COMPANY (the "Company") and M&I MARSHALL & ILSLEY
BANK ("M&I").
IN CONSIDERATION of the mutual covenants, conditions and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, it is hereby agreed
that:
ARTICLE I - DEFINITIONS
When used herein, the following terms shall have the meanings
specified:
1.1 Amendment. "Amendment" shall mean this Amendment No. 4 to
Loan Agreement.
1.2 Loan Agreement. "Loan Agreement" shall mean the Loan Agreement
between M&I and the Company, dated as of September 28, 1990, as amended and
restated as of June 17, 1996, as amended by Amendment No. 1 dated October 11,
1996, as amended by Amendment No. 2 dated January 23, 1997 and as amended by
Amendment No. 3 dated July 21, 1997, together with the Exhibits attached
thereto.
1.3 Other Terms. The other capitalized terms used in this Amendment
shall have the definitions specified in the Loan Agreement.
ARTICLE II - AMENDMENTS
The Loan Agreement is deemed amended as of the date hereof as follows:
2.1 Article I - Definitions. (a) The definition of "Commitment"
contained in Article I of the Loan Agreement is hereby amended in its entirety
to read as follows:
Commitment. "Commitment" shall mean the commitment of
M&I to make Revolving Credit Loans to the Company under the Loan
Agreement up to the maximum principal amount of Sixteen Million and
00/100 Dollars ($16,000,000.00) through the Commitment Termination
Date, or such lesser amount resulting from a termination or reduction
of the Commitment pursuant to Section 2.13, 2.18 or 7.1 of this Loan
Agreement.
(b) The definition of "Commitment Termination Date" contained in
Article I of the Loan Agreement is hereby amended in its entirety to read as
follows:
<PAGE> 2
Commitment Termination Date. "Commitment Termination
Date" shall mean the earlier of (a) April 30, 2000 or (b) the date on
which the Commitment is terminated pursuant to Section 2.13, 2.18 or
7.1 of this Loan Agreement.
(c) The definition of "Revolving Credit Note" contained in Article I of
the Loan Agreement is hereby amended in its entirety to read as follows:
Revolving Credit Note. "Revolving Credit Note" shall
mean the promissory note dated July 31, 1992, as amended and restated
on July 15, 1994, on April 30, 1995 and on June 17, 1996, from the
Company to M&I evidencing the Revolving Credit Loans, together with all
extensions, renewals, amendments, modifications and refinancings
thereof.
2.2 Section 2.1 - Revolving Credit Loans. Section 2.1(a) of the Loan
Agreement is hereby amended in its entirety to read as follows:
2.1 Revolving Credit Loans. (a) From time to time prior to the
Commitment Termination Date and subject to the terms and conditions set
forth in this Loan Agreement, M&I agrees to make Revolving Credit Loans
to the Company. The aggregate amount of Revolving Credit Loans
outstanding at any one time shall never exceed the Commitment. All
Revolving Credit Loans shall be evidenced by the Revolving Credit Note,
the Company being obligated, however, to pay the amount of Revolving
Credit Loans actually made, together with interest on the amount which
remains outstanding from time to time. The Company may borrow, repay
and reborrow under this Section subject to the terms and conditions of
this Loan Agreement. The Revolving Credit Note shall mature on the
Commitment Termination Date.
2.3 Section 6.7 - Consolidated Tangible Net Worth. The Company and M&I
acknowledge and agree that the Consolidated Tangible Net Worth covenant as
contained in Section 6.7 of the Loan Agreement which is applicable for the
Company for the period from December 31, 1996 through December 30, 1997 is
$20,816,415. Such Consolidated Tangible Net Worth requirement shall be increased
as of each December 31, as set forth in Section 6.7 of the Loan Agreement.
2.4 Revolving Business Note. The Company has requested that M&I make
additional revolving credit loans to the Company up to a principal amount of
$4,000,000 (the "Line of Credit"). This Line of Credit shall be evidenced by the
Revolving Business Note executed by the Company payable to the order of M&I in
the principal amount of $4,000,000 dated October 7, 1997 (the "Line of Credit
Note"), in the form of Exhibit A hereto. M&I agrees to make such Line of Credit
Loans available to the Company upon substantially the same terms and conditions
as the Revolving Credit Loans are made available to the Company pursuant to the
Loan Agreement. All loans which are currently evidenced by the Revolving
Business Note in the original principal amount of $2,000,000 issued by the
Company payable to the order of M&I dated July 21, 1997 shall be evidenced by
the
-2-
<PAGE> 3
Line of Credit Note. Such earlier note is hereby cancelled. The Company agrees
to repay in full all loans made pursuant to the Line of Credit Note on the
earlier of April 30, 1998 or when all amounts owed pursuant to the Loan
Agreement and the Notes have been accelerated pursuant to Section 7.1 of the
Loan Agreement. The Company and M&I hereby agree that, except as otherwise set
forth in this Amendment or the Line of Credit Note, all terms and provisions
contained in the Loan Agreement with respect to Revolving Credit Loans (except
for the maturity date) shall be applicable to the Line of Credit Loans. The Line
of Credit Loans shall be governed by all provisions set forth in the Loan
Agreement. The Company hereby agrees and acknowledges that all Line of Credit
Loans shall be secured by all collateral securing the Loan Agreement and the
Notes described therein, including, without limitation, the Security Agreement
described therein. Notwithstanding any provisions contained in this Amendment or
in the Loan Agreement to the contrary, the Company agrees to repay all Line of
Credit Loans by April 30, 1998. Any failure to pay any amounts owed with respect
to the Line of Credit Loans or the Line of Credit Note shall be considered to be
an Event of Default under the Loan Agreement and M&I shall be entitled to
exercise any and all remedies for such default as set forth in the Loan
Agreement, the Security Agreement or pursuant to applicable law. M&I may
accelerate all amounts owed under the Line of Credit Note if any Event of
Default under the Loan Agreement occurs.
2.5 Miscellaneous Amendments. The Loan Agreement, the Notes, the
Security Agreement and all other agreements, documents, instruments and
materials executed and delivered heretofore or hereafter pursuant to the Loan
Agreement are deemed hereby to be amended so that any reference therein to the
Loan Agreement shall be a reference to such documents as amended by or pursuant
to this Amendment.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to M&I that:
3.1 Loan Agreement. All of the representations and warranties made by
the Company in the Loan Agreement are true and correct on the date of this
Amendment. No Default or Event of Default under the Loan Agreement has occurred
and is continuing as of the date of this Amendment.
3.2 Authorization; Enforceability. The making, execution and delivery
of this Amendment and the Line of Credit Note, and performance of and compliance
with the terms of the Loan Agreement as amended, and the Line of Credit Note
have been duly authorized by all necessary corporate action by the Company. This
Amendment and the Line of Credit Note are the valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms.
3.3 Absence of Conflicting Obligations. The making, execution and
delivery of this Amendment, and performance and compliance with the terms of the
Loan Agreement as amended, do not violate any presently existing provision of
law or the Articles of Incorporation or Bylaws of the Company or any agreement
to which the Company is a party or by which it is bound.
-3-
<PAGE> 4
ARTICLE IV - MISCELLANEOUS
4.1 Continuance of Loan Agreement, the Notes and the Security
Agreement. Except as specifically amended by this Amendment, the Loan Agreement,
the Notes and the Security Agreement shall remain in full force and effect.
4.2 Expenses and Attorney's Fees. The Company shall pay all fees and
expenses incurred by M&I, including the reasonable fees of counsel, in
connection with the preparation of this Amendment and the consummation of the
transactions contemplated by this Amendment, and the protection or enforcement
of the rights of M&I under this Amendment.
4.3 Survival. All agreements, representations and warranties made in
this Amendment or in any documents delivered pursuant to this Amendment shall
survive the execution of this Amendment and the delivery of any such document.
4.4 Governing Law. This Amendment and the other documents issued
pursuant to this Amendment shall be governed by, and construed and interpreted
in accordance with, the laws of the State of Wisconsin applicable to contracts
made and wholly performed within such state.
4.5 Counterparts; Headings. This Amendment may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same agreement. Article and Section
headings in this Amendment are inserted for convenience of reference only and
shall not constitute a part hereof.
4.6 Severability. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Amendment or affecting the
validity or enforceability of such provision in any other jurisdiction.
4.7 Effectiveness. This Amendment shall be effective as of the date
first written above upon receipt by M&I of each of the following:
(a) this Amendment executed on behalf of the Company; and
(b) the Revolving Business Note in the principal amount of
$4,000,000 dated October 7, 1997 executed by the Company
payable to the order of M&I.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
4 to Loan Agreement as of the date first written above.
THE OILGEAR COMPANY
By:/s/ Thomas J. Price
------------------------------
Thomas J. Price, Vice President
of Finance/Secretary
M&I MARSHALL & ILSLEY BANK
By:/s/ Kathleen T. Coleman
------------------------------
Kathleen T. Coleman
Vice President
Attest:
/s/ Mark R. Hogan
---------------------------------
Mark R. Hogan, Senior Vice
President
-5-
<PAGE> 1
EXECUTION COPY
================================================================================
LEASE AGREEMENT
Between
COUNTY OF DODGE, NEBRASKA,
Lessor,
and
THE OILGEAR COMPANY,
Lessee
---------------------------
Dated as of October 1, 1997
---------------------------
$4,000,000
County of Dodge, Nebraska
Variable Rate Demand Industrial Development Revenue Bonds, Series 1997
(The Oilgear Company Project)
================================================================================
Certain rights of Lessor under this Agreement have been assigned to, and
are subject to a security interest in favor of, Norwest Bank Wisconsin, National
Association, as Trustee under a Trust Indenture, dated as of the date first
above written, as amended or supplemented from time to time. Information
concerning such security interest may be obtained from the Trustee at 100 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202.
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND USE OF PHRASES
<TABLE>
<S><C>
Section 1.1. Definitions.............................................................. 2
Section 1.2. Use of Phrases; Rules of Construction.................................... 4
ARTICLE II
DEMISING CLAUSES; LEASE TERM; RENTAL PROVISIONS
Section 2.1. Demise of the Leased Premises............................................ 4
Section 2.2. Title to Leased Premises................................................. 4
Section 2.3. Quiet Enjoyment.......................................................... 5
Section 2.4. Issuance of Bonds To Finance the Project................................. 5
Section 2.5. Effective Date of Agreement; Duration of Lease Term...................... 5
Section 2.6. Delivery and Acceptance of Possession.................................... 5
Section 2.7. Rental Payments.......................................................... 5
Section 2.8. Direct, Unsecured Obligation............................................. 6
Section 2.9. Pledge and Assignment to Trustee......................................... 6
ARTICLE III
ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT
Section 3.1. Agreement To Complete the Project; Title to Project...................... 6
Section 3.2. Manner of Procuring Disbursements from the Cost of Issuance Fund......... 7
Section 3.3. Manner of Procuring Disbursements from the Construction Fund............. 7
Section 3.4. Amendments to Project Plans and Specifications........................... 8
Section 3.5. Establishment of Project Completion Date................................. 8
Section 3.6. Closing of Construction Fund............................................. 8
Section 3.7. Maintenance and Improvement of Project................................... 8
Section 3.8. Enforcement of Contracts................................................. 9
Section 3.9. Ownership of Tax Benefits................................................ 9
</TABLE>
<PAGE> 3
<TABLE>
ARTICLE IV
CONVERSION OF INTEREST RATES, REMARKETING AGENT
AND CREDIT FACILITIES
<S><C>
Section 4.1. Conversion of Interest Rate................................................... 9
Section 4.2. Concerning Remarketing Agent.................................................. 9
Section 4.3. Concerning Substitute Credit Facilities....................................... 9
Section 4.4. References to Credit Facility Provider After Expiration or Default of
Credit Facility............................................................... 9
ARTICLE V
PREPAYMENT OF LEASE RENTALS
Section 5.1. Optional Prepayment Upon Occurrence of
Certain Extraordinary Events.................................................. 10
Section 5.2. Mandatory Prepayment of Rental Payments
Upon Determination of Taxability.............................................. 11
Section 5.3. Optional Prepayment of Rental Payments........................................ 11
Section 5.4. Deposit of Prepayments in Redemption Fund..................................... 12
Section 5.5. Corresponding Redemption of Bonds............................................. 12
Section 5.6. Purchase and Cancellation of Bonds............................................ 12
ARTICLE VI
REPRESENTATIONS OF COMPANY
Section 6.1. Corporate Existence and Authorization......................................... 12
Section 6.2. Accuracy of Project Description and Project Budget............................ 12
Section 6.3. Absence of Conflicting Agreements............................................. 13
Section 6.4. Taxes......................................................................... 13
Section 6.5. Regulatory Approvals.......................................................... 13
Section 6.6. Absence of Litigation......................................................... 13
Section 6.7. Date and Survival of Representations; Exceptions.............................. 13
ARTICLE VII
COVENANTS OF COMPANY
Section 7.1. Payment of Rental Payments.................................................... 13
Section 7.2. Unconditional Obligation to Provide Issuer with Sufficient Revenues........... 14
Section 7.3. Indemnification of Issuer..................................................... 14
Section 7.4. Taxes, Licenses, Utilities and Governmental Charges........................... 16
</TABLE>
ii
<PAGE> 4
<TABLE>
<S><C>
Section 7.5. Insurance.................................................................... 16
Section 7.6. Tax Status of Bonds.......................................................... 16
Section 7.7. Sale or Transfer of Project.................................................. 18
Section 7.8. Maintenance of Corporate Existence........................................... 19
Section 7.9. Transfers of Assets.......................................................... 19
Section 7.10. No Warranty of Condition or Suitability by Issuer............................ 19
Section 7.11. Inspection of the Leased Premises............................................ 20
Section 7.12. Granting of Easements........................................................ 20
Section 7.13. Company To Hold Issuer and Trustee Harmless.................................. 20
Section 7.14. Mortgage or Security Interest in Leased Premises............................. 21
<CAPTION> ARTICLE VIII
DAMAGE; EMINENT DOMAIN
Section 8.1. Damage........................................................................ 21
Section 8.2. Eminent Domain................................................................ 21
ARTICLE IX
ASSIGNMENT, SUBLEASING, PLEDGING AND SELLING;
REDEMPTION; RENT PREPAYMENT AND ABATEMENT
Section 9.1. Assignment.................................................................... 22
Section 9.2. Redemption of Bonds........................................................... 22
Section 9.3. Prepayment of Rents........................................................... 22
Section 9.4. Reference to Bonds Ineffective After Bonds Paid............................... 22
ARTICLE X
RELEASE OF LEASED PREMISES
Section 10.1. Option To Acquire Legal Title Upon Full Payment of the Bonds.................. 22
Section 10.2. Partial Releases.............................................................. 23
ARTICLE XI
THE TRUSTEE AND TRUST FUNDS
Section 11.1. Payment of Trustee's Fees..................................................... 23
Section 11.2. Duty To Provide Data.......................................................... 24
Section 11.3. Investment of Trust Funds; Arbitrage.......................................... 24
Section 11.4. Bond Fund and Redemption Fund................................................. 25
</TABLE>
iii
<PAGE> 5
<TABLE>
<S><C>
Section 11.5. Surplus Construction Fund..................................................... 25
Section 11.6. Excess Trust Fund Moneys...................................................... 25
ARTICLE XII
DEFAULT PROVISIONS
Section 12.1. Defaults; Events of Default................................................... 25
Section 12.2. Acceleration.................................................................. 26
Section 12.3. Remedies...................................................................... 26
Section 12.4. Disposition of Amounts Collected.............................................. 26
Section 12.5. Payment of Costs and Expenses................................................. 26
Section 12.6. Limitation on Waivers......................................................... 26
Section 12.7. Performance by Third Parties.................................................. 27
Section 12.8. Performance for Issuer Under Indenture........................................ 27
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Amendments.................................................................... 27
Section 13.2. Successors.................................................................... 27
Section 13.3. Governing Law................................................................. 27
Section 13.4. Captions...................................................................... 27
Section 13.5. Counterparts.................................................................. 28
Section 13.6. Notices....................................................................... 28
Section 13.7. Severability.................................................................. 28
Section 13.8. Limited Liability of Issuer................................................... 28
EXHIBIT A-Legal Description of Land
EXHIBIT B-Description of Building Improvement
EXHIBIT C-Description of Equipment
EXHIBIT D-Project Costs
EXHIBIT E-Form of Requisition
</TABLE>
iv
<PAGE> 6
LEASE AGREEMENT
THIS LEASE AGREEMENT dated as of October 1, 1997 by and between the
COUNTY OF DODGE, NEBRASKA, a political subdivision of the State of Nebraska (the
"Issuer"), as lessor, and THE OILGEAR COMPANY, a Wisconsin corporation (the
"Company"), as lessee;
W I T N E S S E T H :
WHEREAS, pursuant to and in accordance with the provisions of the
Nebraska Industrial Development Act, Chapter 13, Article 11, Reissue Revised
Statutes of Nebraska, 1943, as amended (the "Act"), the Issuer proposes to
finance by the issuance of industrial revenue bonds of the Issuer a portion of
the cost of acquisition and improvement of an addition to the Company's existing
hydraulic pump manufacturing facilities located in Dodge County, Nebraska and
the acquisition and installation of equipment for such facilities (the
"Project"), which addition and equipment constitute a "project" within the
meaning of the Act and which addition is being constructed and acquired within
the jurisdiction of the Issuer and will be operated by The Oilgear Company, a
Wisconsin corporation (the "Company"); and
WHEREAS, it has been determined that the estimated amount necessary to
finance a portion of the cost of the acquisition and improvement of the Project,
including necessary expenses incidental thereto, will require the issuance, sale
and delivery of County of Dodge, Nebraska Variable Rate Demand Industrial
Development Revenue Bonds, Series 1997 (The Oilgear Company Project) in the
principal amount of $4,000,000 (the "Bonds"); and
WHEREAS, the Company has conveyed to Issuer a leasehold interest in the
Building Improvement (as defined herein) component of the Project pursuant to
the Building Improvement Lease (as defined herein) and title to the Equipment
(as defined herein) component of the Project, as and when acquired, for the
purpose of owning and leasing to the Company the Project as provided herein; and
WHEREAS, the Issuer proposes to make the Project available to the
Company by providing the proceeds of the Bonds to the Company to defray a
portion of the costs of acquisition and improvement of the Project, and leasing
the Project and related premises to the Company; and
WHEREAS, the Company desires to borrow the proceeds of the Bonds from
the Issuer and lease the Project and related premises from the Issuer upon the
terms and conditions hereinafter set forth; and
WHEREAS, the execution and delivery of this Agreement have been in all
respects duly and validly authorized by resolution of the Issuer's governing
body; and
<PAGE> 7
WHEREAS, the Company and the Issuer each have full right and lawful
authority to enter into this Lease Agreement and to perform and observe the
provisions hereof on their respective parts to be performed and observed;
NOW, THEREFORE, in consideration of the premises and of the covenants
and undertakings herein expressed, the Issuer and the Company agree as follows:
ARTICLE I
DEFINITIONS AND USE OF PHRASES
Section 1.1. Definitions. As used in this Agreement and the recitals
hereto, the terms and phrases defined in the Trust Indenture dated even herewith
between the Issuer and Norwest Bank Wisconsin, National Association, as Trustee,
shall, except as set forth below, have the same meanings herein. In addition:
"Agreement" means this Agreement and all amendments and supplements
hereto.
"Bond Discount" means the difference between the Bond Amount and the
price at which the Bonds are sold by the Issuer to the original purchaser(s) of
the Bonds.
"Building Improvement" means the building improvement and addition
located on the Land and described in Exhibit B to the Agreement.
"Building Improvement Lease" means the Building Improvement Lease dated
as of October 1, 1997 by which the Company transfers a leasehold interest in the
Building Improvement to the Issuer.
"Eligible Costs of the Project" means the following categorical costs
of providing the Project:
(a) the "Bond Issuance Costs," namely the costs, fees and
expenses incurred or to be incurred by the Company in connection
with the issuance and sale of the Bonds which are subject to the
limitation described in Section 147(g)(1) of the Internal Revenue Code,
including commitment or other financing fees, the fees and
disbursements of Bond Counsel, the Trustee's acceptance fee, the filing
and recording fees in connection with any filings or recording
necessary under the Indenture or to perfect the lien thereof, any
administrative fee of the Issuer, the fees and disbursements of counsel
to the Issuer, the fees and disbursements of counsel to the Company,
the fees and disbursements of counsel to the underwriter, the fees and
disbursements of counsel to the Credit Facility Provider, rating agency
fees, the fees and disbursements of the Company's accountants, the
costs of preparing or printing the Bonds and the documentation
supporting the issuance of the Bonds, the costs of any title insurance
policies, appraisals, environmental audits and similar costs relating
to the Project or other security for the Company's obligations under
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the Credit Facility Reimbursement Agreement, and any other costs of a
similar nature reasonably incurred;
(b) the "Engineering Costs," namely the architectural and
engineering costs and other costs which are or were necessary for the
design and planning of the Project and which were incurred after
March 22, 1997 with respect to equipment expenditures and construction
expenditures;
(c) the "Basic Project Costs," namely those costs of
acquiring, constructing and installing the Project which were incurred
after March 22, 1997 with respect to equipment expenditures and
construction expenditures, and which were or are for the purpose of
providing land or property of a character subject to the allowance for
depreciation under the Internal Revenue Code; and
(d) the "Other Costs," namely such other costs incurred
in connection with the Project or the financing thereof which, in the
opinion of Bond Counsel, may be paid or reimbursed to the Company from
the Construction Fund without adverse effect on the legality of the
Bonds or the exclusion of interest thereon from gross income under
Sections 103(a) and 144(a)(4) of the Internal Revenue Code.
"Equipment" means the equipment described in Exhibit C to this
Agreement, including, upon disbursement of moneys from the Construction Fund,
such equipment for which proper disbursements are made pursuant to Section 3.3
of this Agreement.
"Event of Default" means any of the events designated as such in
Section 12.1 of this Agreement.
"Land" means the real estate described in Exhibit A attached hereto and
by this reference made a part of this Agreement.
"Leased Premises" means the Building Improvement and the Equipment, all
located upon the Land.
"Lease Term" means the duration of Company's right to use and occupy
the Leased Premises as specified in Section 2.5 hereof.
"Permitted Encumbrances" means, as of any particular time, (a) this
Agreement and the Building Improvement Lease, (b) utility, access and other
easements and rights of way, restrictions, reservations, reversions and
exceptions that will not interfere with or impair the operations being conducted
at the Project (or, if no operations are being conducted therein, the operations
for which the Project was designed or last modified), (c) such minor defects,
irregularities, encumbrances, easements, rights of way and clouds on title as
normally exist with respect to properties similar in character to the Project,
and as do not, in the opinion of Independent Counsel, materially impair the
property affected thereby for the purpose for which
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<PAGE> 9
it was acquired or is held by the Issuer, (d) such mortgages, encumbrances and
liens authorized by the Company which do not materially impair the property
affected thereby for the purpose for which it was acquired or is held by the
Issuer and (e) any arrangement given by the Issuer to the Company with respect
to the Leased Premises as security for the reconveyance of the Leased Premises
in accordance with the provisions of Article X of this Agreement.
Section 1.2. Use of Phrases; Rules of Construction. The following
provisions shall be applied wherever appropriate herein:
"Herein," "hereby," "hereunder," "hereof" and other equivalent words
refer to this Agreement as an entirety and not solely to the particular portion
of this Agreement in which any such word is used.
The definitions set forth in Section 1.1 hereof shall be deemed
applicable whether the words defined are herein used in the singular or the
plural.
Wherever used herein, any pronoun or pronouns shall be deemed to
include both the singular and plural and to cover all genders.
Unless otherwise provided, any determinations or reports hereunder
which require the application of accounting concepts or principles shall be made
in accordance with generally accepted accounting principles.
ARTICLE II
DEMISING CLAUSES; LEASE TERM; RENTAL PROVISIONS
Section 2.1. Demise of the Leased Premises. The Issuer demises and
leases to the Company, and Company leases from the Issuer, the Leased Premises
at the rental set forth in Section 2.7 hereof and in accordance with the
provisions of this Agreement.
Section 2.2. Title to Leased Premises. The Issuer warrants that it
lawfully owns and is lawfully possessed of a leasehold interest in the Building
Improvement pursuant to the terms of the Building Improvement Lease subject to
Permitted Encumbrances, but the Issuer has no liability in regard thereto. The
Issuer warrants that, pursuant to a bill of sale from the Company to the Issuer
and on file with the Trustee, it lawfully owns and is lawfully possessed of all
Equipment for which disbursements have been made from the Construction Fund
pursuant to Section 3.3 hereof, but the Issuer has no liability in regard
thereto.
If the Issuer or the Company acquires the interest of the other in the
Leased Premises, including pursuant to the Building Improvement Lease, there
shall be no merger of the leasehold estate into (i) the fee simple estate in the
Building Improvement or the Equipment or (ii) any leasehold estate superior to
that of the Company.
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Section 2.3. Quiet Enjoyment. The Issuer covenants and agrees that the
Company, upon paying the rent herein and upon performing and observing the
covenants, conditions and agreements hereof, shall and may peaceably hold and
enjoy the Leased Premises during the Lease Term without any interruption or
disturbance, subject however, to the terms of this Agreement.
Section 2.4. Issuance of Bonds To Finance the Project. Simultaneously
with the delivery of this Agreement, the Issuer shall issue, sell and deliver
the Bonds in the Bond Amount to provide funds to the Company pursuant to this
Agreement. The Bonds shall be issued in accordance with the Indenture. The
Company's approval of the terms of the Bonds and the Indenture shall be
conclusively established by its execution and delivery of this Agreement. If for
any reason the Bonds are not issued, sold and delivered, this Agreement shall
cease, terminate and be void.
The proceeds of the original sale of the Bonds shall be delivered to
the Trustee at the direction of the Issuer. Such proceeds shall be apportioned
by the Trustee and deposited in Trust Funds, as follows:
(a) An amount equal to the Cost of Issuance Deposit
Amount shall be deposited into the Cost of Issuance Fund; and
(b) The balance shall be deposited into the Construction
Fund.
The Bond Discount shall be deemed to have been applied to the Bond Issuance
Costs. The Bond Amount equals the sum of the Bond Discount plus items (a) and
(b) above.
Section 2.5. Effective Date of Agreement; Duration of Lease Term. This
Agreement shall become effective upon its delivery, and the leasehold estate
created herein shall then begin, and, subject to the provisions of this
Agreement (including particularly Articles V and X hereof), shall continue until
such date as payment has been made in full of the Bonds or provision for such
payment has been made as provided in the Indenture.
Section 2.6. Delivery and Acceptance of Possession. The Issuer agrees
that the Company shall have possession of the Leased Premises (subject to the
right of Trustee to enter thereon for inspection purposes and to the other
provisions of Section 7.11 hereof) whenever such possession is desired by the
Company.
Section 2.7. Rental Payments. (a) On or prior to each Interest Payment
Date and any other date under the Indenture on which the principal of, premium,
if any, and interest on the Bonds is payable, the Company shall pay as basic
rent for the Leased Premises a sum equal to the amount due and payable on such
dates (the "Rental Payments") to the Trustee or any Alternate Paying Agent as
provided in the Indenture. The Company, on any date on which all the Bonds shall
be declared to be and shall become due and payable prior to their stated
maturity pursuant to the provisions of the Indenture, shall also pay directly to
Trustee as Rental Payments
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the aggregate amount of principal and interest so becoming due and payable on
all the Bonds. If at any payment date, Interest Payment Date or redemption date,
the balance in the Bond Fund is insufficient to make required payments of
principal, premium, if any, and interest on such date, the Company shall
forthwith pay as Rental Payments any such deficiency.
Interest on the Bonds is payable (i) on and prior to the Conversion
Date, on the first Business Day of each January, April, July and October,
commencing January, 1998, (ii) thereafter, on January 1, April 1, July 1 and
October 1 of each year, commencing the first such date which is at least 30 days
after the Conversion Date, and (iii) on each other Interest Payment Date for the
Bonds as provided in the Indenture. The Rental Payments shall be made by the
Company (or by the Credit Facility Provider pursuant to the Credit Facility)
directly to the Trustee then acting under the Indenture. The Trustee shall
deposit all Rental Payments into the Bond Fund or the Redemption Fund as
provided in the Indenture.
The Company's obligations to pay Rental Payments shall be discharged
to the extent that the corresponding payments of principal of, premium, if any,
and interest on the Bonds are made from the Bond Fund in accordance with the
provisions of the Indenture.
Section 2.8. DIRECT, UNSECURED OBLIGATION. The obligations of the
Company to pay Rental Payments under this Agreement are direct, unsecured
obligations of the Company.
Section 2.9. PLEDGE AND ASSIGNMENT TO TRUSTEE. Simultaneously with the
delivery of this Agreement, the Issuer shall pledge and assign to the Trustee
under the Indenture all of the Issuer's right, title and interest in and to this
Agreement and all of the Issuer's rights to receive payments hereunder;
provided, however, that the Issuer reserves the right to enforce the Unassigned
Rights in its own name and for its own account. The Company hereby consents to
such pledge and assignment and agrees that the Trustee may enforce any and all
rights, privileges and remedies of the Issuer (other than the Unassigned Rights)
under or with respect to this Agreement.
ARTICLE III
ACQUISITION, CONSTRUCTION AND INSTALLATION OF THE PROJECT
Section 3.1. AGREEMENT TO COMPLETE THE PROJECT; TITLE TO PROJECT. (a)
The Company, as agent for Issuer, agrees to complete, or cause to be completed,
the construction, acquisition and installation of the Project with all
reasonable dispatch in accordance with the Project Plans and Specifications. If
the moneys in the Construction Fund shall be insufficient to pay the costs of
completing the Project, the Company shall nevertheless complete the same and
shall be responsible for causing the costs thereof to be paid. The Company shall
procure any and all building permits, use and occupancy permits, and other
permits, licenses and authorizations necessary for the construction, completion,
occupancy and use of the Project.
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<PAGE> 12
(b) Title to all machinery, equipment and personal property of every
nature paid for out of the Construction Fund (either by direct payment or by
virtue of reimbursement to the Company) shall be transferred to the Issuer.
Section 3.2. Manner of Procuring Disbursements from the Cost of
Issuance Fund. Bond Issuance Costs, to the extent financed by the Bonds, may be
disbursed only from the Cost of Issuance Fund and only in an aggregate amount
not exceeding the Cost of Issuance Deposit Amount. Upon requisition as
hereinafter provided, the moneys in the Cost of Issuance Fund shall be disbursed
to or at the order of the Company to pay (or reimburse the Company for) the Bond
Issuance Costs described in the definition of Eligible Costs of the Project
herein.
Disbursements from the Cost of Issuance Fund shall be made by the
Trustee only upon receipt of (a) an appropriately completed Company's
Requisition substantially in the form attached hereto as Exhibit E, executed on
behalf of the Company by a Company's Representative, accompanied by the
supporting information and documentation specified therein and (b) the written
approval of the Credit Facility Provider.
Disbursements from the Cost of Issuance Fund shall be subject to such
further terms and conditions as are contained in the Credit Facility
Reimbursement Agreement.
If the moneys in the Cost of Issuance Fund shall be insufficient to pay
all of the Bond Issuance Costs, the Company shall be responsible for paying the
difference from funds other than Bond proceeds. If there shall be any balance in
the Cost of Issuance Fund remaining after the earlier of the date which is 90
days after the date of issuance of the Bonds or the date the Trustee receives a
certification by the Company's Representative that all Bond Issuance Costs have
been paid, such remaining balance shall be transferred to the Construction Fund,
or if the Construction Fund has been closed pursuant to Section 3.6 hereof, to
the Surplus Construction Fund.
Section 3.3. Manner of Procuring Disbursements from the Construction
Fund. Upon requisition as hereinafter provided, moneys in the Construction Fund
shall be disbursed to or at the order of the Company to pay (or reimburse the
Company for) the Engineering Costs, the Basic Project Costs and the Other Costs
of the Project described in the definition of Eligible Costs of the Project
herein.
Disbursements from the Construction Fund shall be made by the Trustee
only upon receipt of (a) an appropriately completed Company's Requisition
substantially in the form attached hereto as Exhibit E, executed on behalf of
the Company by a Company's Representative, accompanied with the proper
information and documentation specified therein, and (b) the written approval of
the Credit Facility Provider. For each disbursement with respect to Equipment,
the Company shall provide to the Trustee a bill of sale transferring title to
such equipment to the Issuer. The Company agrees that the Trustee may condition
any disbursement from the Construction Fund upon its receipt of such additional
information and documentation as it may reasonably require to evidence the truth
and accuracy of the statements and
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<PAGE> 13
representations contained in the Company's Requisition. The Trustee shall have
the right to withhold disbursements from the Construction Fund if the
Company's Requisition is incomplete or inaccurate in any material respect.
Disbursements from the Construction Fund shall be subject to such
further terms and conditions as are contained in the Credit Facility
Reimbursement Agreement.
Section 3.4. Amendments to Project Plans and Specifications. Subject
to the conditions set forth in this Section 3.4, the Company shall have the
right to amend its Project Plans and Specifications and to issue change orders
to contractors from time to time as the Company shall deem necessary or
desirable.
The Company agrees that it will make no amendment or change to the
Project Plans and Specifications which would adversely affect the legality of
the Bonds or the exclusion of interest thereon from gross income under
Section 103(a) of the Internal Revenue Code.
Section 3.5. Establishment of Project Completion Date. The Company
shall evidence the completion of the Project by filing the following items with
the Issuer, the Credit Facility Provider and the Trustee: a Company's
Certificate certifying, without prejudice to any rights against third parties
(i) that the Project has been constructed, acquired and installed in accordance
with Project Plans and Specifications, (ii) the date of Project completion and,
if applicable, the respective dates of completion of each of the component
phases of the Project, and (iii) that all labor, services, materials and
supplies used to construct, acquire and install the Project have been paid in
full, except for such portion thereof (which shall be identified in detail)
which the Company is disputing in good faith and by appropriate proceeding. Upon
such filing, the date specified in the Company Certificate, as described in
clause (ii) above, shall be the "Completion Date" for purposes of this
Agreement.
Section 3.6. Closing of Construction Fund. Upon being furnished the
items described in Section 3.5 hereof, the Trustee shall close the Construction
Fund and transfer the remaining balance therein, if any, to the Surplus
Construction Fund. If the Company has not filed such items by ninety days prior
to the third annual anniversary of the Dated Date, the Company shall file with
the Trustee a Company's Certificate stating in detail the reasons therefor,
certifying the amounts, if any, which are then due and owing to contractors,
materialmen or other suppliers for the Project and containing detailed estimates
of the costs necessary to complete the Project in accordance with the Project
Plans and Specifications.
Section 3.7. Maintenance and Improvement of Project. Upon completion
of the Project and thereafter for so long as any Bonds shall be Outstanding, the
Company agrees to keep and maintain the Project in good condition, repair and
working order, except for ordinary wear and tear and obsolescence. Subject to
Section 3.4 hereof the Company may remodel, modify or otherwise improve the
Project from time to time as the Company in its discretion determine to be in
its best interests.
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Section 3.8. Enforcement of Contracts. (a) The Issuer covenants that
it will take any action and institute any proceedings requested by the Company
to cause and require all contractors and material or equipment suppliers to
complete their contracts diligently in accordance with the terms of said
contracts, including, without limitation, the correcting of any defective work
or products. The Issuer agrees that the Company may, from time to time, in its
own name, or in the name of the Issuer, take such action as may be necessary or
advisable, as determined by the Company, to insure the construction or
acquisition of the Project in accordance with the Project Plans and
Specifications and any applicable contract pertaining thereto, to insure the
peaceable and quiet enjoyment of the Project for the term of this Agreement.
Section 3.9. Ownership of Tax Benefits. It is the intention of the
parties that any tax benefits resulting from ownership of the Leased Premises
and any tax credit or comparable credit which may ever be available shall accrue
to the benefit of the Company , and the Company may, and the Issuer upon advice
of counsel may, make any election and take other action in accordance with the
Internal Revenue Code and the regulations promulgated thereunder as may be
necessary to entitle the Company to have such benefit and credit.
ARTICLE IV
CONVERSION OF INTEREST RATES, REMARKETING AGENT
AND CREDIT FACILITIES
Section 4.1. Conversion of Interest Rate. The Company shall have the
right to convert the interest rate on the Bonds from the Variable Rate to the
Fixed Rates by delivering a Conversion Notice to the Trustee and causing the
other conditions set forth in Section 402(b) of the Indenture to be satisfied.
In the event that any Proposed Conversion Date established by the delivery of a
Conversion Notice does not become the Conversion Date, the Company shall have
the right to establish another Proposed Conversion Date in the same manner.
Section 4.2. Concerning Remarketing Agent. The Company shall at all
times cause a Remarketing Agent meeting the requirements of Section 413 of the
Indenture to perform the functions required of the Remarketing Agent hereunder
and under the Indenture. The Company shall be responsible for the payment of the
fees and expenses of the Remarketing Agent. Any successor Remarketing Agent
shall be appointed by the Issuer at the direction of the Company.
Section 4.3. Concerning Substitute Credit Facilities. The Company may
furnish Substitute Credit Facilities from time to time in accordance with
Section 1202 of the Indenture.
Section 4.4. References to Credit Facility Provider After Expiration
or Default of Credit Facility. The particular provisions of this Agreement which
require the approval, consent or direction of, or notice to, the Credit Facility
Provider apply only while a Credit Facility is outstanding and if the Credit
Facility Provider is not in default in any payment required to be made on the
Credit Facility.
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ARTICLE V
PREPAYMENT OF LEASE RENTALS
Section 5.1. Optional Prepayment Upon Occurrence of Certain
Extraordinary Events. At the option of the Company the Rental Payments may be
prepaid in whole (but not in part) if any of the following shall occur:
(a) The Project shall have been damaged or destroyed to
such extent that, in the opinion of the Company expressed in a
Company's Certificate filed with the Issuer, the Trustee and the Credit
Facility Provider following such damage or destruction, (i) the
completion of the Project will be delayed for at least six months,
(ii) it is not practicable or desirable to rebuild, repair or restore
the Project within a period of six consecutive months following such
damage or destruction, or (iii) the Company is or will be thereby
prevented from carrying on its normal operations at the Project for a
period of at least six consecutive months;
(b) Title to or the temporary use of all or substantially
all the Project shall have been taken under the exercise of the power
of eminent domain by any governmental authority to such extent that, in
the opinion of the Company expressed in a Company's Certificate filed
with the Issuer, the Trustee and the Credit Facility Provider, (i) the
completion of the Project will be delayed for at least six months, or
(ii) the Company is or will be thereby prevented from carrying on its
normal operations at the Project for a period of at least six
consecutive months;
(c) Any court or administrative body of competent
jurisdiction shall enter a judgment, order or decree requiring the
Company to cease all or any substantial part of its operations at the
Project to such extent that, in the opinion of the Company expressed in
a Company's Certificate filed with the Issuer, the Trustee and the
Credit Facility Provider, the Company is or will be thereby prevented
from carrying on its normal operations at the Project for a period of
at least six consecutive months; or
(d) As a result of any changes in the Constitution of
Nebraska or the Constitution of the United States of America or of
legislative or administrative action (whether state or federal) or by
final decree, judgment or order of any court or administrative body
(whether state or federal), this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the
intent and purposes of the parties as expressed in this Agreement, or
unreasonable burdens or excessive liabilities shall have been imposed
on the Issuer or the Company as a consequence of the Bonds being
Outstanding, including without limitation federal, state or other ad
valorem, property, income or other taxes not being imposed on the date
of this Agreement.
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To exercise such option the Company shall give notice to the Issuer and the
Trustee within one hundred eighty days following the occurrence of the event
which is said to give rise to the right to exercise such option. The notice
shall refer to this Section 5.1, shall describe and give the date of the subject
event, shall have attached to it the requisite Company's Certificate, and shall
direct a redemption of all Outstanding Bonds pursuant to Section 404 of the
Indenture on a specified Business Day for which the notice of redemption
required by Section 302 of the Indenture can be given. As a further condition to
the exercise of such option, the Company shall obtain the written consent of the
Credit Facility Provider.
Section 5.2. Mandatory Prepayment of Rental Payments Upon
Determination of Taxability. (a) The Company agrees to prepay the entire
outstanding principal balance of the Rental Payments if a Determination of
Taxability shall occur. The Issuer and the Company authorize the Trustee to take
actions necessary to call all Bonds for redemption pursuant to Section 405(a) of
the Indenture on the earliest practicable Business Day (selected by the Trustee)
within 60 days following the date on which a Determination of Taxability shall
have occurred and to draw on the Credit Facility to prepay the Rental Payments
in the amount of 103% of the principal amount of the Bonds to be so redeemed and
all interest thereon accrued and to accrue to the date of redemption.
(b) After the Conversion Date, the Company agrees to prepay the
entire outstanding principal balance of the Rental Payments on the first day of
the month in which the Credit Facility Expiration Date is to occur unless, at
least 45 days prior to such date, the Company shall have caused to be delivered
to the Trustee a Substitute Credit Facility meeting the requirements of
Section 1202 of the Indenture or an amendment to the Credit Facility extending
the Credit Facility Expiration Date by and at least the lesser of one year or
the period ending on the fifteenth day of the month in which the next Reset Date
is to occur. The Issuer and the Company authorize the Trustee to take actions
necessary to call all Bonds for redemption pursuant to Section 405(b) of the
Indenture on such date and to draw on the Credit Facility to prepay the Rental
Payments in the amount of 100% of the principal amount of the Bonds to be so
redeemed and all interest thereon accrued and to accrue to the date of
redemption.
Section 5.3. Optional Prepayment of Rental Payments. At the option of
the Company the Rental Payments may be prepaid (a) on or prior to the Conversion
Date in whole or in part (in multiples of $5,000) on any Business Day and
(b) after the Conversion Date, in whole on any date or in part (in multiples of
$5,000) on any regularly scheduled Interest Payment Date which is (i) on or
after the third anniversary of the Conversion Date if the Conversion Date occurs
at least five years, but less than seven years, prior to the Final Maturity Date
and (ii) on or after the fourth anniversary of the Conversion Date if the
Conversion Date occurs at least seven years, but less than 10 years, prior to
the Final Maturity Date. If the Conversion Date occurs less than five years
prior to the Final Maturity Date, the Rental Payments shall not thereafter be
subject to prepayment pursuant to this Section 5.3.
Such option may not be exercised if a Determination of Taxability has
occurred. To exercise such option the Company shall give notice to the Issuer
and the Trustee at least 45 days
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prior to the Business Day specified therein as the redemption date. Such notice
shall refer to this Section 5.3, shall state the principal amount of the
prepayment, and shall direct the redemption of a like principal amount of Bonds
pursuant to Section 403 of the Indenture on a specified authorized redemption
date for which the notice of redemption required by Section 302 of the Indenture
can be given. If the prepayment shall be in part, it shall be in the amount of a
multiple of $5,000 and shall be applied to the scheduled principal installments
on the Rental Payments in the inverse order of their maturities. As further
conditions to the exercise of such option, the Company shall obtain the written
consent of the Credit Facility Provider and (unless the Credit Facility provides
for the payment of any redemption premium required by Section 403 of the
Indenture in connection with such a prepayment) shall cause the Trustee to have
in hand, on the date the Trustee gives such redemption notice, Eligible Funds in
an amount equal to the amount of any such premium.
Section 5.4. Deposit of Prepayments in Redemption Fund. All
prepayments by the Company of the principal component of the Rental Payments,
together with the premium component of Rental Payments, if any, shall be
deposited by the Trustee when received into the Redemption Fund. Any accrued
interest component of the Rental Payments paid in connection with any such
prepayment shall be deposited into the Bond Fund.
Section 5.5. Corresponding Redemption of Bonds. All authorized
prepayments of the Rental Payments shall be applied to a corresponding
redemption of the Bonds.
Section 5.6. Purchase and Cancellation of Bonds. The Company shall
have the right to purchase any Outstanding Bond with Eligible Funds and deliver
it to the Trustee for cancellation. Any such purchase and cancellation of a Bond
made with Eligible Funds as to which the Trustee has received a Preference
Opinion shall ipso facto reduce the unpaid principal balance of the Rental
Payments on the date of such cancellation by an amount equal to the unpaid
principal amount of such Bond.
ARTICLE VI
REPRESENTATIONS OF COMPANY
Section 6.1. Corporate Existence and Authorization. The Company
represents that it is a corporation duly organized and validly existing in good
standing under the laws of the State of Wisconsin identified in the first
paragraph of this Agreement and represents that it has obtained all
authorizations necessary on its part for the due and valid execution and
delivery of this Agreement and the assumption of the obligations represented
hereby and thereby.
Section 6.2. Accuracy of Project Description and Project Budget. The
Company represents that the description of the Building Improvement as set forth
in Exhibit B hereto and the description of the Equipment as set forth in
Exhibit C hereto are accurate in all material respects, that the budget for the
Project as set forth in Exhibit D is an accurate summary of the Company's best
estimates, respectively, of the total costs and the Eligible Costs of the
Project,
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and that all property of which the Project is or will be comprised consists of
land or property of a character subject to the allowance for depreciation as
required by Section 144(a)(1)(A) of the Internal Revenue Code.
Section 6.3. Absence of Conflicting Agreements. The Company represents
that the execution and delivery of this Agreement, the Building Improvement
Lease and the Bond Guaranty Agreement and the performance by the Company
hereunder and thereunder will not conflict with or constitute a breach of or
default under any organizational documents, articles of incorporation, bylaws,
articles of organization, operating agreement, indenture, loan agreement or
instrument or agreement to which the Company is a party or by which the Company
or its properties are bound.
Section 6.4. Taxes. The Company represents that they have no
outstanding unpaid tax liabilities (other than taxes which are currently
accruing from current operations and ownership of property, which are not
delinquent) and that no tax deficiencies are proposed or have been assessed and
are unsatisfied against the Company.
Section 6.5. Regulatory Approvals. The Company represents that no
authorization, approval, consent or license of any governmental regulatory body
or authority, not already obtained, is required for the valid and lawful
execution and delivery of this Agreement by the Company or the assumption of the
obligations of the Company represented hereby and thereby.
Section 6.6. Absence of Litigation. The Company represents that it is
not a party to any litigation or administrative proceeding, nor so far as is
known by the Company is any litigation or administrative proceeding threatened
against it which in either case would, if adversely determined, cause any
material adverse change in its financial condition, the conduct of its business
or its ability to perform its obligations under this Agreement.
Section 6.7. Date and Survival of Representations; Exceptions. The
representations of the Company made in this Article VI are made as of the date
of the issuance and delivery of the Bonds, and all such representations shall
survive the execution and delivery of this Agreement and the issuance and
delivery of the Bonds.
Any exceptions to the representations made in this Article VI shall be
set forth in a Company's Certificate delivered to the Trustee and original
purchaser of the Bonds contemporaneously herewith, and to the extent so set
forth, they shall be exceptions to the representations made in this Article VI
to the same extent as if they were expressly stated herein.
ARTICLE VII
COVENANTS OF COMPANY
Section 7.1. Payment of Rental Payments. The Company agrees to pay as
Rental Payments the principal of, premium, if any, and interest on the Bonds in
the manner and
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amounts and the times and places specified in Section 2.7 hereof and in
accordance with the Indenture.
Section 7.2. Unconditional Obligation to Provide Issuer with
Sufficient Revenues. The Company unconditionally agrees that it shall make
payments to the Trustee (for the account of the Issuer) in lawful money of the
United States of America and in such amounts and at such times (if not sooner
required under the terms of this Agreement) as shall be necessary to enable the
Trustee to make full and prompt payment when due (whether at stated maturity,
upon redemption prior to stated maturity or upon acceleration of stated
maturity) of the principal of, premium, if any, and interest on all Bonds issued
under the Indenture. The obligations of the Company to make the payments
required in this Section 7.2 shall be absolute and unconditional and shall not
be subject to diminution by setoff, counterclaim, abatement or otherwise, and
until such time as the principal of, premium, if any, and interest on the Bonds
shall have been paid or provided for in accordance with the Indenture, the
Company: (i) will not suspend or discontinue, or permit the suspension or
discontinuance of, any payments provided for in this Section 7.2; (ii) will
perform and observe all its other agreements contained in this Agreement; and
(iii) will not terminate this Agreement for any cause, including, without
limiting the generality of the foregoing, any defect in title to the Leased
Premises, failure of the Leased Premises to comply with the Project Plans and
Specifications, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Leased Premises, frustration of
commercial purpose, any change in the tax or other laws or administrative
rulings of or administrative actions by the United States of America or the
State of Nebraska or any political subdivision of either, or any failure of the
Issuer to perform and observe any agreement, whether expressed or implied, or
any duty, liability or obligation arising out of or in connection with this
Agreement. Nothing contained in this Section 7.2 shall be construed to release
the Issuer from the performance of any of the agreements on their part herein
contained; and if the Issuer shall fail to perform any such agreement on its
part, the Company may institute such action against the Issuer as the Company
may deem necessary to compel performance, provided that no such action shall
violate the agreements on the part of the Company contained in this Section 7.2,
or diminish the amounts required to be paid by the Company pursuant to
Section 7.2.
Section 7.3. Indemnification of Issuer. Notwithstanding anything to
the contrary herein contained by implication or otherwise, the obligations of
the Issuer created by or arising out of this Agreement shall not be general debt
obligations of the Issuer, do not constitute or give rise to charges against its
general credit and shall not constitute or give rise to any personal liability
of any member of the Issuer's Governing Body or the officers, agents and
employees of the Issuer on the Bonds or for any act or omission related to the
authorization or issuance of the Bonds.
The Company shall and covenants and agrees to indemnify, protect,
defend and save the Issuer harmless from and against any and all claims,
demands, liabilities and costs, including attorneys' fees, arising from damage
or injury, actual or claimed, of whatsoever kind or character, to property or
persons, occurring or allegedly occurring or arising in any manner from the
transactions of which this Agreement is a part of or arising in any manner in
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connection with the Issuer's ownership of the Leased Premises or the financing
of the Project, including, without limiting the generality of the foregoing,
arising from (i) the work done on the Project, or (ii) any breach or default on
the part of the Company in the performance of any of its obligations under this
Agreement, or (iii) any violation of contract, agreement or restriction by the
Company relating to the Leased Premises or (iv) any violation by the Company of
law, ordinance or regulation affecting the Leased Premises or any part thereof
or the ownership or occupancy or use thereof, or (v) any misrepresentation by
the Company in any document or certificate issued or delivered in connection
with the issuance and delivery of the Bonds.
Without limiting the generality of the foregoing, the Company shall
indemnify and save the Issuer harmless against and from all claims by or on
behalf of any person, firm or corporation arising from the conduct or management
of, or from any work or thing done on, the Leased Premises during the Lease
Term, and against and from all claims arising during the Lease Term from:
(a) any condition of the Leased Premises caused by the Company;
(b) any environmental condition not caused by the Issuer;
(c) any failure on the part of the Company in the performance of
any of its obligations under this Agreement;
(d) any contract entered into in connection with the
acquisition, construction and installation of the Project;
(e) any act of negligence of the Company or of its agents,
contractors, servants, employees or licenses; and
(f) any act of negligence of any assignee or sublessee of the
Company, or of any agent, contractor, servant, employee or licensee of
any assignee or sublessee of the Company.
Nothing in the foregoing indemnity shall protect the Issuer against its
own default, gross negligence or willful misconduct.
If any action shall be brought against the Issuer in respect of which
indemnity may be sought under the foregoing provisions of this Section 7.3
against the Company, the Issuer shall promptly notify the Company in writing,
and the Company shall assume the defense thereof including the employment of
counsel and the payment of all expenses. In any such action the Issuer shall
have the right to employ separate counsel, but the reasonable fees and expenses
of such counsel shall be at the expense of the Issuer unless the Company and the
Issuer shall have mutually agreed to the employment of such counsel. The Company
shall not be liable for any settlement of such action effected without written
consent, but if settled with the written consent of the Company or if there be a
final judgment for the plaintiff in any such action, the Company
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agrees to indemnify and hold harmless the Issuer from and against any loss or
liability by reason of such settlement or judgment.
The provisions of this Section 7.3 shall pertain only to the
transaction contemplated under this Agreement but shall in any event survive the
termination of this Agreement.
Section 7.4. TAXES, LICENSES, UTILITIES AND GOVERNMENTAL CHARGES. The
Company agrees to pay promptly, as and when the same shall become due and
payable, each and every lawful cost, expense and obligation of every kind and
nature, foreseen or unforeseen, for the payment of which either the Issuer or
the Company is or shall become liable by reason of its estate or interest in the
Leased Premises or in any portion thereof, or by reason of or in any manner
connected with or arising out of the possession, operation, maintenance,
alteration, repair, rebuilding, use or occupancy of the Leased Premises or any
part thereof. The Company also agrees to pay and discharge, promptly as and when
the same shall become due and payable, all lawful real estate taxes, personal
property taxes, business and occupation taxes, occupational license taxes,
assessments for public improvements or benefits and all other lawful
governmental taxes, impositions and charges of every kind and nature, ordinary
or extraordinary, general or special, foreseen or unforeseen, whether similar or
dissimilar to any of the foregoing, and all applicable interest and penalties
thereon, if any, which at any time shall be or become due and payable and which
shall be lawfully levied, assessed or imposed upon or with respect to, or which
shall be or become liens upon, the Leased Premises or any portion thereof or any
interest of the Company therein. The Company also agrees to pay or cause to be
paid all lawful charges for gas, water, sewer, electricity, light, heat, power,
telephone and other utility and service used, rendered or supplied to, upon or
in connection with the Leased Premises. The Company agrees that the Issuer is
not, nor shall it be, required to furnish free of charge to the Company or any
other occupant of the Leased Premises any gas, water, sewer, electricity, light,
heat, power or other facilities, equipment, labor, materials or services of any
kind, except as otherwise may be required by law or except as the same shall
generally be furnished without charge to other owners or users of comparable
property within the Issuer's jurisdiction.
The Company shall have the right in good faith and by appropriate
proceeding to dispute or contest the validity or amount of any such tax,
assessment, governmental charge or utility charge, and during the pendency of
any such dispute or contest, the Company shall not be deemed to be in default
under this Section 7.4 by reason of its failure to have paid the disputed or
contested amount.
Section 7.5. INSURANCE. The Company agrees, both generally and
specifically with respect to the Leased Premises, that it will insure against
such risks in such amounts as are customarily insured against by companies of
like size similarly situated. Such insurance shall be obtained by the purchase
of insurance policies (including blanket policies covering multiple risks)
issued by reputable insurance companies authorized and qualified to underwrite
such risks.
Section 7.6. TAX STATUS OF BONDS. It is intended that the interest on
the Bonds be exempt from Federal income taxation pursuant to Sections 103(a) and
144(a)(4) of the Internal
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Revenue Code. In general, the Company agrees that it will take no action which
would (and will omit no action the omission of which would) cause an Event of
Taxability. Without limiting the generality of such covenant, the Company
agrees:
(a) that its requisition from the Construction Fund will
be such that at least 95% of the net proceeds of the Bonds will be used
for the acquisition, construction, reconstruction or improvement of
land or property of a character subject to the allowance for
depreciation;
(b) that the issuance costs financed by the Bonds will
not exceed 2% of the aggregate face amount of the issue;
(c) that not more than 25% of the net proceeds of the
Bonds will be used to provide a facility the primary purpose of which
is one of the following: retail food and beverage services, automobile
sales or service, or the provision of recreation or entertainment;
(d) that no portion of the proceeds of the Bonds will be
used to provide the following: any private or commercial golf course,
country club, massage parlor, tennis club, skating facility (including
roller skating, skateboard and ice skating), racquet sports facility
(including any handball or racquetball court), hot tub facility, suntan
facility or racetrack;
(e) that no portion of the proceeds of the Bonds will be
used for the acquisition of any property (or an interest therein)
unless either (i) the first use of such property is pursuant to such
acquisition, (ii) in the case of any building (and the equipment
therefor) the rehabilitation expenditures with respect to such building
incurred within two years after the Bonds are issued equal or exceed
15% of the portion of the cost of acquiring such building (and
equipment) financed with the net proceeds of the Bonds, or (iii) in the
case of structures other than a building, the rehabilitation
expenditures with respect to such structures incurred within two years
after the Bonds are issued equal or exceed 100% of the portion of the
cost of acquiring such structures financed with the net proceeds of the
Bonds;
(f) that less than 25% of the net proceeds of the Bonds
will be used (directly or indirectly) for the acquisition of land (or
an interest therein);
(g) that it will permit no use of the proceeds of the
Bonds which would cause the Bonds to be classified as "arbitrage bonds"
within the meaning of Section 148 of the Internal Revenue Code;
(h) that it will duly file with the Trustee annually
within 60 days of each anniversary of the date of this Agreement a list
of the includable prior bonds and capital expenditures under the $10
million limit of Section 144(a)(4) of the Internal Revenue
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Code and a list of the includable prior bonds for each "test period
beneficiary" under the $40 million limit of Section 144(a)(10) of the
Internal Revenue Code, provided that the Company may cease providing
such list commencing with the second anniversary date occurring after
the expiration of the later of three years of the date of issuance of
the Bonds or three years after the Project is first placed in service;
(i) that the $10 million limit of Section 144(a)(4) of
the Internal Revenue Code and the $40 million limit of
Section 144(a)(10) of the Internal Revenue Code will not be exceeded;
(j) that it shall pay any rebate amount required to be
paid on behalf of the Issuer to the United States Treasury pursuant to
Section 148(f) of the Internal Revenue Code and any proposed, temporary
or final regulations promulgated thereunder and, to assure payment of
such amount, that it shall pay to the Trustee any amount required to be
deposited into the Rebate Account pursuant to Section 803 of the
Indenture; and
(k) that the Project will at all times be used as a
"manufacturing facility" within the meaning of Section 144(a)(12)(C) of
the Internal Revenue Code for the Project Enterprise or otherwise.
If, nevertheless, an Event of Taxability shall occur, the Company shall
not be deemed to be in default under this Section 7.6 if it complies in all
respects with Section 5.2 of this Agreement. Prepayment of the Rental Payments,
including the premium provided for in Section 5.2, shall be the sole liability
of the Company for an Event of Taxability.
Section 7.7. Sale or Transfer of Project. The Company may sell,
assign, sublease or otherwise transfer all or any part of its interest in the
Leased Premises and in connection therewith may assign all or any portion of its
rights and privileges under this Agreement, provided that:
(a) if such sale, assignment, sublease or transfer
involves (in a single transaction or any series of transactions) all or
substantially all of the Company's assets, the Company shall comply
with Section 7.9 of this Agreement;
(b) if such transaction involves the sale, assignment,
sublease or transfer of all or substantially all of the Project, the
purchaser, sublessee, transferee or assignee, as the case may be, shall
have assumed in writing all obligations of the Company contained in
Section 7.6 hereof;
(c) no such sale, transfer or assignment shall relieve the
Company from primary liability for the performance of its obligations
hereunder and under the Bond Guaranty Agreement unless the requirements
set forth in Section 7.9 (a) through (d) of this Agreement are met with
respect to the purchaser, lessee, transferee or assignee, in which
event the Company shall be released of all further obligation hereunder
and such
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purchaser, transferee or assignee shall become the "Company" for
purposes hereof, of the Bond Guaranty Agreement and of the Indenture;
(d) the Company shall have delivered to the Trustee and
the Issuer an opinion of Bond Counsel to the effect that such
transaction will not violate the Act, adversely affect the legality of
the Bonds or result in an Event of Taxability; and
(e) the Company shall have complied with the applicable
provisions of the Credit Facility Reimbursement Agreement and the
related collateral documents.
Section 7.8. Maintenance of Corporate Existence. The Company agrees
that, except as otherwise permitted in Section 7.9 of this Agreement, it will
maintain its existence and will neither dissolve nor institute any proceedings
for dissolution.
Section 7.9. Transfers of Assets. The Company agrees that it will not
(in a single transaction or any series of transactions) dissolve or otherwise
dispose of all or substantially all its assets, and will not consolidate with or
merge into another entity or permit one or more other entities to consolidate
with or merge into it; provided, however, that the Company may, without
violating the foregoing, consolidate with or merge into another entity, or
permit one or more other entities to consolidate with or merge into it, or
transfer all or substantially all its assets to another entity (and thereafter
be released of all further obligation hereunder and dissolve or not dissolve as
it may elect) if:
(a) the resulting, surviving or transferee entity, as the
case may be, is a corporation, limited liability company, partnership
or other recognized legal entity organized and duly existing in good
standing under the laws of one of the States of the United States of
America;
(b) such resulting, surviving or transferee entity has
obtained the prior written consent of the Credit Facility Provider (or,
if there is no Credit Facility then in effect or the Credit Facility
Provider is in default of its obligations thereunder, the Requisite
Consent of Bondowners) to such transaction;
(c) such resulting, surviving or transferee entity
expressly assumes in writing (delivered to the Issuer and the Trustee)
all of the obligations of the Company contained in this Agreement, the
Bond Guaranty Agreement and the Continuing Disclosure Agreement (after
which it shall be the "Company" for purposes hereof and thereof); and
(d) the Company shall have delivered to the Trustee and
the Issuer an opinion of Bond Counsel to the effect that such
transaction will not adversely affect the legality of the Bonds or
result in an Event of Taxability.
Section 7.10. No Warranty of Condition or Suitability by Issuer. The
Issuer makes no warranty, either express or implied, as to the condition of the
Leased Premises or that they will
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be suitable for the Company's purposes or needs. The Company releases the Issuer
from, agrees that the Issuer shall not be liable for and agrees to hold the
Issuer harmless against, any loss or damage to property or any injury to or
death of any person that may be occasioned by any act or omission of the Company
relating to the Leased Premises or the use thereof. The provisions of this
Section shall pertain only to the transaction contemplated under this Agreement
but shall in any event survive any termination of this Agreement.
Section 7.11. Inspection of the Leased Premises. The Company agrees
that Trustee and the Issuer and their duly authorized agents shall have the
right at all reasonable times during business hours, with seven days' prior
written notice to the Company, to enter upon the Land and to examine and inspect
the Leased Premises without interference or prejudice to the Company's
operations. The Company further agrees that the Issuer and its duly authorized
agents who are acceptable to the Company shall have such rights of access to the
Leased Premises as may be reasonably necessary to cause to be completed the
acquisition, construction and installation provided for in Section 3.1 hereof.
Section 7.12. Granting of Easements. If no event of default shall have
happened and be continuing, the Company may at any time or times grant
easements, licenses, rights of way (including the dedication of public highways)
and other rights or privileges in the nature of easements with respect to any
property included in the Leased Premises, or the Company may release existing
easements, licenses, rights of way and other rights or privileges with or
without consideration and the Issuer agrees that it shall execute and deliver
and will cause and direct Trustee to execute and deliver any instrument
necessary or appropriate to confirm and grant or release any such easement,
license, right of way or other right or privilege upon receipt by the Issuer of:
(a) a copy of the instrument of grant or release; (b) a written application
signed by an authorized officer of the Company requesting such instrument; and
(c) a Company's Certificate stating (i) that such grant or release is not
detrimental to the proper conduct of the business of the Company, and (ii) no
default exists under this Agreement.
Section 7.13. Company To Hold Issuer and Trustee Harmless. The Company
shall at all times keep and hold the Issuer harmless from any and all claims and
demands, losses and expenses arising out of, or connected with, the Company's
operations at the Project, or as a result of anything claimed to be done or
omitted to be done by the Company, provided the Issuer shall in each instance
give the Company prompt written notice of any such claim or demand, and the
Issuer shall cooperate with the Company in the investigation of such claim.
In the event of any claims, demand or action arising out of an
occurrence covered by such indemnification of which the Issuer has knowledge,
the Issuer agrees to give the Company prompt notice, in writing, and to
cooperate with the Company in the investigation thereof.
The Company agrees to indemnify each of the Trustee or any predecessor
Trustee for, and to hold it harmless against, any and all loss, damage, claims,
expense or liability arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the reasonable costs
and expenses of defending itself against any claim or liability in
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connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent that such loss, expense or liability or expense
is due to its own negligence or bad faith.
Section 7.14. Mortgage or Security Interest in Leased Premises.
Notwithstanding any other provision of this Agreement, the Company may grant
such mortgages, deeds of trust or security interests on its interests in the
Leased Premises as in the determination of the Company are necessary or
convenient to its operation of the Leased Premises.
ARTICLE VIII
DAMAGE; EMINENT DOMAIN
Section 8.1. Damage. If prior to the full payment of the Bonds (or
provision for payment thereof having been made to the satisfaction of the
Trustee in accordance with the provisions of the Indenture) the Project shall be
damaged by fire, flood, windstorm or other casualty to such extent that the
Company has the option of prepaying the Rental Payments pursuant to
Section 5.1(a) of this Agreement, the Company shall either (a) prepay the entire
outstanding balance of the Rental Payments in accordance with Section 5.1 of
this Agreement or (b) repair, replace or restore the damaged property to such
condition as in the judgment of the Company will restore the capacity of the
Project to conduct the Project Enterprise to a level at least equal to the
lesser of (i) the capacity of the Project to conduct the Project Enterprise as
it existed immediately prior to such damage or (ii) the designed capacity of the
Project to conduct the Project Enterprise on the date hereof.
Section 8.2. Eminent Domain. If prior to full payment of the Bonds (or
provision for payment thereof having been made in accordance with the provisions
of the Indenture) the Project shall be taken by eminent domain, in whole or in
part, to such extent that the Company has the option of prepaying the Rental
Payments pursuant to Section 5.1(b) of this Agreement, the Company shall either
(a) prepay the entire outstanding balance of the Rental Payments in accordance
with Section 5.1 of this Agreement, or (b) acquire such new property in the
County of Dodge, Nebraska, as in the judgment of the Company will be necessary
to restore the capacity of the Project to conduct the Project Enterprise to a
level at least equal to the lesser of (i) the capacity of the Project to conduct
the Project Enterprise as it existed immediately prior to such taking, or
(ii) the designed capacity of the Project to conduct the Project Enterprise on
the date hereof.
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ARTICLE IX
ASSIGNMENT, SUBLEASING, PLEDGING AND SELLING;
REDEMPTION; RENT PREPAYMENT AND ABATEMENT
Section 9.1. Assignment. It is understood and agreed that this
Agreement (and the Rental Payments hereunder) will be assigned and pledged to
Trustee as security for the payment of the principal of and interest on the
Bonds, but otherwise the Issuer shall not, without the prior written consent of
the Company, assign, encumber, sell or dispose of all or any part of its right,
title and interest in and to the Leased Premises and this Agreement, except to
the Company in accordance with the provisions of this Agreement and to Trustee
under the Indenture without the prior written consent of the Company.
Section 9.2. Redemption of Bonds. The Issuer, at the request at any
time of the Company, shall forthwith take all steps that may be necessary under
the applicable redemption provisions of the Indenture to effect redemption of
all or part of the then Outstanding Bonds, as may be specified by the Company,
on the earliest redemption date on which such redemption may be made under such
applicable provisions or upon the date set for the redemption by the Company.
Section 9.3. Prepayment of Rents. To permit the redemption of Bonds
pursuant to the exercise of any options of the Company hereunder, and solely for
that purpose, there is expressly reserved to the Company the right, and the
Company is authorized and permitted, to prepay the Rental Payments as provided
in Article V hereof, and the Issuer agrees that Trustee may accept such
prepayment of rents when the same are tendered by the Company. All rents so
prepaid shall be credited on the Rental Payments and shall be used for the
redemption of the Bonds in accordance with the Indenture.
Section 9.4. Reference to Bonds Ineffective After Bonds Paid. Upon
payment in full of the Bonds (or provision for payment thereof having been made
in accordance with the provisions of the Indenture) and all fees and charges of
the Trustee and any Alternate Paying Agent, all references in this Agreement to
the Bonds, and the Trustee shall be ineffective and neither the Trustee nor the
Bondowners shall thereafter have any rights hereunder, saving and excepting
those that shall have theretofore vested.
ARTICLE X
RELEASE OF LEASED PREMISES
Section 10.1. Option To Acquire Legal Title Upon Full Payment of the
Bonds. The Company shall have and is hereby granted an option to purchase and
acquire legal title to and the Issuer agrees to sell the Equipment and release
all its interest in the Building Improvement in full at or at any time after the
expiration or sooner termination of the Lease Term following full payment of the
Bonds (or provision for payment thereof having been made in accordance
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with the provisions of the Indenture), for a price of $10.00. At the closing of
the foregoing purchase, the Issuer will deliver to the Company documents
conveying to the Company good and marketable title to the Equipment being
acquired, as such property then exists, or to release the Issuer's interest in
the Building Improvement under the Building Improvement Lease subject to the
following: (i) those liens and encumbrances, if any, to which title to said
property was subject when conveyed to the Issuer; (ii) those liens and
encumbrances created by the Company or to the creation or suffering of which the
Company consented; (iii) those liens and encumbrances resulting from the failure
of the Company to perform or observe any of the agreements on its part contained
in this Agreement; (iv) Permitted Encumbrances other than the Building
Improvement Lease and this Agreement; and (v) the rights and title of any
condemning authority with respect to Section 5.1 hereof.
Section 10.2. Partial Releases. To the extent that the Company is
entitled to cause the release of any portion of the Equipment or Building
Improvement pursuant to the terms of this Agreement, the Company, in addition to
complying with the other applicable provisions of this Agreement, shall cause to
be prepared, as necessary, a release deed or bill of sale, with respect to such
portion of the Equipment or Building Improvement to be released or acquired by
the Company. The Company shall provide appropriate descriptions of the property
to be conveyed. Thereafter, the Issuer shall as necessary date, execute and
deliver to the Company the release, the deed(s) or bills of sale, as the case
may be.
ARTICLE XI
THE TRUSTEE AND TRUST FUNDS
Section 11.1. Payment of Trustee's Fees. The Company agrees that it
will pay the Trustee its customary fees for acting as Trustee under the
Indenture and that it will reimburse the Trustee for its ordinary and necessary
expenses incurred in carrying out the terms of the Indenture. Such fees and
reimbursements of expenses shall be paid upon receipt of periodic invoices
therefor.
In the event the Trustee is required by the terms of the Indenture or
otherwise deems it necessary or advisable in fulfillment of its fiduciary
responsibilities thereunder to take actions beyond those which are routinely
performed by corporate trustees under similar indentures, the Company also
agrees that it will pay the Trustee its reasonable fees for its services in such
regard (including but not limited to legal fees and costs) and that it will
reimburse the Trustee for ordinary and necessary expenses incurred in connection
therewith. Such fees and reimbursements of expenses shall be paid upon receipt
of invoices therefor; provided, however, that the Company may dispute (in good
faith and by appropriate proceeding) the reasonableness of any such charges and
during the pendency of any such dispute the Company shall not be deemed in
default of the foregoing covenant by reason of its failure to have paid the
portion of such charges so disputed.
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Section 11.2. Duty To Provide Data. The Company agrees to furnish to
the Trustee, promptly upon receipt of a written request therefor, any documents,
information or data reasonably necessary to enable the Trustee to carry out its
duties and responsibilities under the Indenture or to verify the truth and
accuracy of any representation or statement made on behalf of the Company
herein, in any Company's Certificate or in any Requisition.
Section 11.3. Investment of Trust Funds; Arbitrage. The Company shall
have the exclusive right to direct the investment and reinvestment of Trust Fund
moneys, subject, however, to the following limitations and conditions:
(a) The investment of the Cost of Issuance Fund, the
Construction Fund and Surplus Construction Fund shall be in accordance
with directions from the Company, such directions to be made in a
Company's Certificate or in a writing signed by the Company's
Representative and shall be consistent with the remaining provisions of
this Section 11.3.
(b) The particular investments shall be Qualified
Investments, and, in the case of the investment of moneys in the Bond
Fund, shall be Government Obligations.
(c) No investment shall have a maturity later than the
estimated time when the funds so invested will be needed for the
purposes of the Trust Fund of which they are a part.
(d) In the event of any actual loss realized from any
such investment, the Company shall promptly pay the amount of such loss
to the Trustee for deposit into the applicable Trust Fund.
(e) The Trustee shall sell or otherwise reduce to cash
any investment in the Bond Fund or the Redemption Fund if such action
is necessary to pay the principal of, premium, if any, or interest on a
Bond when due.
(f) Investment of the Surplus Construction Fund shall
comply with Section 604 of the Indenture.
(g) No investment or other use will be made of the
proceeds of the Bonds which would cause any Bond to be classified as an
"arbitrage bond" within the meaning of Section 148 of the Internal
Revenue Code or any proposed, temporary or final regulations issued
thereunder.
(h) In the event the Issuer or the Company is of the
opinion (supported by an opinion of Bond Counsel) that it is necessary
or advisable to restrict or limit the yield on the investment of any
moneys held in any Trust Fund in order to avoid the Bonds being
considered "arbitrage bonds" within the meaning aforesaid, the Issuer
may (and shall if so requested by the Company) issue to the Trustee a
written certificate (copied to the
24
<PAGE> 30
Credit Facility Provider) to such effect together with appropriate
written instructions, in which event the Trustee shall take such action
as is necessary so to restrict or limit the yield on such investment in
accordance with such certificate and instructions, irrespective of
whether the Trustee shares such opinion.
Section 11.4. Bond Fund and Redemption Fund. Except as expressly
provided in the Indenture, moneys in the Bond Fund and Redemption Fund shall be
used in accordance with the Indenture solely for the payment of the principal
of, premium, if any, and interest on the Bonds as the same become due at
maturity, upon redemption prior to maturity, or upon acceleration of maturity.
Section 11.5. Surplus Construction Fund. Moneys in the Surplus
Construction Fund shall be applied to such one or more of the authorized
purposes specified in the Indenture.
Section 11.6. Excess Trust Fund Moneys. Following full and final
payment of the Bonds (or provision therefor having been made to the satisfaction
of the Trustee in accordance with the Indenture) and any fees, costs and
expenses due to the Trustee, the Remarketing Agent and any paying agents under
the Indenture, any excess moneys remaining in the Trust Funds shall be paid
promptly to the Credit Facility Provider to the extent of any amounts due it
pursuant to the Credit Facility Reimbursement Agreement, and thereafter to the
Company.
ARTICLE XII
DEFAULT PROVISIONS
Section 12.1. Defaults; Events of Default. If any one or more of the
following events occur, it is hereby defined as and declared to be and to
constitute an "Event of Default" under and for purposes of this Agreement:
(a) Default in the due and punctual payment of any
installment of Rental Payments;
(b) Default in the performance or observance of any other
of the covenants, agreements or conditions on the part of the Company
in this Agreement contained and the continuance thereof for a period of
30 days after receipt by the Company of written notice (from the
Issuer, the Trustee or the Owners of at least 10% in aggregate
principal amount of the Bonds at the time Outstanding) specifying such
default and requesting that it be cured; provided, however, that if the
default is capable of being cured, but not within such 30 day period,
such default shall not become an Event of Default if the Company
institutes reasonable corrective action within such period and pursues
such action diligently until such default is cured;
(c) The Company shall: (i) become insolvent; or (ii) be
unable, or admit in writing its inability, to pay its debts as they
mature; or (iii) make a general assignment
25
<PAGE> 31
for the benefit of creditors or to an agent authorized to liquidate any
substantial amount of its property; or (iv) have a court order relief
against it under the United States Bankruptcy Code; or (v) file a
petition with respect to itself as debtor under Chapter 7 or 11 of the
United States Bankruptcy Code; or (vi) have a petition under Chapter 7
or 11 of the United States Bankruptcy Code filed against it as debtor
and fail to have such petition vacated or discharged within 60 days
following the filing thereof; or (vii) file an answer to a creditor's
petition, admitting the material allegations thereof, for liquidation,
reorganization or to effect a plan or other arrangement with creditors;
or (viii) apply to a court for the appointment of a receiver for any of
its assets; or (ix) have a receiver appointed for any of its assets
(with or without the consent of the Company) and such receiver shall
not be discharged within 60 days after its appointment; or
(d) An "event of default" (as defined therein) shall
have occurred under the Indenture.
Section 12.2. Acceleration. If an Event of Default shall occur, the
Trustee may with the written consent of the Credit Facility Provider, and shall
upon the written request of the Credit Facility Provider or if the Bonds have
been accelerated pursuant to Section 1002 of the Indenture, by written notice to
the Company and the Credit Facility Provider, declare the entire outstanding
principal balance of the Rental Payments to be immediately due and payable.
Section 12.3. Remedies. If an Event of Default shall occur, the Issuer
or the Trustee may, with the written consent of the Credit Facility Provider,
pursue any available remedy at law or in equity to realize the payment of Rental
Payments.
Section 12.4. Disposition of Amounts Collected. Any amounts collected
pursuant to action taken under this Article XII shall be paid to the Trustee and
applied in accordance with the provisions of Section 1006 of the Indenture or,
if the Bonds have been fully paid (or provision for payment thereof has been
made in accordance with the provisions of the Indenture), shall be paid to the
Credit Facility Provider to the extent of any amount due under the Credit
Facility Reimbursement Agreement, and otherwise to the Company.
Section 12.5. Payment of Costs and Expenses. If the Company defaults
under any provisions of this Agreement and the Issuer or the Trustee, or both,
employ attorneys or incur other expenses for the collection of payments due or
for the enforcement of performance or observance of any other obligation or
agreement on the part of the Company herein contained, the Company agrees that
it will on demand therefor pay to the Issuer or the Trustee, as the case may be,
the reasonable fees of such attorneys and such other reasonable expenses so
incurred by the Issuer or the Trustee.
Section 12.6. Limitation on Waivers. If any agreement contained in this
Agreement should be breached by either party and thereafter waived by the other
party, such waiver shall be limited to the particular breach so waived and shall
not be deemed to waive the same, any other or any future breach hereunder on any
other occasion. No remedy herein conferred upon
26
<PAGE> 32
or reserved to the Issuer or Trustee is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Agreement or now
or hereafter existing at law or in equity or by virtue of other contracts. No
delay or omission to exercise any right or power occurring upon any Event of
Default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right or power may be exercised from time to time
and as often as may be deemed expedient. To entitle the Issuer or the Trustee to
exercise any remedy reserved or available to it, it shall not be necessary to
give any notice other than such notice as may be herein expressly required.
Section 12.7. Performance by Third Parties. The Issuer agrees that,
with the written consent of the Company, third parties may perform any and all
acts or take such action as may be necessary for and on behalf of the Company to
prevent or correct any Event of Default hereunder, and the Issuer agrees that
the Trustee shall take or accept such performance as performance by the Company
in such event. The acceptance by the Issuer or the Trustee of any such
performance by third parties shall not in any way diminish or absolve the
Company of primary liability hereunder.
Section 12.8. Performance for Issuer Under Indenture. The Issuer agrees
that the Company and the Credit Facility Provider or either of them may, but
shall not be obligated to, perform any such acts and do all such things in the
place and stead of the Issuer as the Company or the Credit Facility Provider, as
the case may be, shall deem necessary to prevent or correct any default or
"event of default" caused or about to be caused by the Issuer under the
Indenture.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Amendments. This Agreement shall not be effectively
amended, changed, modified, altered or terminated without the written consent of
the Trustee, the Company, the Issuer and the Credit Facility Provider, and no
modification, alteration or amendment to this Agreement shall be binding upon
either party hereto until such modification, alteration or amendment is reduced
to writing and executed by both parties hereto.
Section 13.2. Successors. Except as limited or conditioned by the
express provisions hereof, the provisions of this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto.
Section 13.3. Governing Law. The laws of the State of Nebraska shall
govern this Agreement.
Section 13.4. Captions. The captions or headings in this Agreement are
for convenience only and in no way define, limit or describe the scope or intent
of any of the provisions of this Agreement.
27
<PAGE> 33
Section 13.5. Counterparts. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures thereto and hereto
were on the same instrument.
Section 13.6. Notices. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be deemed given
when hand delivered or when mailed by certified or registered mail, postage
prepaid, or by prepaid telegram addressed as follows: (a) if to the Issuer, at
the Issuer's Address, and (b) if to the Company, at the Company's Address.
A duplicate copy of each notice, certificate or other communication
given hereunder by either the Issuer or the Company shall also be concurrently
given to the Trustee at the Trustee's Address, to the Credit Facility Provider
at the Credit Facility Provider's Address, and to the Remarketing Agent at the
Remarketing Agent's Address.
Section 13.7. Severability. If any provisions of this Agreement shall
be held or deemed to be or shall, in fact, be inoperative or unenforceable as
applied in any particular case in any jurisdiction or jurisdictions or in all
jurisdictions, or in all cases because it conflicts with any other provision or
provisions hereof or any constitution or statute or rule of public policy, or
for any other reason, such circumstance shall not have the effect of rendering
the provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatever. The invalidity of
any one or more phrases, sentences, clauses or Sections in this Agreement
contained, shall not affect the remaining portions of this Agreement, or any
part thereof.
Section 13.8. Limited Liability of Issuer. Any obligations of the
Issuer created by, arising out of, or entered into in contemplation of this
Agreement, including the Bonds, shall not impose a debt or pecuniary liability
upon the Issuer, the State of Nebraska or any political subdivision thereof or
constitute a charge upon the general credit or taxing powers of any of the
foregoing including, but not limited to (a) liability for failure to investigate
or negligence in the investigation of the financial position or prospects of the
Company, a user of the Project or any other person or for failure to consider,
or negligence concerning, the adequacy of terms of, or collateral security for,
the Bonds or any related agreement to protect interests of holders of the Bonds;
and (b) any liability in connection with the issuance or sale of the Bonds. Any
such obligation shall be payable solely out of the revenues and any other moneys
derived hereunder and under the Indenture, except, as provided in the Indenture
and in this Agreement, to the extent it shall be paid out of moneys attributable
to the proceeds of the Bonds or the income from the temporary investment
thereof. In addition, this Agreement shall not give rise to any personal
liability of any member of the Issuer's Governing Body or of any officers,
agents, employees or officials of the Issuer on the Bonds or for any act or
omission related to the authorization or issuance of the Bonds.
[Remainder of this page intentionally left blank.]
28
<PAGE> 34
IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed
in its name and behalf, and the Company has executed this Agreement all as of
the Dated Date.
[SEAL] COUNTY OF DODGE, NEBRASKA
Attest:
By /s/ Dean T. Lux
----------------------------------
Chairman, Board of Supervisors
/s/ Fred Whytty
- -----------------------------
County Clerk
THE OILGEAR COMPANY
By /s/ T.J. Price
----------------------------------
Vice President-Finance
29
<PAGE> 35
ACKNOWLEDGMENT
STATE OF NEBRASKA )
) ss.
COUNTY OF DODGE )
On this 22nd day of October, 1997 before me, a Notary Public duly
commissioned, qualified and acting, within and for the County and State
aforesaid, appeared in person the within named Dean T. Lux and Fred Mytty,
Chairman of the Board of Supervisors and County Clerk, respectively, of the
County of Dodge, Nebraska, a political subdivision of the State of Nebraska, to
me personally known, who stated that they were duly authorized in their
capacities to execute the foregoing instrument for and in the name of the County
of Dodge, Nebraska, and further stated and acknowledged that they had signed,
executed and delivered the foregoing instrument for the consideration, uses and
purposes therein mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal on
the date and year first written above.
/s/ Nancy L. Bohlen
------------------------------
Notary Public
My commission expires:
September 21, 2001
- ----------------------------------
[SEAL]
30
<PAGE> 36
ACKNOWLEDGMENT
STATE OF WISCONSIN )
) ss.
COUNTY OF MILWAUKEE )
On this 29th day of October, 1997, before me, a Notary Public duly
commissioned, qualified and acting within and for the County and State
aforesaid, appeared in person the within named Thomas J. Price, Vice President,
Finance, of The Oilgear Company, a Wisconsin corporation, to me personally
known, who stated that they were duly authorized in his capacity to execute the
foregoing instrument for and in the name and behalf of The Oilgear Company, and
further stated and acknowledged that he had so signed, executed and delivered
the foregoing instrument for the consideration, uses and purposes therein
mentioned and set forth.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal on
the date and year first written above.
/s/ Ann M. Murphy
----------------------
Ann M. Murphy
Notary Public, State of Wisconsin
My commission is permanent.
[SEAL]
31
<PAGE> 1
EXECUTION COPY
THE OILGEAR COMPANY,
as Lessor
to
COUNTY OF DODGE, NEBRASKA,
as Lessee
____________________________________
BUILDING IMPROVEMENT LEASE
____________________________________
Dated as of October 1, 1997
<PAGE> 2
BUILDING IMPROVEMENT LEASE AGREEMENT
THIS BUILDING IMPROVEMENT LEASE is made and entered into as of the 1st
day of October, 1997 by and between THE OILGEAR COMPANY, a Wisconsin
corporation ("Company"), as lessor, and COUNTY OF DODGE, NEBRASKA, a political
subdivision of the State of Nebraska ("Issuer"), as lessee.
Company, in consideration of the covenants of Issuer hereinafter set
forth, does by these presents lease to Issuer the buildings and improvements
described at Appendix A hereto situated upon a parcel of land located at 905
South Downing Street, Fremont, Nebraska, more specifically described at
Appendix B hereto.
TO HAVE AND TO HOLD the same unto Issuer from, on and after the date
hereof to the termination date of that Lease Agreement dated as of October 1,
1997 by and between Issuer, as lessor, and Company, as lessee, but in no event
earlier than the first date on which the Bonds are no longer Outstanding under
the Indenture (as such terms are defined by such Lease Agreement), and Company
warrants to Issuer the peaceful and quiet enjoyment of the premises hereby
leased for and during the term hereof.
Issuer, in consideration of the leasing of the premises as above set
forth, has agreed with Company to pay Company as rent for the use of the same
the sum of Ten Dollars ($10.00) per year, which rent has been paid by Issuer
for the entire term, the receipt and sufficiency of which are hereby
acknowledged by Company.
Issuer further covenants with Company that at the expiration of the
term of this Building Improvement Lease peaceable possession of said premises,
together with any improvements, fixtures, equipment and furnishings now or
hereafter situated thereupon during the lease term, shall be given to Company.
It is further covenanted and agreed between the parties hereto that
the leased premises shall be used only in accord with the Nebraska Industrial
Development Act, Chapter 13, Article 11, Reissue Revised Statutes of Nebraska,
1943, as amended.
If Company or Issuer acquires the interest of the other in the
premises, including pursuant to the Lease Agreement, there shall be no merger
of the leasehold estate granted hereby into (i) the fee simple estate in the
property, or (ii) any leasehold estate superior to that of Issuer.
The covenants herein shall extend to and be binding upon the
successors and assigns of the parties to this Building Improvement Lease.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Building
Improvement Lease to be executed by their duly authorized officers as of the
day and year first written above.
THE OILGEAR COMPANY
By [SIG]
------------------------------
Vice President, Finance
[SEAL] COUNTY OF DODGE, NEBRASKA
ATTEST:
By [SIG] By Dean T. Lux
----------------------- ------------------------------
County Clerk Chairman, Board of Supervisors
2
<PAGE> 1
EXECUTION COPY
================================================================================
BOND GUARANTY AGREEMENT
Dated as of October 1, 1997
___________________________
By
THE OILGEAR COMPANY
to
NORWEST BANK WISCONSIN, NATIONAL ASSOCIATION
as Trustee and Paying Agent
____________________________
Pertaining to
$4,000,000
County of Dodge, Nebraska
Variable Rate Demand Industrial Development Revenue Bonds, Series 1997
(The Oilgear Company Project)
================================================================================
<PAGE> 2
____________________________
TABLE OF CONTENTS
____________________________
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C>
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
COVENANTS AND AGREEMENTS
Section 2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
NOTICE AND SERVICE OF PROCESS,
PLEADINGS AND OTHER PAPERS
Section 3.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
MISCELLANEOUS
Section 4.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
<PAGE> 3
BOND GUARANTY AGREEMENT
This BOND GUARANTY AGREEMENT is made and entered into as of October 1,
1997 (the "Guaranty"), by and between The Oilgear Company (the "Company"), a
Wisconsin corporation, and Norwest Bank Wisconsin, National Association, as
Trustee, together with any successor trustee (the "Trustee"), at the time
serving as such under the Trust Indenture (hereinafter identified) between the
County of Dodge, Nebraska (the "County") and the Trustee.
W I T N E S S E T H :
WHEREAS, the County is a political subdivision of the State of
Nebraska and proposes to issue its industrial development revenue bonds
pursuant to the provisions of the Nebraska Industrial Development Act, Chapter
13, Article 11, Reissue Revised Statutes of Nebraska, 1943, as amended (the
"Act"), in the principal amount of $4,000,000 designated County of Dodge,
Nebraska Variable Rate Demand Industrial Development Revenue Bonds, Series 1997
(The Oilgear Company Project) (the "Bonds"); and
WHEREAS, the Bonds will be issued under and secured by a Trust
Indenture dated as of even date herewith by and between the County and the
Trustee (the "Indenture"), and the Trustee will initially serve as Paying Agent
under the Indenture; and
WHEREAS, the proceeds to be derived from the sale of the Bonds will be
applied to the acquisition and improvement of a portion of an addition to the
Company's existing hydraulic pump manufacturing facility located in Dodge
County, Nebraska (the "Project"), which is being leased to the Company pursuant
to the provisions of a Lease Agreement dated as of even date herewith (the
"Lease Agreement"); and
WHEREAS, the Company is desirous that the County issue the Bonds and
apply the proceeds as aforesaid and is willing to enter into this Guaranty in
order to enhance the marketability of the Bonds and thereby achieve interest
cost and other savings to the Company, and as an inducement to the purchase of
the Bonds by all who shall at any time become owners of the Bonds;
NOW, THEREFORE, in consideration of the premises and in order to
enhance the marketability of the Bonds and thereby achieve interest cost and
other savings to the Company, and as an inducement to the initial purchasers of
the Bonds and all who shall at any time become owners of the Bonds, the Company
does hereby, subject to the terms hereof, covenant and agree with the Trustee
as follows:
<PAGE> 4
ARTICLE I
REPRESENTATIONS AND WARRANTIES
The Company does hereby represent and warrant that:
(a) the Company is a corporation duly incorporated and in
good standing under the laws of the State of Wisconsin, has power to
enter into this Guaranty and has duly authorized the execution and
delivery of this Guaranty by proper corporate action;
(b) neither this Guaranty, the execution and delivery
hereof nor the agreements herein contained are prevented, limited by
or contravene or constitute a default under any agreement, instrument
or indenture to which the Company is a party or by which it is bound
or any provisions of the Company's certificate of incorporation or any
requirements of law; and
(c) the assumption by the Company of its obligations
hereunder will result in a direct financial benefit to the Company.
ARTICLE II
COVENANTS AND AGREEMENTS
SECTION 2.1. The Company hereby guarantees to the Trustee, for the
benefit of the owners from time to time of the Bonds, (a) the full and prompt
payment of the principal of and premium, if any, on any Bond when and as the
same shall become due, whether at the stated maturity thereof, by acceleration,
call for redemption or otherwise, and (b) the full and prompt payment of any
interest on any Bond when and as the same shall become due. All payments by
the Company shall be paid in lawful money of the United States of America.
Each and every default in payment of the principal of, premium, if any, or
interest on any Bond shall give rise to a separate cause of action hereunder,
and separate suits may be brought hereunder as each cause of action arises.
SECTION 2.2. The obligations of the Company under this Guaranty shall
be absolute and shall remain in full force and effect until the entire
principal of, premium, if any, and interest on the Bonds shall have been paid
or provided for under the Indenture and such obligations shall not be affected,
modified or impaired upon the happening from time to time of any event,
including without limitation any of the following, whether or not with notice
to, or the consent of, the Company:
(a) the compromise, settlement, release or termination of
any or all of the obligations, covenants or agreements of the County
under the Indenture, the Building Improvement Lease or the Lease
Agreement;
2
<PAGE> 5
(b) the failure to give notice to the Company of the
occurrence of an event of default under the terms and provisions of
this Guaranty, the Lease Agreement or the Indenture;
(c) the assignment or mortgaging or the purported
assignment or mortgaging of all or any part of the interest of the
County or the Company in the Project or any failure of title with
respect to the County's or the Company's interest in the Project;
(d) the waiver by the Trustee or the County of the
payment, performance or observance by the County, the Company or the
Trustee of any of the obligations, covenants or agreements contained
in the Indenture, the Lease Agreement or this Guaranty;
(e) the extension of the time for payment of any
principal of, premium, if any, or interest on any Bonds under this
Guaranty or of the time for performance of any other obligations,
covenants or agreements under or arising out of the Indenture or this
Guaranty or the extension or the renewal of either thereof;
(f) the modification or amendment (whether material or
otherwise) of any obligation, covenant or agreement set forth in the
Indenture or the Lease Agreement;
(g) the taking or the omission of any of the actions
referred to in the Indenture and of any actions under this Guaranty;
(h) any failure, omission, delay or lack on the part of
the County or the Trustee to enforce, assert or exercise any right,
power or remedy conferred on the County or the Trustee in this
Guaranty or the Indenture, or any other act or acts on the part of the
County, the Trustee or any of the owners from time to time of the
Bonds;
(i) the voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all the
assets, marshalling of assets and liabilities, receivership,
insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings affecting the Company or
the County or any of the assets of either of them, or any allegation
or contest of the validity of this Guaranty in any such proceeding;
(j) to the extent permitted by law, the release or
discharge of the Company from the performance or observance of any
obligation, covenant or agreement contained in this Guaranty by
operation of law; or
(k) any lack of validity or enforceability of the Bonds,
or other circumstance or condition under which the Company may claim
to be released from its obligations hereunder.
3
<PAGE> 6
SECTION 2.3. No set-off, counterclaim, reduction or diminution of any
obligation, other than payment, or any defense of any kind or nature which the
Company has or may have against the County or the Trustee shall be available
hereunder to the Company against the Trustee.
SECTION 2.4. In the event of a default in the payment of principal of
or premium, if any, on any Bond when and as the same shall become due, whether
at the stated maturity thereof, by acceleration, call for redemption or
otherwise, or in the event of a default in the payment of any interest on any
Bond when and as the same shall become due, the Trustee shall have the right to
proceed first and directly against the Company under this Guaranty without
proceeding against any other person or exhausting any other remedies which it
may have and without resorting to any other security held by the County or the
Trustee.
SECTION 2.5. The Company hereby expressly waives notice and demand
from the Trustee or the owners from time to time of any of the Bonds, if any,
of their acceptance and reliance on this Guaranty. The Company agrees to pay
all reasonable costs, expenses and fees, including all reasonable attorneys'
fees and expenses, which may be incurred by the Trustee in enforcing or
attempting to enforce this Guaranty following any default on the part of the
Company hereunder, whether the same shall be enforced by suit or otherwise.
SECTION 2.6. The Company will maintain its corporate existence and
will not dissolve or otherwise dispose of all or substantially all of its
assets and will not consolidate with or merge into another corporation or
permit one or more other corporations to consolidate with or merge into it
except as permitted by Section 7.9 of the Lease Agreement.
SECTION 2.7. This Guaranty is entered into by the Company for the
benefit of the Trustee and the owners from time to time of the Bonds, all of
whom shall be entitled to enforce performance and observance of this Guaranty
to the same extent provided for enforcement of remedies under the Indenture.
SECTION 2.8. Upon the satisfaction of the conditions specified in
Section 7.9 of the Lease Agreement and the assumption of the obligations
hereunder pursuant to Section 7.9 of the Lease Agreement, the obligations of
the Company hereunder shall be released.
ARTICLE III
NOTICE AND SERVICE OF PROCESS,
PLEADINGS AND OTHER PAPERS
SECTION 3.1. The Company represents that it is qualified to do
business and subject to service of process in the State of Nebraska and in the
State of Wisconsin and covenants that it will remain so qualified so long as
any of the Bonds are outstanding, subject to the provisions of Section 2.6
above.
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<PAGE> 7
SECTION 3.2. Any notice, process, pleadings or other papers served
upon the agents or officers of the Company shall at the same time be sent by
registered mail, return receipt requested, postage prepaid, to the Company at
the following address:
The Oilgear Company
2300 South 51st Street
Milwaukee, WI 53219
Attention: Vice President--Finance
Telecopy: (414) 328-5323
Telephone: (414) 328-5230
or to such other address as may be furnished by the Company to the Trustee in
writing.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. The obligations of the Company hereunder shall arise
absolutely when the Bonds shall have been issued, sold and delivered by the
County and the proceeds thereof paid to the Trustee for the account of the
County under the Indenture.
SECTION 4.2. No remedy herein conferred upon or reserved to the
Trustee is intended to be exclusive of any other available remedy or remedies,
but each and every such remedy shall be cumulative and shall be in addition to
every other remedy given under this Guaranty or now or hereafter existing at
law or in equity. No delay or omission to exercise any right or power accruing
upon any default, omission or failure of performance hereunder shall impair any
such right or power or shall be construed to be a waiver thereof, but any such
right and power may be exercised from time to time as often as may be deemed
expedient. In order to entitle the Trustee to exercise any remedy reserved to
it in this Guaranty, it shall not be necessary to give any notice, other than
such notice as may be herein expressly required. In the event any provision
contained in this Guaranty should be breached by the Company, and thereafter
duly waived by the Trustee, such waiver shall be limited to the particular
breach so waived and shall not be deemed to waive any other breach hereunder.
No waiver, amendment, release or modification of this Guaranty shall be
established by conduct, custom or course of dealing, but solely by an
instrument in writing duly executed by the Company and the Trustee.
SECTION 4.3. This Guaranty shall not be effectively amended, changed,
modified, altered or terminated without the written consent of the Trustee and
the Company, and no modification, alteration or amendment to this Guaranty
shall be binding upon either party hereto until such modification, alteration
or amendment is reduced to writing and executed by both parties hereto. This
Guaranty may not be amended, changed, modified or altered except in compliance
with Article XIV of the Indenture.
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<PAGE> 8
Nothing contained herein shall permit, or be construed as permitting,
any amendment, change or modification of this Guaranty which would (a) reduce
the obligations of the Company hereunder, (b) change the time for payment of
the amounts payable by the Company hereunder or (c) change the unconditional
nature of the Guaranty herein contained.
SECTION 4.4. This Guaranty constitutes the entire agreement, and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and may be
executed in several counterparts, each of which shall be deemed an original,
and all of which together shall constitute one and the same instrument.
SECTION 4.5. The invalidity or unenforceability of any one or more
phrases, sentences, clauses or Sections in this Guaranty shall not affect the
validity or enforceability of the remaining portions of this Guaranty, or any
part thereof.
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<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Guaranty Agreement to
be executed in its name and behalf and its corporate seal to be affixed hereto
and attested by its duly authorized officers as of the date first above
written.
THE OILGEAR COMPANY
By T.J. Price
-------------------------
Vice President, Finance
Accepted as of October 1, 1997, by Norwest Bank Wisconsin, National
Association, as Trustee.
(SEAL) NORWEST BANK WISCONSIN,
NATIONAL ASSOCIATION
By Wendy M. DeToro
-------------------------
Title Corporate Trust Officer
-----------------------
7
<PAGE> 1
CREDIT AGREEMENT
BY AND BETWEEN
THE OILGEAR COMPANY
AND
M&I MARSHALL & ILSLEY BANK
DATED AS OF OCTOBER 1, 1997
<PAGE> 2
CREDIT AGREEMENT
This Agreement, dated as of October 1, 1997 is entered into between
The Oilgear Company, a Wisconsin corporation (herein called the "Borrower") and
M&I Marshall & Ilsley Bank, Milwaukee, Wisconsin, a banking corporation
organized and existing under the laws of the State of Wisconsin (herein called
the "Bank").
WITNESSETH:
WHEREAS, the County of Dodge, Nebraska (the "Issuer") intends to issue
its Variable Rate Demand Development Revenue Bonds, Series 1997 (The Oilgear
Company Project) in the aggregate principal amount of $4,000,000 (the "Bonds")
pursuant to a Trust Indenture (the "Indenture") dated as of October 1, 1997,
between the Issuer and Norwest Bank Wisconsin, National Association, as Trustee
(the "Trustee"); and
WHEREAS, the proceeds derived from the issuance of the Bonds will be
applied pursuant to a Lease Agreement between the Issuer and the Borrower dated
as of October 1, 1997 (the "Bond Lease Agreement") to finance costs related to
expansion of the manufacturing facilities located in Dodge County, Nebraska
which are operated by the Borrower and the acquisition and installation of
equipment for such facilities (the "Project") and it is understood that the
Project is leased by the Issuer to the Borrower pursuant to the Bond Lease
Agreement and that the Borrower has the option to purchase the Project at the
end of the Bond Lease Agreement provided that all payments have been made on
the Bonds; and
WHEREAS, the Bonds are secured under the Indenture by an assignment
and pledge to the Trustee of the Issuer's right, title and interest in the Bond
Lease Agreement; and
WHEREAS, in order to enhance the marketability of the Bonds and
thereby achieve interest costs and other savings, the Borrower has requested
the Bank to issue its irrevocable letter of credit in an amount of $4,138,083
in favor of the Trustee; and
WHEREAS, the Bank is willing to issue its letter of credit to secure
the Bonds in accordance with the terms set forth in this Agreement;
NOW THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
Section 1. Certain Definitions. The following terms when used in
this Agreement shall have the following meanings:
"Agreement" means this Credit Agreement, together with the exhibits
attached hereto, as the same shall be amended from time to time in accordance
with the terms hereof.
<PAGE> 3
"Bank" means M&I Marshall & Ilsley Bank, Milwaukee, Wisconsin, a
banking corporation organized and existing under the laws of the State of
Wisconsin.
"Bond Lease Agreement" means the Lease Agreement dated as of
October 1, 1997, between the Issuer and the Borrower, as amended from time to
time.
"Bonds" means the County of Dodge, Nebraska Variable Rate Demand
Development Revenue Bonds, Series 1997 (The Oilgear Company Project) issued
under the Indenture in the aggregate principal amount of $4,000,000.
"Borrower" means The Oilgear Company, a Wisconsin corporation.
"Borrower Payment Date" means the last business day prior to the date
the Bank is required to honor any draft presented under the Letter of Credit.
"Borrower's Documents" means the Credit Agreement, the Security
Agreement and the Pledge Agreement.
"Building Lease" means the Building Improvement Lease Agreement dated
as of October 1, 1997 between the Issuer and the Borrower.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Documents" shall mean the Security Agreement, the Pledge
Agreement and such other guaranties, security agreements, mortgages and other
credit enhancements as may be executed from time to time by the Borrower or
others in favor of the Bank in connection with this Credit Agreement.
"Default" shall mean any event which if it continues uncured will,
with lapse of time or notice or lapse and notice, constitute an Event of
Default.
"Environmental Assessment" means a review for the purpose of
determining whether the Borrower is in compliance with all Environmental Laws
and whether there exists any condition or circumstance which requires or will
require an investigation, clean-up, removal or other remedial action under
Environmental Laws on the part of the Borrower, including, but not limited to,
some or all of the following: (a) on-site inspection, including review of site
geology, hydrogeology, demography, land use and population; (b) taking and
analyzing soil borings, installing ground water monitoring wells and analyzing
samples taken from such wells; (c) reviewing plant permits, compliance records
and regulatory correspondence and interviewing enforcement staff at regulatory
agencies; (d) reviewing the operations, procedures and documentation of the
Borrower; (e) interviewing past and present employees of the Borrower; and (f)
reviewing all records and
2
<PAGE> 4
information regarding the past activities of prior owners and prior or current
tenants of Borrower's Facilities.
"Environmental Laws" means all Laws, judgments, decrees, permits,
licenses, agreements and other governmental restrictions, now or at any time
hereafter in effect, relating to (a) the emission, discharge or release of
pollutants, petroleum or petroleum products, chemicals or industrial, toxic or
hazardous substances, materials or wastes into the environment, or (b) the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, petroleum or petroleum products, chemicals
or industrial, toxic or hazardous substances or wastes, or (c) the
investigation, clean-up or remediation thereof. These Environmental Laws shall
include but not be limited to the Federal Solid Waste Disposal Act, the Federal
Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation
and Recovery Act of 1976, the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Federal Superfund Amendments and
Reauthorization Act of 1986, regulations of the Environmental Protection
Agency, regulations of the Nuclear Regulatory Agency, regulations of any state
department of natural resources or state environmental protection agency now or
at any time hereafter in effect and local health department ordinances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended and as in effect from time to time.
"Event of Default" means any of the events described in Section 8.
"Facilities" means all facilities owned or operated and all real
estate, property and other assets owned by the Borrower.
"Indebtedness" means all liabilities or obligations of the Borrower,
whether primary or secondary or absolute or contingent or secured or unsecured;
(a) for borrowed money or for the deferred purchase price of property or
services (excluding trade obligations incurred in the ordinary course of
business, which are not the result of any borrowing); (b) as lessee under
leases that have been or should be capitalized according to generally accepted
accounting principles; (c) evidenced by notes, bonds, debentures or similar
obligations; (d) under any guaranty or endorsement (other than in connection
with the deposit and collection of checks in the ordinary course of business),
and other contingent obligations to purchase, provide funds for payment, supply
funds to invest in any Person, or otherwise assure a creditor against loss; or
(e) secured by any Liens on assets of the Borrower, whether or not the
obligations secured have been assumed by the Borrower.
"Indenture" means the Trust Indenture dated as of October 1, 1997,
between the Issuer and the Trustee, pursuant to which the Issuer has issued the
Bonds, the proceeds from which constitute the source of funds which will
finance the Project.
<PAGE> 5
"Issuance Date" shall have the meaning ascribed to it in Section 2.
"Issuer" means the County of Dodge, Nebraska.
"Law" shall mean any federal, state, local or other law, rule,
regulation or governmental requirement of any kind, and the rules, regulations,
written interpretations and orders promulgated thereunder.
"Letter of Credit" shall have the meaning ascribed to it in Section 2.
"Lien" shall mean, with respect to any asset: (a) any mortgage,
pledge, lien, charge, security interest or encumbrance of any kind; and (b) the
interest of a vendor or lessor under any conditional sale agreement, financing
lease or other title retention agreement relating to such asset.
"Oilgear Loan Agreement" means the Loan Agreement between the Borrower
and the Bank dated as of September 28, 1990 as amended and restated as of June
17, 1996, and as such Loan Agreement has been or may be subsequently amended or
amended and restated from time to time and any successor loan agreement between
the Borrower and the Bank, as amended from time to time.
"Opinion of Borrower's Counsel" means the opinion of counsel for the
Borrower in the form of Exhibit C hereto.
"Outstanding Credit" means at any date the sum of (i) the aggregate
unpaid principal amount of the Bonds on such date (taking into account Bond
redemptions, but not Bond purchases) and (ii) 105 days' accrued interest on the
Bonds at the rate of 12% per annum.
"Pledge Agreement" shall mean the Pledge and Security Agreement dated
as of October 1, 1997 from the Borrower to the Bank securing the Borrower's
obligations under this Agreement, as the same may be amended and supplemented
from time to time.
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, limited liability partnership or company and a
government or any department or agency thereof.
"Prime Rate" means the rate of interest adopted by M&I Marshall &
Ilsley Bank from time to time as its base rate for interest determinations.
"Project" means the project being financed with the proceeds of the
Bonds which is the construction of an approximately 33,000 square foot addition
to the manufacturing facility in Dodge County, Nebraska which is operated by
the Borrower and the purchase of equipment for such facilities.
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<PAGE> 6
"Security Agreement" means the Security Agreement dated as of
May 1, 1994 as amended and restated on July 15, 1994 and as amended and
restated as of October 1, 1997, from the Borrower to the Bank, as the same may
be amended and supplemented from time to time.
"Subsidiary" shall mean any corporation, more than fifty percent of
the outstanding stock of which (of any class or classes, however designated,
having ordinary voting power for the election of at least a majority of the
members of the board of directors of such corporation, other than stock having
such power only by reason of the happening of a contingency) shall at the time
be owned by the Borrower directly or through one or more Subsidiaries.
"Trustee" means Norwest Bank Wisconsin, National Association and any
successor Trustee under the Indenture.
Section 2. Commitment of the Bank. Subject to the terms and
conditions of this Agreement, the Bank agrees to issue, on the date of closing
of the Bonds, for the account of the Borrower an irrevocable direct pay letter
of credit in the form set forth in Exhibit A (herein called the "Letter of
Credit") in favor of the Trustee in the maximum amount of $4,138,083. The date
of issuance of the Letter of Credit shall be herein called the "Issuance Date."
The Letter of Credit has an expiration date of October 15, 2007.
Notwithstanding any other provision of this Agreement, the Letter of
Credit shall not be required to be issued hereunder if on the Issuance Date the
payments due under Section 4(a) have not been made or the conditions set forth
in Section 7 hereof have not been complied with.
Section 3. Payment of Draft Under the Letter of Credit.
(a) The Borrower agrees to pay the Bank, at its office
at 770 North Water Street, Milwaukee, Wisconsin, in immediately available funds
not later than 10:00 a.m., Milwaukee time, on each Borrower Payment Date
(except in the case of the purchase of Bonds, the Borrower shall pay at the
times provided in Section 3(g) hereof) the amount required to be paid by the
Bank pursuant to a draft presented to the Bank under the Letter of Credit.
This obligation of the Borrower shall be unconditional and the Borrower may not
dispute whether payment of any draft by the Bank is proper and, without
limiting the foregoing, this obligation of the Borrower shall apply (i) whether
or not any of the representations and warranties contained in the certificates
presented with such draft by the Trustee are false or disputed by the Borrower
or (ii) whether or not the draft is presented as a result of an event of
default under the Indenture resulting from notification to the Trustee by the
Bank that it has determined that an "Event of Default" has occurred hereunder,
notwithstanding that such determination may be disputed by the Borrower. In
the event the Borrower fails to pay the Bank on any
5
<PAGE> 7
Borrower Payment Date the amount of any draft to be honored by the Bank under
the Letter of Credit, then the Borrower, in addition to remaining liable for
the immediate payment of such amount, shall pay interest to the Bank on such
unpaid amount at a rate per annum equal to 2% plus the Prime Rate from time to
time in effect from the Borrower's Payment Date until the amount then due,
including accrued interest, is paid in full to the Bank by or on behalf of the
Borrower. Such rate of interest shall change as and when the Bank changes the
Prime Rate, and all such interest shall be calculated on the basis of a year
consisting of 360 days so that at any point in time during each year from the
date the Borrower fails to pay the amount owed, the interest accrued shall be
determined by multiplying the unpaid amount times the interest rate times a
fraction of which the numerator is the actual number of days elapsed and of
which the denominator is 360.
(b) All payments owed by the Borrower to the Bank under
this Agreement shall be made without any setoff or counterclaim and free and
clear of any restrictions or conditions and free and clear of and without
deduction for or on account of, any present or future taxes, levies, imposts,
duties, charges, fees, deductions or withholdings of any nature now or
hereafter imposed by any governmental or other authority. If the Borrower is
compelled by law to make any such deductions or withholdings it will pay such
additional amounts as may be necessary in order that the net amount received by
the Bank after such deductions or withholdings shall equal the amount it would
have received had no such deductions or withholdings been required to be made,
and it will provide the Bank with evidence satisfactory to the Bank that it has
paid such deductions or withholdings.
(c) If any sum becomes due for payment hereunder on a
Saturday, Sunday or other legal holiday for banks in Wisconsin, such payment
shall be made on the next succeeding business day of the Bank and interest
shall be adjusted accordingly.
(d) In addition to and not in limitation of all rights
of offset that the Bank may have under applicable law, the Bank shall, upon the
occurrence of any Event of Default, have the right to offset and apply to the
payment of the amounts owing by the Borrower to the Bank hereunder any and all
balances, credits, deposits, accounts or moneys then or thereafter held by the
Bank for the Borrower.
(e) The Borrower assumes all risks of the acts or
omissions of the Trustee and any beneficiary or transferee of the Letter of
Credit with respect to its use of the Letter of Credit. Neither the Bank nor
any of its officers or directors shall be liable or responsible for: (a) the
use which may be made of the Letter of Credit or for any acts or omissions of
the Trustee and any beneficiary or transferee in connection therewith; (b) the
validity, sufficiency or genuineness of documents, or of any endorsement(s)
thereof, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudu-
6
<PAGE> 8
lent or forged; (c) payment by the Bank in good faith made against presentation
of documents which substantially comply with the terms of the Letter of Credit;
or (d) any other circumstances whatsoever in making or failing to make payment
under the Letter of Credit; except only that the Borrower shall have a claim
against the Bank, and the Bank shall be liable to the Borrower, to the extent,
of damages suffered by the Borrower which the Borrower proves were caused by
(i) the Bank's misconduct or negligence or (ii) the Bank's wrongful failure to
pay under the Letter of Credit after the presentation to it by the Trustee or a
successor trustee under the Indenture of a sight draft and certificate strictly
complying with the terms and conditions of the Letter of Credit. In
furtherance and not in limitation of the foregoing, the Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
(f) The Borrower authorizes the Bank, without any
authorization other than that contained in this sentence, to automatically
withdraw from any account which the Borrower then has at the Bank or any
affiliate of the Bank the amounts necessary to pay any amounts due under
Sections 3 and 4 of this Agreement.
(g) In the event the Bank purchases or is deemed to have
purchased Bonds for the account of the Borrower pursuant to Sections 409 and
1201(d) of the Indenture, beneficial ownership of such Bonds (if in book-entry
form) or the certificates representing such Bonds (if in certificated form)
shall be transferred and delivered to or at the direction of the Bank. Such
Bonds are called the "Company Bonds" under the Indenture. Pursuant to Section
306 of the Indenture, the Trustee shall register all Company Bonds in the name
of the Bank as pledgee or in a manner directed by the Bank pursuant to the
provisions of the Uniform Commercial Code or cause the Bank to be registered as
the beneficial owner. Such Company Bonds shall be delivered by the Trustee to
or upon the order of the Bank as the Bank shall direct the Trustee. The
Borrower hereby pledges such Company Bonds to the Bank and grants to Bank a
security interest therein as additional collateral for the Borrower's
obligations hereunder. The Borrower also hereby grants to the Bank a security
interest in the Borrower's right, title and interest in and to the Bond
Purchase Account (as defined in the Indenture) to secure the Borrower's
obligations hereunder. Upon reimbursement of the Bank for the purchase price
paid by it for such Bonds (for the account of the Borrower) from the proceeds
of a remarketing of the Bonds in accordance with the terms of the Indenture,
then the Bank shall resell such Bonds to such purchaser and, in connection
therewith the Bank shall transfer beneficial ownership of such purchased or
remarketed Bonds (and deliver the certificates representing such purchased or
remarketed Bonds, endorsed in blank, in the case of certificated Bonds) to the
purchaser thereof; provided, however, that prior to or concurrently with any
such resale the Borrower shall pay or cause to be paid to the Bank interest on
the principal amount of such Bonds being sold,
7
<PAGE> 9
at the interest rates described in the following paragraph for the period from
the date of purchase of such Bonds by the Bank (for the account of the
Borrower) through and including the date of sale by the Bank.
In the event that the Letter of Credit has been drawn upon to fund the
Purchase Price (as defined in the Indenture) of Bonds pursuant to Section
1201(d) of the Indenture relating to Bonds tendered by the Bondholder which
have not been successfully remarketed, the Borrower, at its option, need not
immediately reimburse the Bank for such Letter of Credit draw; however, if the
Borrower elects not to immediately reimburse the Bank, the Borrower shall pay
the Bank interest on any such Letter of Credit draw amount which has not been
reimbursed at the Prime Rate, payable on the first day of each month following
such draw, from the date of the draw until the date on which the draw amount
has been reimbursed; provided, however, that each draw which was used to
purchase Bonds must be reimbursed by the Borrower to the Bank on or before the
earlier of (a) the date which is 30 days after the date of the draw under the
Letter of Credit which is used to purchase Bonds or (b) the date on which all
amounts due hereunder have been accelerated pursuant to Section 9(a) hereof.
In the event that any such draw is not reimbursed on the due date, such overdue
amount will bear interest at the Prime Rate plus two percent.
Section 4. Letter of Credit Fee.
(a) On or prior to the Issuance Date the Borrower
agrees to pay to the Bank (i) a nonrefundable commitment fee equal to one-half
percent of the Outstanding Credit on the Issuance Date, and (ii) an amount
equal to three-fourths percent (0.75%) of the Outstanding Credit on the
Issuance Date multiplied by a fraction of which the numerator is the number of
days from and including the Issuance Date through October 15, 1998, and the
denominator is 360.
(b) The Borrower further agrees to pay the Bank annually
in advance on each October 16, beginning October 16, 1998, a Letter of Credit
fee equal to three-fourths percent (0.75%) of the Outstanding Credit on such
October 16.
(c) In the event any change in any federal or state law,
rule, regulation or governmental requirement of any kind or in the rules,
regulations, interpretations (judicial or otherwise) and orders promulgated
thereunder shall impose, modify or make applicable any reserve, premium
payment, capital adequacy, special deposit or similar requirement against the
Letter of Credit or impose on the Bank any other condition regarding the Letter
of Credit, and the result of any such event shall be to increase the cost to
the Bank of issuing or maintaining the Letter of Credit, then the Borrower
shall pay to the Bank on demand from time to time such additional amounts as
shall, in the Bank's reasonable judgment, be sufficient to compensate the Bank
for such increased cost.
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<PAGE> 10
(d) Each time the Letter of Credit is transferred or
reissued, as provided by its terms, the Borrower shall pay the Bank a transfer
fee of $500 plus all of the Bank's out-of-pocket expenses, including, but not
limited to, reasonable attorneys' fees.
(e) The Borrower also agrees to pay to the Bank on each
Borrower Payment Date or, in the event the Letter of Credit has been drawn on
to cover a purchase of Bonds then on the date on which the draw has been made,
a fee for processing the draft presented to the Bank under the Letter of
Credit. The amount of the processing fee is currently $250 per draft in the
event that the documents presented strictly conform to the requirements of the
Letter of Credit and $500 per draft in the event that the documents do not so
strictly conform.
Section 5. Warranties. To induce the Bank to issue the Letter of
Credit hereunder, the Borrower represents and warrants to the Bank that:
(a) The Borrower is a corporation duly organized and
validly existing under the laws of the State of Wisconsin and is qualified to
transact business in and exists in the States of Wisconsin and Nebraska and in
each jurisdiction in which failure to do so would have a material adverse
effect on its business or financial condition with all requisite corporate
power and authority to own, operate and lease its properties and to carry on
its business as now being conducted or as presently contemplated, and no
proceedings looking toward its liquidation, dissolution or winding-up have been
commenced or contemplated.
(b) The Borrower is duly authorized under the laws of
the State of Wisconsin and all other applicable provisions of law to execute
and deliver this Agreement and the Borrower's Documents and perform its
obligations thereunder and all action on its part necessary for the valid
execution and delivery of this Agreement and the Borrower's Documents and
performance of its obligations thereunder has been duly and effectively taken
and this Agreement and each of the Borrower's Documents are valid and binding
upon the Borrower in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting creditors' rights
generally and general principles of equity regardless of whether the proceeding
is in equity or at law.
(c) All financial statements and other documents with
respect to the financial condition of the Borrower and its Subsidiaries
presented to the Bank are accurate and complete, were prepared in accordance
with generally accepted accounting principles consistently applied throughout
all periods and fairly present the financial condition and results of operation
of the Borrower and its Subsidiaries for the periods and as of the relevant
dates thereof, and there has been no subsequent material adverse change in the
business, properties or condition, financial or otherwise, of the Borrower and
its Subsidiaries,
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<PAGE> 11
taken as a whole, since the date of the latest of such financial statements.
The Borrower has no knowledge of any material liabilities of any nature not
disclosed in writing to the Bank.
(d) There are no actions, suits, investigations or
proceedings pending before any court or administrative agency or governmental
body, or to the knowledge of the Borrower, threatened against the Borrower or
any of its Subsidiaries or any of their assets which would, if adversely
determined, materially and adversely affect the financial condition of the
Borrower and its Subsidiaries, taken as a whole, or the ability of the Borrower
to perform its obligations under this Agreement or the other Borrower's
Documents.
(e) The Borrower is not in violation of any laws,
ordinances or governmental rules or regulations to which it is subject and the
Borrower has not failed to obtain any licenses, permits, franchises or other
governmental authorizations necessary for the construction, operation and
ownership of its Facilities, including the Project, or conduct of its business
which violation or failure to obtain might materially adversely affect the
financial condition, properties, prospects, profits or business of the Borrower
or its Subsidiaries, taken as a whole, or the Borrower's ability to perform its
obligations under this Agreement or the other Borrower's Documents.
(f) None of the assets or properties of the Borrower is
subject to any lien except for liens permitted under the Oilgear Loan Agreement.
(g) Neither the execution and delivery of this Agreement
or any other Borrower's Documents, nor compliance with the terms, conditions
and provisions of such documents would conflict with or result in the breach of
or constitute a default under any indenture, mortgage, lien, agreement,
contract, deed, lease, loan agreement, note, order, judgment, decree or other
instrument or restriction of any kind or character to which the Borrower is a
party or by which it is bound, or to which any of the Borrower's assets is
subject, nor is the Borrower in violation of or in default under any of the
documents described in this paragraph.
(h) The Borrower is not in default in the payment of the
principal of or interest on any of its indebtedness for borrowed money or in
default under any instrument or instruments or agreements under and subject to
which any indebtedness for borrowed money has been issued and no event has
occurred and is continuing under the provisions of any such instrument or
agreement which with the lapse of time, or with the giving of notice, or both
would constitute an event of default thereunder or an Event of Default under
this Agreement or any of the Borrower's Documents.
(i) The Borrower is not engaged and will not engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or
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"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 hereafter in effect. The Borrower
will not use any part of the proceeds of the Bonds for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation U
or X of such Board of Governors, as the same may be amended, supplemented or
modified from time to time.
(j) The Borrower is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(k) The Borrower has filed all federal, state, foreign
and local tax returns which are required to be filed, and has paid or made
provisions for the payment of all taxes owed by it and no material tax
deficiencies have been proposed or assessed against the Borrower.
(l) Neither the Borrower nor any Subsidiary is a party
to, nor so far as is known to the officers of the Borrower is there any threat
of, any litigation or administrative proceeding which, if adversely determined,
would cause any material adverse change in the assets and properties of, or any
material impairment of the right to carry on the business as now conducted by,
or would cause any material adverse effect on the financial condition of, the
Borrower and the Subsidiaries taken as a whole.
(m) All information, certificates or statements by the
Borrower given in, or pursuant to, this Agreement shall be accurate, true and
complete in all material respects when given.
(n) The Borrower has only the Subsidiaries described in
the Oilgear Loan Agreement.
(o) Except for the unfunded liabilities described in its
financial statements, the Borrower has no knowledge that (a)any plan is in
non-compliance in any material respect with the applicable provisions of ERISA;
or (b) the Borrower or any Subsidiary has incurred any "accumulated funding
deficiency" within the meaning of Section 302(a)(2) of ERISA in connection with
any Plan.
(p) With respect to any period during which the Borrower
occupies its Facilities and, to the Borrower's knowledge after reasonable
investigation, with respect to the time before the Borrower occupied its
Facilities, no Person has caused or permitted petroleum products or hazardous
substances or other materials to be stored, deposited, treated, recycled or
disposed of on, under or at the Facilities, which materials, if known to be
present, might require investigation, clean-up, removal or some other remedial
action under Environmental Laws, except those materials used in the Borrower's
business and stored and disposed of in compliance with Environmental Laws.
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(q) There are not now nor, to the Borrower's knowledge
after reasonable investigation, have there ever been tanks, containers or other
vessels on, under or at its Facilities that contained petroleum products or
hazardous substances or other materials which, if known to be present in soils
or ground water, might require investigation, clean-up, removal or some other
remedial action under Environmental Laws.
(r) To the Borrower's knowledge after reasonable
investigation, there are no conditions existing currently or likely to exist
during the term of this Agreement that would subject the Borrower to damages,
penalties, injunctive relief or clean-up costs under any Environmental Laws, or
that might require investigation, clean-up, removal or some other remedial
action by the Borrower under Environmental Laws.
(s) No judgment, decree, order or citation related to or
arising out of Environmental Laws is applicable to or binds the Borrower or its
Facilities or to the Borrower's knowledge, the owner of any of the
Facilities.
(t) All permits, licenses and approvals (the
"Approvals") required under Environmental Laws necessary for the Borrower to
operate its Facilities and for the Borrower to conduct its business as now
conducted or proposed to be conducted have been obtained and are in full force
and effect.
Section 6. Covenants. So long as the Letter of Credit is
outstanding, and thereafter until all obligations of the Borrower to the Bank
under this Agreement and the other Borrower's Documents shall have been paid
and performed in full, the Borrower covenants and agrees with the Bank as
follows:
(a) Oilgear Loan Agreement Covenants. From and after
the date hereof and so long as this Credit Agreement is in effect, except to
the extent compliance in any case or cases is waived in writing by the Bank,
the Borrower will, for the benefit of the Bank, comply with, abide by, and be
restricted by all the agreements, covenants, obligations and undertakings
contained in the Oilgear Loan Agreement, inclusive, regardless of whether any
indebtedness is now or hereafter remains outstanding thereunder, or the Oilgear
Loan Agreement shall have terminated, all of which provisions, together with
the related definitions, exhibits and ancillary provisions, are incorporated
herein by reference, mutatis mutandis, and made a part hereof to the same
extent and with the same form and effect as if the same had been herein set
forth in their entirety, and will be deemed to continue in effect for the
benefit of the Bank irrespective of whether the Oilgear Loan Agreement remains
in effect, after giving effect to any amendment or modification of such
provisions or any waiver of compliance therewith, each such amendment,
modification or waiver constituting an amendment, modification or waiver of the
provisions thereof as incorporated herein; provided, that said provisions for
purposes of the incorporation described herein shall be amended in the
following respects:
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<PAGE> 14
(i) the term "M&I" appearing in said provisions
shall mean and refer to the Bank;
(ii) the term "Default" and "Event of Default"
appearing in said provisions shall mean and refer to a Default and an
Event of Default, respectively, as defined in this Credit Agreement;
(ii) the term "Company" appearing in said
provisions shall mean and refer to the Borrower;
(iv) the term "Agreement" or "Loan Agreement"
appearing in said provisions shall mean and refer to this Credit
Agreement; and
(v) the term "herein" appearing in said
provision shall mean and refer to this Credit Agreement.
Other than as hereinabove amended, any terms contained in the
provisions of the Oilgear Loan Agreement incorporated herein which are defined
in the Credit Agreement shall have the same meaning as in the Credit Agreement.
(b) The Borrower shall furnish to the Bank such
information respecting the business, assets and financial condition of the
Borrower as the Bank may reasonably request.
(c) The Borrower shall maintain complete books and
records which fairly present the transactions and financial condition of the
Borrower and permit access by the Bank to such books and records and to its
books and records relating to the Project.
(d) The Borrower shall maintain or cause to be
maintained such insurance as may be required by Law, the Collateral Documents
and such other insurance to such extent and against such hazards and
liabilities as is customarily maintained by persons similarly situated. The
Borrower shall at all times maintain in effect and furnish the Bank with
insurance policies and proof of payment of premiums as follows:
(1) During the process of construction, policies of
builder's risk completed value nonreporting form of fire, extended
coverage, vandalism and malicious mischief hazard insurance covering
the Project in at least the amount of the estimated cost of completing
the Project.
(2) Public liability insurance cover its Facilities with
combined single limits for bodily injury, property damage and personal
injury of One Million Dollars ($1,000,000) per accident or occurrence,
with a $2,000,000 aggregate limit, with provision that such coverage
shall not be terminated without thirty (30) days' prior written notice
to the Bank, and such other special coverages as the Bank, in its
discretion, may require.
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(3) Upon substantial completion of construction of the
Project, and at all times with respect to the Borrower's other
Facilities and equipment, fire, extended coverage, vandalism and
malicious mischief hazard insurance in an amount equal to the full
replacement value of the property, with loss payable endorsements in
favor of the Bank or assigns with respect to equipment with provision
that such coverage will not be terminated without thirty (30) days'
prior written notice to the Bank.
(4) Borrower shall cause appropriate workmen's
compensation coverage to be maintained in force at all times, and upon
request of the Bank, shall furnish the Bank evidence of same.
(e) The Borrower shall not permit any Liens to be placed
on the equipment financed in whole or in part with Bond proceeds except for
Liens to the Bank and the Bond Lease Agreement.
(f) The Borrower shall not sell, lease, transfer or
otherwise dispose of any of the equipment financed in whole or in part with
Bond proceeds without receiving the prior written consent of the Bank.
(g) The Borrower shall maintain its existence as a
Wisconsin corporation and continue to be duly qualified to transact business
in the States of Wisconsin and Nebraska and all other jurisdictions in which
such qualification is necessary.
(h) The Borrower shall permit representatives of the
Bank to visit any of its properties and examine any of its books and records
at any reasonable time and as often as may be reasonably desired and
facilitate such inspection and examination. The Borrower shall permit the
Bank to discuss the affairs, finances, and accounts of the Borrower and any
Subsidiary with any of their respective officers and directors and with the
Borrower's independent accountants.
(i) The Borrower shall include, or cause to be included,
a reference to this Credit Agreement in all financial statements of the
Borrower which are furnished to stockholders, financial reporting services,
creditors and prospective creditors.
(j) The Borrower shall comply with all applicable
Environmental Laws, and orders of regulatory and administrative authorities
with respect thereto, and, without limiting the generality of the foregoing,
promptly undertake and diligently pursue to completion appropriate and legally
authorized containment, investigation and clean-up action in the event of any
release of petroleum products or hazardous materials or substances on, upon or
any real property owned, operated or within the control of the Borrower.
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<PAGE> 16
(k) The Borrower shall notify the Bank as follows:
(1) As soon as possible and in any event within
ten (10) days after the occurrence of any Default or Event of Default,
notify the Bank in writing of such Default or Event of Default and set
forth the details thereof and the action which is being taken or
proposed to be taken by the Borrower with respect thereto.
(2) Unless prohibited by applicable Law, notify
the Bank, and provide copies, promptly after receipt, of any notice,
pleading, citation, indictment, complaint, order or decree from any
federal, state or local government agency or regulatory body, or any
other source, asserting or alleging a circumstance or condition that
requires or may require a financial contribution by the Borrower or an
investigation, clean-up, removal, remedial action or other response by
or on the part of the Borrower under Environmental Laws or which seeks
damages or civil, criminal or punitive penalties from or against the
Borrower for an alleged violation of Environmental Laws; and provide
the Bank with written notice of any condition or event which would
make the warranty contained in Section 5(r) of this Agreement
inaccurate, as soon as the Borrower becomes aware of such condition or
event.
(l) Immediately after the Borrower learns of the
occurrence of any event or condition described in Section 6(k)(2) of this
Agreement, the Borrower shall, at the request of the Bank, undertake and,
within a reasonable time thereafter, obtain an Environmental Assessment, at the
Borrower's expense, and provide promptly to the Bank a written report of the
results of such Environmental Assessment, which report shall recite that the
Bank is entitled to rely thereon. Except as otherwise required by applicable
Law or as may be reasonably necessary, in the opinion of the Bank, for
evaluation and analysis by the Bank, any participating financial institution,
or their attorneys, agents and consultants, any Environmental Assessment
provided to the Bank pursuant to this Section 6(l) shall be treated as
confidential and shall not be disclosed without the prior written consent of
the Borrower.
(m) The Borrower shall not enter into any amendment,
modification or supplement to the Bond Lease Agreement, the Building Lease or
consent to any amendment, modification or supplement to the Indenture without
the prior written consent of the Bank.
(n) The Borrower shall not enter into any agreement
containing any provision which would be violated or breached by the performance
of its obligations hereunder, the Bond Lease Agreement, the Building Lease or
the Borrower's Documents, or under any instrument or document delivered or to
be delivered by it hereunder or in connection herewith.
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<PAGE> 17
(o) The Borrower shall procure and maintain all
necessary licenses, franchises, permits and other governmental authorizations
necessary for the acquisition, operation and ownership of the Borrower's
Facilities, including the Project, or operation of its business.
(p) The Borrower shall expeditiously complete the
development and construction of the Project in a good and workmanlike manner
and in compliance with all applicable statutes, ordinances and regulations, and
any restrictions of record. The Borrower shall use the proceeds of the Bonds
solely in payment of costs incurred in connection with the Project (including
using up to 2% of the Bond proceeds to finance issuing expenses). The Borrower
acknowledges and agrees that the consent of the Bank is required prior to any
disbursement of monies on deposit under the construction funds established
under the Indenture. The Bank may fail to consent to any requisition of Bond
proceeds in the event that any Default or Event of Default has occurred and is
continuing.
(q) The Borrower shall pay all reasonable expenses in
connection with or arising out of the Project and the Letter of Credit,
including, but not limited to, all hazard and liability insurance premiums, and
all out-of-pocket expenses incurred by the Bank in connection with or arising
out of this financing, including recording and filing fees and taxes, and
reasonable attorneys' fees.
(r) The Borrower shall from time to time furnish the
Bank reasonably satisfactory evidence of the Borrower's ability to pay for all
costs of completing the Project, and if the estimated cost of completing the
Project (and paying all other expenses required to be paid by the Borrower)
exceeds the then-remaining Bond proceeds, the Borrower shall demonstrate to the
satisfaction of the Bank the Borrower's ability to complete the Project.
(s) The maximum amount of Bond proceeds disbursed for
construction of the addition and improvements shall not exceed $650,000. The
maximum amount of Bond proceeds disbursed which is used to finance equipment
shall not exceed $3,350,000 or 100% of the invoice amount of the equipment
being acquired.
(t) Borrower shall pay principal payments on the Bonds
in at least the following principal amounts on or before the date indicated in
the table below. In the event that the Bonds do not have scheduled annual
principal payments, the Borrower shall give to the Trustee and any other
required Persons any necessary notice of optional redemption required under the
Indenture in order to effect the required principal payments by the required
dates. The Borrower shall pay principal payments on the Bonds in at least the
following amounts on or before the dates indicated:
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To Be Paid On Or Before: Required Principal Payment:
----------------------- --------------------------
October 1, 1998 $400,000
October 1, 1999 400,000
October 1, 2000 400,000
October 1, 2001 400,000
October 1, 2002 400,000
October 1, 2003 400,000
October 1, 2004 400,000
October 1, 2005 400,000
October 1, 2006 400,000
October 1, 2007 400,000
Section 7. Conditions to Issuance of Letter of Credit. The
obligation of the Bank to issue the Letter of Credit on the Issuance Date is
subject to the condition precedent that the Bank shall have received all of the
following, each duly executed and delivered on or before the Issuance Date, in
form and substance satisfactory to the Bank:
(a) A copy of this Agreement properly executed by the Borrower.
(b) Copies of the Security Agreement and Pledge Agreement
properly executed by the Borrower.
(c) Evidence as to due recording and filing with respect to the
Security Agreement (and/or financing statements related thereto) in all offices
necessary for the perfection of the lien and security interest of each such
document.
(d) Certified copies of all documents evidencing any necessary
corporate action, consents and governmental approvals (if any) required of the
Borrower with respect to this Agreement, the Collateral Documents, the Bond
Lease Agreement and the transactions contemplated hereby.
(e) A certificate of the Secretary or President or Vice President
of the Borrower as to (1) the incumbency and signature of the officers who have
signed this Agreement, the Borrower's Documents and other documents provided
for in connection herewith, (2) the adoption and continued effect of
resolutions of the Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Agreement, the Borrower's Documents
and any other documents provided for in connection herewith together with a
copy of the resolutions, and (3) the accuracy of a copy of the By-Laws of the
Borrower attached thereto.
(f) A copy of the Articles of Incorporation of the Borrower as
amended to date, certified as true and correct by the Department of Financial
Institutions of the State of Wisconsin as of a recent date.
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(g) Certificate of the Department of Financial Institutions of
the State of Wisconsin as to the status of the Borrower as of a recent date.
(h) The Opinion of Borrower's Counsel.
(i) Searches of the appropriate U.C.C. filing offices showing no
security interests affecting any property of the Borrower other than Permitted
Liens.
(j) Signed copies of the Bond Lease Agreement and the Indenture
and copies of all other closing documents executed and delivered in connection
with the closing of the Bonds.
(k) An Officer's Certificate, in the form of Exhibit B hereto.
(l) A construction cost breakdown schedule for the Project,
including an itemized list of estimated costs.
(m) Such additional supporting documents as the Bank may
reasonably request.
In addition, on the Issuance Date, no Event of Default or
Default shall have occurred.
Section 8. Events of Default. "Event of Default" shall mean any one
of the following:
(a) Failure by the Borrower to pay (i) on any Borrower Payment
Date the amount of any draft required to be honored by the Bank under the
Letter of Credit except drafts presented to fund purchases of Bonds under the
Indenture shall be reimbursed by the Borrower on the date on which the draft is
presented to the Bank or as otherwise provided in Section 3(g) of this Credit
Agreement with respect to reimbursement of drafts to fund Bond purchases or
(ii) any other amount due hereunder upon notification of the Borrower by the
Bank; or
(b) The Borrower shall default in the performance of any
agreement, term, provision, condition or covenant required to be performed or
observed by the Borrower under Section 6 of this Credit Agreement provided,
however, that a failure to observe any covenant incorporated herein by
reference pursuant to Section 6(a) of this Agreement shall not constitute an
Event of Default hereunder unless such failure constitutes an "Event of
Default" under the Oilgear Loan Agreement; or
(c) The Borrower shall default in the performance or observance
of any other covenant, condition or agreement in this Agreement or the
Borrower's Documents or there shall be a default in the performance of any
other Collateral Document and such default shall continue for a period of ten
(10) calendar days after written notice from the Bank to the Borrower
specifying such default and requiring it to be remedied; or
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(d) Any final judgment shall be entered against the Borrower
which, when aggregated with other final judgments against the Borrower, exceeds
$100,000 in amount, and shall remain outstanding and unsatisfied, unbonded or
unstayed after sixty (60) days from the date of entry thereof; provided that no
final judgment shall be included in the calculation under this subsection to
the extent that the claim underlying such judgment is covered by insurance and
defense of such claim has been tendered to and accepted by the insurer without
reservation; or
(e) The Borrower or any Subsidiary defaults on any obligation for
borrowed money (other than this Agreement or any indebtedness to the Bank)
beyond any applicable grace period which, when added to other obligations for
borrowed money with respect to which the Borrower or any Subsidiary has
defaulted, exceeds the aggregate amount of $100,000; or
(f) The Company or any Subsidiary defaults on any obligation for
borrowed money owed to the Bank beyond any applicable grace period or there has
occurred any Event of Default under the Oilgear Loan Agreement; or
(g) If an event of default under the Indenture or Bond Lease
Agreement or Building Lease shall occur; or
(h) Should any representation or warranty made by the Borrower
herein or in any Borrower's Document or in any document or financial statement
delivered pursuant hereto or in connection with the Bond financing prove to
have been false in any material respect as of the time when deemed made or
given; or
(i) If the Borrower or any Subsidiary shall (i) become insolvent
or take or fail to take any action which action or failure to take action
constitutes an admission of inability to pay debts as they mature, (ii) make a
general assignment for the benefit of creditors or to an agent authorized to
liquidate any substantial amount of its assets, (iii) become the subject of an
"order for relief" within the meaning of the U.S. Bankruptcy Code, (iv) file a
petition requesting an "order for relief" within the meaning of the U.S.
Bankruptcy Code or otherwise file a petition in bankruptcy or for
reorganization with respect to itself or to effect a plan or other arrangement
with creditors, (v) file an answer to a creditor's petition, admitting the
material allegations thereof, for an adjudication of bankruptcy or for
reorganization or to effect a plan or other arrangement with creditors, (vi)
apply to a court for the appointment of a receiver or custodian for any assets
or properties, (vii) have a receiver or custodian appointed for any assets or
properties with or without consent, and such receiver shall not be discharged
within 60 days after appointment or (viii) have a petition in bankruptcy filed
(or other commencement of a bankruptcy or similar proceeding shall have
occurred) against the Borrower or any Subsidiary, under applicable bankruptcy,
insolvency or similar laws as now or hereafter in effect and such petition
shall not have been dismissed or stayed within 60 days after
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<PAGE> 21
filing or if the Borrower or any Subsidiary shall adopt a plan of complete
liquidation of its assets; or
(j) The Security Agreement or the Pledge Agreement shall not be
in full force and effect with respect to all property pledged thereunder.
Section 9. Remedies.
(a) Upon the occurrence of an Event of Default, at the option of
the Bank, the Bank, by notice to the Borrower, may (i) declare the aggregate
amount of the Outstanding Credit and all other liabilities of the Borrower to
the Bank under this Agreement immediately due and payable and demand payment of
an amount equal to the largest draft which could then or thereafter be drawn
under the Letter of Credit; provided, however, that such acceleration shall be
automatic upon the occurrence of an Event of Default described in paragraph (i)
of Section 8 above and no such declaration or demand by the Bank shall be
required and/or (ii) provide notice of such Event of Default to the Trustee and
instruct the Trustee to accelerate the Lease payments and indebtedness due
under the Bond lease Agreement and the Indenture and call the Bonds for
redemption.
(b) Upon the occurrence of an Event of Default, the Bank may
proceed to protect and enforce its rights hereunder or under the Collateral
Documents or otherwise available to it under applicable law either by suit in
equity or by action at law, or both, whether for specific performance of any
covenant or agreement contained in this Agreement, the Collateral Documents, or
in aid of the exercise of any power granted herein, or proceed to obtain
judgment or any other relief whatsoever appropriate to the action or
proceeding, or proceed to enforce any other legal or equitable right hereunder
or thereunder. All powers and remedies given by this Agreement and the
Collateral Documents are cumulative and not exclusive of any other powers or
remedies available to the Bank, and no delay or omission in exercising any
power or right shall operate as a waiver of any rights, and every power and
remedy may be exercised from time to time as often as shall be deemed
appropriate by the Bank.
(c) If the Letter of Credit has expired and if all liabilities of
the Borrower to the Bank hereunder and under the Oilgear Loan Agreement have
been paid and satisfied, any excess amounts paid by the Borrower to the Bank
hereunder and any amounts acquired by the Bank through pursuit of any remedies
to it hereunder or under the Collateral Documents or under applicable law shall
be returned by the Bank to the Borrower.
Section 10. General.
(a) No delay on the part of the Bank in the exercise of any power
or right shall operate as a waiver thereof, nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof, or
the exercise of any power or
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right. The fact that the Bank has not advised the Trustee that the amount
available to be drawn under the Letter of Credit to pay interest on the Bonds
has not been reinstated or that an Event of Default under this Credit Agreement
has occurred as it is permitted to do pursuant to Section 1001(e) of the
Indenture shall not constitute a waiver of such Event of Default by the Bank
and the Bank may nevertheless exercise all its rights and pursue all its
remedies hereunder notwithstanding the fact that the Bank has not given any
such notice to the Trustee.
(b) Any notice hereunder shall be in writing and, if mailed,
shall be deemed to be given when sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed as follows: if to the
Borrower, The Oilgear Company, 2300 South 51st Street, Milwaukee, Wisconsin
53219, Attention: Thomas Price, and if to the Bank at 770 North Water Street,
Milwaukee, Wisconsin 53202, Attention: David Braam. The Borrower and the Bank
may, by written notice, received by the other, designate a further or different
address for purposes of notice hereunder.
(c) The Borrower agrees to pay on demand all reasonable out-of-
pocket costs and expenses of the Bank (including the fees and out-of-pocket
expenses of Quarles & Brady, counsel for the Bank in connection with the
preparation, execution and delivery of this Agreement, the Letter of Credit,
the Collateral Documents and all other instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection herewith
including without limitation the protection and enforcement of such rights in
any bankruptcy, reorganization or insolvency proceeding involving the Borrower
both before and after judgment. The Borrower further agrees to pay on demand
all out-of-pocket costs and expenses (including attorneys' fees and legal
expenses) and internal audit fees and accountants' fees incurred by the Bank in
connection with the maintenance and enforcement of this Agreement, the
Collateral Documents, or any other collateral security. In addition, the
Borrower agrees to pay, and to save the Bank harmless from all liability for,
any stamp or other taxes which may be payable in connection with the execution
or delivery of this Agreement, the Collateral Documents, or the issuance of the
Letter of Credit, or of any other instruments or documents provided for herein
or delivered or to be delivered hereunder or in connection herewith and the
Borrower shall pay all such taxes, assessments and charges, including interest
and penalties, and hereby indemnifies the Bank against any liability therefor.
All obligations provided for in this Section 10(c) shall survive any
termination of this Agreement.
(d) This Agreement, the Letter of Credit, and the Collateral
Documents have been, or will be, executed, delivered and issued by the Bank in
the State of Wisconsin and shall be contracts made under and governed by the
internal laws of the State of Wisconsin. If any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect under any law, the validity, legality
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<PAGE> 23
and enforceability of the remaining provisions contained herein shall not in
any way be affected or impaired thereby.
(e) This Agreement shall be binding upon the Borrower and the
Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and their respective successors and
assigns, except that the Borrower may not assign or transfer its rights under
this Agreement without the prior written consent of the Bank.
(f) The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision thereof.
(g) Should the Trustee release the Bank from any further
obligation under the Letter of Credit and if all other amounts owed by the
Borrower to the Bank hereunder until such termination have been paid, then this
Agreement shall terminate.
(h) The Bank may, at any time and from time to time, grant to any
bank or banks a participation in any part of this Agreement and the Letter of
Credit. All of the representations, warranties and covenants of the Borrower
in this Agreement are also made to any participant with the same force and
effect as if expressly so made.
Section 11. Indemnification. The Borrower indemnifies the Bank and
its executive officers, directors and officials and each person, if any, who
controls the Bank within the meaning of the Securities Act of 1933 or the
Securities Exchange Act of 1934, as amended, against claims asserted against
them if such claims arise out of or are based on (i) the assertion that the
preliminary offering circular or the offering circular used in connection with
the offering and sale of the Bonds contained, as of the date thereof, an
alleged untrue statement of a material fact or an alleged omission to state any
material fact necessary to make the statements therein not misleading, in light
of the circumstances under which they were made, except to the extent that such
statement or omission related to the Bank or financial information related to
the Bank or (ii) the failure to register the Bonds under the Securities Act of
1933, as amended, or to qualify the Indenture under the Trust Indenture Act of
1939, as amended, or to make any other required filings or registrations in
connection with the offering or sale of the Bonds. This indemnity includes
reimbursement for expenses reasonably incurred by an indemnified party in
investigating the claim and in defending it if the Borrower declines to assume
the defense.
Within a reasonable time after the commencement of any action against
an indemnified party in respect of which indemnity is to be sought against the
Borrower, such indemnified party will notify the Borrower in writing of such
action and the Borrower may assume the defense thereof, including the
employment of counsel and the payment of all expenses. If the Borrower shall
assume the defense of any such action, it shall not be liable to
22
<PAGE> 24
any indemnified party for any legal expenses incurred by such indemnified party
in such action subsequent to the assumption of the defense thereof by the
Borrower except, however, an indemnified party may retain its own counsel and
still be indemnified for the costs and expenses of such counsel despite an
assumption of the defense by the Borrower, if the Borrower's counsel is unable
to represent the indemnified party due to a conflict of interest or the
Borrower's counsel fails (by reason of delays, failure to assert defenses to
which the indemnified party is entitled or otherwise) to adequately defend the
action. The Borrower shall not be liable for any settlement of any such action
effected without its consent, but if settled with the consent of the Borrower
or if there is a final judgment for the plaintiff in any such action, the
Borrower will indemnify and hold harmless any indemnified person from and
against any loss or liability by reason of such settlement or judgment.
The Borrower hereby indemnifies, agrees to defend and holds the Bank
harmless from and against all loss, liability, damage and expense, including
costs associated with administrative and judicial proceedings and reasonable
attorneys' fees, suffered or incurred by the Bank on account of: (i) the
Borrower's failure to comply with any Environmental Law, or any order of any
regulatory or administrative authority with respect thereto; (ii) any release
of petroleum products or hazardous materials or substances on, upon or into
real property owned, operated or controlled by the Borrower; and (iii) any and
all damage to natural resources or real property or harm or injury to Persons
resulting or alleged to have resulted from any failure to comply or any release
of petroleum products or hazardous materials or substances as described in
clauses (i) and (ii) above.
The Borrower hereby grants and licenses to the Bank full and complete
access, for itself, its employees and representatives (including without
limitation independent engineering consultants retained by the Bank), to the
Facilities, and to the books and records of the Borrower relating to the
Facilities, in order to conduct an Environmental Assessment from time to time
as the Bank may deem reasonably necessary. The license granted by this
paragraph is coupled with an interest and irrevocable. The Borrower shall
reimburse the Bank for the costs and expenses associated with any Environmental
Assessment obtained by the Bank under this paragraph. The Borrower and the
Bank agree that there is no adequate remedy at law for the damage that the Bank
might sustain for failure of the Borrower to permit the Bank to exercise and
enjoy the license granted by this paragraph and, accordingly, the Bank shall be
entitled at its option to the remedy of specific performance to enforce such
license.
The indemnity agreements contained in this Section shall survive
delivery of the Bonds and the Letter of Credit and shall survive any
investigation made by or on behalf of any indemnified party.
23
<PAGE> 25
SECTION 12. WAIVER OF RIGHT TO JURY TRIAL. THE BANK AND BORROWER
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS CREDIT
AGREEMENT OR ANY COLLATERAL DOCUMENTS OR WITH RESPECT TO THE TRANSACTION
CONTEMPLATED HEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND,
THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH
CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
Dated at Milwaukee, Wisconsin as of the date and year first above
written.
THE OILGEAR COMPANY
By: [SIG]
-------------------------------
Its Vice President of Finance and
Secretary
M&I MARSHALL & ILSLEY BANK
By: [SIG]
-------------------------------
Its Senior Vice President
Attest: [SIG]
---------------------------
Its Vice President
This instrument was drafted by Attorney Ann M. Murphy, Quarles & Brady,
411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
24
<PAGE> 1
EXECUTION COPY
TAX REGULATORY AGREEMENT
Among
NORWEST BANK WISCONSIN, NATIONAL ASSOCIATION,
as Trustee
COUNTY OF DODGE, NEBRASKA,
as Issuer
and
THE OILGEAR COMPANY,
as Borrower
Dated as of October 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Reliance on Borrower's Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE II
CERTAIN REPRESENTATIONS BY BORROWER
Section 2.1. Description of the Project and Description of the Facilities . . . . . . . . . . . . . . . . 12
Section 2.2. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.3. Prior Issues and $40 Million Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.4. Federal Tax Return Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.5. Composite Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.6. Prohibited Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.7. No Composite Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.8. Acquisition of Existing Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.9. Land Acquisition Limit and No Acquisition of Farmland . . . . . . . . . . . . . . . . . . . . 15
Section 2.10. Representations by Borrower for Purposes of IRS Form 8038 . . . . . . . . . . . . . . . . . . 15
ARTICLE III
USE OF BOND PROCEEDS
Section 3.1. Anticipated Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.2. Certification as to Costs of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.3. Change in Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV
ARBITRAGE
Section 4.1. Arbitrage Representations and Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.2. Arbitrage Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.3. Calculation of Rebate Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.4. Payment to United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.5. Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.6. Rebate Analyst . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 3
<TABLE>
ARTICLE V
<S> <C>
COMPLIANCE WITH CODE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI
TERM OF TAX REGULATORY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 8.2. Remedies for an Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
EXHIBIT A-1--Sources and Uses of Funds
EXHIBIT B-1--Form of Dealer Certification of Bona Fide
Bid Price of a Certificate of Deposit
EXHIBIT B-2--Form of Dealer Certification for a Certificate of Deposit
For Which No Active Secondary Market Exists
EXHIBIT B-3--Form of Provider Certification for a Certificate of Deposit
EXHIBIT B-4--Form of Provider Certification for an Investment Contract
EXHIBIT B-5--Form of Borrower's Certification for a Certificate of Deposit
Involving Three Bids
EXHIBIT B-6--Form of Borrower's Certification for an Investment Contract
Involving Three Bids
EXHIBIT C--Useful Life of the Property Financed or Refinanced by the Bonds
EXHIBIT D--Declaration of Official Intent
ii
<PAGE> 4
TAX REGULATORY AGREEMENT
THIS TAX REGULATORY AGREEMENT is made and dated as of October 1, 1997 (this
"Tax Regulatory Agreement") by and among THE COUNTY OF DODGE, NEBRASKA and its
successors or assigns ("Issuer"); NORWEST BANK WISCONSIN, NATIONAL ASSOCIATION,
a national banking association, and its successors and assigns ("Trustee"); and
THE OILGEAR COMPANY, a Wisconsin corporation, and its successors or assigns
("Borrower");
W I T N E S S E T H :
WHEREAS, pursuant to and in accordance with the provisions of the Nebraska
Industrial Development Act, Chapter 13, Article 11, Reissue Revised Statutes of
Nebraska, 1943, as amended (the "Act"), Issuer proposes to finance by the
issuance of industrial revenue bonds of Issuer the cost of acquisition and
improvement of a portion of an addition to Borrower's existing hydraulic pump
manufacturing facilities located in Dodge County, Nebraska and the acquisition
and installation of equipment for such facilities (the "Project"), which
portion of the addition and equipment constitute a "project" within the meaning
of the Act and which addition is being constructed within the jurisdiction of
Issuer and will be operated by Borrower; and
WHEREAS, Issuer has undertaken to finance the acquisition and improvement of
the Project by leasing the Project to Borrower and providing the proceeds from
the sale of the Bonds to Borrower pursuant to the provisions of a Lease
Agreement dated as of the date hereof (the "Agreement") between Issuer and
Borrower; and
WHEREAS, it has been determined that the estimated amount necessary to
finance the cost of the acquisition and improvement of the Project, including
necessary expenses incidental thereto, will require the issuance, sale and
delivery of County of Dodge, Nebraska Variable Rate Demand Industrial
Development Revenue Bonds, Series 1997 (The Oilgear Company Project) in the
principal amount of $4,000,000 (the "Bonds") as provided in a Trust Indenture
dated as of the date hereof (the "Indenture") which, together with the issuance
of the Bonds, has been in all respects duly and validly authorized by
resolution of the Board of Supervisors of Issuer adopted October 22, 1997
pursuant to the Act; and
WHEREAS, this Tax Regulatory Agreement has been entered into by Issuer,
Borrower and Trustee to ensure compliance with the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and the Income Tax Regulations
promulgated thereunder (the "Regulations"); and
WHEREAS, to ensure that interest on the Bonds will be and remain excludable
from gross income under the Code, the restrictions listed in this Tax
Regulatory Agreement must be satisfied;
<PAGE> 5
NOW THEREFORE, Issuer, Borrower and Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. The following words and phrases shall have the
following meanings. Any capitalized word or term used herein but not defined
herein shall have the same meaning given in the hereinafter defined Agreement.
"Abusive Arbitrage Device" means any action which has the effect of (a)
enabling Issuer or Borrower to exploit the difference between taxable and
tax-exempt interest rates to obtain a material financial advantage; and (b)
overburdening the tax-exempt bond market as defined in Section 1.148-10 of the
Regulations.
"Accounting Method" means both the overall method used to account for the
Gross Proceeds of the Bonds (e.g., the cash method or a modified accrual
method) and the method used to account for or allocate any particular item
within that overall accounting method (e.g., accounting for Investments,
Expenditures, allocations to and from different sources and particular items of
the foregoing).
"Average Economic Life" means the average reasonably expected economic life
of the Project as defined in Section 147(b) of the Code.
"Average Maturity" means the average maturity of the Bonds as defined in
Section 147(b) of the Code.
"Bond Year" means the period commencing October 1 of each calendar year and
terminating on September 30 of the immediately succeeding calendar year during
the term of the Bonds, except that the first Bond Year shall commence on the
Date of Issuance and end on September 30, 1998 (unless a different period is
required by the Regulations or selected by Borrower pursuant to the
Regulations).
"Bond Yield" means the Yield of the Bonds calculated in accordance with
Section 1.148-4 of the Regulations.
"Capital Expenditure" means any cost of a type that is for the acquisition,
construction, reconstruction or improvement of land or property of a character
subject to the allowance for depreciation. For example, costs incurred to
acquire, construct, reconstruct or improve land, buildings and equipment
generally are Capital Expenditures. Whether an expenditure is a capital
expenditure is determined at the time the expenditure is paid with respect to
the property. Future changes in law do not affect whether an expenditure is a
capital expenditure.
2
<PAGE> 6
"Capital Project" means all Capital Expenditures that carry out the
governmental purpose of the Bonds. For example, a Capital Project may include
Capital Expenditures for one or more building improvements or equipment, plus
related capitalized interest paid or accrued prior to the in-service date for
the Capital Project.
"Class of Investments" means one of the following, each of which represents a
different Class of Investments:
(a) each category of yield restricted Purpose Investment and Program
Investment, as defined in Section 1.148-l(b), that is subject to a different
definition of materially higher Yield under Section 1.148-2(d)(2);
(b) Yield restricted Nonpurpose Investments; and
(c) all other Nonpurpose Investments.
"Computation Date" means an Installment Computation Date or the Final
Computation Date.
"Computation Date Credit" means on the last day of each Bond Year during
which there are Gross Proceeds subject to the rebate requirement of Article IV
hereof, and on the Final Computation Date, the amount of $1,000.
"Consistently Applied" means applied uniformly within a fiscal period and
between fiscal periods to account for Gross Proceeds of an issue and any
amounts that are in a commingled fund.
"Costs of Issuance" means all costs incurred in connection with the issuance
or incurrence of the Bonds, other than fees paid to or on behalf of credit
enhancers as fees for "qualified guarantees" as defined in Section 1.148-4(f)
of the Regulations or to Issuer as a portion of its higher Yield permitted on
the Agreement under Section 1.148-2(d)(2) of the Regulations. Examples of Costs
of Issuance include (but are not limited to):
(a) underwriter's spread (whether realized directly or derived through
purchase of the Bonds at a discount below the price at which a substantial
number of the Bonds are sold to the public);
(b) counsel fees (including bond counsel, special tax counsel,
underwriter's counsel, issuer's counsel, borrower's counsel, trustee's
counsel, and any other specialized counsel fees incurred in connection with
the issuance or incurrence of the Bonds);
(c) financial advisor fees incurred in connection with the issuance or
incurrence of the Bonds;
3
<PAGE> 7
(d) rating agency fees (except for any such fee that is paid in
connection with or as a part of the fee for credit enhancement of the Bonds);
(e) trustee fees incurred in connection with the issuance or
incurrence of the Bonds;
(f) accountant fees incurred in connection with the issuance or
incurrence of the Bonds;
(g) printing costs (for the Bonds and of the preliminary and final
Official Statements);
(h) costs incurred in connection with the required public approval
process (e.g., publication costs for public notices generally and costs of
the public hearing); and
(i) Issuer fees to cover administrative costs and expenses incurred in
connection with the issuance or incurrence of the Bonds.
"Current Outlay of Cash" means an outlay reasonably expected to occur not
later than five banking days after the date as of which the allocation of Gross
Proceeds to the Expenditure is made.
"Date of Issuance" means October 30, 1997.
"Discharge" means, with respect to the Bonds, the date on which all amounts
due with respect to the Bonds are actually and unconditionally due, if cash is
available at the place of payment, and no interest accrues with respect to such
Bonds after such date.
"Economic Accrual Method" (also known as the constant interest method or
actuarial method) means the method of computing Yield that is based on the
compounding of interest at the end of each compounding period.
"Exempt person" means any organization described in Section 501(c)(3) of the
Code or a state or a local governmental unit of a state.
"Expenditure" means a book or record entry which allocates Proceeds of the
Bonds in connection with a Current Outlay of Cash.
"Fair Market Value" means the price at which a willing buyer would purchase
an Investment from a willing seller in a bona fide, arm's-length transaction.
Fair Market Value generally is determined on the date on which a contract to
purchase or sell the Nonpurpose Investment becomes binding (i.e., the trade
date rather than the settlement date). Except as otherwise provided in this
definition, an Investment that is not of a type traded on an established
securities market (within the meaning of Section 1273 of the Code), is
rebuttably presumed to
4
<PAGE> 8
be acquired or disposed of for a price that is not equal to its Fair Market
Value. The Fair Market Value of a United States Treasury obligation that is
purchased directly from the United States Treasury is its purchase price. The
following guidelines shall apply for purposes of determining the Fair Market
Value of the obligations described below:
(a) Certificates of Deposit. The purchase of certificates of deposit
with fixed interest rates, fixed payment schedules and substantial penalties
for early withdrawal will be deemed to be an Investment purchased at its Fair
Market Value on the purchase date if the Yield on the certificate of deposit
is not less than:
(i) the Yield on reasonably comparable direct obligations of the
United States; and
(ii) the highest Yield that is published or posted by the
provider to be currently available from the provider on reasonably
comparable certificates of deposit offered to the public.
(b) Guaranteed Investment Contract. A Guaranteed Investment
Contract is a Nonpurpose Investment that has specifically negotiated
withdrawal or reinvestment provisions and a specifically negotiated interest
rate, and also includes any agreement to supply. Investments on two or more
future dates (e.g., a forward supply contract). The purchase price of a
Guaranteed Investment Contract is treated as its Fair Market Value on the
purchase date if:
(i) Borrower makes a bona fide solicitation for a specified
Guaranteed Investment Contract and receives at least three bona fide
bids from providers that have no material financial interest in the
issue (e.g., as underwriters or brokers);
(ii) Borrower purchases the highest-Yielding Guaranteed
Investment Contract for which a qualifying bid is made (determined net
of broker's fees);
(iii) the Yield on the Guaranteed Investment Contract
(determined net of broker's fees) is not less than the Yield then
available from the provider on reasonably comparable Guaranteed
Investment Contracts, if any, offered to other persons from a source of
funds other than gross proceeds of tax-exempt bonds;
(iv) the determination of the terms of the Guaranteed
Investment Contract takes into account as a significant factor
Borrower's reasonably expected drawdown schedule for the amounts to be
invested, exclusive of amounts deposited in debt service funds and
reasonably required reserve or replacement funds;
(v) the terms of the Guaranteed Investment Contract, including
collateral security requirements, are reasonable; and
5
<PAGE> 9
(vi) the obligor on the Guaranteed Investment Contract certifies
the administrative costs that it is paying (or expects to pay) to third
parties in connection with the Guaranteed Investment Contract.
"Final Computation Date" means the date the Bonds are Discharged.
"Future Value" means the Value of a Receipt or Payment at the end of any
interval as determined by using the Economic Accrual Method and equals the
Value of that Payment or Receipt when it is paid or received (or treated as
paid or received), plus interest assumed to be earned and compounded over the
period at a rate equal to the Yield on the Bonds, using the same compounding
interval and financial conventions used to compute the Yield on the Bonds.
"Gross Proceeds" means any Proceeds or Replacement Proceeds of the Bonds.
"Installment Computation Date" means the last day of the fifth Bond Year and
each succeeding fifth Bond Year as stated in Section 4.1 hereof.
"Investment" means any Purpose Investment or Nonpurpose Investment, including
any other tax-exempt bond.
"Investment Proceeds" means any amounts actually or constructively received
from investing Proceeds of the Bonds.
"Investment-Type Property" means any property, other than property described
in Section 148(b)(2)(A), (B), (C) or (E) of the Code that is held principally
as a passive vehicle for the production of income. Except as otherwise
provided, a prepayment for property or services is Investment-Type Property if
a principal purpose for prepaying is to receive an Investment return from the
time the prepayment is made until the time payment otherwise would be made. A
prepayment is not Investment-Type Property if:
(a) the prepayment is made for a substantial business purpose other
than Investment return and the issuer has no commercially reasonable
alternative to the prepayment, or
(b) prepayments on substantially the same terms are made by a
substantial percentage of persons who are similarly situated to the issuer
but who are not beneficiaries of tax-exempt financing.
"Issue Price" means, except as otherwise provided, issue price as defined in
Sections 1273 and 1274 of the Code. Generally, the Issue Price of bonds that
are publicly offered is the first pace at which a substantial amount of the
bonds is sold to the public. Ten percent is a substantial amount. The public
does not include bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters or wholesalers. The Issue Price does
not change if part of the issue is later sold at a different price. The Issue
Price of bonds
6
<PAGE> 10
that are not substantially identical is determined separately. The Issue Price
of bonds for which a bona fide public offering is made is determined as of the
sale date based upon reasonable expectations regarding the initial public
offering price. If a bond is issued for property, the applicable federal
tax-exempt rate is used in lieu of the federal rate in determining the Issue
Price under Section 1274 of the Code. The issue price of bonds may not exceed
their Fair Market Value as of the sale date. With respect to the Bonds, the
Issue Price is $ .
"Manufacturing Facility" means a Capital Project that is used in the
manufacturing or production of tangible personal property (including the
processing resulting in a change in the condition of such property) including
facilities that are directly related and ancillary to a Manufacturing Facility
if such directly related and ancillary facilities are located on the same site
as the Manufacturing Facility and not more than 25% of the proceeds of an issue
that finances the Manufacturing Facility and such directly related and
ancillary facilities are used to provide such facilities.
"Net Sale Proceeds" means Sale Proceeds, less the portion of those Sale
Proceeds invested in a reasonably required reserve or replacement fund under
Section 148(d) of the Code and as part of a minor portion under Section 148(e)
of the Code.
"1954 Code" means the Internal Revenue Code of 1954, as amended, as in effect
on the effective date of the Code.
"Nonpurpose Investment" means any security, obligation, annuity contract or
Investment type property as defined in Section 148(b) of the Code, including
"specified private activity bonds" as defined in Section 57(a)(5)(c) of the
Code, but excluding all other obligations the interest on which is excludable
from federal gross income. The term "Nonpurpose Investment" does not include
Borrower's obligations to make payments to Issuer pursuant to the provisions of
the Agreement.
"Payments" means, for purposes of computing the Rebate Amount, (a) amounts
actually or constructively paid to acquire a Nonpurpose Investment (or treated
as paid to a commingled fund); (b) for a Nonpurpose Investment that is
allocated to an issue on a date after it is actually acquired (e.g., an
Investment that becomes allocable to Transferred Proceeds or to Replacement
Proceeds) or that becomes subject to the rebate requirement of the Code on a
date after it is actually acquired (e.g., an Investment allocated to a
reasonably required reserve or replacement fund for a construction issue at the
end of the two-year spending period), the Value of that Investment on that
date; (c) for a Nonpurpose Investment that was allocated to an issue at the end
of the preceding computation period, the Value of that Investment at the
beginning of the computation period; (d) on the last day of each Bond Year
during which there are amounts allocated to Gross Proceeds of an issue that are
subject to the rebate requirement of the Code, and on the final maturity date,
a Computation Date Credit; and (e) Yield Reduction Payments on Nonpurpose
Investments made pursuant to Section 1.148-5(c) of the Regulations. For
purposes of computing the Yield on an Investment (including the Value of the
Investment), Payment means amounts to be actually or constructively paid to
acquire the Investment;
7
<PAGE> 11
provided, however, that payments made by a conduit borrower, such as Borrower,
are not treated as paid until the conduit borrower ceases to receive the
benefit of earnings on those amounts. Payments on investments, including
Guaranteed Investment Contracts, are adjusted for Qualified Administrative
Costs of acquiring a Nonpurpose Investment.
"Pre-Issuance Accrued Interest" means amounts representing interest that
accrued on an obligation for a period not greater than one year before the Date
of Issuance but only if those amounts are paid within one year after the Date
of Issuance.
"Principal User" means a person who is a principal owner, principal lessee, a
principal output purchaser or "other" principal user and any Related Person to
a Principal User. A principal owner is a person who at any time holds more
than a 10% ownership interest (by value) in a facility or, if no person holds
more than a 10% ownership interest, then the person (or persons in the case of
multiple equal owners) who holds the largest ownership interest in the
facility. A person is treated as holding an ownership interest if such person
is an owner for federal income tax purposes generally. A principal lessee is a
person who at any time leases more than 10% of the facility (disregarding
portions used by the lessee under a short-term lease). The portion of a
facility leased to a lessee is generally determined by reference to its fair
rental value. A short-term lease is one which has a term of one year or less,
taking into account all options to renew and reasonably anticipated renewals.
A principal output purchaser is any person who purchases output of a facility,
unless the total output purchased by such person during each one-year period
beginning with the date such facility is facility's output during each such
period. An "other" principal user is a person who enjoys a use of a facility
(other than a short-term use) in a degree comparable to the enjoyment of a
principal owner or a principal lessee, taking into account all the relevant
facts and circumstances, such as the person's participation in control over use
of such facility or its remote or proximate geographic location.
"Prior Issues" means any issue of tax-exempt obligations (whether or not the
issuer of each issue is the same) to which Section 103(b)(6) of the 1954 Code
or Section 144(a) of the Code applies.
"Proceeds" means any Sale Proceeds, Investment Proceeds and Transferred
Proceeds of an issue. Proceeds do not include, however, amounts actually or
constructively received with respect to a Purpose Investment that are properly
allocable to the immaterially higher Yield under Section 1.148-2(d) of the
Regulations or Section 143(g) of the Code or to Qualified Administrative Costs
recoverable under Section 1.148-5(e) of the Regulations.
"Project" has the meaning given to such term in the preambles hereto.
"Purpose Investment" means an Investment that is acquired to carry out the
governmental purpose of an issue. The Agreement constitute Purpose
Investments.
"Qualified Administrative Costs" means reasonable, direct administrative
costs, other than carrying costs, such as separately stated brokerage or
selling commissions, but not legal and
8
<PAGE> 12
accounting fees, recordkeeping, custody and similar costs. General overhead
costs and similar indirect costs of the issuer such as employee salaries and
office expenses and costs associated with computing the Rebate Amount are not
Qualified Administrative Costs. In general, administrative costs are not
reasonable unless they are comparable to administrative costs that would be
charged for the same Investment or a reasonably comparable Investment if
acquired with a source of funds other than Gross Proceeds of tax-exempt bonds.
"Qualified Hedging Transaction" means a contract which meets the requirements
of Section 1.148-4(h)(2) of the Regulations.
"Rebate Amount" means the excess of the Future Value of all Receipts on
Nonpurpose Investments over the Future Value of all the Payments on Nonpurpose
Investments. Future Value is computed as of the Computation Date. Rebate
Amount additionally includes any penalties and interest on underpayments
reduced for recoveries of overpayments.
"Rebate Analyst" shall mean the entity chosen by Borrower and Issuer in
accordance with Section 4.6 hereof to determine the amount of required deposits
to the Rebate Fund, if any.
"Rebate Fund" means the Rebate Fund established pursuant to the Indenture.
"Receipts" means, for purposes of computing the Rebate Amount, (a) amounts
actually or constructively received from a Nonpurpose Investment (including
amounts treated as received from a commingled fund), such as earnings and
return of principal; (b) for a Nonpurpose Investment that ceases to be
allocated to an issue before its disposition or redemption date (e.g., an
Investment that becomes allocable to Transferred Proceeds of another issue or
that ceases to be allocable to the issue pursuant to the universal cap under
Section 1.148-6 of the Regulations) or that ceases to be subject to the rebate
requirement of the Code on a date earlier than its disposition or redemption
date (e.g., an Investment allocated to a fund initially subject to the rebate
requirement of the Code but that subsequently qualifies as a bona fide debt
service fund), the Value of that Nonpurpose Investment on that date; and (c)
for a Nonpurpose Investment that is held at the end of a computation period,
the Value of that Investment at the end of that period. For purposes of
computing Yield on an Investment, Receipts means amounts to be actually or
constructively received from the Investment, such as earnings and return of
principal (including the Value of an Investment). Receipts on Investments,
including Guaranteed Investment Contracts, are adjusted (reduced) for Qualified
Administrative Costs.
"Recomputation Event" means a transfer, waiver, modification or similar
transaction of any right that is part of the terms of the Bonds or a Qualified
Hedging Transaction is entered into, or terminated, in connection with the
Bonds.
"Regulation" or "Regulations" means the temporary, proposed or final Income
Tax Regulations promulgated by the Department of the Treasury and applicable to
the Bonds, including Sections 1.148-0 through 1.148-11, Section 1.149 and
Sections 1.150-1 and 1.150-2.
9
<PAGE> 13
"Related Person" means any person if (a) the relationship to such person
would result in a disallowance of loss under Section 267 or 707(b) of the Code
or (b) such person is a member of the same controlled group of corporations (as
defined in Section 1.563(a) of the Code, except that "more than 50%" shall be
substituted for "at least 80%" each place it appears therein).
"Replacement Proceeds" means amounts which have a sufficiently direct nexus
to the Bonds or to the governmental purpose of the Bonds to conclude that the
amounts would have been used for that governmental purpose if the Proceeds of
the Bonds were not used or to be used for that governmental purpose, as more
fully defined in Section 1.148-l(c) of the Regulations.
"Sale Proceeds" means any amounts actually or constructively received from
the sale of the Bonds, including amounts used to pay underwriters' discount or
compensation and accrued interest other than Pre-Issuance Accrued Interest.
"SLGS" means United States Treasury Certificates of Indebtedness, Notes and
Bonds State and Local Government Series.
"Special Tax Counsel" means a law firm of nationally recognized bond counsel
who is requested to deliver its approving opinion with respect to the issuance
or incurrence of and the exclusion from federal income taxation of interest on
the Bonds.
"Tax Regulatory Agreement" means this Tax Regulatory Agreement.
"Test-Period Beneficiary" means any person who is an owner or a Principal
User of facilities financed by an issue or issues of tax-exempt obligations
issued under the 1954 Code or the Code during the three-year period beginning
on the later of the date such facilities were placed in service or the date of
issuance for such issue or issues of tax-exempt obligations. For purposes of
determining whether a person is a Test-Period Beneficiary, all persons who are
Related Persons shall be treated as one person.
"Transferred Proceeds" means Proceeds of a refunding issue which become
transferred proceeds of a refunding issue and cease to be Proceeds of a prior
issue when Proceeds of the refunding issue discharge any of the outstanding
principal amount of the prior issue. The amount of Proceeds of the prior issue
that become transferred proceeds of the refunding issue is an amount equal to
the Proceeds of the prior issue on the date of that discharge multiplied by a
fraction:
(a) the numerator of which is the principal amount of the prior issue
discharged with Proceeds of the refunding issue on the date of that
discharge; and
(b) the denominator of which is the total outstanding principal
amount of the prior issue on the date immediately before the date of that
discharge.
10
<PAGE> 14
"Universal Cap" means the Value of all outstanding Bonds.
"Value" means Value as determined under Section 1.1484(e) of the Regulations
for the Bonds and Value determined under Section 1.148-5(d) of the Regulations
for an Investment.
"Yield" means, for purposes of determining the Yield on the Bonds, the Yield
computed under the Economic Accrual Method using consistently applied
compounding intervals of not more than one year. A short first compounding
interval and a short last compounding interval may be used. Yield is expressed
as an annual percentage rate that is calculated to at least four decimal places
(e.g., 5.2525%). Other reasonable, standard financial conventions, such as the
30 days per month/360 days per year convention, may be used in computing Yield
but must be consistently applied. The Yield on an issue that would be a
Purpose Investment (absent Section 148(b)(3)(A) of the Code) is equal to the
Yield on the conduit financing issue that financed that Purpose Investment.
The Yield on a fixed yield issue is the discount rate that, when used in
computing the present Value as of the issue date of all unconditionally payable
payments of principal, interest and fees for qualified guarantees on the issue
and amounts reasonably expected to be paid as fees for qualified guarantees on
the issue, produces an amount equal to the present Value, using the same
discount rate, of the aggregate issue price of bonds of the issue as of the
issue date. In the case of obligations purchased or sold at a substantial
discount or premium, the Regulations prescribe certain special Yield
calculation rules. For purposes of determining the Yield on an Investment, the
Yield computed under the Economic Accrual Method, using the same compounding
interval and financial conventions used to compute the Yield on the Bonds.
The Yield on an Investment allocated to the Bonds is the discount rate that,
when used in computing the present Value as of the date the Investment is first
allocated to the issue of all unconditionally payable receipts from the
Investment, produces an amount equal to the present Value of all
unconditionally payable payments for the Investment. The Yield on an
Investment shall not be adjusted by any hedging transaction entered into in
connection with such Investment unless Issuer, Trustee and Borrower have
received an opinion of Special Tax Counsel that such an adjustment is permitted
by the Regulations. Yield shall be calculated separately for each Class of
Investments.
"Yield Reduction Payment" means a payment to the United States with respect
to an Investment which is treated as a Payment for that Investment that reduces
the Yield on that Investment in accordance with Section 1.148-5(c) of the
Regulations. Yield Reduction Payments include Rebate Amounts paid to the
United States
Section 1.2. RELIANCE ON BORROWER'S INFORMATION. Special Tax Counsel,
Trustee and Issuer shall be permitted to rely upon the contents of any
certification, document or instructions provided pursuant to this Tax
Regulatory Agreement and shall not be responsible or liable in any way for the
accuracy of their contents or the failure of Borrower to deliver any required
information.
11
<PAGE> 15
ARTICLE II
CERTAIN REPRESENTATIONS BY BORROWER
Section 2.1. DESCRIPTION OF THE PROJECT AND DESCRIPTION OF THE FACILITIES.
(a) Borrower hereby represents and warrants for the benefit of Issuer and
Trustee that the description of the Project set forth in the preambles hereto
and in Exhibit A to the Agreement are true and accurate.
(b) Borrower represents and covenants for the benefit of Issuer and Trustee
that the Project constitutes a Manufacturing Facility or facilities directly
related and ancillary to such Manufacturing Facility.
(c) The portion of the Project which constitutes office space serves solely
the manufacturing portion of the Project, is on the same site as the
manufacturing portion of the Project and is financed with not more than 25% of
the net Proceeds of the Bonds.
Section 2.2. CAPITAL EXPENDITURES. (a) During the period beginning three
years before the Date of Issuance and ending on the Date of Issuance, the
aggregate amount of Capital Expenditures (including any expenditure that was or
could have been treated as a Capital Expenditure under any rule or election
under the Code) paid or incurred, excluding those to be paid or reimbursed with
Proceeds of the Bonds, with respect to (i) facilities located in the
incorporated municipality (or unincorporated county) in which the Project is
located and (ii) the Principal User of which was or is Borrower, any other
Principal User of the Project or any Related Person thereto, was $5,201,664, as
set forth on Exhibit E hereto.
(b) During the period beginning on the Date of Issuance and ending on the
date three years after the Date of Issuance, the aggregate amount of Capital
Expenditures (including any expenditure that was or could have been treated as
a Capital Expenditure under any rule or election under the Code) expected to be
incurred, excluding those to be paid or reimbursed with Proceeds of the Bonds,
with respect to (i) facilities located in the incorporated municipality (or
unincorporated county) in which the Project is located and (ii) the Principal
User of which was or is Borrower, any other Principal User of the Project or
any Related Person thereto, is anticipated to be $725,000, as set forth on
Exhibit E hereto.
(c) The amount of capitalized interest to be paid on all financings for the
Project excluding that paid from Proceeds of the Bonds is $ -0- . The amount
of capitalized interest to be paid in connection with the Project paid from
Proceeds of the Bonds is $ -0- .
(d) Borrower covenants that the sum of (i) the Capital Expenditures
described in paragraph (a) above plus (ii) the actual Capital Expenditures to
be incurred as described in paragraphs (b) and (c) plus (iii) the aggregate
outstanding amount of all $1,000,000 or $10,000,000 exempt small issues set
forth in Section 2.3(a) below plus (iv) the greater of the Issue Price or the
par amount of the Bonds shall not exceed $10,000,000.
12
<PAGE> 16
(e) The information contained in subsections (a), (b), (c) and (d) above,
which has been provided to Issuer to enable Issuer to elect to qualify the
Bonds for the $10,000,000 exemption afforded by Section 144(a)(4) of the Code,
is true, accurate and complete. Issuer hereby elects to issue the Bonds
pursuant to the exemption afforded by Section 144(a)(4) of the Code.
(f) The Project will not be sold, leased or the use otherwise transferred to
a person other than Borrower, any other Principal User of the Project or any
Related Person thereto identified as of the Date of Issuance during the
three-year period ending three years after the Date of Issuance, unless
Borrower has received an approving opinion of Special Tax Counsel to the effect
that such sale, lease or transfer will not adversely affect the tax-exempt
status of the Bonds.
Section 2.3. PRIOR ISSUES AND $40 MILLION LIMIT. (a) The aggregate face
amount of all Prior Issues outstanding as of the Date of Issuance, the proceeds
of which were or will be used to any extent with respect to facilities located
in the incorporated municipality (or unincorporated county) in which the
Project is located and the Principal User of the Project is Borrower, any other
Principal User of the Project or any Related Person thereto, is $-0-.
(b) The aggregate face amount of all Prior Issues and all exempt facility
bonds, qualified redevelopment bonds and industrial development bonds as
defined in the 1954 Code or the Code outstanding as of the Date of Issuance,
the proceeds of which were used by or were allocated to Borrower, any other
Principal User of the Project or any Related Person thereto as a Test-Period
Beneficiary is $ -0- .
Section 2.4. FEDERAL TAX RETURN INFORMATION. The Project has a SIC Code
Number of 3594 and Borrower files its federal income tax returns at the
Internal Revenue Service Center in Kansas City, Missouri. The federal employer
identification number of Borrower is 39-0514580.
Section 2.5. COMPOSITE ISSUE. (a) During the period beginning 15 days prior
to the sale date of the Bonds and ending 15 days thereafter none of Borrower,
any other Principal User of the Project or any Related Person thereto sold,
guaranteed, arranged, participated in, assisted with, borrowed the proceeds of,
or leased facilities financed by obligations issued under Section 103 of the
1954 Code or Section 103 of the Code by any state or local governmental unit or
any constituted authority empowered to issue obligations by or on behalf of any
state or local governmental unit.
(b) During the period commencing on the Date of Issuance and ending 15 days
thereafter, there will be no obligations sold or issued under Section 103 of
the 1954 Code or the Code that are guaranteed by Borrower, any other Principal
User of the Project or any Related Person or which are issued with the
assistance or participation of, or by arrangement with, Borrower, any other
Principal User of the Project or any Related Person without the written opinion
of Special Tax Counsel to the effect that the issuance or incurrence of such
obligations
13
<PAGE> 17
will not adversely affect their opinion as to the exclusion from gross income
for federal income tax purposes of interest with respect to the Bonds.
(c) Other than Borrower, any other Principal User of the Project or any
Related Person, no person (or Related Person to such other person) has (i)
guaranteed, arranged, participated in, assisted with the issuance or incurrence
of, or paid any portion of the Costs of Issuance of the Bonds or (ii) provided
any property or any franchise, trademark or trade name (within the meaning of
Section 1253 of the Code) which is to be used in connection with the Project.
Section 2.6. PROHIBITED USES. No portion of the Proceeds of the Bonds is
being used to provide a facility, a purpose of which is retail food and
beverage services, automobile sales or service, or the provision of recreation
or entertainment. No portion of the proceeds of the Bonds is being used to
provide any private or commercial golf course, country club, health club,
massage parlor, tennis club, skating facility (including roller skating,
skateboarding and ice skating), racquet sports facility (including any
handball, squash or racquetball court), hot tub facility, suntan facility,
racetrack, skybox or other luxury box, airplane, store the principal business
of which is the sale of alcoholic beverages for consumption off premises, or
facility used primarily for gambling. No portion of the Proceeds of the Bonds
is being used directly or indirectly to provide residential real property for
single- or multifamily units.
Section 2.7. NO COMPOSITE PROJECT. The Project is (a) a stand-alone
Manufacturing Facility unconnected to any other facility and does not share any
portion of substantial common facilities with any other building, (b) an
enclosed shopping mall or (c) a strip of offices, stores or warehouses.
Section 2.8. ACQUISITION OF EXISTING PROPERTY. Borrower does not expect to
use proceeds of the Bonds to pay the cost of acquisition of real and personal
property other than land (or any interest therein) the first use of which will
not be pursuant to the acquisition with the Proceeds of the Bonds. As shown on
Exhibit A, an amount equal to $-0- of the Proceeds of the Bonds is expected to
be used to purchase such existing property. If any proceeds of the Bonds are
used to purchase such existing property, Borrower will meet the rehabilitation
requirements of Section 147(d)(3) through the rehabilitation and improvement of
the Project within the two-year period following the later of the Date of
Issuance or the date the existing property is acquired.
Section 2.9. LAND ACQUISITION LIMIT AND NO ACQUISITION OF FARMLAND. (a) The
amount of Proceeds of the Bonds expended for land will not exceed $ -0- ,
which is less than 25% of the Proceeds of the Bonds.
(b) No portion of the Proceeds of the Bonds will be used directly or
indirectly for the acquisition of land or any interest therein to be used for
the purpose of farming.
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<PAGE> 18
Section 2.10. REPRESENTATIONS BY BORROWER FOR PURPOSES OF IRS FORM 8038.
Section 149(e) of the Code requires as a condition to qualification for tax
exemption that Issuer provide to the Secretary of the Treasury certain
information with respect to the Bonds and the application of the proceeds
derived therefrom. The following representations of Borrower will. be relied
upon by Issuer and Bond Counsel in satisfying this information reporting
requirement. Accordingly, Borrower hereby represents, covenants and warrants
to the best of their knowledge, for the benefit of Issuer, Bond Counsel and the
registered owners of the Bonds, the truth and accuracy of (c) through (t)
below:
<TABLE>
<S> <C> <C>
(a) Issuer's employer identification number 47-6006454
------------
(b) Number of 8038 reports previously filed by the
Issuer this calendar year None
--------------
(c) Issue price of the Bonds $ 4,000,000.00
--------------
(d) Proceeds used for Accrued Interest $ -0-
--------------
(e) Costs of Issuance (including Underwriters' Discount $ 64,500.00
--------------
(f) Reasonably required Reserve Fund Deposits $ -0-
--------------
(g) Proceeds used for Credit Enhancement $ 15,500.00
--------------
(h) Proceeds used to refund prior issue $ -0-
--------------
(i) Nonrefunding Proceeds $ 3,920,000.00
-------------
(j) Date of final maturity of the Bonds 10/1/07
-------------
(k) Interest Rate on the final maturity of the Bonds VR %
-------------
(1) Issue price of the final maturity of the Bonds $4,000,000.00
-------------
(m) Issue price on the entire issue of the Bonds $4,000,000.00
-------------
(n) Stated redemption price at maturity of the final maturity
of the Bonds $4,000,000.00
-------------
(o) Stated redemption price at maturity of the entire
issue of the Bonds $4,000,000.00
-------------
(p) Weighted average maturity of the entire
issue of the Bonds 5.4194 years
-------------
(q) Yield on the entire issue of the Bonds VR %
-------------
(r) Net interest cost for the entire issue of the Bonds VR %
-------------
(s) The Standard Industrial Classification Code(s) of the
Project is 3594
-------------
(t) Type of Property financed by Nonrefunding Proceeds of Bonds:
Land $ -0-
-------------
Buildings $ 646,158
-------------
Equipment with recovery period of more than five years $ 3,189,910
-------------
Equipment with recovery period of five years or less $ 83,932
-------------
Other (Rehabilitation) $ -0-
-------------
Total $ 3,920,000
=============
</TABLE>
15
<PAGE> 19
ARTICLE III
USE OF BOND PROCEEDS
Section 3.1. ANTICIPATED USE OF PROCEEDS. Borrower covenants,
represents and warrants for the benefit of Issuer and Trustee that the Proceeds
of the Bonds will be used in the manner set forth in the Agreement and that the
Proceeds of the Bonds will be invested in accordance with the Indenture.
Section 3.2. CERTIFICATION AS TO COSTS OF THE PROJECT. Borrower
hereby certifies, with respect to the amounts shown in Exhibit A to the
Agreement, that such amounts consist only of costs which are directly related
to and necessary for the financing of the Project.
Section 3.3. CHANGE IN USE OF PROCEEDS. If the Company determines
that less than 95% of the proceeds of the Bonds will be used with respect to
the Project as required by Section 144(a) of the Code or a change in use of the
Project occurs such that the Project would no longer qualify for financing
under Section 144(a) of the Code, the Company will call Bonds (or establish a
defeasance escrow for the retirement of the Bonds) in an amount and at the time
required pursuant to Section 1.142-2 of the Regulations.
ARTICLE IV
ARBITRAGE
Section 4.1. ARBITRAGE REPRESENTATIONS AND ELECTIONS. In connection
with the issuance or incurrence of the Bonds, Borrower hereby represents,
certifies and warrants as follows:
(a) Borrower has entered into contracts with third
parties for the acquisition, construction and equipping of the Project
obligating an expenditure in excess of 5% of the Net Sale Proceeds of
the Bonds and Borrower will proceed with due diligence in completing
the Project and in allocating the Net Sale Proceeds of the Bonds to
such Expenditures.
(b) Borrower will use a reasonable, Consistently Applied
Accounting Method to account for Gross Proceeds, Investments and
Expenditures for the Bonds. Borrower shall additionally use a
Consistently Applied Accounting Method for allocating Proceeds of the
Bonds to Expenditures, subject to the Current Outlay of Cash rule.
(c) Borrower shall not commingle Proceeds of the Bonds
with any other funds.
(d) The allocation of Net Proceeds of the Bonds to the
reimbursement portion of the costs of the Project will be made as of
and completed on the Date of Issuance. The declaration of official
intent required by Section 1.150-2 of the Regulations with
16
<PAGE> 20
respect to Net Proceeds of the Bonds used to reimburse Borrower for
certain Capital Expenditures made in connection with the Project is
attached hereto as Exhibit D.
(e) Borrower and Issuer reasonably expect that 85% of the
Net Sale Proceeds of the Bonds will be used to complete the Project by
within three years of the Date of Issuance and not more than 50% of
the Proceeds of the Bonds will be invested in Nonpurpose Investments
having a substantially guaranteed Yield for four years or more.
Borrower reasonably expects that the Net Sale Proceeds of the Bonds
deposited to the Escrow Fund will be expended in accordance with the
schedule contained in the No Arbitrage Certificate executed and
delivered by Issuer in connection with the issuance, incurrence and
delivery of the Bonds.
(f) All funds and accounts established pursuant to the
Indenture will be invested pursuant to the No Arbitrage Certificate
executed by Issuer on the Date of Issuance.
(g) Borrower will not enter into any Abusive Arbitrage
Devises. If Proceeds are invested in certificates of deposit or
pursuant to an investment contract or a certificate of deposit,
Borrower will obtain and provide to Trustee certifications in the form
attached hereto as Exhibit B.
(h) Borrower hereby makes, and Issuer hereby accepts, the
following elections and other choices pursuant to the Regulations with
respect to the Bonds:
(i) Borrower elects the bond year stated in the
definition of the Bond Year.
(ii) Borrower elects to avail itself of all
unrestricted yield investments granted in the Regulations for
temporary period, reasonably required reserve Bond fund and
minor portion investments.
(iii) Borrower elects to treat the last day of the
fifth Bond Year (September 30, 2002) as the initial
Installment Computation Date and the initial rebate payment
date. Borrower elects to treat the last day of each
subsequent fifth Bond Year as subsequent Installment
Computation Dates and subsequent rebate payment dates.
Borrower may change or adjust such dates as permitted by the
Regulations.
(iv) With respect to the Universal Cap, Borrower
as of the Date of Issuance does not expect that the operation
of the Universal Cap will result in a reduction or
reallocation of Gross Proceeds of the Bonds and that Borrower
(A) does not expect to pledge funds (other than those
described in the Indenture) to the payment of the Bonds; (B)
expects to expend Sale Proceeds of the Bonds within the
expected temporary periods; and (C) does not expect to retire
any of
17
<PAGE> 21
the Bonds earlier than shown in the Yield computations for the
Bonds pursuant to this Article IV.
Section 4.2. ARBITRAGE COMPLIANCE. Borrower and Issuer acknowledge
that the continued exclusion of interest on the Bonds from gross income of the
recipients thereof for purposes of federal income taxation depends, in part,
upon compliance with the arbitrage limitations imposed by Section 148 of the
Code, including the rebate requirement described in Section 4.3 below.
Borrower and Issuer hereby agree and covenant that they shall not permit at any
time or times any of the Proceeds of the Bonds or other funds of Borrower to be
used, directly or indirectly, to acquire any asset or obligation, the
acquisition of which would cause the Bonds to be "arbitrage bonds" for purposes
of Section 148 of the Code. Borrower further agrees and covenants that it
shall do and perform all acts and things necessary in order to ensure that the
requirements of Section 148 of the Code and the Regulations are met. To that
end, Borrower shall retain, at its own expense, a Rebate Analyst to make such
determinations and calculations as may be necessary in order to ensure that
Borrower takes the actions described in Sections 4.2 through 4.6 hereof with
respect to the Investment of Gross Proceeds on deposit in the funds and
accounts established under the Indenture. If Borrower fails to retain such a
Rebate Analyst, Trustee shall, upon being notified in writing of such failure,
at Borrower's expense, retain such a Rebate Analyst. Borrower shall make the
required transfers and dispositions described in Sections 4.2, 4.3 and 4.4
hereof, and Trustee may rely upon information provided by Borrower.
Section 4.3. CALCULATION OF REBATE AMOUNT. (a) Section 148(f) of the
Code requires the payment to the United States of the Rebate Amount. Except as
provided below, all funds or accounts treated as containing Gross Proceeds, are
subject to this rebate requirement.
(b) In accordance with the requirements set out in the Code,
Borrower may create, as needed, a Rebate Fund to be used as provided in this
Section.
(i) On or before 25 days following each Computation Date
an amount shall be deposited to the Rebate Fund from source or sources
stated in such direction so that the balance of the Rebate Fund shall
equal the aggregate Rebate Amount as of such determination date.
(ii) Amounts deposited in the Rebate Fund shall be
invested in accordance with the Agreement of Borrower.
(iii) All money at any time deposited in the Rebate Fund
shall be held by Borrower, to the extent required by this Tax
Regulatory Agreement, for payment to the United States of America of
the Rebate Amount. All amounts deposited into or on deposit in the
Rebate Fund shall be governed by this Tax Regulatory Agreement.
18
<PAGE> 22
(iv) For purposes of crediting amounts to the Rebate Fund
or withdrawing amounts from the Rebate Fund, Nonpurpose Investments
shall be valued in the manner provided in this Article.
(c) In order to meet the rebate requirement of Section 148(f) of
the Code, the Rebate Analyst described in Section 4.6 hereof and Borrower
agrees and covenants to take the following actions:
(i) For each Investment of amounts held with respect to
the Bonds pursuant to the Indenture, Borrower shall record the
purchase date of such Investment, its purchase price, accrued interest
due on its purchase date, its face amount, its coupon rate, its Yield,
the frequency of its interest payment, its disposition price, accrued
interest due on its disposition date and its disposition date.
Borrower or the Rebate Analyst retained by Borrower shall determine
the Fair Market Value for such Investments and the Yield thereon as
may be required by the Regulations. The Yield for an Investment shall
be calculated by using the method set forth in the Regulations.
(ii) For each Computation Date specified in paragraph
(iii) below, the Rebate Analyst shall compute the Yield on the Bonds
as required by the Regulations based on the definition of issue price
contained in Section 148(h) of the Code and the Regulations. The Yield
on the Bonds shall be calculated by Borrower at such time in order to
comply with this Tax Regulatory Agreement and the Regulations based on
the definitions of issue price contained in Section 148(h) of the Code
using payments or prepayments of the principal of, premium, if any,
and interest on the Bonds required by the Regulations. For purposes
of this Tax Regulatory Agreement the initial offering price to the
public (not including bond houses and brokers, or similar persons or
organizations acting in the capacity of underwriters or wholesalers)
at which a substantial amount of the Bonds were sold is the Issue
Price. Any reasonable amounts paid for credit enhancement have been
and may generally be treated as interest on the Bonds for purposes of
Yield computation to the extent permitted by the Regulations.
(iii) Subject to the special rules set forth in paragraphs
(iv) and (v) below, the Rebate Analyst shall determine the amount of
earnings received on all Nonpurpose Investments described in paragraph
(i) above, for each Computation Date. In addition, where Nonpurpose
Investments are retained by Borrower after retirement of the Bonds,
any unrealized gains or losses as of the date of retirement of the
Bonds must be taken into account in calculating the earnings on such
Nonpurpose Investments to the extent required by the Regulations.
(iv) In determining the Rebate Amount computed pursuant to
this Section, (A) all earnings on any bona fide debt service fund
shall not be taken into account for any Bond Year during which the
gross earnings of such funds total less than $100,000, (B) the
Universal Cap applicable to the Bonds pursuant to Section
1.148-6(b)(2) of the Regulations shall be taken into account, (C) all
of Borrower's elections and other choices
19
<PAGE> 23
set forth in Section 4.1 hereof shall be taken into account and (D)
all spending exceptions to rebate met by Borrower shall be taken into
account.
(v) For each Computation Date specified in paragraph
(iii) above, the Rebate Analyst shall calculate for each Investment
described in paragraphs (i) and (iii) above, an amount equal to the
earnings which would have been received on such Investment at an
interest rate equal to the Yield on the Bonds as described in
paragraph (ii) above. The method of calculation shall follow that set
forth in the Regulations.
(vi) For each Computation Date, the Rebate Analyst shall
determine the amount of earnings received on all Investments held in
the Rebate Fund for the Computation Date The method of calculation
shall follow that set forth in the Regulations.
(vii) For each Computation Date, the Rebate Analyst shall
calculate the Rebate Amount, by any appropriate method to be described
in the Code and Regulations applicable or which becomes applicable to
the Bonds. The determination of the Rebate Amount shall account for
the amount (to be rounded down to the nearest multiple of $100) equal
to the sum of all amounts determined in paragraph (iii), all amounts
determined in paragraphs (v) and (vi), and less any amount which has
previously been paid to the United States pursuant to Section 4.4
below. The Rebate Analyst shall notify Trustee of the Rebate Amount.
(viii) If the Rebate Amount exceeds the amount on deposit in
the Rebate Fund, Borrower shall immediately deposit such amount into
the Rebate Fund.
Section 4.4. PAYMENT TO UNITED STATES. (a) Not later than 60 days
after each Installment Computation Date (or such longer period as may be
permitted by the Regulations), Borrower shall pay to the United States an
amount that, when added to the Future Value as of such Computation Date of
previous rebate payments made for the Bonds, equals at least 90% of the Rebate
Amount required to be on deposit in the Rebate Fund as of such payment date.
No later than 60 days after the Final Computation Date Borrower shall pay to
the United States an amount that, when added to the Future Value as of such
Computation Date of previous rebate payments made for the Bonds, equals at
least 100% of the balance remaining in the Rebate Fund.
(b) Borrower shall mail each payment of an installment to the
Internal Revenue Service Center, Philadelphia, Pennsylvania 19255. Each
payment shall be accompanied by Internal Revenue Form 8038-T, and, if
necessary, a statement summarizing the determination of the Rebate Amount.
(c) If on any Computation Date, the aggregate amount earned on
Nonpurpose Investments in which the Gross Proceeds of the Bonds are invested is
less than the amount that would have been earned if the obligations had been
invested at a rate equal to the Yield on the
20
<PAGE> 24
Bonds as determined in Section 4.3, such deficit may at the written request of
Borrower be withdrawn from the Rebate Fund and paid to Borrower or as Borrower
shall direct. Borrower may direct that any overpayment of rebate may be
recovered from any Rebate Amount previously paid to the United States pursuant
to Section 1.148-3(i) of the Regulations.
(d) Borrower shall also pay any penalty or interest on
underpayments of Rebate Amount not paid in a timely manner pursuant to this Tax
Regulatory Agreement, the Code and the Regulations.
Section 4.5. RECORDKEEPING. In connection with the rebate
requirement, Borrower and Trustee shall maintain the following records:
(a) Borrower shall record all amounts paid to the United
States pursuant to Section 4.4 hereof.
(b) Borrower shall retain records of the rebate
calculations until six years after the retirement of the last
obligation of the Bonds.
Section 4.6. REBATE ANALYST. (a) Borrower shall appoint a Rebate
Analyst and any successor Rebate Analyst for the Bonds reasonably acceptable to
Issuer, subject to the conditions set forth in this Section. The Rebate
Analyst and each successor Rebate Analyst shall signify its acceptance of the
duties imposed upon it hereunder by a written instrument of acceptance
delivered to Issuer and Borrower under which such Rebate Analyst will agree to
discharge its duties pursuant to this Tax Regulatory Agreement in a manner
consistent with prudent industry practice.
(b) The Rebate Analyst may at any time resign and be discharged of
the duties and obligations created by this Tax Regulatory Agreement by giving
notice to Issuer and Borrower. Borrower and Issuer shall, upon the resignation
or removal of the Rebate Analyst, appoint a successor Rebate Analyst.
(c) Each successor Rebate Analyst appointed pursuant to this
Section shall be either a firm of independent accountants or Special Tax
Counsel or another entity experienced in calculating rebate payments required
by Section 148(f) of the Code. The charges and fees for such Rebate Analyst
shall be paid by Borrower upon presentation of an invoice for services rendered
in connection therewith.
ARTICLE V
COMPLIANCE WITH CODE
In order to ensure that interest on the Bonds is excludable from the
gross income of the recipients thereof for purposes of federal income taxation,
Borrower hereby represents and covenants as follows:
21
<PAGE> 25
(a) The Average Maturity of the Bonds does not exceed
120% of the Average Economic Life of the Project within the meaning of
Section 147(b) of the Code as set forth in Exhibit C hereto.
(b) The Bonds are not and shall not become directly or
indirectly "federally guaranteed." Unless otherwise excepted under
Section 149(b) of the Code, the Bonds will be considered "federally
guaranteed" if (i) the payment of principal and interest with respect
to the Bonds is guaranteed (in whole or in part) by the United States
(or any agency or instrumentality thereof), (ii) 5% or more of the
Proceeds of the Bonds is (A) to be used in making loans, the payment
of principal or interest with respect to which are to be guaranteed
(in whole or in part) by the United States (or any agency or
instrumentality thereof) or (B) to be invested (directly or
indirectly) in federally insured deposits or accounts or (iii) the
payment of principal or interest on the Bonds is otherwise indirectly
guaranteed (in whole or in part) by the United States (or any agency
or instrumentality thereof).
(c) Borrower will provide to Issuer all information
necessary to enable Issuer to complete and file Internal Revenue Forms
8038 and 8038-T pursuant to Section 149(e) of the Code.
(d) As required by Section 147(f) of the Code, the Bonds
and the Project were the subject of a public hearing held on October
8, 1997 and approval on October 22, 1997, which were preceded by
reasonable public notice.
(e) Borrower will comply with, and make all filings
required by, all effective rules, rulings or regulations promulgated
by the Department of the Treasury or IRS with respect to obligations
described in Sections 103 and 144 of the Code, such as the Bonds.
(f) Borrower agrees to rebate all amounts required to be
rebated to the United States of America pursuant to Section 148(f) of
the Code.
(g) The Sale Proceeds of the Bonds and any Investment
Proceeds will be expended for the purposes set forth in the Agreement
and no amount of such Proceeds of the Bonds in excess of 2% of the
Sale Proceeds of the Bonds will be expended to pay the costs of
issuing the Bonds within the meaning of Section 147(g) of the Code.
(h) Issuer shall not sell any other tax-exempt
obligations within 15 days of the sale date of the Bonds pursuant to
the same plan of financing with the Bonds and payable from
substantially the same source of funds, determined without regard to
qualified guaranties from unrelated parties and used to pay the Bonds.
(i) The Bonds were approved by the Board of Supervisors
of Issuer.
22
<PAGE> 26
ARTICLE VI
TERM OF TAX REGULATORY AGREEMENT
This Tax Regulatory Agreement shall be effective from the Date of
Issuance through the date that the Bonds are paid in full, except that the
requirements of Section 4.5 shall survive until six years after the retirement
of the Bonds.
ARTICLE VII
AMENDMENTS
Notwithstanding any other provision hereof, any provision of this Tax
Regulatory Agreement may be deleted or modified at any time at the option of
Borrower, with the consent of Issuer and Trustee, if Borrower has provided to
Trustee and Issuer an opinion, in form and substance satisfactory to Trustee
and Issuer, of Special Tax Counsel that such deletion or modification will not
adversely affect the exclusion of interest on the Bonds from the gross income
of the recipients thereof for purposes of federal income taxation.
ARTICLE VIII
EVENTS OF DEFAULT; REMEDIES
Section 8.1. EVENTS OF DEFAULT. The failure of any party to this Tax
Regulatory Agreement to perform any of its required duties under any provision
hereof shall constitute an Event of Default under this Tax Regulatory Agreement
and under the Agreement.
Section 8.2. REMEDIES FOR AN EVENT OF DEFAULT. Upon an occurrence of
an Event of Default under Section 8.1 hereof, Issuer or Trustee may in their
discretion, proceed to protect and enforce their rights and the rights of the
registered owners of the Bonds by pursuing any available remedy under the
Agreement or by pursuing any other available remedy, including, but not limited
to, a suit at law or in equity.
[REMAINDER OF PAGE INTENTIONALLY BLANK; EXECUTION PAGE FOLLOWS.]
23
<PAGE> 27
IN WITNESS WHEREOF, Issuer, Borrower and Trustee have caused this Tax
Regulatory Agreement to be executed in their respective names and by their
proper officers hereunto duly authorized, all as of the day and year first
written above.
COUNTY OF DODGE, NEBRASKA
By Dean T. Lux
------------------------------
Chairman, Board of Supervisors
By [SIG]
------------------------------
County Clerk
THE OILGEAR COMPANY
By [SIG]
------------------------------
Vice President-Finance
NORWEST BANK WISCONSIN,
NATIONAL ASSOCIATION, as Trustee
By [SIG]
------------------------------
Title
------------------------------
<PAGE> 1
Exhibit 13
(1997 10-K)
1997 FINANCIAL REPORT
MANAGEMENT'S DISCUSSION
Results of Operations
1997 Compared to 1996
Shipments,
<TABLE>
<S> <C> <C> <C>
Orders & Backlog 1997 1996 1995
Net orders $96,966,000 85,677,000 89,146,000
Percentage increase
(decrease) 13.2% -3.9% 27.4%
Net sales (shipments) $90,904,000 89,621,000 82,157,000
Percentage increase 1.4% 9.1% 17.6%
Backlog at December 31 $24,019,000 17,957,000 21,901,000
Percentage increase
(decrease) 33.8% -18.0% 46.9%
</TABLE>
United States:
The domestic order level continued to be strong 1997, with most of the increase
coming from component orders. The total value of domestic orders for the
Company's new PVG pump and for engineered hydraulic and electrical systems
increased by double digits. The Company's new foreign subsidiaries are receiving
some orders that in prior years were entered directly as domestic export orders.
This contributed to the decrease in domestic export orders and the increase in
inter-company transfers between geographic areas. The strong U.S. dollar against
most other currencies during 1997 also contributed to the decrease in domestic
export orders by making the Company's products more expensive to foreign
customers. Even though there is a continued demand for the Company's products
outside the United States, the strong U.S. dollar and the recent economic crisis
in Asia make management cautious going into 1998.
The significant increase in orders put an extreme amount of demand on the
Company's domestic manufacturing facilities, especially at the Fremont, NE
plant. This demand caused lead-times to increase which in turn caused
manufacturing expenses for overtime, hiring, training, and subcontracting to
increase. The Fremont, NE plant completed its new addition in the fourth quarter
and the Company is in the process of adding equipment and people. This addition
will help alleviate the capacity problems at that plant in 1998. With domestic
net sales increasing by 2% and domestic orders increasing by double digits,
domestic backlog increased significantly.
Foreign:
Orders entered at our foreign subsidiaries increased by double digits. The
strengthening of the U.S. dollar against the Company's foreign subsidiaries'
local currencies except for the British pound caused the increase of the net
total value of foreign orders to be approximately 5% lower when local currencies
were converted to U.S. dollars. A plan to increase the foreign after-market and
component orders was successful in increasing the total value of these orders.
The Company's Spanish
<PAGE> 2
subsidiary had a significant increase in orders and was a major contributor to
the overall foreign order increase. The Company's new joint ventures and
subsidiaries also made a positive contribution to the total foreign orders.
Foreign net sales increased by approximately 8% in local currencies or 1% when
translated into U.S. dollars. Because orders were higher than shipments, foreign
backlog also increased.
<TABLE>
<S> <C> <C> <C>
Operating Expenses 1997 1996 1995
Research and development $2,543,000 2,315,000 2,127,000
Percentage increase 9.8% 8.8% 21.4%
Selling, general and
administrative less
research and
development $21,801,000 21,917,000 19,690,000
Percentage increase
(decrease) -0.5% 11.3% 5.2%
</TABLE>
The Company's continued increase in expenses for research and development
demonstrates commitment to its customer demands for new and more efficient
hydraulic products. This commitment produced new customers and new applications
for the Company's products The conversion difference from foreign currencies
translated to U.S. dollars offset a small increase in consolidated operating
expenses less research and development.
<TABLE>
<S> <C> <C> <C>
Profit, Income & Earnings 1997 1996 1995
Gross profit $29,103,000 29,437,000 26,299,000
Percentage increase
(decrease) -1.1% 11.9% 11.9%
Gross profit margin 32.0% 32.8% 32.0%
Operating income $4,760,000 5,205,000 4,482,000
Percentage increase
(decrease) -8.5% 16.1% 48.0%
Net earnings $2,677,000 2,518,000 2,192,000
Percentage increase 6.3% 14.9% 24.2%
</TABLE>
Expenses incurred to solve the capacity constraints in the Company's our
domestic factories and orders for products with lower gross profit margins
caused gross profit and operating income to decrease as stated in the above
table. Net earnings increased because the effective income tax rate decreased to
17.8% in 1997 from 29% in 1996 (see note 8 to the consolidated financial
statements).
Note 7 to the consolidated financial statements summarizes the non-operating
income and expense.
1996 Compared to 1995
The strong order level from the domestic and U.S. export segments and a large
beginning backlog produced an increase in consolidated shipments of
approximately 9%. Export shipments to the Asian markets were strong, especially
in Korea and China, resulting in total U.S. export shipments increasing by 32%.
European and domestic shipments increased by approximately 3% and 5%,
respectively.
A weak fluid power market caused consolidated net orders to decrease by
approximately 4% in 1996. Despite the weak fluid power market, the domestic
<PAGE> 3
and U.S. export orders combined were slightly higher in 1996 than in 1995.
Increased orders in the mobile and petroleum markets for pumps and engineered
systems were the reasons. After a significant increase in European orders in
1995 (61%), European orders decreased in 1996 by approximately 12%. A slowdown
in European capital expenditures and intensive price competition for engineered
systems in the European industrial market were the principal reasons for the
decline. Some of the increased shipments came out of the backlog, which
decreased by approximately $3,944,000 or 18%.
The Company's commitment to customer demands for new and more efficient
hydraulic products was demonstrated by increased expenses for research and
development. This commitment produced new customers and the use of the Company's
products in new applications in 1996. The sales and marketing effort in 1996
achieved increased market share in the industrial, mobile and civil markets. The
cost of this effort and the addition of Oilgear Towler Polyhydron Ltd. in 1996
increased operating expenses by 11.1%.
In 1996 the Company increased its ownership in Oilgear Towler Polyhydron Ltd.
to 51% and began consolidating it with the Company's financial results. The
effect was to increase net earnings by approximately $54,000. Other than for
this Indian joint venture, and except for slight deviations in the mix of
products shipped, the gross margin was consistent with prior years. Gross
profit, operating income and net earnings have increased as expected with the
increase in shipments.
Note 7 to the consolidated financial statements summarizes the non-operating
income and expense. The Company's effective income tax rate was 29.0% in 1996
and 28.6% in 1995. See note 8 to the consolidated financial statements for an
explanation of the effective income tax rate.
Forward Looking Comments and Matters That May Affect Future Operations
The Company is going into 1998 with an increased backlog of orders and a
cautious outlook for a continued strong capital goods market. The strong U.S.
dollar in 1997 has continued into the first few months of 1998. At this time,
the Company has been able to overcome this currency exchange factor but export
order margins have decreased which is a concern for 1998.
Domestic orders for the beginning of 1998 have continued to be strong. European
orders for the beginning of 1998 are stable. Foreign orders other than Europe
have decreased in the first few months of 1998 and it is unknown how much the
Asian economic crisis will affect the Company's orders in 1998. If there is
increased demand in the world for capital equipment projects that require
systems technology, then the Company is ready to supply the engineering,
hydraulic and electrical products and customer service required in meeting those
demands.
Inflation and Changing Prices
Oilgear uses the LIFO method of accounting for most of its inventories and has
reserves for obsolete and slow moving inventory. The majority of the Company's
assets were purchased over the last forty years and reside in the United States
and Western Europe. These assets are in operation and have
<PAGE> 4
been maintained through the years. Management believes that inflation has not
significantly distorted the net earnings reported for the Company. However,
because of inflation and the extent to which these assets have been
depreciated, management believes the book value of the Company, stated in
historical dollars at $16.52 per share, significantly understates the current
or replacement value of the Company's assets.
Quarterly Financial Information (Unaudited)
1997
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
Net sales $20,309,000 22,686,000 21,644,000 26,265,000
Net earnings 476,000 627,000 686,000 888,000
Basic earnings per
share of common
stock** 0.25 0.33 0.36 0.46
Diluted earnings
per share of common
stock** 0.25 0.33 0.36 0.46
Dividends per share
of common stock** 0.067 0.067 0.067 0.067
Stock price low* 9.67 10.50 11.50 14.00
Stock price high* 12.00 12.50 14.00 18.00
</TABLE>
1996
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
Net sales $21,523,000 23,576,000 22,161,000 22,361,000
Net earnings 494,000 673,000 642,000 709,000
Basic earnings per
share of common
stock** 0.28 0.37 0.35 0.38
Diluted earnings
per share of common
stock** 0.28 0.37 0.35 0.38
Dividends per share
of common stock** 0.067 0.067 0.067 0.067
Stock price low* 9.67 9.83 9.17 9.50
Stock price high* 11.33 11.67 11.00 10.42
</TABLE>
*High and low sales prices in the Nasdaq Stock Market restated for the
three-for-two stock split declared on December 10, 1997.
**Restated for the three-for-two stock split declared on December 10, 1997.
Discussion of Financial Position
<TABLE>
<S> <C> <C> <C>
Capitalization 1997 1996 1995
Interest bearing debt $26,358,000 18,451,000 19,899,000
Shareholders' equity 31,828,000 27,317,000 22,772,000
Debt and equity 58,186,000 45,768,000 42,671,000
Ratio 45.30% 40.30% 46.60%
</TABLE>
Equity
In 1997, shareholders' equity increased by net earnings, the sale of Company
common stock in connection with employee ownership plans as stated in the table
below (see note 9 to the consolidated financial statements) and the equity
adjustment for pension liability (see note 9 to the consolidated financial
statements). A strong U.S. dollar compared to most of the local currencies of
the Company's foreign subsidiaries caused an approximately $1,400,000 decrease
in shareholders' equity from foreign currency translation to U.S. dollars in
1997. The increase in shareholders' equity in 1996 was primarily the result of
net earnings and the sale of Company common stock in connection with employee
ownership plans as stated in the table below. The dividend paid in each of the
four quarters of 1997 and 1996 was $.10 per share, prior to the effect of a
stock dividend in the form of a three-for-two stock split declared by the
Company on December 10, 1997.
The Company's common stock is traded over-the-counter in the Nasdaq Stock
Market, symbol OLGR. At December 31, 1997 there were approximately 581
shareholders of record. Oilgear believes it is desirable for its employees
<PAGE> 5
to have an ownership interest in the Company. This concept is supported by
several programs that are described in note 9 to the consolidated financial
statements.
The Company sold common stock and made contributions of common stock in
connection with employee benefit plans as follows:
<TABLE>
<S> <C> <C>
Shares* Value
1997 53,814 $381,000
1996 105,906 $986,000
1995 60,476 $412,000
</TABLE>
*Restated for the three-for-two stock split declared on December 10, 1997.
Interest Bearing Debt
In January 1997, the Company amended its revolving loan agreement. This
amended agreement provides for borrowings up to $16,000,000 through April 2000
at an interest rate of LIBOR plus 1.4%. Under the agreement, the Company is
required to pay a commitment fee of .375% per annum on unused loan amounts
available which was approximately $2,700,000 at December 31, 1997. Amounts
outstanding at December 31, 1997 and 1996 bore interest at 7.3% and 7.6%,
respectively.
During 1996, the Company amended its revolving loan agreement. The amended
agreement provides for borrowings up to $16,000,000 through April 30, 1999 and
replaced both the prior revolving loan agreement which provided for borrowings
up to $11,000,000 through June 1997 and the $2,000,000 line of credit. At
December 31, 1996, $11,500,000 was used on the revolving loan agreement.
The Company entered into a capital lease agreement with the County of Dodge, NE
to issue industrial revenue bonds in the amount of $4,000,000 (see note 5 to
the consolidated financial statements). The proceeds from these bonds are
restricted to expenditures for the expansion of the Fremont, NE manufacturing
facility and related machine tools. The average effective rate in 1997 was
4.0%. The leases require annual rental amortization payments of $400,000 for
ten years. The industrial revenue bonds are collateralized by the property
and equipment purchased from the bond proceeds. Allowable equipment purchases
and expenses paid out of bond proceeds in 1997 was approximately $1,045,000.
At December 31, 1997, unused proceeds and related accumulated interest income
from the industrial revenue bonds was approximately $2,955,000. Such funds
were restricted for capital expenditures at the Fremont, NE manufacturing
facility. The bond payments are guaranteed by a bank letter of credit that
has an annual cost of .75% on the outstanding principal balance of the bonds.
In 1997 the Company increased domestic short-term borrowings by $4,000,000 in
the form of bank revolving business notes. These short-term notes bear
interest at LIBOR plus 1.4% (7.3% as of December 31, 1997) and will mature on
April 30, 1998. Management plans to renegotiate this short-term debt in
<PAGE> 6
the first quarter of 1998. There were no domestic short-term borrowings at
December 31, 1996. Domestic property plant and equipment collateralize the
above revolving loan agreement and short-term borrowings. Approximately
$700,000 under lines of credit was available to the Company's foreign
subsidiaries at December 31, 1997. There was approximately $78,000 and
$113,000 of borrowings against these lines at December 31, 1997 and 1996,
respectively.
<TABLE>
<S> <C> <C> <C>
Liquidity 1997 1996 1995
Cash and cash equivalents $3,011,000 2,368,000 2,779,000
Short-term borrowings 4,078,000 113,000 500,000
Working capital 27,425,000 28,633,000 26,833,000
Current ratio 2.2 2.8 2.4
Quick ratio 1.0 1.1 1.0
Cash provided by
operations $2,950,000 6,235,000 3,861,000
Cash used by investing
activities -6,895,000 -4,973,000 -5,347,000
Cash provided (used) by
financing activities 4,892,000 -1,569,000 1,149,000
</TABLE>
The current ratio and the quick ratio continued to remain strong in all three
years reported. Cash provided by operations was positive for 1997, 1996 and
1995 as presented in the above table. Net earnings and depreciation and
amortization were the primary reasons for the positive results in each year.
A large dollar value of shipments was shipped in December of 1997 and 1995
causing trade receivables to increase at each year-end. The improvement in
the domestic (including exports) and European business created an increase in
work in process inventories in 1995. In 1997 and 1995, investing activities
included two expansion projects at the Company's Fremont, NE facility. These
additions were needed to manage the increased demand for the Company's new
products and to continue to deliver excellent customer service. The
acquisitions and upgrading of the Company's machine tools and computer
equipment occurred in all three years. The Company doesn't anticipate a
building expansion in 1998 so capital expenditures should decrease in 1998.
The Company's financial position at December 31, 1997 continues to be strong
and management believes the Company has adequate means for meeting its future
capital and operating needs.
Year 2000 Impact on Computer Systems
The Company is aware of the potential problems that can exist with its computer
systems and application computer software in the year 2000. In early 1997,
the Company began converting its computer systems enabling proper processing of
transactions relating to the year 2000 and beyond. Management expects to
finish most of the work on the year 2000 project in 1998 with added costs not
expected to have a material adverse effect on the financial condition, results
of operation or cash flow of the Company. The Company presently believes that
with modifications to existing software and converting to new software, the
year 2000 will not pose significant
<PAGE> 7
operational problems for the Company's computer systems. However, there can
be no assurance that unforeseen difficulties and costs may not arise.
Business Description
A business description is provided in note 2 to the consolidated financial
statements.
Cautionary Factors
The discussions in this section and elsewhere contain various forward-looking
statements concerning the Company's prospects that are based on the current
expectations and beliefs of management. Forward-looking statements may also
be made by the Company from time to time in other reports and documents as well
as oral presentations. When used in written documents or oral statements, the
words "anticipate", "believe", "estimate", "expect", "objective", and similar
expressions are intended to identify forward-looking statements. The
statements contained herein and such future statements involve or may involve
certain assumptions, risks and uncertainties, many of which are beyond the
Company's control, that could cause the Company's actual results and
performance to differ materially from what is expected. In addition to the
assumptions and other factors referenced specifically in connection with such
statements, the following factors could impact the business and financial
prospects of the Company:
* Factors affecting the Company's international operations, including relevant
foreign currency exchange rates, which can affect the cost to produce the
Company's products or the ability to sell the Company's products in foreign
markets, and the value in United States dollars of sales made in foreign
currencies. Other factors include foreign trade, monetary and fiscal
policies; laws, regulations and other activities of foreign governments,
agencies and similar organizations; and risks associated with having major
facilities located in countries, such as India, Spain and Italy, which have
historically been less stable than the United States in several respects,
including fiscal and political stability.
* Factors affecting the Company's ability to hire and retain competent
employees, including unionization of the Company's non-union employees and
changes in relationships with the Company's unionized employees.
* The risk of strikes or other labor disputes at those locations that are
unionized which could affect the Company's operations.
* Factors affecting the economy generally, including the financial and business
conditions of the Company's customers and the demand for customers' products
and services that utilize Company products.
* Factors affecting the Company's financial performance or condition, including
tax legislation, unanticipated restrictions on the Company's ability to
transfer funds from its subsidiaries and changes in applicable accounting
principles or environmental laws and regulations.
* The cost and other effects of claims involving the Company's products and
other legal and administrative proceedings, including the expense of
investigating, litigating and settling any claims.
* Factors affecting the Company's ability to produce products on a competitive
basis, including the availability of raw materials at reasonable prices
* Unanticipated technological developments that result in competitive
<PAGE> 8
disadvantages and create the potential for impairment of existing assets.
* Financial and information system problems resulting with the advent of the
twenty-first century and affecting the Company, its suppliers or its customers.
5 Year Summary
<TABLE>
<S> <C> <C> <C> <C> <C>
Operations 1997 1996 1995 1994 1993
Net sales $90,904,000 89,621,000 82,157,000 69,840,000 61,779,000
Net earnings 2,677,000 2,518,000 2,192,000 1,765,000 350,000
Basic earnings per share** 1.41 1.39 1.26 1.07 0.23
Diluted earnings per share** 1.40 1.38 1.24 1.06 0.23
Dividends per share** 0.27 0.27 0.27 0.17 0.23
Capitalization
Interest bearing debt $26,358,000 18,451,000 19,899,000 18,403,000 18,500,000
Shareholders' equity 31,828,000 27,317,000 22,772,000 20,542,000 17,271,000
Total assets 89,197,000 77,839,000 77,902,000 69,879,000 63,704,000
Book value per share** 16.52 14.58 12.89 12.03 11.04
December 31st stock price* 15.67 10.00 11.33 9.50 7.42
</TABLE>
*The last sale price for the year in the Nasdaq Stock Market restated for
the three-for-two stock split declared on December 10, 1997.
**Restated for the three-for-two stock split declared on December 10, 1997.
CONSOLIDATED STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY
The Oilgear Company and Subsidiaries, Years ended December 31, 1997, 1996
and 1995
Operations
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales (note 2) $90,903,847 89,620,862 82,157,370
Cost of sales (note 3) 61,800,585 60,184,305 55,858,297
----------- ----------- -----------
Gross profit 29,103,262 29,436,557 26,299,073
Selling, general and
administrative expenses 24,343,569 24,231,669 21,817,122
----------- ----------- -----------
Operating income 4,759,693 5,204,888 4,481,951
Interest expense 1,649,826 1,728,059 1,690,107
Other non-operating
income, net (note 7) 252,857 143,593 277,890
----------- ----------- -----------
Earnings before income
taxes and minority
interest 3,362,724 3,620,422 3,069,734
Income tax expense (note 8) 600,000 1,050,000 878,000
Minority interest 85,242 52,298 -
----------- ----------- -----------
Net earnings $2,677,482 2,518,124 2,191,734
=========== =========== ===========
Basic weighted average
outstanding shares 1,896,248 1,806,663 1,744,070
----------- ----------- -----------
Diluted weighted average
outstanding shares 1,913,948 1,820,795 1,772,892
----------- ----------- -----------
Basic earnings per share of
common stock $1.41 1.39 1.26
===== ===== =====
Diluted earnings per share of
common stock $1.40 1.38 1.24
===== ===== =====
Shareholders' Equity
Common stock (note 9):
Balance at beginning of year $1,248,859 1,178,255 1,137,938
Sales to employee and director
benefit plans (35,876, 46,032
and 40,317 shares in 1997,
1996 and 1995, respectively) 35,876 46,032 40,317
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Contributions to employee
benefit plans (24,572 shares
in 1996) - 24,572 -
Three-for-two stock split 642,368 - -
----------- ---------- ----------
Balance at end of year 1,927,103 1,248,859 1,178,255
----------- ---------- ----------
Capital in excess of par
value (note 9):
Balance at beginning of
year 9,090,628 8,174,934 7,803,727
Sales to employee and
director benefit plans 345,562 581,973 371,207
Contributions to employee
benefit plans - 333,721 -
Three-for-two stock
split (642,368) - -
----------- ---------- ----------
Balance at end of year 8,793,822 9,090,628 8,174,934
----------- ---------- ----------
Retained earnings (note 9):
Balance at beginning of
year 20,828,365 18,796,941 17,072,882
Net earnings 2,677,482 2,518,124 2,191,734
Cash dividends declared
($.40, $.40 and $.40 per
share in 1997, 1996 and
1995, respectively) (507,607) (486,700) (467,675)
Treasury stock disposals
over cost, net 934 - -
----------- ---------- ----------
Balance at end of year 22,999,174 20,828,365 18,796,941
----------- ---------- ----------
Treasury stock:
Balance at beginning of year - - -
Purchases - 3,046 shares
in 1997 47,975 - -
Sales to employee benefit
plans - 3,046 shares in 1997 (47,975) - -
----------- ---------- ----------
Balance at end of year - - -
----------- ---------- ----------
Notes receivable from
employees (note 9):
Balance at beginning of year (220,781) (147,410) (168,044)
Sales under employee stock
purchase plan (64,525) (169,275) (66,250)
Payments received/forgiven
on notes 103,085 95,904 86,884
----------- ---------- ----------
Balance at end of year (182,221) (220,781) (147,410)
----------- ---------- ----------
Equity adjustment for foreign
currency translation:
Balance at beginning of year 450,067 248,907 (124,060)
Translation adjustment (1,440,382) 201,160 372,967
----------- ---------- ----------
Balance at end of year (990,315) 450,067 248,907
----------- ---------- ----------
Equity adjustment for pension
liability:
Balance at beginning of year (4,080,000) (5,480,000) (5,180,000)
Pension liability adjustment 3,360,000 1,400,000 (300,000)
----------- ---------- ----------
Balance at end of year (720,000) (4,080,000) (5,480,000)
----------- ---------- ----------
Total shareholders' equity $31,827,563 27,317,138 22,771,627
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 10
78
CONSOLIDATED BALANCE SHEETS
The Oilgear Company and Subsidiaries, December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $3,010,929 2,367,684
Trade accounts receivable, less allowance
for doubtful receivables of $211,372 and
$218,154 in 1997 and 1996, respectively 18,677,849 14,894,195
Inventories (note 3) 26,396,825 26,229,868
Prepaid expenses 444,099 528,854
Other current assets 1,106,497 537,795
----------- ----------
Total current assets 49,636,199 44,558,396
----------- ----------
Property, plant and equipment, at cost
(note 5):
Land 1,072,366 1,283,679
Buildings 11,231,982 10,213,472
Machinery and equipment 46,628,669 42,512,215
Drawings, patterns and patents 3,280,865 2,585,379
----------- ----------
62,213,882 56,594,745
Less accumulated depreciation and
amortization 30,834,701 27,740,588
----------- ----------
Net property, plant and equipment 31,379,181 28,854,157
Pension intangible (note 9) 500,000 600,000
Other assets (notes 5 and 9) 7,681,978 3,826,274
----------- ----------
$89,197,358 77,838,827
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity 1997 1996
<S> <C> <C>
Current liabilities:
Short-term borrowings (note 4) $4,078,147 113,414
Current installments of long-term
debt (note 5) 1,488,301 2,182,838
Accounts payable 8,166,590 5,728,452
Customer deposits 2,396,477 1,992,367
Accrued compensation 2,546,207 2,724,274
Other accrued expenses and income taxes
(note 8) 3,535,224 3,154,282
----------- ----------
Total current liabilities 22,210,946 15,895,627
----------- ----------
Long-term debt, less current
installments (note 5) 20,791,956 16,154,961
Unfunded employee retirement plan costs
(note 9) 1,700,000 5,600,000
Unfunded post-retirement health care costs
(note 9) 10,970,000 11,109,000
Other noncurrent liabilities 1,194,928 1,414,099
----------- ----------
Total liabilities 56,867,830 50,173,687
----------- ----------
Minority interest in consolidated
subsidiaries 501,965 348,002
----------- ----------
Commitments and contingencies
(notes 9 and 11)
Shareholders' equity (notes 5 and 9):
Common stock, par value $1 per share,
authorized 4,000,000 shares;
issued 1,927,103 and 1,248,859 shares
in 1997 and 1996, respectively 1,927,103 1,248,859
Capital in excess of par value 8,793,822 9,090,628
Retained earnings 22,999,174 20,828,365
----------- ----------
33,720,099 31,167,852
Deduct:
Notes receivable from employees for
purchase of common stock of the
Company (182,221) (220,781)
Equity adjustment for foreign currency
translation (990,315) 450,067
Equity adjustment for pension liability
(note 9) (720,000) (4,080,000)
----------- ----------
Total shareholders' equity 31,827,563 27,317,138
----------- ----------
$89,197,358 77,838,827
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Oilgear Company and Subsidiaries, Years ended
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $2,677,482 2,518,124 2,191,734
Adjustments to reconcile
net earnings to net cash
provided by operating
activities:
Depreciation and amortization 3,631,740 3,405,180 3,061,675
Common and treasury stock
issued in connection with:
Funding of expense for
employee retirement plans - 304,500 -
Compensation element of sales
to employees and employee
savings plan 184,332 189,400 115,632
Deferred income taxes (28,000) (13,000) -
Minority interest in
consolidated subsidiaries 85,242 52,298 -
Change in assets and
liabilities:
Trade accounts receivable (4,489,581) 1,589,878 (1,132,502)
Inventories (745,435) 746,867 (4,158,041)
Prepaid expenses 43,906 (54,426) (93,225)
Accounts payable 2,698,845 (2,156,055) 1,295,429
Customer deposits 477,916 (686,109) 1,650,842
Accrued compensation (38,993) 196,533 229,310
Other, net (1,547,538) 141,808 700,571
---------- --------- ---------
Net cash provided by
operating activities 2,949,916 6,234,998 3,861,425
========== ========= =========
Cash flows from investing
activities:
Capital expenditures (6,824,333) (4,826,302) (5,241,948)
Investment in subsidiaries (71,000) (146,466) (105,543)
---------- --------- ---------
Net cash used by investing
activities (6,895,333) (4,972,768) (5,347,491)
---------- --------- ---------
Cash flows from financing
activities:
Net borrowings (repayments)
under line of credit
agreements 3,972,556 (500,000) (1,778,345)
Repayment of long-term debt (1,836,110) (2,300,887) (2,613,177)
Proceeds from issuance of
long-term debt 5,981,028 1,300,000 5,691,806
Cash restricted for capital
expenditures (2,954,789) - -
Dividends paid (507,607) (486,700) (467,675)
Purchase of treasury stock (47,975) - -
Proceeds from sale of treasury
stock 48,909 - -
Proceeds from sale of common
stock 189,631 373,335 272,950
Payments received on notes
receivable from employees 46,035 45,692 43,576
---------- --------- ---------
Net cash provided (used) by
financing activities 4,891,678 (1,568,560) 1,149,135
---------- --------- ---------
Effect of exchange rate
changes on cash (303,016) (105,172) 285,643
---------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 643,245 (411,502) (51,288)
Cash and cash equivalents:
At beginning of year 2,367,684 2,779,186 2,830,474
---------- --------- ---------
At end of year $3,010,929 2,367,684 2,779,186
========== ========= =========
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $1,646,662 1,685,916 1,582,959
Income taxes $543,231 571,414 522,723
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Oilgear Company and Subsidiaries, Years ended
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Consolidation
These consolidated financial statements include the accounts of The Oilgear
Company and its subsidiaries (Company). All significant intercompany balances
and transactions have been eliminated in consolidation.
(b) Foreign Currency Translation
Substantially all assets and liabilities of foreign subsidiaries are translated
at the exchange rate prevailing at the balance sheet date and substantially all
income and expense accounts are translated at the weighted average exchange
rate during the year. Translation adjustments are not included in determining
net earnings, but are accumulated as a component of shareholders' equity.
Gains and losses resulting from foreign currency transactions are included in
net earnings.
(c) Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Cash equivalents totaled approximately $3,283,000
and $351,000 at December 31, 1997 and 1996, respectively, and consisted
primarily of commercial paper and short-term U.S. government securities.
Approximately $2,955,000 of cash equivalents at December 31, 1997 are restricted
for capital expenditures and are included in other assets in the consolidated
balance sheet (see note 5).
(d) Inventories
Inventories are stated at the lower of cost or market. Cost has been
calculated on the last-in, first-out (LIFO) method for the majority of the
domestic inventories. For the balance of the inventories, cost has been
calculated under the first-in, first-out (FIFO) or average actual cost methods.
Market means current replacement cost not to exceed net realizable value.
Products returned from customers are inspected to verify that the product is in
"as new" condition. Products verified to be in "as new" condition are added
to inventory. Reserves for obsolete and slow moving inventory are charged to
cost of sales.
(e) Depreciation and Amortization
Depreciation and amortization of plant and equipment are provided over the
estimated useful lives of the respective assets under the straight-line method.
Estimated useful lives range from 20 to 40 years for buildings, 5 to 15 years
for machinery and equipment and 5 to 17 years for drawings,
<PAGE> 13
patterns and patents.
(f) Revenue Recognition
The Company recognizes revenue on systems contracts on a percentage-of-
completion basis, measured by an estimate of the revenue generated by each
component of the system upon its completion. Losses are recognized at the time
a loss is projected. Revenue is recognized on other sales of products generally
upon shipment to the customer.
(g) Stock Option Plan
The Company accounts for its stock option plan in accordance with the provisions
of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, as permitted by Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. Under APB Opinion No. 25,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price of the stock option.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(i) Research and Development Costs
Research and development costs are charged to selling, general and
administrative expenses in the year they are incurred. Total research and
development expense was approximately $2,543,000, $2,315,000 and $2,127,000 in
1997, 1996 and 1995, respectively.
(j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(k) Earnings per Share
Earnings per share ("EPS") data and weighted-average shares outstanding have
been restated for all years presented to give effect to the three-for-two stock
split effected in the form of a dividend distributed on January 20, 1998 (see
note 1 (l)).
The Company adopted the provisions of SFAS No. 128, Earnings per Share, in 1997.
This Statement replaces the presentation of primary EPS and fully diluted EPS
with basic EPS and diluted EPS. Basic EPS is computed by
<PAGE> 14
dividing net earnings available to common shareholders by the weighted-average
number of common shares outstanding for the period. Basic EPS does not
consider common stock equivalents. Diluted EPS reflects the dilution that
would occur if convertible debt securities and employee stock options were
exercised or converted into common shares or resulted in the issuance of common
shares that then shared in the net earnings of the entity. The computation of
diluted EPS uses the "if converted" and "treasury stock" methods to reflect
dilution. All prior period EPS data presented has been restated for the
adoption of SFAS No. 128. The number of weighted-average shares
outstanding, adjusted for the stock split, used in calculating basic EPS was
1,896,248 in 1997, 1,806,663 in 1996, and 1,744,070 in 1995. The number of
weighted-average shares outstanding, adjusted for the stock split, used in
calculating diluted EPS was 1,913,948 in 1997, 1,820,795 in 1996, and 1,772,892
in 1995. The difference between the number of shares used in the two
calculations is due to employee stock options.
(l) Common Stock Split
On December 10, 1997, the Board of Directors declared a three-for-two stock
split on the Company's common stock. One additional share was issued for each
two shares of common stock held by shareholders of record on December 22, 1997.
The new shares were distributed on January 20, 1998. Common stock and
capital in excess of par value as of December 31, 1997 have been retroactively
restated to reflect this split. Par value per share will remain unchanged at
$1.00. The number of shares issued at December 31, 1997, after giving effect
to the split, was 1,927,103 (1,284,735 shares issued before the split). The
effect of the stock split has been retroactively reflected as of December 31,
1997 in the consolidated balance sheet and statement of shareholders' equity
but activity for 1997 and prior periods was not restated in those statements.
All references to the number of common shares and per share amounts elsewhere
in the consolidated financial statements and related notes have been restated
as appropriate to reflect the effect of the split for all periods presented.
(m) Impact of Recently Issued Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, and
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for the reporting and display
of comprehensive income and its components in financial statements. SFAS No.
131 establishes standards for the reporting of information about operating
segments, products and services, geographic areas and major customers in
financial statements. In February 1998, the FASB issued SFAS No. 132, Employers'
Disclosures about Pensions and other Post-retirement Benefits, which revises
current disclosure requirements on pensions and other post-retirement plans.
SFAS Nos. 130, 131 and 132 are effective for fiscal years beginning after
<PAGE> 15
December 15, 1997. These pronouncements will not impact Company earnings.
The Company is evaluating the effect of these pronouncements on its
consolidated financial statement disclosures.
(2) Business Description and Operations
The Oilgear Company provides advanced technology in the design and production
of unique fluid power components, systems and electronic controls. Products
include piston pumps, motors, valves, controls, manifolds, electronic systems
and components, cylinders, reservoirs, skids and meters. Industries that use
these products are primary metals, machine tool, automobile, petroleum,
construction equipment, chemical, plastic, glass, lumber, rubber and food.
The products are sold as individual components or integrated into high
performance systems.
Geographic area information is as follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Net sales to unaffiliated
customers:
Within the United States $51,655,659 46,188,297 44,118,481
United States exports 10,475,381 14,957,673 11,319,811
----------- ---------- ----------
Total United States 62,131,040 61,145,970 55,438,292
Foreign 28,772,807 28,474,892 26,719,078
----------- ---------- ----------
$90,903,847 89,620,862 82,157,370
=========== ========== ==========
Transfers between
geographic areas:
United States exports $4,631,811 3,774,661 3,909,946
=========== ========== ==========
United States imports $1,907,865 1,491,747 989,147
=========== ========== ==========
Earnings before income
taxes and minority
interest:
United States $2,010,742 2,473,797 1,953,373
Foreign 1,351,982 1,146,625 1,116,361
----------- ---------- ----------
$3,362,724 3,620,422 3,069,734
=========== ========== ==========
Identifiable assets:
United States $63,334,364 53,148,843 52,345,054
Foreign 25,862,994 24,689,984 25,557,108
----------- ---------- ----------
$89,197,358 77,838,827 77,902,162
=========== ========== ==========
</TABLE>
Foreign operations consist predominately of subsidiaries in Europe.
Transfers and sales between geographic areas are accounted for at cost plus
a reasonable profit.
(3) Inventories
Inventories at December 31, 1997 and 1996 consist of the following:
<TABLE>
1997 1996
<S> <C> <C>
Raw materials $1,740,946 1,497,513
Work in process 21,924,987 23,212,707
Finished goods 4,960,892 4,431,648
----------- ----------
28,626,825 29,141,868
LIFO reserve -2,230,000 -2,912,000
----------- ----------
Total $26,396,825 26,229,868
=========== ==========
</TABLE>
Inventories stated on the LIFO basis are valued at $16,871,000 and $17,275,000
at December 31, 1997 and 1996, respectively. During 1997, 1996 and 1995, LIFO
inventory layers were reduced. These reductions resulted in charging lower
inventory costs prevailing in previous years to cost of sales, thus reducing
cost of sales by approximately $750,000, $1,350,000 and $800,000 below the
amount that would have resulted from liquidating inventory recorded at December
31, 1997,
<PAGE> 16
1996 and 1995 prices, respectively.
(4) Short-term Borrowings
In 1997, the Company increased domestic short-term borrowings in the form of
bank revolving business notes by $4,000,000. These short-term notes bear
interest at LIBOR plus 1.4% (7.3% as of December 31, 1997) and will mature on
April 30, 1998. There were no domestic short-term borrowings at December 31,
1996. The above short-term notes are collateralized by substantially all
domestic property, plant and equipment. Short-term borrowings under a $200,000
line of credit by one of the Company's Indian joint ventures amounted to
approximately $78,000 and $113,000 at December 31, 1997 and 1996, respectively.
The Indian joint venture line of credit bears interest at approximately 16% as
of December 31, 1997. There were no short-term borrowings outstanding on a
$500,000 European line of credit at December 31, 1997 and 1996. The European
line of credit bears interest at the bank's base rate plus 2% (9.2% as of
December 31, 1997). These lines of credit are collateralized by substantially
all assets of the applicable Indian joint venture and European subsidiary.
(5) Long-term Debt
Long-term debt consisted of the following:
<TABLE>
1997 1996
<S> <C> <C>
Revolving loan agreement $13,327,247 $11,500,000
Industrial Revenue Bonds, due in
annual installments of $400,000
through October 2007 4,000,000 -
Notes payable to banks 2,337,500 3,806,000
Note payable to a municipality, due
in monthly installments through
January 2006 at 4.2% per annum. 419,325 462,000
Mortgage notes of German subsidiary,
payable in Deutsche Marks and due
in annual installments through 2007
(interest rates range from 4.8% to
7.6% as of December 31, 1997). 1,228,033 1,370,388
European Steel and Coal Community
note of UK subsidiary, payable
in Pounds Sterling in annual
installments through 1998 at
10% interest per annum. 119,213 241,704
Mortgage notes of French subsidiary,
payable in French Francs and due in
quarterly installments through 2002
at 9.2% and 9.8% interest per annum. 186,538 252,988
Capital leases 573,092 652,061
Other 89,309 52,658
----------- -----------
22,280,257 18,337,799
Less current installments 1,488,301 2,182,838
----------- -----------
Long-term debt, less current
installments $20,791,956 $16,154,961
=========== ===========
</TABLE>
In January 1997, the Company amended its revolving loan agreement.
The amended agreement provides for borrowings up to $16,000,000 through April
2000. The amended agreement changed the interest rate from the bank's prime
<PAGE> 17
rate or LIBOR plus 2.0% to the bank's prime rate or LIBOR plus 1.4%. Under
the agreement, the Company is required to pay a commitment fee of .375 of 1%
per annum on unused loan amounts available. Amounts outstanding at December
31, 1997 bear interest at 7.3%.
The industrial revenue bonds were issued in October 1997 under a capital lease
agreement between the County of Dodge, Nebraska and the Company. It covers
the expansion of the Fremont, Nebraska manufacturing facility and related
machine tools. The bonds are remarketed weekly and bear interest at a market
rate. The average effective rate in 1997 was 4.0%. The lease requires
annual rental amortization payments of $400,000 for ten years plus interest.
The Company has the option to purchase the property during the lease period and
upon termination of the lease the Company will obtain title to the property.
The Industrial Revenue Bonds are collateralized by the property and equipment
purchased from the bond proceeds. Allowable equipment purchases and expenses
paid out of bond proceeds in 1997 were approximately $1,045,000. At December
31, 1997, unused proceeds and related accumulated interest income from the
industrial revenue bonds is approximately $2,955,000 and is included in other
assets in the consolidated balance sheet. Such funds are restricted for
capital expenditures at the Fremont, Nebraska manufacturing facility. The
bond payments are guaranteed by a bank letter of credit that has an annual cost
of .75% of the outstanding principal balance of the bonds. The Company has
borrowings of 1,000,000 Pounds Sterling ($1,651,000 and $1,674,000 at December
31, 1997 and 1996, respectively, included in notes payable to banks) through
April 2000. The proceeds were used to decrease short-term borrowings in the
United Kingdom. The interest rate on this loan floats on a quarterly basis
based on bank interest rates in the United Kingdom (9.1% at December 31, 1997).
The Company also has notes payable to a bank and a municipality with balances
of approximately $687,000 and $419,000, respectively, at December 31, 1997.
These notes bear interest at 8.5% and 4.2%, respectively. These notes are
payable in monthly installments through January 2006. All borrowings under
the amended revolving loan agreement and notes payable to banks and
municipality are collateralized by substantially all domestic property, plant
and equipment. Covenants in connection with long-term debt provide for, among
other things, a specified minimum level of consolidated net worth and working
capital and limitations on additional long-term debt and capital expenditures.
The Company was in compliance with or had obtained waivers for all covenants
at December 31, 1997.
Aggregate annual principal payments for long-term debt maturing during the
next five years, including capital leases, are: 1998 - $1,488,301; 1999 -
$708,958; 2000 - $15,710,256; 2001 - $726,714; and 2002 - $682,703.
(6) Leases
<PAGE> 18
The Company has non-cancelable operating leases, primarily for automobiles,
equipment, and sales facilities. Rent expense for operating leases during
1997, 1996 and 1995 was $1,006,000, $935,000 and $863,000, respectively.
Future minimum lease payments under non-cancelable operating leases for each of
the next five years are: 1998 - $1,011,000; 1999 - $681,000; 2000 - $393,000;
2001 - $224,000; and 2002 - $200,000.
(7) Non-Operating Income, Net
Non-operating income (expense) consists of the following:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Interest income $154,077 119,917 158,316
Foreign currency exchange gain (loss) (146,811) (195,036) 149,159
Miscellaneous, net 245,591 218,712 (29,585)
--------- --------- ---------
$252,857 143,593 277,890
========= ========= =========
</TABLE>
(8) Income Taxes
Income tax expense (benefit) attributable to earnings before income taxes
and minority interest consists of:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $237,000 772,000 520,000
State 50,000 50,000 50,000
Foreign 341,000 241,000 308,000
--------- --------- ---------
628,000 1,063,000 878,000
Deferred (28,000) (13,000) -
--------- --------- ---------
Total $600,000 1,050,000 878,000
========= ========= =========
</TABLE>
The rate of expected income tax expense differs from the effective income
tax rate as follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Computed "expected" income tax rate 34.0% 34.0% 34.0%
State taxes (net of federal income
tax benefit) 1.0 0.9 1.1
Provision for prior years' estimated
income taxes 6.1 13.8 -
Benefit of carryforwards not
recognized 7.1 - -
Change in balance of valuation
allowance allocated to
income tax expense (31.1) (16.7) (5.8)
Unremitted foreign earnings and
foreign tax rate differential (3.9) (3.2) 0.9
Other items, net 4.6 0.2 (1.4)
---- ---- ----
Effective income tax rate 17.8% 29.0% 28.8%
==== ==== ====
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to earnings before income taxes and minority interest are as
follows:
<TABLE>
1997 1996 1995
<S> <C> <C> <C>
Deferred tax expense (exclusive
of the effects of other
components listed below) $2,824,000 1,152,000 469,000
Effects of adjustments in
the beginning of year
valuation allowance (2,852,000) (1,165,000) (469,000)
---------- ---------- --------
$(28,000) (13,000) -
========== ========== ========
</TABLE>
<PAGE> 19
During 1997, the Company allocated $1,520,000 of tax benefit to shareholders'
equity related to the change in unfunded employee retirement plan costs.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996 are as follows:
<TABLE>
1997 1996
<S> <C> <C>
Deferred tax assets:
Accounts receivable $60,000 60,000
Compensation 653,000 741,000
Warranty reserve 130,000 206,000
Employee benefits accruals 3,400,000 5,206,000
Tax credit carryforwards 1,110,000 1,330,000
Net operating loss carryforwards 389,000 405,000
--------- ---------
Total gross deferred tax assets 5,742,000 7,948,000
Less valuation allowance 569,000 3,421,000
--------- ---------
Net deferred tax assets 5,173,000 4,527,000
--------- ---------
Deferred tax liabilities:
Depreciation 4,999,000 4,437,000
Inventories 187,000 28,000
Other 32,000 135,000
--------- ---------
Total gross deferred tax liabilities 5,218,000 4,600,000
--------- ---------
Net deferred tax liability $(45,000) (73,000)
========= =========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996 was
$4,586,000. The net change in the total valuation allowance for the years ended
December 31, 1997 and 1996 was a decrease of $2,852,000 and $1,165,000,
respectively. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. At
December 31,1997 the Company has a U.S. general business tax credit
carryforward of approximately $410,000 and an AMT tax credit carryforward of
approximately $700,000. The U.S. business tax credits begin expiring in 2001
through 2012 and the AMT tax credits have no expiration. The Company also has a
tax operating loss carryforward applicable to a foreign subsidiary of
approximately $900,000 which can be carried forward indefinitely. The
unremitted earnings of the Company's foreign subsidiaries, on which income taxes
have not been provided, are considered permanently invested and aggregated
approximately $7,700,000 at December 31, 1997.
(9) Employee Benefit Plans
(a) Pension Plans
The Company has non-contributory defined benefit retirement plans covering
substantially all domestic employees. The plan covering salaried and
<PAGE> 20
management employees provides pension benefits that are based on years of
service and the employee's compensation during the last ten years prior to
retirement. Benefits payable under this plan may be reduced by benefits
payable under The Oilgear Stock Retirement Plan (Stock Retirement Plan). The
plan covering hourly employees and union members generally provides benefits of
stated amounts for each year of service. The Company's policy is to fund
pension costs to conform to the Employee Retirement Income Security Act of
1974. Unfunded employee retirement plan costs reflect the excess of the
unfunded accumulated benefit obligation over accrued pension cost. This
excess has been partially offset by an intangible asset with the remainder
reflected as an adjustment to shareholders' equity. Plan assets are primarily
invested in The Oilgear Company common stock (115,617 and 133,260 shares at
December 31, 1997 and 1996, respectively), money market, equity and long-term
bond mutual funds. Data relative to 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Actuarial present value of vested
benefit obligation $17,600,000 16,600,000
=========== ==========
Accumulated benefit obligation
including vested benefits $18,700,000 17,800,000
=========== ==========
Projected benefit obligation $19,500,000 18,400,000
Plan assets at fair value (19,100,000) (15,400,000)
----------- ----------
Projected benefit obligation
in excess of plan assets 400,000 3,000,000
Unrecognized net transition liability
being recognized over 15 years (400,000) (500,000)
Unrecognized net loss from past
experience, experience different
from that assumed and effects
of changes in assumptions (3,700,000) (5,600,000)
----------- ----------
Prepaid pension cost, included
in other assets (3,700,000) (3,100,000)
Adjustment for additional minimum
liability, reflected as unfunded
employee retirement plan costs 1,700,000 5,600,000
----------- ----------
Total (prepaid pension cost)
pension liability $(2,000,000) 2,500,000
=========== ==========
</TABLE>
Net pension expense under these plans for the year is comprised of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost $500,000 400,000 300,000
Interest cost on projected
benefit obligation 1,300,000 1,300,000 1,200,000
Return on plan assets (3,900,000) (2,200,000) (2,800,000)
Net amortization and deferral
of net transition liability 2,700,000 1,300,000 2,200,000
---------- ---------- ----------
Net pension expense $600,000 800,000 900,000
========== ========== ==========
</TABLE>
The actuarial present value of the projected benefit obligation was determined
using a weighted-average discount rate of 7.0% in 1997, 7.5% in
<PAGE> 21
1996 and 7.4% in 1995 and a rate of increase in compensation levels (as
applicable) of 3% offset by projected payments from the Stock Retirement Plan
as outlined in the plan's provisions. The expected long-term rate of return
used to measure plan assets was 10% in 1997, 1996 and 1995. The Company has a
pension plan (UK Plan) for substantially all United Kingdom employees that
provides defined benefits based upon years of service and salary. The
provisions of the UK Plan provide for vesting after six months of continuous
employment and employee contributions equal to 6% of salary. At the most
recent actuarial determination date, April 1995, the pension plan data
comprised the following:
<TABLE>
<S> <C>
Actuarial present value of vested accumulated
plan benefits $7,000,000
==========
Market value of net assets available for benefits $7,000,000
==========
</TABLE>
Pension expense for the UK Plan was $241,000, $240,000 and $199,000 in 1997,
1996 and 1995, respectively. The Stock Retirement Plan is a defined contribution
plan covering substantially all domestic salaried employees. The Stock
Retirement Plan is non-contributory and provides for discretionary Company
contributions based on a percentage of defined earnings of eligible employees.
No contributions were made to the Stock Retirement Plan in 1997 and 1995. The
amount charged to expense for contributions made in 1996 was approximately
$305,000. The Stock Retirement Plan owned 437,248 and 445,055 shares of the
Company's common stock as of December 31, 1997 and 1996, respectively. Certain
benefits payable under the Stock Retirement Plan serves to reduce benefits
payable under the non-contributory defined benefit retirement plan referred to
above.
(b) Employee Savings Plans
The Company has an employee savings plan (Savings Plan), under which eligible
domestic salaried employees may elect, through payroll deduction, to defer from
1% to 15% of their base salary, subject to certain limitations, on a pretax
basis. The Company will contribute an additional 50% of the minimum 2%
contribution and 25% of any additional contribution up to 3% above the minimum
contribution. Contributions are placed in trust for investment in defined
funds, including a stock fund for investment primarily in common stock of the
Company. The Savings Plan trustee may purchase for the stock fund the
Company's common stock, subject to certain limitations, at a price equal to 80%
of the previous month's average low bid price. This discount is considered as
an additional contribution to the Savings Plan in the year of purchase. The
amounts charged to expense under the Savings Plan, including the stock
discount, were $314,000, $306,000 and $216,000 in 1997, 1996 and 1995,
respectively. The Savings Plan owned 360,319 and 383,508 shares of the
<PAGE> 22
Company's common stock as of December 31, 1997 and 1996 respectively. The
Company also has Oilgear Milwaukee Shop Savings Plan, under which eligible
domestic collective bargaining unit employees may elect, through payroll
deductions, to defer from 1% to 15% of their earnings, subject to certain
limitations, on a pretax basis. The Company was not required to pay matching
contributions in 1995 and 1996. Beginning with payrolls paid after October
31, 1997 the Company started to contribute an additional 10% on the first 5% of
employee contributions. Contributions are placed in trust for investments in
defined funds. The amount charged to expense for 1997 was $3,000.
(c) Employee Stock Purchase Plan
The Company has a key employee stock purchase plan under which shares of common
stock may be sold to key employees under restricted sales agreements. The
shares are sold at the market price at the time of the sale. One-half of the
purchase price is payable under 5% promissory notes over a three-year period.
The Company forgives the last portion of the note over a three-year period,
beginning the year in which the first half is repaid, if employment has
continued. The anticipated compensation element of the shares sold,
represented by the potential forgiveness of the last one-half of the principal
due, is charged to operations on the straight-line basis over the life of the
note. The amounts charged to operations were $63,000, $66,000 and $54,000 in
1997, 1996 and 1995, respectively.
(d) Stock Option Plan
The Oilgear Company 1992 Stock Option Plan (Option Plan) provides for the
issuance of both incentive stock options and nonqualified stock options to
purchase up to 150,000 shares of common stock. Eligibility for participation
in the Option Plan is determined by the Compensation Committee of the Board of
Directors (Committee). The exercise price of the options is determined by the
Committee, but shall be greater than or equal to the fair market value of the
Company's common stock when the option is granted. All stock options have
five-year terms and incremental vesting, fully exercisable after three years
from the date of grant. The Committee establishes the period or periods of
time within which the option may be exercised within the parameters of the
Option Plan document.
A summary of stock option activity related to the Option Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Number Average Price
of Shares Per Share
<S> <C> <C>
Outstanding at December 31, 1994 107,250 $7.33
Granted 28,742 $11.55
Exercised (16,558) $7.33
Canceled and available for reissue (28,742) $7.33
-------- --------
Outstanding at December 31, 1995 90,692 $8.65
Granted 21,458 $9.78
Exercised (7,187) $7.33
Canceled and available for reissue (20,477) $7.33
-------- --------
Outstanding at December 31, 1996 84,486 $9.35
Granted 32,874 $13.08
Exercised (19,862) $8.54
Canceled and available for reissue (34,488) $8.54
-------- --------
Outstanding at December 31, 1997 63,010 $11.91
-------- --------
Range of exercise prices at
December 31, 1997 $7.33 - $16.00
----------------------------------
Options available for grant at
December 31, 1997 43,383
----------------------------------
</TABLE>
<PAGE> 23
Other information regarding the Option Plan is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Options exercisable at end
of year $13,731 48,657 61,950
------- ------- -------
Weighted-average exercise
price of exercisable options 11.09 8.54 7.33
------- ------- -------
Weighted-average fair value of
options granted during year 1.82 1.05 1.38
------- ------- -------
</TABLE>
At December 31, 1997, the weighted-average remaining contractual lives of stock
options outstanding is approximately 3.8 years. Had compensation cost for the
Company's stock options been recognized using the fair value method, the
Company's pro forma operating results would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net earnings $2,665,169 2,511,315 2,189,083
---------- ---------- ----------
Basic earnings per share 1.41 1.39 1.26
---------- ---------- ----------
Diluted earnings per share 1.39 1.38 1.23
---------- ---------- ----------
</TABLE>
The fair value of each option grant was estimated using the Black-Scholes
option pricing model with an expected volatility of 39%, an expected dividend
rate of approximately 2%, a risk free rate equivalent to 4 year U.S. Treasury
securities and an expected life of 3.5 years. The pro forma operating results
reflect only options granted in 1997, 1996 and 1995.
(e) Directors' Stock Plan
The Oilgear Company Directors' Stock Plan (Plan) provides for directors of
Oilgear, eligible to receive directors' fees, to receive Oilgear common stock
in lieu of all or part of their directors' fees. There are 15,000 shares
authorized for issuance under the Plan of which 1,500, 1,125 and 750 shares
were issued in 1997, 1996 and 1995, respectively. As of December 31, 1997,
10,125 shares remain available for issuance.
(f) Post-retirement Health and Life Care Benefits
In addition to providing pension benefits, the Company provides certain health
care and life insurance benefits for retired domestic employees. All
non-bargaining unit domestic employees eligible to receive retiree health care
benefits as of December 31, 1991 are eligible to receive a health care credit
based upon a defined formula or a percentage multiplied by the Medicare
eligible premium. Non-bargaining unit domestic employees hired
<PAGE> 24
subsequent to, or ineligible at December 31, 1991, will receive no
future retiree health care benefits. As of February 22, 1996, active
bargaining unit domestic employees are provided retiree health care benefits
up to the amount of credits each employee accumulates during his employment
with the Company. All bargaining unit domestic retirees as of February 22,
1996 are provided retiree health care benefits in accordance with the
employment agreement at the time of their retirement. Employees terminating
their employment prior to normal retirement age forfeit their rights, if any,
to receive health care and life insurance benefits. The following table
presents the plan's funded status reconciled with amounts recognized in the
Company's consolidated balance sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accumulated post-retirement benefit
obligation:
Retirees $5,430,000 5,258,000
Fully eligible active plan participants 1,161,000 791,000
Other active plan participants 2,215,000 1,980,000
----------- ----------
8,806,000 8,029,000
----------- ----------
Plan assets at fair value - -
----------- ----------
Accumulated post-retirement benefit
in excess of plan assets 8,806,000 8,029,000
Unrecognized prior service cost
being recognized over 16 years 467,000 500,000
Unrecognized net gain 1,697,000 2,580,000
----------- ----------
Accrued post-retirement benefit cost,
reflected as unfunded post-retirement
health care cost $10,970,000 11,109,000
=========== ==========
</TABLE>
Net periodic post-retirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost $96,000 99,000 117,000
Interest cost 580,000 557,000 633,000
Net amortization and deferral (212,000) (245,000) (273,000)
-------- -------- --------
Net periodic post-retirement
benefit cost $464,000 411,000 477,000
======== ======== ========
</TABLE>
For measurement purposes, the following health care cost assumptions were made:
For all retiree and active groups, health care costs increase at a rate of 8.5%
in year one, grading down to a rate of 4.5% in year eight and thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated
post-retirement benefit obligation as of December 31, 1997 by $441,000 and the
aggregate of the service and interest cost components of net periodic
post-retirement cost for the year ended December 31, 1997 by $32,000. The
weighted-average discount rate used in determining the
<PAGE> 25
accumulated post-retirement benefit obligation was 7.0%, 7.5% and 7.4% at
December 31, 1997, 1996 and 1995, respectively.
(10) Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating the fair value of financial instruments as of December 31, 1997:
Cash and cash equivalents: The carrying amount reported in the consolidated
balance sheet for cash and cash equivalents approximates their fair value.
Short-term borrowings and long-term debt: The carrying amounts of the Company's
short-term borrowings, its revolving loan agreements and variable rate
long-term debt instruments as reported in notes 4 and 5 approximate their fair
value. The fair value of the Company's other long-term debt is estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The carrying
amounts of other long-term debt as reported in note 5 approximate their fair
value.
(11) Legal Contingencies
The Company is a defendant in several product liability actions that it
believes are adequately covered by insurance.
MANAGEMENT'S REPORT
The management of The Oilgear Company is responsible for the integrity and
objectivity of the financial information presented in this annual report. The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles, applying best estimates and
judgements as required.
The Oilgear Company maintains a system of internal accounting controls designed
to provide reasonable assurance for the safeguarding of the Company's assets
and the reliability of financial records. Essential elements of this system are
the selection of qualified personnel, appropriate division of responsibilities,
communication of policies and procedures, and appropriate follow-up by
management. Management believes that this system provides reasonable
assurance that transactions are executed in accordance with management's
authority and that they are properly recorded.
KPMG Peat Marwick LLP is the firm of independent auditors retained to express
their opinion as to whether the consolidated financial statements present
fairly, in all material respects, the financial position, results of operations
and cash flows of The Oilgear Company. Their audit procedures include an
evaluation and review of the Company's system of internal control to establish
the audit scope, tests of selected transactions, and other audit procedures.
The entire Board of Directors functions as an audit committee and meets with
the independent auditors and the Company's management to review the scope and
findings of the audit, review the Company's system of internal control, and
review other accounting and financial matters. The Company will continue to
conduct its business affairs in accordance with the highest ethical standards.
David A. Zuege, Thomas J. Price,
President and Vice President - Finance
Chief Executive Officer and Corporate Secretary
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
Shareholders and the Board of Directors
The Oilgear Company:
We have audited the accompanying consolidated balance sheets of The Oilgear
Company and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations and shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 Oilgear Company
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
March 2, 1998
<PAGE> 1
EXHIBIT 21
(1997 10-K)
SUBSIDIARIES OF THE OILGEAR COMPANY
NAME OF SUBSIDIARY JURISDICTION IN WHICH INCORPORATED
Oilgear Towler GmbH Republic of Germany
Oilgear F.S.C., Inc. Virgin Islands
Oilgear Ltd. England
Oilgear Towler Ltd. England
Oilgear Towler S.A. France
Oilgear Towler S.A. Spain
Oilgear Towler S.r.l. Italy
Oilgear Towler Australia Pty. Ltd. Australia
Oilgear Mexicana S.A. de C.V. Mexico
Oilgear do Brazil Hydraulica Ltda. Brazil
Oilgear Towler Korea Ltd. South Korea
Oilgear Canada Inc. Canada
Oilgear Towler Polyhydron Pvt. Ltd. India
(51% Joint Venture)
Oilgear Harman Pvt. Ltd. India
(51% Joint Venture)
<PAGE> 1
EXHIBIT 23
CONSENT OF KPMG PEAT MARKWICK LLP
Shareholders and the Board of Directors
The Oilgear Company:
We consent to incorporation by reference in the registration statements (Nos.
33-67672 and 33-59033) on Form S-8 of The Oilgear Company of our reports dated
March 2, 1998, relating to the consolidated balance sheets of The Oilgear
Company and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations and shareholders' equity, and cash flows
and the related financial statement schedule for each of the years in the
three-year period ended December 31, 1997, which reports appear or are
incorporated by reference in the December 31, 1997 annual report on Form 10-K of
The Oilgear Company.
/s/ KPMG Peat Marwick LLP
--------------------------
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF THE OILGEAR COMPANY FOR THE YEAR ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,010,929
<SECURITIES> 0
<RECEIVABLES> 18,889,221
<ALLOWANCES> 211,372
<INVENTORY> 26,396,825
<CURRENT-ASSETS> 49,636,199
<PP&E> 62,213,882
<DEPRECIATION> 30,834,701
<TOTAL-ASSETS> 89,197,358
<CURRENT-LIABILITIES> 22,210,946
<BONDS> 22,280,257
0
0
<COMMON> 10,720,925
<OTHER-SE> 21,106,638
<TOTAL-LIABILITY-AND-EQUITY> 89,197,358
<SALES> 90,903,847
<TOTAL-REVENUES> 90,903,847
<CGS> 61,800,585
<TOTAL-COSTS> 61,800,585
<OTHER-EXPENSES> 24,343,569
<LOSS-PROVISION> 163,178
<INTEREST-EXPENSE> 1,649,826
<INCOME-PRETAX> 3,362,724
<INCOME-TAX> 600,000
<INCOME-CONTINUING> 2,677,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,677,482
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF THE OILGEAR COMPANY FOR THE YEAR ENDED DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,367,684
<SECURITIES> 0
<RECEIVABLES> 15,112,349
<ALLOWANCES> 218,154
<INVENTORY> 26,229,868
<CURRENT-ASSETS> 44,558,396
<PP&E> 56,594,745
<DEPRECIATION> 27,740,588
<TOTAL-ASSETS> 77,838,827
<CURRENT-LIABILITIES> 15,895,627
<BONDS> 18,337,799
0
0
<COMMON> 10,339,487
<OTHER-SE> 16,977,651
<TOTAL-LIABILITY-AND-EQUITY> 77,838,827
<SALES> 89,620,862
<TOTAL-REVENUES> 89,620,862
<CGS> 60,184,305
<TOTAL-COSTS> 60,184,305
<OTHER-EXPENSES> 24,231,669
<LOSS-PROVISION> 183,831
<INTEREST-EXPENSE> 1,728,059
<INCOME-PRETAX> 3,620,422
<INCOME-TAX> 1,050,000
<INCOME-CONTINUING> 2,518,124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,518,124
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.38
</TABLE>
