UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
_____________________________________________________________________________
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15D OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________.
Commission File Number: 0-23242
WEBCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1097133
(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
9101 West 21st Street, SAND SPRINGS, OKLAHOMA 74063
(Address of principal executive offices) (Zip Code)
(918) 241-1000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to distribution of securities under a plan
confirmed by a court.
NOT APPLICABLE [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date: 7,169,000 shares of Common
Stock, $0.01 par value, as of March 1, 1999.
<PAGE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Notes to Unaudited Financial Statements 6-8
Report of Review by Independent
Accountants 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10-15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
BALANCE SHEETS
(Dollars in thousands, except par value)
(Unaudited)
<CAPTION>
January 31, July 31,
ASSETS 1999 1998
<S> <C> <C>
Current assets:
Cash $ 1,226 $ 266
Accounts receivable, net 17,038 19,874
Inventories 30,095 27,775
Prepaid expenses 657 205
Deferred income tax asset 2,019 2,740
Total current assets 51,035 50,860
Property, plant and equipment:
Land 1,436 1,436
Buildings and improvements 14,693 14,571
Machinery and equipment 61,241 60,138
Furniture and fixtures 5,129 4,975
Construction in progress 10,254 5,261
Less accumulated depreciation and amortization (31,936) (29,751)
Net property, plant and equipment 60,817 56,630
Notes receivable from related parties 1,814 1,774
Other assets, net 2,519 2,494
Total assets $ 116,185 $ 111,758
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,635 $ 11,760
Accrued liabilities 5,732 6,957
Current portion of long-term debt 1,749 1,282
Total current liabilities 19,116 19,999
Long-term debt 36,981 32,894
Deferred income tax liability 10,459 10,620
Contingencies (Note 3)
Stockholders' equity:
Common stock, $.01 par value, 12,000,000 shares
authorized, 7,169,000 shares issued
and outstanding 72 72
Additional paid-in capital 36,179 36,179
Retained earnings 13,378 11,994
49,629 48,245
Total liabilities and stockholders' equity $ 116,185 $ 111,758
<FN>
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 32,124 $ 37,936 $ 68,707 $ 72,474
Cost of sales 27,512 31,159 57,128 60,407
Gross profit 4,612 6,777 11,579 12,067
Commission income 234 206 428 434
Selling, general and administrative
expenses 3,963 4,240 8,569 7,748
Income from operations 883 2,743 3,438 4,753
Interest expense 599 627 1,198 1,260
Income before income taxes 284 2,116 2,240 3,493
Provision for income taxes 112 638 856 976
Net income $ 172 $ 1,478 $ 1,384 $ 2,517
Pro forma net income (1) $ 1,304 $ 2,149
Net income per common share:
Basic $ .02 $ .21 $ .19 $ .35
Diluted $ .02 $ .21 $ .19 $ .35
Pro forma net income per common share: (1)
Basic $ .18 $ .30
Diluted $ .18 $ .30
Weighted average common shares outstanding:
Basic 7,169 7,169 7,169 7,169
Diluted 7,186 7,209 7,189 7,217
(1) Pro forma net income for the three months and six months ended January 31,
1998 include a provision for income taxes on the earnings of Phillips &
Johnston, Inc., which prior to its merger with Webco in June 1998 was
taxed as an S-Corporation. Pro forma income taxes have been calculated
using an effective tax rate of 38% (34% Federal and 4% state).
<FN>
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
<TABLE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
January 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,384 $ 2,517
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,407 1,907
Loss (gain) on write-off and disposition
of property, plant and equipment (8) 8
Deferred tax expense 560 952
(Increase) decrease in:
Accounts receivable 2,836 (3,461)
Inventories (2,320) 1,474
Prepaid expenses (443) (16)
Increase (decrease) in:
Accounts payable 814 483
Accrued liabilities (1,226) 993
Net cash provided by operating activities 4,004 4,857
Cash flows from investing activities:
Capital expenditures (6,214) (4,699)
Proceeds from sale of property, plant and equipment 7 8
Advances to stockholder - (38)
Other (245) (119)
Net cash used in investing activities (6,452) (4,848)
Cash flows from financing activities:
Proceeds from long-term debt 72,405 67,150
Principal payments on long-term debt (67,853) (64,747)
Dividends paid - (887)
Increase (decrease) in book overdrafts (1,144) (1,490)
Net cash provided by financing activities 3,408 26
Net change in cash 960 35
Cash, beginning of period 266 202
Cash, end of period $ 1,226 $ 237
<FN>
See accompanying notes to unaudited financial statements.
</TABLE>
<PAGE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
Notes to Unaudited Financial Statements
Note 1 - General
The accompanying unaudited condensed consolidated financial statements of
Webco Industries, Inc. and Subsidiary ("Webco" or the "Company") include, in
the opinion of management, all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of financial position at January 31,
1999 and results of operations for the three months and six months ended
January 31, 1999 and January 31, 1998, and cash flows for the six months ended
January 31, 1999 and January 31, 1998. Results for the three months and six
months ended January 31, 1999 are not necessarily indicative of results which
will be realized for the full fiscal year. Results for the three months and
six months-ended January 31, 1998 have been restated to reflect the June 1998
(accounted for as a pooling of interests) merger with Phillips & Johnston,
Inc. The year-end balance sheet was derived from the audited consolidated
financial statements but does not include all disclosures required by
generally accepted accounting principles. The unaudited condensed
consolidated financial statements should be read along with the audited
consolidated financial statements and related notes which can be found in the
Company's Form 10-K for the year ended July 31, 1998.
Note 2 - Inventories
At January 31, 1999 and July 31, 1998, inventories were as follows:
January 31, 1999 July 31, 1998
Raw materials $ 15,199,000 $ 13,614,000
Work-in-process 1,750,000 1,860,000
Finished goods 11,369,000 10,664,000
Maintenance parts
and supplies 1,777,000 1,637,000
Total inventories $ 30,095,000 $ 27,775,000
Note 3 - Contingencies
The Company is a party to various lawsuits and claims arising in the ordinary
course of business. Management, after review and consultation with legal
counsel, considers that any liability resulting from these matters would not
materially affect the results of operations or the financial position of the
Company.
<PAGE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
Notes to Unaudited Financial Statements
Note 4 - Common Stock and Common Stock Equivalents
Presented below is a reconciliation of the differences between actual weighted
average shares outstanding and diluted weighted average shares.
Three Months Ended Six Months Ended
January 31, January 31,
1999 1998 1999 1998
Basic EPS:
Weighted average shares
outstanding 7,169,000 7,169,000 7,169,000 7,169,000
Effect of dilutive securities:
Options 17,000 40,000 20,000 48,000
Diluted EPS:
Diluted weighted average
shares outstanding 7,186,000 7,209,000 7,189,000 7,217,000
Anti-dilutive options outstanding:
Number of options 215,500 182,000 215,500 9,500
Weighted average exercise price $ 7.26 $ 7.46 $ 7.26 $ 7.46
Note 5 - Segment Information
In 1998 Webco Industries, Inc. adopted FAS 131 "Disclosures about Segments of
an Enterprise and Related Information". The Company has two reportable
segments: tubing products and QuikWater, representing the Company's two
strategic business units offering different products. The Company internally
evaluates its business by facility, however, because of the similar economic
characteristics of the tubing operations, including the nature of products,
production processes and customers, those operations have been aggregated for
segment reporting purposes. The tubing products segment manufactures as well
as distributes tubular products principally made of carbon and stainless
steel. QuikWater manufactures a patented direct contact, high efficiency water
heater.
<PAGE>
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
Notes to Unaudited Financial Statements
Note 5 - Segment Information, Continued
The Company measures segment profit or loss as segment income before income
taxes. Information on the Company's segments is as follows:
Tubing
Products QuikWater Total
(Dollars in Thousands)
Quarter-ended January 31, 1999:
Revenues $ 31,266 $ 858 $ 32,124
Segment pre tax income or (loss) 627 (343) 284
Quarter-ended January 31, 1998:
Revenues 37,554 382 37,936
Segment pre tax income or (loss) 2,513 (397) 2,116
Year to date January 31, 1999:
Revenues 67,113 1,594 68,707
Segment pre tax income or (loss) 2,985 (745) 2,240
Year to date January 31, 1998:
Revenues 71,738 736 72,474
Segment pre tax income or (loss) 4,342 (849) 3,493
<PAGE>
<AUDIT-REPORT>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Stockholders
Webco Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Webco Industries, Inc. and subsidiary as of January 31, 1999, and the related
condensed consolidated statements of income for the three month and six month
periods ended January 31, 1999 and 1998 and cash flows for the six-month
periods ended January 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Webco Industries, Inc.
and subsidiary as of July 31, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated September 9, 1998, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of July 31, 1998 is fairly stated in all material respects in relation to
the balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 19,1999
</AUDIT-REPORT>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Webco Industries, Inc., an Oklahoma corporation founded in 1969 by F. William
Weber, chairman of the board and chief executive officer, is a specialty
manufacturer of high-quality carbon steel tubing and stainless steel tubing
products designed to industry and customer specifications. Webco's tubing
products consist primarily of: welded carbon heat exchanger tubing, welded
boiler tubing, stainless tube and pipe, and advanced carbon mechanical tubing
for use in consumer durable and capital goods. Management believes that Webco
is the domestic market leader in the manufacture of welded carbon heat
exchanger tubing and welded carbon boiler tubing, and the leading supplier of
stainless tubing for certain niche applications. The Company's subsidiary,
Phillips & Johnston, Inc. ("P&J"), represents several manufacturers in the
sale of various non-competing mechanical and specialty tubular products made
from copper, brass, aluminum, stainless steel and carbon steel, among others.
This representation allows the Company to better serve its customers by
offering a full range of tubing products. The Company's QuikWater division
manufactures and markets a patented direct contact water heater for commercial
and industrial applications. The Company has three production facilities in
Oklahoma and Pennsylvania and five distribution facilities in Oklahoma, Texas,
Illinois and Michigan, serving more than 1,300 customers throughout North
America.
Unless the context otherwise requires, the information contained in this
report, and the terms "Webco" and the "Company" when used in this report,
include Webco Industries, Inc. and its subsidiary, P&J, on a combined basis.
Results of Operations for the Three Months Ended January 31, 1999 Compared to
the Three Months Ended January 31, 1998
Manufactured Tubing Product sales for the quarter ended January 31, 1999
were $28,695,000, a decrease of 17.0% from the $34,583,000 for the same
quarter last year. The $5,888,000 decrease in net sales is primarily the
result of a 19.3% decrease in the tonnage of tubing sold, which was partially
offset by a 2.8% increase in the average net sales price per ton. A decrease
in sales of carbon tubing products, which was the result of low priced foreign
imports and low demand for foreign exports, was primarily responsible for the
overall decrease in the tonnage of tubing sold. The increase in the average
net selling price is a combination of a change in sales mix towards lower
priced products and improved pricing structures in stainless products, which
more than offset a slight decrease in the net sales price per ton obtained for
carbon products.
Gross profit for Manufactured Tubing Products decreased to $4,022,000 or 14.0%
of net sales for the second quarter of fiscal 1999 from $6,041,000 or 17.5% of
net sales for the same period in fiscal 1998. This is a function of a 7.1%
increase in the average manufactured cost per ton of tubing sold which was
partially mitigated by a 2.8% increase in the average net sales price per ton,
noted above.
Other Tubing Products sales are made primarily by Webco's subsidiary, P&J.
Sales of these products decreased 13.5% to $2,571,000 for the period ended
<PAGE>
January 31, 1999 from $2,971,000 for the period ended January 31, 1998. This
was primarily the result of downward pricing pressure in the market place,
which necessitated pricing reductions in order to maintain the existing
customer base.
Gross profit from Other Tubing Products decreased to $468,000 or 18.2% of net
sales for the second quarter of fiscal 1999 from $795,000 or 26.8% of net
sales for the same period in fiscal 1998. This was the result of the
reduction in sales prices noted above.
Sales for Quikwater were $858,000 for the second quarter of fiscal 1999, which
is 125% more than the $382,000 in sales for the same period in fiscal 1998.
The increase in sales is the result of a concentrated sales effort and a
continued increase of recognition in the market place.
Gross profit for QuikWater was $122,000 for the second quarter of fiscal 1999
as compared to ($59,000) for the same period of fiscal 1998. This increase is
a reflection of lower overall manufacturing fixed costs and semi-fixed costs
being spread over higher volumes.
Commission income, which is generated by P&J's non-Webco sales representative
business, increased 13.6% to $234,000 in the second quarter of fiscal 1999
from $206,000 in the same period of fiscal 1998.
Selling, general and administrative expenses were $3,963,000 for the
second quarter of fiscal 1999 compared to $4,240,000 for the same quarter of
fiscal 1998. The decrease in the current quarter is primarily the result of a
$517,000 decrease in profit sharing and bonuses to employees, which was
partially offset by an increase of $128,000 in legal fees related to the
Thermatool litigation.
Income from operations for the current quarter decreased to $883,000
(2.7% of net sales) from $2,743,000 (7.2% of net sales) for the same quarter
last year. The decrease is primarily attributable to an increase in the
average cost per ton of tubing sold, which was partially offset by an increase
in the average net sales price per ton.
Interest expense for the current period was $599,000 ($724,000 prior to
interest capitalization) as compared to interest expense of $627,000 ($730,000
prior to interest capitalization) for the same quarter last year. The slight
decrease in interest prior to interest capitalization is the result of the
average level of debt under the bank Loan and Security Agreement for the three
months ended January 31, 1999 being $34.5 million as compared to $35.1 million
for the same period last year. In addition, the related average interest rate
decreased slightly to 7.34% in the second quarter of fiscal 1999 from 7.76% in
the second quarter of fiscal 1998.
The recorded income tax expense for the quarter ended January 31, 1999 is
based upon the estimated annual combined effective federal and state income
tax rates.
Results of Operations for the Six Months Ended January 31, 1999 Compared to
the Six Months Ended January 31, 1998
Manufactured Tubing Product sales for the six months ended January 31,
1999 decreased 8.1% to $60,844,000 as compared to $66,187,000 for the same
<PAGE>
period last year. The $5,343,000 decrease in net sales is primarily the result
of a 13.1% decrease in the tonnage of tubing sold, which was partially offset
by a 5.8% increase in the average net sales price per ton. The overall
decrease in the tonnage of tubing sold was the result of a decrease in sales
of carbon tubing products, which was the result of low priced foreign imports
and low demand for foreign exports. The increase in the average net selling
price is a combination of a change in sales mix towards lower priced products
and improved pricing structures in stainless products, which more than offset
a slight decrease in the net sales price per ton obtained for carbon products.
In addition, the decrease in the quantity of lower priced boiler tubing
products noted above also contributed to the increase in the average net
selling price per ton.
Gross profit for Manufactured Tubing Products was $10,077,000 or 16.6% of net
sales for the first six months of fiscal 1999 compared to $10,735,000 or 16.2%
of net sales for the same period in fiscal 1998. This is a function of a 5.8%
increase in the average net sales price per ton, noted above, which was
substantially offset by a 5.4% increase in the average manufactured cost per
ton of tubing sold.
Other Tubing Products sales are made primarily by Webco's subsidiary, P&J.
Sales of these products increased 12.9% to $6,269,000 for the six month period
ended January 31, 1999 from $5,551,000 for the same period ended January 31,
1998. The increase in sales is primarily the result of volume increases.
Gross profit from Other Tubing Products decreased to $1,298,000 or 20.7% of
net sales for the first six months of fiscal 1999 from $1,423,000 or 25.6% of
net sales for the same period in fiscal 1998. This was primarily the result
of a reduction in sales prices.
Sales for Quikwater were $1,594,000 for year to date fiscal 1999, which is
117% more then the $736,000 in sales for the same period in fiscal 1998. The
increase is the result of a concentrated sales effort and a continued increase
of recognition in the market place.
Gross profit for QuikWater was $204,000 for the first six months of fiscal
1999 as compared to ($91,000) for the same period of fiscal 1998. This
increase is a reflection of lower overall manufacturing fixed costs and semi-
fixed costs being spread over higher volumes.
Commission income, which is generated by P&J's non-Webco sales representative
business, was basically unchanged at $428,000 for the first six months of 1999
compared to $434,000 in the same period of fiscal 1998.
Selling, general and administrative expenses year to date for fiscal 1999
were $8,569,000 compared to $7,748,000 for the same period of fiscal 1998. The
increase in the current period is primarily the result of $434,000 in legal
fees related to the Thermatool litigation, $268,000 in depreciation of
capitalized costs relating to the Enterprise Resource Planning System and
$201,000 of expense related to the installation of the Enterprise Resource
Planning software. These increases were partially offset by a $207,000
decrease in profit sharing and bonuses to employees.
Income from operations for the current period decreased to $3,438,000
(5.0% of net sales) from $4,753,000 (6.6% of net sales) for the same period
<PAGE>
last year. The decrease in income from operations is primarily attributable to
the increase in selling, general and administrative expenses, noted above.
Interest expense for the current period was $1,198,000 ($1,416,000 prior
to interest capitalization) as compared to interest expense of $1,260,000
($1,436,000 prior to interest capitalization) for the same period last year.
The slight decrease in interest prior to interest capitalization is the result
of the average level of debt under the bank Loan and Security Agreement for
the six months ended January 31, 1999 being $33.4 million as compared to $34.5
million for the same period last year. In addition, the related average
interest rate decreased slightly to 7.39% for the first six months of fiscal
1999 from 7.72% for the same period in fiscal 1998.
The recorded income tax expense for the six months ended January 31, 1999
is based upon the estimated combined annual effective federal and state income
tax rates.
Liquidity and Capital Resources
Net cash provided by operations was $4,004,000 for the six months ended
January 31, 1999 versus $4,857,000 for the six-month period ended January 31,
1998. Receivables decreased $2,836,000 during the current period and increased
$3,461,000 for the same period last year, while inventories increased
$2,320,000 during fiscal 1999 and decreased $1,474,000 during fiscal 1998.
Accounts payable increased $814,000 and $483,000 for the period ended January
31, 1999 and January 31, 1998, respectively. In addition, accrued liabilities
decreased by $1,226,000 for the period ended January 31, 1998 as compared to
an increase of $993,000 during the same period last year.
Net cash used in investing activities for the six months ended January
31, 1999 was $6,452,000, which was $1,604,000 greater than the $4,848,000 used
in investing activities during the same period in fiscal 1998. Capital
expenditures made during the period related to progress with the expansion of
the Oil City facility, installation of new computer software and continued
progress with the expansion of the stainless facility, as well as other
projects which are expected to increase capacity and improve productivity.
The Company's capital needs have historically been to fund equipment
purchases and for general working capital needs resulting from the growth that
the Company experienced. The Company has followed an aggressive capital
expenditure plan as part of its growth strategy and to enable it to continue
to be a leader in tubular manufacturing technologies. The Company foresees a
continuance of this strategy in the future.
Dividends in 1998 were paid by Phillips & Johnston prior to its merger with
Webco in June 1998. Webco currently intends to retain earnings to support its
growth strategy and does not anticipate paying dividends in the foreseeable
future.
The Company's financing arrangements provide for a term loan of $25 million
and a line of credit of $20 million. As of January 31, 1999, the Company had
$25 million outstanding on the term loan, and $9.8 million under the revolving
line of credit. These loans mature on August 31, 2002 and are collateralized
by substantially all of the Company's assets other than the Sand Springs and
Oil City real estate. The Company may have borrowings and outstanding letters
<PAGE>
of credit ($1,071,000 at January 31, 1999) under the revolving credit facility
up to the lesser of $20.0 million or an amount determined by a formula based
on the amount of eligible inventories and accounts receivable. At January 31,
1999, $9.1 million was available for borrowing under this line of credit.
The Company has arranged for approximately $2.8 million of public agency
financing related to the Oil City project, of which $1 million was received in
February 1999. The agency financings have interest rates ranging from 3.5% to
5.75% and maturities of 5 to 10 years.
P&J has a line of credit agreement for $2,000,000 and a term note of $250,000
with its primary lender. As of January 31, 1999 the Company had $83,000
outstanding on the term loan, and $1,340,000 outstanding under the line of
credit. The line of credit matures on April 30, 1999 and the term loan
matures in January 2000 and is collateralized by P&J's assets. At January 31,
1999, $660,000 was available for borrowing under this line of credit.
In the past, the Company has funded its capital growth expenditures with a
combination of cash flow from operations and debt. With the exception of the
expansion of its carbon facilities in Oil City, the Company currently believes
that working capital will fund capital spending in 1999.
Stock Repurchase Plan
In March 1999, the Company's Board of Directors approved the acquisition
by the Company of up to $500,000 of its common stock. The Company intends to
purchase shares from time to time in the open market, subject to the price of
the stock and securities laws, which significantly limit the volume, timing
and prices of such purchases.
Information Technology and the Year 2000
Over two years ago, the Company began an evaluation of its information systems
to determine the potential impact of advanced technology on the Company's
operations and profitability. During the course of this evaluation, issues
surrounding the effect of the year 2000 on date sensitive applications became
more widely publicized and understood. The Company, recognizing an
opportunity to both update its technology and to address year 2000 concerns,
decided to replace its current information systems with an Enterprise Resource
Planning ("ERP") system.
In the second quarter of fiscal 1998, the Company purchased, and began
installation of, an ERP system. The installation process, which includes the
testing of date functions, consists of four phases. The first phase of
installation, addressing the financial, purchasing and plant maintenance
functions, was successfully completed before the end of fiscal 1998. The
remaining three phases, including materials management, shop floor control,
and production planning for each of the Company's three manufacturing
locations and related facilities, are scheduled for completion late in fiscal
1999.
The Company has also been evaluating non-information technology systems such
as phone systems, e-mail and personal computers. These systems are either
currently year 2000 compliant or will have been replaced with year 2000
compliant equipment before July 31, 1999. Other important systems, including
<PAGE>
equipment used in manufacturing and processing, are basically signal driven
systems where dates play no role in the operating logic.
The Company is currently trying to determine the impact of year 2000 non-
compliance by third parties, including vendors and customers. The impact of
such non-compliance could effect timely delivery of raw materials and cause
reductions in orders by customers who are unable to control their own
production and sales process.
The Company presently believes that with the implementation of the ERP system
and the replacement of other non-compliant systems, the year 2000 issue will
not pose significant operational problems for its computer systems. However,
if installation of the ERP is not completed in a timely manner and non-
compliant systems replaced, the year 2000 issue could have a material impact
on the operations of the Company. Ramifications could include mismatched
material purchase orders and customer sales orders and a need to manually
operate materials planning, purchasing, order backlog and capacity planning
functions. A transition to manual operations could result in, among other
things, damage to customer relationships, lost sales, and significant customer
claims.
As of January 31, 1999, the Company had spent $3.8 million on the ERP system
and the Company currently estimates another $2.2 will be expended to complete
the project. Of the $6 million total expenditure, over 25% is hardware
related, including upgrading the Company's mid-range computers and the
placement of personal computers on the shop floor. Due to the necessity of
technology upgrades generally, it would be arbitrary to allocate any portion
of this project exclusively to the correction of year 2000 issues and therefore
no such allocation has been attempted.
The foregoing forward-looking statements, including the costs of addressing
the year 2000 issue and the dates upon which compliance will be attained,
reflect management's current assessment and estimates with respect to the
Company's year 2000 compliance effort. Various factors could cause actual
plans and results to differ materially from those contemplated by such
assessments, estimates and forward-looking statements, many of which are
beyond the control of the Company. Some of these factors include, but are not
limited to, third party modification and installation plans, representations
by vendors and customers, technological advances, economic considerations and
customer perceptions.
Forward Looking Statements
Certain statements in this Form 10-Q, including statements preceded by,
or predicated upon the words "expects" and "believes", constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results, performance or achievements of the Company, or industry results, to
differ materially from any future results, performance or achievements
expressed or implied herein. Such risks, uncertainties and factors include,
among others: general economic and business conditions, competition from
imports, changes in manufacturing technology, industry capacity, domestic
competition, raw material costs and availability, loss of significant
customers and customer and vendor work stoppages, successful implementation of
enterprise software and Year 2000 compliance by customers and vendors. The
<PAGE>
reader should refer to Part I, Item 1: "Forward Looking Statements" of the
Company's Form 10-K for the year ended July 31, 1998 for additional
information regarding this matter.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In August 1997, the Company filed an action, Webco Industries, Inc. vs.
Thermatool Corporation and Alpha Industries, Inc., relating to certain cut-off
equipment sold to the Company and installed on Mill 3, which did not perform
to specifications. The case, filed in the United States District Court for
the Northern District of Oklahoma (Case No. 97-CV-708H (W)), seeks recoveries
including, but not limited to, the cost of the equipment and other incidental
and consequential damages, including lost profits, suffered by the Company.
The trial is currently set for May 17, 1999. On December 1, 1998, the court
ruled that the Company could not collect incidental and consequential damages
including lost profits and limited the Company's possible recovery to the
purchase price of the equipment plus the cost of certain improvements. The
Company intends to appeal this ruling. There can be no assurance that the
Company will prevail in all or in part of its action, or that if successful,
any recoveries will be commensurate with the damages suffered by the Company.
In addition, the Company is a party to various other lawsuits and claims
arising in the ordinary course of business. Management, after review and
consultation with legal counsel, considers that any liability resulting from
these matters would not materially affect the results of operations or the
financial position of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On December 2, 1998 the Company held its annual stockholders meeting.
During that meeting the following directors were elected to three-year terms:
For Withheld
Frederick C. Emrel 6,187,858 19,539
Dr. Kenneth E. Case 6,186,858 20,539
The following director's terms will continue: F. William Weber, Dana S.
Weber, Neven C. Hulsey and Christopher L. Kowalski.
The appointment of PricewaterhouseCoopers LLP as auditors for 1999 was
ratified by the following vote:
For Against Abstain
6,190,027 6,371 10,999
An increase by 300,000 shares in the number of shares available under the 1994
Stock Incentive Plan was approved by the following vote:
For Against Abstain
5,900,012 264,814 42,571
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 10.11: Loan Agreement, dated as of December 1, 1998, between
Pennsylvania Economic Development Financing Authority and Webco Industries,
Inc.
Exhibit 10.12: Reimbursement Agreement, dated as of December 1, 1998, between
American National Bank and Trust Company of Chicago and Webco Industries, Inc.
Exhibit 10.13: Amendment No. 2 to Loan and Security Agreement dated July 15,
1997, between American National Bank and Trust Company of Chicago, as agent,
certain financial institutions as lender, and the Company.
Exhibit 15.1: Letter Regarding Unaudited Interim Financial Information.
B. Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEBCO INDUSTRIES, INC. AND SUBSIDIARY
March 12, 1999 /s/Michael P. Howard
Michael P. Howard
Treasurer
Chief Financial Officer
Vice President of Finance and Administration
<PAGE>
EXHIBIT 10.11
LOAN AGREEMENT
between
PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY
and
WEBCO INDUSTRIES, INC.
Dated
as of
December 1, 1998
$ 1,000,000 Pennsylvania Economic Development Financing Authority
Economic Development Revenue Bonds, 1998 Series G-15
(Webco Industries, Inc. Project)
<PAGE>
TABLE OF CONTENTS
Preambles 4
ARTICLE I - DEFINITIONS
Section 1.1. Use of Terms Defined in Indenture 5
Section 1.2. Definitions 5
Section 1.3. Interpretation 8
Section 1.4. Captions, Headings and Table of Contents 8
ARTICLE II - REPRESENTATIONS
Section 2. 1. Representations and Findings of Issuer 9
Section 2.2. Representations of Borrower 10
ARTICLE III - ACQUISITION OF PROJECT; ISSUANCE OF BONDS; PROJECT FUND
Section 3.1. Acquisition of Project 11
Section 3.2. Additions and Changes to Project 12
Section 3.3. Issuance of Bonds; Application of Proceeds 12
Section 3.4. Disbursements from Project Fund 12
Section 3.5. Borrower Required to Pay Costs in Event Project Fund
Insufficient 13
Section 3.6. Completion 13
Section 3.7. Investment and Use of Fund Moneys 14
ARTICLE IV - LOAN BY ISSUER; LOAN PAYMENTS; OTHER PAYMENTS
Section 4. 1. Loan by Issuer 15
Section 4.2. Loan Payments 15
Section 4.3. Purchase Payments 16
Section 4.4. Additional Payments 16
Section 4.5. Obligations Unconditional 16
Section 4.6. Assignment of Issuer's Rights 16
Section 4.7. Letter of Credit 17
ARTICLE V - ADDITIONAL COVENANTS OF BORROWER
Section 5.1. Maintenance of Existence 17
Section 5.2. Compliance with Laws; Commencement and Continuation of
Operations at Project; No Sale, Removal or Demolition
of Project 17
Section 5.3 Right of Inspection 18
Section 5.4 Lease by Borrower 18
Section 5.5. Financial Statements; Books and Records 19
Section 5.6. Taxes, Other Governmental Charges and Utility Charges 19
Section 5.7. Insurance 19
Section 5.8. Damage to or Condemnation of Project 19
Section 5.9. Misuse of Bond Proceeds; Litigation Notice 19
Section 5.10. Indemnification 19
Section 5.11. Tax Covenants of Borrower and Issuer 21
<PAGE>
Section 5.12. Further Tax Covenants of Borrower 21
Section 5.13. Nondiscrimination 24
ARTICLE VI - REDEMPTION OF BONDS
Section 6.1. Optional Redemption 25
Section 6.2. Extraordinary Optional Redemption 25
Section 6.3. Mandatory Redemption 26
Section 6.4. Actions by Issuer 26
ARTICLE VII - EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default 26
Section 7.2. Remedies on Default 28
Section 7.3. Remedies Not Exclusive 29
Section 7.4. Payment of Legal Fees and Expenses 29
Section 7.5. No Waiver 30
Section 7.6. Notice of Default 30
ARTICLE VIII - MISCELLANEOUS
Section 8.1. Term of Agreement 30
Section 8.2. Notices 30
Section 8.3. Limitation of Liability; No Personal Liability 31
Section 8.4. Binding Effect 32
Section 8.5. Amendments 32
Section 8.6. Counterparts 32
Section 8.7. Severability 32
Section 8.8. Governing Law 32
Section 8.9. Assignment 32
Section 8. 10. Receipt of Indenture 33
Execution 33
Exhibit A - PROJECT DESCRIPTION 34
Exhibit B - FORM OF DISBURSEMENT REQUEST 35
Exhibit C - NONDISCRIMINATION CLAUSE 36
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of December 1, 1998 between PENNSYLVANIA
ECONOMIC DEVELOPMENT FINANCING AUTHORITY (the "Issuer"), a public
instrumentality and body corporate and politic of the Commonwealth of
Pennsylvania organized and existing under the Pennsylvania Economic
Development Financing Law, as amended, and WEBC0 INDUSTRIES, INC. (the
"Borrower"), a corporation duly organized and validly existing under the laws
of the State of Oklahoma (the capitalized terms not defined in the recitals
being used therein as defined or otherwise described in Article I of this
Agreement),
WITNESSETH THAT:
A. The Issuer is a public instrumentality of the Commonwealth of
Pennsylvania and a body corporate and politic organized and existing under the
Act. Under the Act, the Issuer, at the request of Venango Industrial
Development Authority (the "Local Entity"), is authorized to enter into
agreements providing for the financing of industrial facilities, commercial
facilities, pollution control facilities, public facilities and other
facilities and activities which promote any of the public purposes set forth
in the Act.
B. The Issuer has undertaken, at the request and with the approval of
the Local Entity, the financing of certain costs of the construction of a
37,500 square-foot expansion to an existing 109,000 square-foot building, the
purchase of related equipment and costs related thereto (the "Project")
located on certain real property located at 363 Seneca Street, Oil City,
Venango County, Pennsylvania (the "Project Site"). The Project is owned and
operated by the Borrower. A more complete description of the Project and the
estimated costs thereof is set forth in Exhibit A attached hereto.
C. In order to finance the Project, the Issuer has duly authorized
the issuance and sale of its Economic Development Revenue Bonds, 1998 Series
G-15 (Webco Industries, Inc. Project) (the "Bonds") to be issued under the
terms of a Trust Indenture dated as of the date hereof (as the same may
hereafter be amended or supplemented from time to time, including the Standard
Provisions incorporated therein, the "Indenture") by and between the Issuer
and Chase Manhattan Trust Company, National Association, as Trustee.
D. The Issuer and the Borrower intend that the interest on the Bonds
will not be included in the gross income of the recipients thereof under the
Code.
E. The Issuer has entered into this Agreement with the Borrower for
the purposes of providing for (i) the loan of the proceeds of the Bonds to the
Borrower in order to finance the Project and (ii) the repayment of such loan
by the Borrower in amounts sufficient to pay, when due, the principal of,
premium, if any, on and interest on the Bonds and the Additional Payments.
NOW, THEREFORE, intending to be legally bound, the Issuer and the
Borrower hereby agree as follows:
(Balance of page intentionally left blank)
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1. Use of Terms Defined in Indenture. Terms used in this
Agreement which are defined in the Indenture and are not otherwise defined in
this Agreement shall have the meanings set forth in the Indenture unless the
context or use clearly indicates another meaning or intent.
Section 1.2. Definitions. In addition to the terms defined in the
recital clauses of this Agreement, as used herein:
"Additional Payments" means the amounts required to be paid by the
Borrower pursuant to Section 4.4.
"Agreement" means this Loan Agreement, as amended or supplemented from
time to time.
"Authorized Representative" means, with respect to the Issuer, each
person at the time designated to act on behalf of the Issuer by written
certificate furnished to the Trustee containing the specimen signature of such
person and signed on behalf of the Issuer by its Secretary or Assistant
Secretary, and, with respect to the Borrower, each person at the time
designated to act on behalf of the Borrower by written certificate furnished
to the Trustee containing the specimen signature of such person and signed on
behalf of the Borrower by its Secretary or Assistant Secretary.
"Bond Service" means, for any period or payable at any time, the
principal of, premium, if any, on and interest on the Bonds for that period or
payable at the time whether due on an Interest Payment Date, at maturity or
upon acceleration or redemption.
"Borrower's Agreements" means this Agreement, the Placement Agreement,
the Remarketing Agreement, the Reimbursement Agreement and the Bond Pledge
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time. References to the Code and Sections of the Code include relevant
applicable regulations, temporary regulations and proposed regulations
thereunder and under the Internal Revenue Code of 1954, as amended, and any
successor provisions to those Sections, regulations, temporary regulations or
proposed regulations.
"Completion Date" means the date of completion of the Project evidenced
in accordance with the requirements of Section 3.6.
"Construction Period" means the period between the beginning of the
acquisition, construction, installation, equipment or improvement of the
Project or the date on which the Bonds are issued, whichever is earlier, and
the Completion Date.
"Event of Default" means any of the events described as an Event of
Default in Section 7. 1.
"Exempt Facility Bonds" means bonds issued to finance exempt facilities
as defined in the Code or in the Internal Revenue Code of 1954.
"Issuer's Fee" means the amount equal to .02% of the amount of the Loan.
"Loan" means the loan by the Issuer to the Borrower of the proceeds of
the Bonds pursuant to Section 4.1 in the original principal amount of
$1,000,000.
<PAGE>
"Loan Payments" means the amounts required to be paid by the Borrower in
repayment of the Loan pursuant to Section 4.2.
"Participating Bank" means the commercial bank, trust company or other
financial institution which has entered into the Participating Bank Agreement
with the Bank and the Reimbursement Agreement with the Borrower, and its
successors and assigns. The initial Participating Bank is American National
Bank and Trust Company of Chicago.
"Participating Bank Agreement" means the Participation and Reimbursement
Agreement between the Participating Bank and the Bank relating to the Bonds,
as amended, supplemented or replaced from time to time.
"Placement Agreement" means the Placement Agreement among the Issuer, the
Borrower and PNC Capital Markets, Inc., as the Placement Advisor, relating to
the Bonds.
"Principal User" shall mean, with respect to any facility, a "principal
user" as such term is used in Section 144(a) of the Code, including, without
limiting the generality of the foregoing, (i) any person whose ownership
interest in such facility exceeds 10% or, if no ownership interest in such
facility exceeds 10%, any person (or persons, in the case of multiple equal
owners) holding the largest ownership interest in such facility, (ii) any
person who leases more than 10% of such facility under a lease with a term
(taking into account all options to renew and reasonably anticipated renewals)
of more than one year, and (iii) any person who enjoys the use of such
facility in a degree comparable to the enjoyment of a person described in
clauses (i) and (ii); for purposes of determining the extent of a person's
ownership interest, lease interest, lease term and degree of enjoyment of a
facility, the term "person" includes a person and all Related Persons with
respect to such person.
"Project Approval" means the initial official action of the Issuer
declaring its intent with respect to the financing of the Project with the
proceeds of the Issuer's bonds. The date of the Project Approval is October
30, 1998.
"Project Costs" means costs of the Project permitted under the Act,
including, but not limited to, the following:
(a) Costs incurred in acquisition, construction, installation, equipment
or improvement of the Project, including costs incurred in respect of the
Project for preliminary planning and studies; architectural, engineering,
accounting, consulting, legal and other professional fees and expenses; labor,
services and materials;
(b) Fees, charges and expenses incurred in connection with the
authorization, sale, issuance and delivery of the Bonds, including without
limitation bond discount, printing expense, title insurance, recording fees
and the initial fees and expenses of the Trustee, Issuer, Local Entity,
Remarketing Advisor, Bank and Participating Bank; provided that the amount of
the proceeds of the Bonds used to finance issuance costs (but excluding Bank
letter of credit fees) shall not exceed 2% of the aggregate face amount of the
Bonds within the meaning of Section 147(g) of the Code;
(c) Payment of interest on the Bonds and fees of the Bank, Participating
Bank, Trustee and Remarketing Advisor accruing during the Construction Period;
and
(d) Any other costs, expenses, fees and charges properly chargeable to
the cost of acquisition, construction, installation, equipment or improvement
of the Project.
"Purchase Payments" means the amounts required to be paid by the Borrower
pursuant to Section 4.3.
"Rehabilitation Expenditure" shall mean a "rehabilitation expenditure" as
such term is defined in Section 147(d)(3) of the Code, including, without
limiting the generality of the foregoing, a capital expenditure incurred in
connection with the rehabilitation of a building or structure which is part of
the Project, if such expenditure is incurred by Borrower, the seller of such
<PAGE>
building to Borrower (if incurred pursuant the sales contract between such
seller and Borrower) or a successor to Borrower; provided, that:
(1) if an integrated operation is contained in such building or
structure before its acquisition by Borrower, expenditures incurred to
rehabilitate existing equipment or to replace existing equipment with
equipment having substantially the same function is treated as incurred in
connection with the rehabilitation of such building or structure; and
(2) notwithstanding the foregoing, the term "Rehabilitation
Expenditure" does not include any expenditure:
(a) with respect to which the method and period of depreciation is
other than the straight line method over a period determined under Section
168(c) or (g) of the Code, unless the alternative depreciation system of
Section 168(g) of the Code applies to such expenditure by reason of Section
168(g)(1)(B) or (C) of the Code;
(b) for the cost of acquiring any building or interest therein;
(c) attributable to enlargement of an existing building;
(d) attributable to the rehabilitation of a certified historic
structure or a building in a registered historic district, unless either the
rehabilitation is a certified rehabilitation or, with respect to a building
other than a certified historic structure, the Secretary of the Interior has
certified to the Secretary of the Treasury that the building is not of
historic significance to the district (all terms used in this paragraph (d)
have the meanings assigned in Section 47(c)(2)(B) of the Code);
(e) allocable to the portion of such building which is, or may
reasonably be expected to be, tax-exempt use property within the meaning of
Section 168(h) of the Code; or
(f) by a lessee of such building.
"Reimbursement Agreement" means the Reimbursement Agreement between the
Participating Bank and the Borrower relating to the Letter of Credit and the
Bonds, as amended, supplemented or replaced from time to time.
"Related Person" shall have the meaning set forth in Section 144(a)(3) of
the Code and shall include (to the extent there provided) any parent,
subsidiary, affiliated corporation or unincorporated enterprise, majority
shareholder and commonly owned entity.
"Remarketing Agreement" means the Remarketing Agreement between the
Borrower and the Remarketing Advisor relating to the Bonds, as amended,
supplemented or replaced from time to time.
"Resolutions" means the resolution or resolutions of the Issuer approving
and authorizing the Bonds, the Indenture and this Agreement.
"Small Issue Bonds" means bonds issued under the $1,000,000 or
$10,000,000 limits imposed by the Section 144(a) of the Code or Section 103 of
the Internal Revenue Code of 1954.
"Test Period" means the three-year period beginning on the later of the
date tax-exempt bonds are issued or the date the facilities financed by such
tax-exempt bonds are placed in service.
"Unassigned Issuer's Rights" means all of the rights of the Issuer to
receive Additional Payments under Section 4.4, to be held harmless and
indemnified under Section 5.10, to be reimbursed for attorney's fees and
<PAGE>
expenses under Section 7.4, and to give or withhold consent to or approval of
amendments, modifications, termination or assignment of this Agreement, or
sale, transfer, assignment, lease (or assignment of lease) or other disposal
of the Project, under Sections 5.1, 5.2, 5.4, 8.5 and 8.9.
Section 1.3. Interpretation. In this Agreement, unless the context
indicates otherwise, words importing the singular number include the plural
number, and vice versa, the terms "hereof", "hereby", "herein", "hereto",
"hereunder" and similar terms refer to this Agreement, and the term
"hereafter" means after and the term "heretofore" means before the Series
Issue Date, and words of any gender include the correlative words of the other
genders. In this Agreement, unless otherwise indicated, all references to
particular Articles, Sections, Subsections or paragraphs are references to the
Articles, Sections, Subsections or paragraphs of this Agreement.
Section 1.4. Captions, Headings and Table of Contents. The captions,
headings and table of contents in this Agreement are solely for convenience of
reference and in no way define, limit or describe the scope or intent of any
Articles, Sections, Subsections or paragraphs hereof.
(End of Article 1)
ARTICLE II
REPRESENTATIONS
Section 2.1. Representations and Findings of Issuer. The Issuer hereby
confirms its findings and represents that:
(a) The Issuer is a public body corporate and politic established in
the Commonwealth of Pennsylvania pursuant to the laws of the Commonwealth of
Pennsylvania (including the Act). Under the Act, the Issuer has the power to
enter into the Indenture, the Placement Agreement and this Agreement and to
carry out its obligations thereunder and to issue the Bonds to finance the
Project.
<PAGE>
(b) By adoption of the Resolutions at one or more duly convened
meetings of the Issuer at which a quorum was present and acting throughout,
the Issuer has duly authorized the execution and delivery of the Indenture,
the Placement Agreement and this Agreement and performance of its obligations
thereunder and the issuance of the Bonds. Simultaneously with the execution
and delivery of this Agreement, the Issuer has duly executed and delivered the
Indenture and issued and sold the Bonds.
(c) Based on representations and information furnished to the Issuer
by or on behalf of the Borrower and the Local Entity, the Issuer has found
that the Borrower is qualified to be a beneficiary of financing provided by
the Issuer pursuant to the Act.
(d) Based on representations and information furnished to the Issuer
by or on behalf of the Borrower, the Issuer has found that the Project (i)
will promote the public purposes of the Act, (ii) is located within the
boundaries of the Commonwealth of Pennsylvania and within the boundaries of
the county, city, town, borough or township which organized the Local Entity
(or within the boundaries of the county in which such city, town, borough or
township is located or in which such Local Entity is certified by the
Pennsylvania Industrial Development Authority to act as an industrial
development agency as defined in the Act), and (iii) will constitute a project
within the meaning of the Act.
(e) The Issuer has filed a Preliminary Allocation Request ("PAR") for
purposes of receiving an allocation of the tax-exempt bond authority of the
Commonwealth of Pennsylvania and has received approval of the PAR from the
Pennsylvania Department of Community and Economic Development (the
"Department"), certifying approval of such allocation for the Project as
required by Section 146 of the Code. The Issuer will simultaneously with the
issuance of the Bonds deliver a Final Allocation Request to the Department to
obtain a final confirmation of such allocation.
(f) The Project has been approved (1) by the Local Entity, as
required by the Act, (2) by the Pennsylvania Secretary of Community and
Economic Development, as required by the Act, (3) by the Governor or
Lieutenant Governor of the Commonwealth of Pennsylvania as the "applicable
elected representative", as that term is defined under the Code, after a
public hearing held upon reasonable notice, as required by the Code, and (4)
by the Issuer by adoption of the Resolutions, as required by the Act.
(g) The Issuer has not and will not pledge the income and revenues
derived from this Agreement other than pursuant to and as set forth in the
Indenture.
(h) The Issuer hereby elects to have the $10,000,000 limit for Small
Issue Bonds under the Code apply to the Bonds.
Section 2.2. Representations of Borrower. The Borrower hereby represents
that:
(a) The Borrower is a corporation duly organized and validly existing
under the laws of the State of Oklahoma, and has full power and authority to
execute, deliver and perform its obligations under the Borrower's Agreements
and to enter into and carry out the transactions contemplated thereby. The
Borrower is not a Disqualified Contractor.
(b) The Borrower's Agreements have been duly authorized, executed and
delivered by the Borrower and constitute valid and binding obligations of the
<PAGE>
Borrower. The execution, delivery and performance of the Borrower's
Agreements by the Borrower do not, and will not, violate any provision of law
applicable to the Borrower or the Borrower's articles of incorporation or
bylaws or any agreement or instrument to which the Borrower is a party or by
which it or any of its properties is bound.
(c) The Project will promote the public purposes of the Act and will
not cause, directly or indirectly, the removal, either in whole or in part, of
a plant, facility or establishment from one area of the Commonwealth of
Pennsylvania to another. The Project is located within the boundaries of the
county, city, town, borough or township which organized the Local Entity (or
within the boundaries of the county in which such city, town, borough or
township is located or in which such Local Entity is certified by the
Pennsylvania Industrial Development Authority to act as an industrial
development agency as defined in the Act).
(d) The Borrower has acquired or will acquire before they are needed
necessary, for the acquisition, construction, installation and/or operation of
the Project. The Project is a project within the meaning of the Act and will
be operated as such.
(e) The Borrower presently intends to use or operate the Project in a
manner consistent with the Act until the date on which the Bonds have been
fully paid and knows of no reason why the Project will not be so used or
operated.
(f) The aggregate of the following amounts does not, at the Series
Issue Date, exceed $1,000,000 or $10,000,000 if the Issuer has elected the
$10,000,000 limit in respect of the Bonds:
(i) The outstanding amount of prior Small Issue Bonds with respect to
facilities which are to be or have been used by the Borrower, any other
Principal User of the Project or any Related Person and are located within the
same city, town, borough or township as the Project;
(ii) The face amount of the Bonds; and
<PAGE>
(iii) If the Issuer has elected the $10,000,000 limit, any and all
.capital expenditures, including any expenditures which could at the option of
any person be capitalized under any provision of the Code, paid or incurred by
any person within three years preceding the Series Issue Date, with respect to
any facilities located in the same city, town, borough or township as the
Project of which the Borrower, any other Principal User of the Project or any
Related Person is a Principal User, except expenditures made with proceeds of
any prior Small Issue Bonds or expenditures reimbursed with the proceeds of
the Bonds.
(g) The aggregate of the following amounts does not, at the Series
Issue Date, exceed $40,000,000:
(i) The outstanding amount of any prior Small Issue Bonds or Exempt
Facility Bonds allocable under the Code to the Borrower, any other Principal
User of the Project or any Related Person; and
(ii) The face amount of the Bonds.
(h) The information furnished by the Borrower and used by the Issuer
in preparing the arbitrage certificate pursuant to Section 148 of the Code and
information statement pursuant to Section 149(e) of the Code is accurate and
complete as of the Series Issue Date.
(i) The proceeds of the Bonds will not exceed the Project Costs.
(j) The costs of issuance financed with proceeds of the Bonds,
including any bond discount on the sale of the Bonds, but not including fees
and charges in respect of the Letter of Credit, will not exceed 2% of the
proceeds of the Bonds.
(k) No costs of the Project to be financed with the proceeds of the
Bonds have been paid by or on behalf of the Borrower or any Related Person
more than 60 days prior to the date of the Project Approval.
(End of Article II)
<PAGE>
ARTICLE III
ACQUISITION OF PROJECT;
ISSUANCE OF BONDS; PROJECT FUND
Section 3. 1. Acquisition of Project. The Borrower (a) has acquired, or
reasonably expects within 120 days of the Series Issue Date to acquire, title
to or a leasehold interest in, the Project Site and shall construct, install,
equip and/or improve the Project on the Project Site with all reasonable
dispatch and in accordance with the description thereof in Exhibit A attached
hereto and applicable law, (b) shall procure or cause to be procured all
permits and licenses necessary for the prosecution of any and all work on the
Project, and (c) shall pay when due all costs and expenses incurred in
connection with such acquisition, construction, installation, equipment and
improvement from funds made available therefor in accordance with this
Agreement or otherwise. It is understood that the Project is the property of
the Borrower and that any contracts made by the Borrower with respect thereto
and any work to be done by the Borrower on the Project are made or done by the
Borrower in its own behalf and not as agent or contractor for the Issuer. The
Borrower may cause legal title to the Project Site and buildings thereon to be
conveyed to an industrial development corporation for the purpose of obtaining
financing for the benefit of the Borrower through the Pennsylvania Industrial
Development Authority of costs of the Project Site and buildings thereon not
financed with proceeds of the Bonds.
Section 3.2. Additions and Changes to Project. Subject to the
provisions of Sections 5.11 and 5.12, the Borrower may, at its option and at
its own cost and expense, at any time and from time to time, revise the
description of the Project in Exhibit A attached hereto and/or make such
additions and changes to the Project as it may deem to be desirable for its
uses and purposes, provided that (i) such additions and changes shall
constitute part of the Project, (ii) the Borrower shall supplement the
information contained in Exhibit A attached hereto by filing with the Issuer
and the Trustee such supplemental information as is necessary to reflect such
additions and changes so that the Issuer and the Trustee will be able to
ascertain the nature and cost of the facilities included in the Project and
covered by this Agreement, (iii) such additions and changes will not result in
a Misuse of Bond Proceeds and (iv) if an addition or change is substantial in
relation to the Bonds, the Borrower shall have first obtained and filed with
the Issuer and the Trustee an opinion of Bond Counsel to the effect that such
addition or change is authorized or permitted under the Act and will not
adversely affect the exclusion from gross income of interest on the Bonds
under the Code. In any case, the Borrower shall obtain the Issuer's approval
<PAGE>
of the addition to the Project of any proposed facilities or any other changes
not generally described in Exhibit A attached hereto on the date of delivery
of this Agreement, and the Borrower shall delete any facilities from the
Project if such deletion is necessary to avoid a Misuse of Bond Proceeds or to
maintain the exclusion from gross income of interest on the Bonds under the
Code.
Section 3.3. Issuance of Bonds: Application of Proceeds. To provide
funds to make the Loan for purposes of paying Project Costs in accordance with
Exhibit A attached hereto, the Issuer will issue the Bonds in the aggregate
principal amount of $1,000,000. The Bonds will be issued pursuant to the
Indenture and will bear interest, mature and be subject to redemption all as
set forth therein. The Borrower hereby approves the terms and conditions of
the Indenture and the Bonds, and the terms and conditions under which the
Bonds will be issued, sold and delivered.
The proceeds from the sale of the Bonds (including any bond discount)
shall be loaned to the Borrower pursuant to Section 4.1 and such proceeds (net
of any bond discount) shall be paid over to the Trustee for deposit in the
Project Fund. Pending disbursement pursuant to Section 3.4, the proceeds of
the Bonds so deposited in the Project Fund, together with any investment
earnings thereon, shall constitute a part of the Trust Estate and shall be
subject to the lien of the Indenture pursuant to the granting clauses therein
as security for the obligations described in such granting clauses, and to
such end the Borrower hereby grants to the Trustee as security for such
obligations a security interest in all of the Borrower's right, title and
interest in and to the Project Fund.
Section 3.4. Disbursements from Project Fund. Subject to the provisions
below, disbursements from the Project Fund shall be made to reimburse or pay
the Borrower, or any person designated by the Borrower, for Project Costs. The
Borrower agrees that the sums so disbursed from the Project Fund will be
used only for the payment of Project Costs, and will not be used for any other
purpose.
Any disbursements from the Project Fund for the payment of the Project
Costs shall be made by the Trustee only upon the written order of an
Authorized Representative of the Borrower, with the written approval of the
Participating Bank, delivered to the Trustee; provided that disbursements made
for costs described in clause (b) of the definition of Project Costs may be
made by the Trustee upon delivery to the Trustee of a closing statement signed
by the respective Authorized Representatives of the Issuer and the Borrower
and approved by the Participating Bank. Each such written order shall be
substantially in the form of the disbursement request attached hereto as
Exhibit B and shall be consecutively numbered and accompanied by invoices or
other appropriate documentation supporting the payments or reimbursements
requested. Any disbursement for any item not described in, or the cost for
which item is other than as described in, the information statement filed by
the Issuer in connection with the issuance of the Bonds as required by Section
149(e) of the Code and referred to in Section 5.12, shall be accompanied by an
opinion of a Bond Counsel to the effect that such disbursement will not result
in the interest on the Bonds becoming included in the gross income of the
Holders for federal income tax purposes. In case any contract provides for
the retention by the Borrower of a portion of the contract price, there shall
be paid from the Project Fund only the net amount remaining after deduction of
any such portion, and only when that retained amount is due and payable, may
it be paid from the Project Fund.
Any moneys in the Project Fund (including the earnings from investments
therein) remaining after the Completion Date and payment, or provision for
payment, in full of the Project Costs shall, at the direction of an Authorized
Representative of the Borrower, be transferred to the General Account of the
Bond Fund and applied as provided in Subsection 5.05(c) of the Standard
<PAGE>
Provisions; provided that (i) any such transfer and application shall be made
only to the extent that such use or application will not, in the opinion of
Bond Counsel or under ruling of the Internal Revenue Service, cause the
interest on the Bonds to become included in the gross income of the Holders
for federal income tax purposes, and (ii) unless there shall be delivered to
the Trustee a similar opinion of Bond Counsel, such remaining moneys shall not
be invested in "investment property" (as defined in Section 148 of the Code)
at a yield in excess of the yield on the Bonds.
Section 3.5. Borrower Required to Pay Costs in Event Project Fund
Insufficient. If moneys in the Project Fund are not sufficient to pay all
Project Costs, the Borrower nonetheless shall complete the Project in
accordance with Exhibit A attached hereto and shall pay all such additional
Project Costs. The Borrower shall not be entitled to any reimbursement for
any such payments from the Issuer, the Trustee, the Bank, the Participating
Bank or any Holder; nor shall it be entitled to any abatement, diminution or
postponement of the Loan Payments.
Section 3.6. Completion. Except to the extent otherwise approved by the
Issuer and by an opinion of Bond Counsel furnished by the Borrower to the
Trustee, within three years of the date of original delivery and payment for
the Bonds, the Borrower shall have completed the Project and caused all of the
proceeds of the Bonds to be expended for Project Costs in accordance with
Exhibit A attached hereto or otherwise applied as described in Section 3.4.
The Borrower shall notify the Issuer and the Trustee of the Completion Date by
a certificate signed by an Authorized Representative of the Borrower stating
(a) the date on which the Project was substantially completed,
(b) that all other facilities necessary in connection with the
Project have been acquired, constructed, installed, equipped and/or improved,
(c) that the acquisition, construction, installation, equipment
and/or improvement of the Project and such other facilities have been
accomplished in such a manner as to conform with all applicable zoning,
planning, building, environmental and other similar governmental regulations,
(d) that except as provided in clause (e) below, all costs of the
Project then or theretofore due and payable have been paid, and
(e) the amounts which the Trustee shall retain in the Project Fund
for the payment of Project Costs not yet due or for liabilities which the
Borrower is contesting or which otherwise should be so retained and the
reasons therefor.
Such certificate may state that it is given without prejudice to any rights
against third parties which then exist or subsequently may come into being.
The Authorized Representative of the Borrower shall include with such
certificate a statement specifically describing all items of personal property
comprising a part of the Project. The certificate shall be delivered as
promptly as practicable after the Borrower is in a position to certify as to
the matters referred to in clauses (a) through (e) above.
Section 3.7. Investment and Use of Fund Moneys. At the oral, to be
promptly confirmed in writing, or written request of an Authorized
Representative of the Borrower, any moneys held as part of the Bond Fund
(except moneys in the Letter of Credit Debt Service Account created under
Section 5.05 of the Standard Provisions and except any moneys representing
<PAGE>
principal of, or premium, if any, or interest on, any Bonds which are deemed
paid under Section 10.02 of the Indenture) or the Project Fund shall be
invested or reinvested by the Trustee in Eligible Investments. The Issuer and
the Borrower each hereby covenants that it will restrict that investment and
reinvestment and the use of the proceeds of the Bonds in such manner and to
such extent, if any, as may be necessary, after taking into account reasonable
expectations at the time of delivery of and payment for the Bonds, so that the
Bonds will not constitute arbitrage bonds under Section 148 of the Code.
Any Authorized Representative of the Issuer having responsibility for
issuing the Bonds is authorized and directed, alone or in conjunction with an
Authorized Representative of the Borrower and/or any other officer, partner,
employee or agent of or consultant to the Issuer or the Borrower, to give an
appropriate certificate of the Issuer pursuant to Section 148 of the Code, for
inclusion in the transcript of proceedings for the issuance of the Bonds,
setting forth the reasonable expectations of the Issuer regarding the amount
and use of the proceeds of the Bonds and the facts, estimates and
circumstances on which those expectations are based, all as of the Series
Issue Date. The Borrower shall provide the Issuer with, and the Issuer's
certificate may be based on, a certificate of the Authorized Representative of
the Borrower or other appropriate officer, partner, employee or agent of or
consultant to the Borrower setting forth the reasonable expectations of the
Borrower on the Series Issue Date regarding the amount and use of the proceeds
of the Bonds and the facts, estimates and circumstances on which they are
based.
(End of Article III)
ARTICLE IV
LOAN BY ISSUER; LOAN PAYMENTS; OTHER PAYMENTS
Section 4.1. Loan by Issuer. Upon the terms and conditions of this
Agreement, the Issuer will make the Loan to the Borrower on the Series Issue
Date in a principal amount equal to the aggregate principal amount of the
Bonds. The Loan shall be deemed fully advanced upon deposit of the proceeds
of the Bonds (net of any bond discount) in the Project Fund pursuant to
Section 3.3.
Section 4.2. Loan Payments. In consideration of and in repayment of the
Loan, the Borrower shall make, as Loan Payments, payments which correspond, as
to amounts and due dates, to the Bond Service on the Bonds; provided that,
except to the extent that the Participating Bank shall otherwise stipulate by
written notice delivered to the Issuer, the Trustee and the Bank, such
payments shall be made in advance as set forth below in this Section. Amounts
received upon a drawing by the Trustee under the Letter of Credit for the
payment of Bond Service shall be credited against the Loan Payments otherwise
payable by the Borrower corresponding to such Bond Service; provided that the
Bank and, if applicable, the Participating Bank have been fully reimbursed for
such drawing by the Borrower.
To provide funds to pay the Bond Service as and when due as specified
above, the Borrower shall make the Loan Payments (a) on or before the Business
Day next preceding the first Business Day of each month in an amount equal to
the interest due on the Bonds on the Interest Payment Date for such month and,
(b) commencing on the last Business Day of December, 2001, in an amount equal
to 1/12 of the next payment of principal of the Bonds due by mandatory sinking
fund redemption or at maturity, taking into account funds held in the General
Account of the Bond Fund under the Indenture which would be available for such
purposes. In addition, to provide funds to pay the principal of and premium,
if any, and interest on the Bonds as and when due at any other time, the
Borrower hereby agrees to make and shall make Loan Payments at least one
<PAGE>
Business Day (or earlier if required by the Indenture) prior to the date when
such principal, premium, if any, and interest is due and payable. The
foregoing requirement to make Loan Payments in advance of the corresponding
dates for payment of the principal of and interest on the Bonds may be waived
if and to the extent stipulated by the Participating Bank by written notice
delivered to the Issuer, the Trustee and the Bank; provided that in no event
shall Loan Payments be made later than such corresponding dates.
It is the intention of the Issuer and the Borrower that, notwithstanding
any other provision of this Agreement, the Trustee, as assignee of the Issuer,
shall receive funds from or on behalf of the Borrower (taking into account
such credits for amounts drawn on the Letter of Credit) in such amounts and at
such times as will enable the Issuer to pay when due all of its Bond Service
on the Bonds and any obligations arising under Section 4.3 and any such
obligations surviving the payment of the Bonds.
All Loan Payments shall be payable in lawful money of the United States
of America and shall be made by, or on behalf of the Borrower, to the Trustee
at its Delivery Office for the account of the Issuer and deposited in the
General Account of the Bond Fund created pursuant to the Indenture. Such Loan
Payments shall be applied as provided in the Indenture.
The Borrower shall be entitled to credits against the Loan Payments as
and to the extent provided in Subsection 5.05(f) of the Standard Provisions.
Section 4.3. Purchase Payments. To the extent that moneys on deposit in
the Remarketing Proceeds Purchase Account or the Letter of Credit Purchase
Account established under the Indenture are insufficient to pay the full
purchase price of Bonds payable pursuant to Sections 4.01 and 4.02 of the
Indenture on the applicable Purchase Date, the Borrower shall also pay to the
Trustee as Purchase Payments for deposit in the Borrower Purchase Account
established under the Indenture amounts sufficient to cover the shortfalls.
Section 4.4. Additional Payments. The Borrower shall pay as Additional
Payments hereunder: (a) to the Issuer, the Issuer's Fee on the Series Issue
Date and any and all costs and expenses (including reasonable legal fees and
expenses) incurred or to be paid by the Issuer in connection with the issuance
and delivery of the Bonds or otherwise related to actions taken by the Issuer
under this Agreement or the Indenture or any amendment thereof, supplement
thereto or consent or waiver thereunder, including without limitation the
Borrower's pro rata share of any annual charge made by a Rating Service to
maintain a rating on the Bonds; (b) to the Local Entity, the Local Entity's
fee on the Series Issue Date and any and all costs and expenses incurred or to
be paid by the Local Entity in connection with the Project; (c) to the
Remarketing Advisor, the fees and expenses of the Remarketing Advisor under
the Indenture and the Remarketing Agreement for services rendered in
connection with the Bonds; and (d) to the Trustee, the reasonable fees,
charges and expenses of the Trustee and its agents for acting as such under
the Indenture.
Section 4.5. Obligations Unconditional. The obligations of the Borrower
to make Loan Payments, Purchase Payments and Additional Payments shall be
absolute and unconditional, and the Borrower shall make such payments without
abatement, diminution or deduction regardless of any cause or circumstances
whatsoever including without limitation any defense, set-off, recoupment or
counterclaim which the Borrower may have or assert against the Issuer, the
Trustee, the Remarketing Advisor, the Bank, the Participating Bank or any
other person, whether express or implied, or any duty, liability or obligation
arising out of or connected with this Agreement, it being the intention of the
parties that the payments required of the Borrower hereunder will be paid in
full when due without any delay or diminution whatsoever. Loan Payments and
<PAGE>
Purchase Payments required to be paid by or on behalf of the Borrower
hereunder shall be received by the Issuer or the Trustee as net sums and the
Borrower agrees to pay or cause to be paid all charges against or which might
diminish such net sums.
Section 4.6. Assignment of Issuer's Rights. To secure the payment of,
first, the Bond Service, second, the Participating Bank's obligations under
the Participating Bank Agreement, and, third, the Borrower's obligations under
the Reimbursement Agreement, the Issuer shall pledge and assign to the Trustee
all the Issuer's rights in, to and under this Agreement (except for the
Unassigned Issuer's Rights), the Revenues and the other property comprising
the Trust Estate. The Borrower consents to such pledge and assignment and
agrees to make or cause to be made Loan Payments and Purchase Payments
directly to the Trustee without defense or set-off by reason of any dispute
between the Borrower and the Trustee. Whenever the Borrower is required to
obtain the consent of the Issuer hereunder, the Borrower shall also obtain the
consent of the Trustee; provided that, except as otherwise expressly
stipulated herein or in the Indenture, the Borrower shall not be required to
obtain the Trustee's consent with respect to the Unassigned Issuer's Rights.
Section 4.7. Letter of Credit. Concurrently with the initial delivery
of the Bonds pursuant to Section 2.01 of the Indenture, the Borrower shall
cause the initial Letter of Credit to be issued by the Bank pursuant to the
Participating Bank Agreement, which Letter of Credit (1) shall be
substantially in the same form as the exhibit attached to the Participating
Bank Agreement; (2) shall be dated the date of delivery of the Bonds; (3)
shall authorize the Trustee to draw on the Bank, subject to the terms and
conditions thereof, up to (a) an amount equal to the principal amount of the
Bonds (i) to enable the Trustee to pay the principal amount of the Bonds when
due at maturity or upon redemption or acceleration and (ii) to enable the
Trustee to pay the portion of the purchase price of Bonds tendered to it for
purchase and not remarketed corresponding to the principal amount of such
Bonds, plus (b) an amount equal to 60 days' interest on the Bonds at the
Maximum Rate (i) to enable the Trustee to pay interest on the Bonds when due
and (ii) to enable the Trustee to pay the portion of the purchase price of
Bonds tendered to it for purchase and not remarketed corresponding to the
accrued interest on such Bonds. The Letter of Credit may be extended, amended
or replaced by an Alternate Letter of Credit complying with the provisions of
Sections 2.05 and 5.09 of the Standard Provisions. The Participating Bank,
the Participating Bank Agreement and the Reimbursement Agreement may be
replaced by complying with the provisions of Section 5.09(g) of the Standard
Provisions.
It is anticipated that all payments of principal of and interest on the
Bonds, and all payments of purchase price of the Bonds payable upon optional
or mandatory tender for purchase for the payment of which remarketing proceeds
are not available pursuant to Article IV of the Indenture, will be funded from
draws on the Letter of Credit.
The Borrower shall take whatever action may be necessary to maintain the
Letter of Credit in full force and effect during the period required by the
Indenture, including the payment of any transfer fees required by the Bank
upon any transfer of the Letter of Credit to any successor Trustee.
(End of Article IV)
<PAGE>
ARTICLE V
ADDITIONAL COVENANTS OF BORROWER
Section 5.1. Maintenance of Existence. The Borrower shall do all things
necessary to preserve and keep in full force and effect its existence, rights,
franchises and qualification to do business in Pennsylvania and shall not (a)
dissolve or otherwise sell, transfer or dispose of all, or substantially all,
of its assets or (b) consolidate with or merge into any other entity; provided
that, subject to the provisions of Sections 5.11 and 5.12, the preceding
restrictions shall not apply to a transaction to which the Issuer and the
Participating Bank consent in writing if the transferee or the surviving or
resulting entity, if other than the Borrower, by written instrument
satisfactory to the Trustee, assumes and agrees to perform and observe the
agreements and obligations of the Borrower under this Agreement and the
provisions of Section 8.9 are satisfied.
Section 5.2. Compliance with Laws - Commencement and Continuation of
Operations at Project: No Sale, Removal or Demolition of Project. The
Borrower will acquire, construct, install, operate and maintain the Project in
such manner as to comply with the Act and all applicable requirements of
federal, state and local laws and the regulations, rules and orders of any
federal, state or local agency, board, commission or court having jurisdiction
over the Project or the operation thereof, including without limitation
applicable zoning, planning, building and environmental laws, regulations,
rules and orders; provided that the Borrower shall be deemed in compliance
with this Section so long as it is contesting in good faith any such
requirement by appropriate legal proceedings. The Borrower shall not cause,
permit or suffer to exist a Misuse of Bond Proceeds. The Borrower (or its
lessee) shall commence operations at the Project within three years from the
Series Issue Date and shall continue such operations throughout the term of
this Agreement. The Borrower shall not sell, assign or otherwise dispose of
(whether in one transaction or in a series of transactions) its interest in
the Project or any material portion thereof (other than as permitted by
Section 5.1 and other than leases permitted under Section 5.4) or undertake or
permit the demolition or removal of the Project or any material portion
thereof without the prior written consent of the Issuer; provided that the
Borrower shall be permitted (i) to sell, transfer, assign or otherwise dispose
of or remove any portion of the Project which is retired or replaced in the
ordinary course of business and (ii) to convey legal title to the Project Site
and buildings thereon to an industrial development corporation for the purpose
of obtaining financing for the benefit of the Borrower through the
Pennsylvania Industrial Development Authority of costs of the Project Site and
buildings thereon not financed with proceeds of the Bonds.
Section 5.3. Right of Inspection. Subject to reasonable security and
safety regulations and upon reasonable notice, the Issuer and the Trustee, and
their respective agents, shall have the right during normal business hours to
inspect the Project.
Section 5.4. Lease by Borrower. The Borrower may, subject to the
provisions of Sections 5.11 and 5.12, lease the Project, in whole or in part,
to one or more other Persons, provided that:
(a) No such lease shall relieve the Borrower from its obligations
under this Agreement, the Reimbursement Agreement, the Bond Pledge Agreement
or the Remarketing Agreement;
(b) In connection with any such lease the Borrower shall retain such
rights and interests as will permit it to comply with its obligations under
this Agreement, the Reimbursement Agreement, the Bond Pledge Agreement and the
Remarketing Agreement;
(c) No such lease shall impair materially the accomplishment of the
purposes of the Act to be accomplished by operation of the Project as herein
provided;
<PAGE>
(d) Any such lease shall require the lessee to operate the Project as
a "project" under the Act as long as the Bonds are outstanding;
(e) In the case of a lease to a new lessee or an assignment of an
existing lease to a new lessee of substantially all of the Project, such new
lessee (i) shall not be a Disqualified Contractor and (ii) shall have been
approved by the Issuer (such approval not to be unreasonably withheld); and
(f) The lessees under any such leases, including any leases in force
on the Series Issue Date, shall be subject to the applicable terms and
conditions of Section 5.12.
Section 5.5. Financial Statements: Books and Records. The Borrower
shall prepare or have prepared such financial statements and reports in such
form as are required by the Participating Bank, and shall keep true and proper
books of records and accounts in which full and correct entries are made of
all its business transactions. Copies of such financial statements and
reports shall be provided to the Issuer and the Trustee promptly upon request,
and such books of records and accounts shall be made available for inspection
during normal business hours upon request by the Issuer or the Trustee or
their respective agents.
Section 5.6. Taxes-Other Governmental Charges and Utility Charges. The
Borrower shall pay, or cause to be paid before the same become delinquent, all
taxes, assessments, whether general or special, and governmental charges of
any kind whatsoever that may at any time be lawfully assessed or levied
against or with respect to the Project, including any equipment or related
property installed or brought by the Borrower therein or thereon, and all
utility and other charges incurred in the operation, maintenance, use,
occupancy and upkeep of the Project. With respect to special assessments or
other governmental charges that lawfully may be paid in. installments over a
period of years, the Borrower shall be obligated to pay only such installments
as are required to be paid during the term hereof. The Borrower may, at its
expense, in good faith contest any such taxes, assessments and other charges
and, in the event of any such contest, may permit the taxes, assessments or
other charges so contested to remain unpaid during the period of such contest
and any appeal therefrom, unless the Issuer or the Trustee shall notify the
Borrower that, in the opinion of counsel selected by the Issuer or the
Trustee, by nonpayment of any such items the Project or any part thereof will
be subject to loss or forfeiture, in which event such taxes, assessments or
charges shall be paid promptly. The Borrower shall also comply at its own
cost and expense with all notices received from public authorities with
respect to the Project.
Section 5.7. Insurance. The Borrower shall at its own cost and expense
obtain or cause to be obtained insurance policies against such risks, and in
such amounts, as are customarily insured against by entities owning facilities
of like size and type to the Project, paying, as the same become due and
payable, all premiums in respect thereof.
Section 5.8. Damage to or Condemnation of Project. In the event of
damage, destruction or condemnation of part or all of the Project, the
Borrower shall either: (i) restore the Project or (ii) if permitted by the
terms of the Bonds, direct the Issuer to call the Bonds for redemption as set
forth in Section 6.2. Damage to, destruction of or condemnation of all or a
portion of the Project shall not terminate this Agreement or cause any
abatement of or reduction in the payments to be made by the Borrower under
this Agreement.
Section 5.9. Misuse of Bond Proceeds: Litigation Notice. The Borrower
shall give the Trustee, the Participating Bank, the Remarketing Advisor and
the Bank prompt written notice of any Misuse of Bond Proceeds or action, suit
or proceeding pending or threatened against it at law or in equity, or before
any governmental instrumentality or agency, which, if adversely determined,
<PAGE>
would materially impair the right of the Borrower to carry on the business
which is contemplated in connection with the Project or would materially and
adversely affect its business, operations, properties, assets or condition.
Section 5.10. Indemnification. The Borrower will indemnify and hold
harmless the Issuer and each member, director, officer, employee, attorney and
agent of the Issuer for and against any and all claims, losses, damages or
liabilities (including the costs and expenses of defending against any such
claims) to which the Issuer or any member, director, officer, employee or
agent of the. Issuer may become subject, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise directly or
indirectly out of (a) any loss or damage to property or injury to or death of
or loss by any person that may be occasioned by any cause whatsoever
pertaining to the construction, maintenance, operation and use of the Project;
(b) any breach or default on the part of the Borrower in the performance of
any covenant or agreement of the Borrower under any of the Borrower's
Agreements or any related document, or arising from any act or failure to act
by the Borrower or any of its agents, contractors, servants, employees or
licensees; (c) the authorization, issuance and sale of the Bonds, or the
provision of any information or certification furnished in connection
therewith concerning the Bonds, the Project or the Borrower (including,
without limitation, any information furnished by the Borrower for inclusion in
any certification made by the Issuer or for inclusion in, or as a basis for
preparation of, the information statements furnished by the Issuer and any
information or certification obtained from the Borrower) to assure the
exclusion of the interest on the Bonds from the gross income of the Holders
for federal income tax purposes; (d) the Borrower's failure to comply with any
requirements of this Agreement pertaining to compliance with the Code to
assure such exclusion of the interest or the provisions set forth in Sections
5.11 and 5.12; (e) any failure by the Borrower to comply with the provisions
of the Act; and (f) any claim, action or proceeding brought with respect to
any matter set forth in clause (a), (b), (c), (d) or (e) above.
The Borrower will indemnify and hold harmless the Trustee and the
Remarketing Advisor for and against all liabilities, claims, costs and
expenses incurred without negligence or bad faith on the part of the Trustee
or the Remarketing Advisor on account of any action taken or omitted to be
taken by the Trustee or the Remarketing Advisor in accordance with the terms
of this Agreement, the Bonds, the Bond Pledge Agreement, the Letter of Credit,
the Remarketing Agreement or the Indenture or any action taken at the request
of or with the consent of the Borrower, including the costs and expenses
incurred by the Trustee and the Remarketing Advisor in defending themselves
against any such claims.
In case any action or proceeding is brought against the Issuer, the
Remarketing Advisor or the Trustee in respect of which indemnity may be sought
hereunder, the party seeking indemnity promptly shall give notice of that
action or proceeding to the Borrower, and the Borrower upon receipt of that
notice shall have the obligation and the right to assume the defense of the
action or proceeding; provided that failure of a party to give that notice
shall not relieve the Borrower from any of its obligations under this Section
unless (and then only to the extent) that failure prejudices the defense of
the action or proceeding by the Borrower. At its own expense, an indemnified
party may employ separate counsel and participate in the defense. The Borrower
shall not be liable for any settlement made without its consent,
which shall not be unreasonably withheld.
The indemnification set forth above is intended to and shall (i) include
the indemnification of all affected directors, officers, agents and employees
of the Issuer, the Remarketing Advisor and the Trustee, respectively, and (ii)
be enforceable by the Issuer, the Remarketing Advisor and the Trustee,
respectively, to the full extent permitted by law.
<PAGE>
The provisions of this Section 5.10 shall survive the termination of this
Agreement and payment of the Bonds.
Section 5.11. Tax Covenants of Borrower and Issuer. The Borrower
covenants and represents that it will at all times do and perform all acts and
things necessary or desirable and within its reasonable control in order to
assure that interest paid on the Bonds shall not be includable in the gross
income of any Holder for federal income tax purposes, unless such Holder is a
"substantial user" of the Project or a "related person" of such a user within
the meaning of Section 147(a) of the Code. The Borrower also covenants and
represents that it shall not take or omit to take, or permit to be taken on
its behalf, any actions which, if taken or omitted, would adversely affect the
excludability from the gross income of the Holders of interest paid on the
Bonds for federal income tax purposes. The Issuer and the Borrower mutually
covenant for the benefit of the Holders that they will not use the proceeds of
the Bonds, any moneys derived, directly or indirectly, from the use or
investment thereof or any other moneys on deposit in any fund or account
maintained in respect of the Bonds (whether such moneys were derived from the
proceeds of the sale of the Bonds or from other sources) in a manner which
would cause the Bonds to be treated as "arbitrage bonds" within the meaning of
Section 148 of the Code or would otherwise violate Section 6.08 of the
Indenture.
Section 5.12. Further Tax Covenants of Borrower. The Borrower further
represents and covenants as follows:
(a) Action to Maintain Tax-Exempt Status. The Borrower will take
such actions as shall be necessary or desirable, from time to time and within
its reasonable control, to cause all of the representations and warranties in
this Section to remain true and correct during such periods as shall be
necessary to maintain the exclusion of interest paid on the Bonds from the
gross income of the Holders for federal income tax purposes (other than a
Holder who is a "substantial user" of the Project or a "related person" as
those terms are used in Section 147(a) of the Code), pursuant to the
requirements of the Code.
(b) Operation as Manufacturing Facility. Until payment in full of
the Bonds, the Borrower shall operate the Project as a "manufacturing
facility" within the meaning of Section 144(a)(12)(C) of the Code. Without
limiting the generality of the foregoing definition, a "manufacturing
facility" is, generally, any facility which is used in the manufacturing or
production of tangible personal property, including processing resulting in a
change of condition of such property. The Borrower shall use no more than 25%
of the net proceeds of the Bonds to provide on-site facilities which are
directly related and ancillary to the manufacturing facility, including
temporary warehousing of raw materials and finished product, office facilities
and product development facilities.
(c) Ninety-five Percent Capital Costs Test. The Borrower shall spend
not less than 95% of the net proceeds of the Bonds for capital costs of the
manufacturing facility being financed. Capital costs are defined as costs of
land or property of a character subject to allowance for depreciation under
Section 167 of the Code and do not include inventory or working capital.
(d) Land Acquisition Limitation. The Borrower will not use, directly
or indirectly, 25% or more of the net proceeds of the Bonds for the
acquisition of land or an interest therein.
(e) Existing Facility and Rehabilitation Limitations. The Borrower
will not use any proceeds of the Bonds to acquire any property of which the
<PAGE>
Borrower would not be the first user, except as permitted by the next
sentence. If any proceeds of the Bonds are used to acquire (i) an existing
building, (ii) an existing building and equipment thereof, (iii) an existing
structure (other than a building), or (iv) an existing structure and equipment
thereof, then the Borrower will, within two years of the later of the Series
Issue Date or the date the Borrower acquires such building or structure, incur
Rehabilitation Expenditures in an amount at least equal to (x) 15% of the
portion of the cost of acquiring all existing buildings and equipment thereof
which is financed with net proceeds of the Bonds, plus (y) 100% of the portion
of the cost of acquiring all existing structures (other than a building) and
equipment thereof which is financed with net proceeds of the Bonds,
(f) Limitation on Financing Certain Facilities. The Borrower will
not use more than 25% of the net proceeds of the Bonds to provide any portion
of the Project the primary purpose of which is to provide retail food or
beverage services (exclusive of grocery stores), automobile sales or services,
or the provision of recreation or entertainment.
(g) Prohibition on Financing Certain Facilities. The Borrower will
not use any portion of the proceeds of the Bonds to provide any portion of the
Project to be used for a 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. The
Borrower will not use any proceeds of the Bonds to provide any airplane, any
sky box or other private luxury box, any health club facility, any facility
primarily used for gambling, or any store the principal business of which is
the sale of alcoholic beverages for consumption off premises.
(h) $1,000.000 or $10,000,000 Limitation. If the Issuer has elected
the $10,000,000 limit in respect of the Bonds, then neither the Borrower, any
other Principal User of the portion of the Project financed with Bond proceeds
nor any Related Person with respect to the Borrower or any such Principal User
of the Project will, during the six-year period beginning three years before
the Series Issue Date, pay or incur any capital expenditures, or become a
Principal User of a facility with respect to which capital expenditures have
been made in such period, if--
(i) The capital expenditures are financed other than with the
proceeds of the Bonds,
(ii) The facility with respect to which the capital expenditures are
paid or incurred is the Project or is located in the city, borough, town,
township or other incorporated municipality in which the Project is located;
and
(iii) The amount of the capital expenditures, when added to the face
amount of the Bonds and any other prior tax-exempt obligations outstanding on
the Series Issue Date subject to aggregation with the Bonds under the Code,
would exceed $10,000,000.
Neither the Borrower, any other Principal User of the portion of the Project
financed with Bond proceeds nor any Related Person with respect to the
Borrower or any such Principal User of the Project will, during the Test
Period in respect of the Bonds, merge with, acquire more than 50% of the stock
of or otherwise become a Related Person to another entity so as to cause the
outstanding amount of the Bonds, and any other prior tax-exempt obligations
subject to aggregation with the Bonds under the Code, to exceed $1,000,000 or
$10,000,000 (taking into account all capital expenditures described above) if
the Issuer has elected the $10,000,000 limit in respect of the Bonds.
<PAGE>
(i) $40,000,000 Limitation an Acquisition of Other Property, Mergers
and Leases. If the taxability condition described below is present, then
neither Borrower, any other Principal User of the portion of the Project
financed with Bond proceeds nor any Related Person with respect to the
Borrower or any such Principal User of the Project will, during the Test
Period in respect of the Bonds, either (i) be or become a Principal User of a
facility financed with tax-exempt bonds issued prior to the Series Issue Date
(a "prior issue") or (ii) merge with or become a Related Person with respect
to a Principal User of a facility financed by a prior issue. The taxability
condition that, if present, shall prevent the Borrower, any other Principal
User of the portion of the Project financed with Bond proceeds and any Related
Person with respect to the Borrower or any such Principal User of the Project
from entering into the foregoing transactions during the Test Period, is that
the prior issue is either Exempt Facility Bonds, an issue of qualified
redevelopment bonds (as defined in Section 144(c)(1) of the Code) or Small
Issue Bonds, the Test Period for the prior issue has not expired as of the
Series Issue Date, and the portion of the prior issue allocable under the Code
to the Borrower (and all Related Persons with respect to the Borrower) or any
other Principal User of the portion of the Project financed with Bond proceeds
(and all Related Persons with respect to such Principal User), when added to
the outstanding amount of the Bonds and any other prior tax-exempt financing
allocable under the Code to the Borrower (and such Related Persons) or such
Principal User (and such Related Persons), as the case may be, would exceed
$40,000,000.
(j) Lease of Project. In connection with any lease or other grant by
the Borrower of the use of the portion of the Project financed with Bond
proceeds, the Borrower will require that the lessee or other user of any
portion of the Project and all Related Persons with respect to such lessee or
user will not violate the covenants set forth herein.
(k) Bond Maturity Limitation. The average reasonably expected
economic life of the property financed with the proceeds of the Bonds,
disregarding land, will be at least 84% of the average maturity of the Bonds,
as determined pursuant to Section 147(b) of the Code.
(l) Aggregation of Issues with Respect to Single Project. The
portion of the Project financed with Bond proceeds does not and will not
comprise a part of a single building, an enclosed shopping mall or a strip of
offices, stores or warehouses using substantial common facilities, any portion
of which has been financed through any other tax-exempt issue.
(m) Nonpurpose Investments. After the expiration of any applicable
temporary period under Section 148(c) of the Code, (i) at no time during any
bond year will the aggregate amount of gross proceeds of the Bonds invested in
nonpurpose investments with a yield higher than the yield on the Bonds exceed
150% of the debt service on the Bonds for such bond year, and the aggregate
amount of gross proceeds of the Bonds invested in nonpurpose investments with
a yield higher than the yield on the Bonds, if any, will be promptly and
appropriately reduced as the amount of outstanding Bonds is reduced, provided
that the foregoing shall not require the sale or disposition of any
investments in nonpurpose investments if such sale or disposition would result
in a loss which exceeds the amount which would be paid to the United States
pursuant to the Standard Provisions (but for such sale or disposition) at the
time of such sale or disposition if a payment under the Standard Provisions
were due at such time and (ii) not more than the lesser of 5% of the proceeds
of the Bonds or $100,000 (in addition to the amounts allowed under Sections
148(c) and (d) of the Code and subject to the yield adjustment provisions of
Treasury Regulations 1.148-5(C) of the proceeds of the Bonds will be invested
in higher yielding investments.
<PAGE>
At no time will any funds constituting gross proceeds of the Bonds be
used to acquire investments at other than fair market value within the meaning
of the applicable Treasury Regulations pertaining to, or in any other fashion
as would constitute failure of compliance with, Section 148 of the Code.
Investments or deposits in certificates of deposit or pursuant to investment
contracts shall not be made without compliance, at or prior to such investment
or deposit, with the requirements of Treasury Regulations Section 1.48-
5(d)(6)(ii) and (iii), respectively, or with any successor provisions thereto.
The terms "bond year", "proceeds", "gross proceeds", "nonpurpose
investments", "yield", "higher yielding investments" and "debt service" have
the meanings assigned to them for purposes of Section 148 of the Code.
(n) No Higher Yield Collateral to Bank. In no event will the
Borrower provide collateral to the Bank or the Participating Bank which bears
a yield higher than the yield on the Bonds within the meaning of Section 148
of the Code and any lawful regulations promulgated thereunder, except upon
receipt by the Borrower of an opinion of Bond Counsel to the effect that the
pledge of such collateral shall not cause the interest on the Bonds to be
included in the gross income of the Holders for federal income tax purposes;
provided that no such yield restriction or opinion is required with respect to
the pledge of any collateral that consists of obligations, the interest on
which is excluded from the gross income of the holders thereof for federal
income tax purposes.
(o) No Same Issue Bonds. Neither the Borrower nor any other
Principal User of the portion of the Project financed with Bond proceeds nor
any Related Person has participated, or will participate, in the offering for
sale or sale of any issue of Exempt Facility Bonds, Small Issue Bonds or
qualified redevelopment bonds (as defined in Section 144(b) of the Code),
which are or will be required to be aggregated with the Bonds as part of the
"same issue" within the meaning of Section 144(a)(6) of the Code.
(p) Notice. The Borrower shall provide a written statement signed by
its Authorized Representative to the Issuer and the Trustee immediately upon
the violation of any of the covenants set forth in this Section 5.12, setting
forth in detail the facts, nature and scope of such violation.
Section 5.13. Nondiscrimination. The Borrower hereby accepts and agrees
to be bound by the nondiscrimination clause set forth in Exhibit C attached
hereto.
(End of Article V)
<PAGE>
ARTICLE VI
REDEMPTION OF BONDS
Section 6.1. Optional Redemption. Provided no Event of Default shall
have occurred and be subsisting, at any time and from time to time, the
Borrower may deliver or cause to be delivered Loan Payments to the Trustee in
addition to the scheduled Loan Payments required to be made under Section 4.2
and direct the Trustee to use the Loan Payments so delivered for the purpose
of calling Bonds for optional redemption in accordance with the applicable
provisions of the Indenture and redeeming such Bonds at the redemption price
stated in the Indenture. Such Loan Payments shall be held and applied as
provided in Section 5.05 of the Standard Provisions and delivery thereof shall
not operate to abate or postpone Loan Payments otherwise becoming due or to
alter or suspend any other obligations of the Borrower under this Agreement.
Whenever the Bonds are subject to optional redemption pursuant to the Indenture,
the Issuer will, but only upon direction of the Borrower, direct
the Trustee to call the same for redemption as provided in the Indenture.
Section 6.2. Extraordinary Optional Redemption.. The Borrower shall
have, subject to the conditions hereinafter imposed, the option to direct the
redemption of the Bonds in accordance with the applicable provisions of the
Indenture upon the occurrence of any of the following events:
(a) The Project shall have been damaged or destroyed to such an
extent that (1) it cannot reasonably be expected by the Borrower to be
restored, within a period of six months, to the condition thereof immediately
preceding such damage or destruction or (2) its normal use and operation is
reasonably expected by the Borrower to be prevented for a period of six
consecutive months.
(b) Title to, or the temporary use of, all or a significant part of
the Project shall have been taken under the exercise of the power of eminent
domain (1) to such extent that the Project cannot reasonably be expected by
the Borrower to be restored within a period of six months to a condition of
usefulness comparable to that existing prior to the taking or (2) as a result
of the taking, normal use and operation of the Project is reasonably expected
by the Borrower to be prevented for a period of six consecutive months.
(c) As a result of any changes in state or federal laws or as a
result 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) entered after the contest thereof by the Issuer or
the Borrower in good faith, this Agreement shall have become void or
unenforceable or impossible of performance in accordance with the intent and
purpose of the parties as expressed in this Agreement, or if unreasonable
burden or excessive liability shall have been imposed with respect to the
Project or the operation thereof, including without limitation federal, state
or other ad valorem, property, income or other taxes not being imposed on the
date of this Agreement other than ad valorem taxes presently generally levied
upon privately owned property used for the same general purpose as the Project.
(d) Changes in the economic availability of raw materials, operating
supplies, energy sources or supplies, or facilities (including, but not
limited to, facilities in connection with the disposal of industrial wastes)
necessary for the operation of the Project shall have occurred or
technological or other changes shall have occurred which the Borrower cannot
reasonably overcome or control and which in the Borrower's reasonable judgment
render the Project uneconomic.
<PAGE>
To exercise such option, the Borrower shall, within 90 days following the
event giving rise to the exercise of that option, or at any time during the
continuation of the condition referred to in clause (d) above, give written
notice to the Issuer and the Trustee specifying the date on which the Borrower
will deliver the funds required for such redemption, which date shall be not
more than 90 days from the date such notice is mailed and shall make
arrangements satisfactory to the Trustee for the giving of the required notice
of redemption.
The amount payable by the Borrower in the event of its exercise of the
option granted in this Section shall be the sum of (i) an amount of money
which, when added to the moneys and investments held to the credit of the Bond
Fund, will be sufficient pursuant to Section 5.05 and Article X of the
Standard Provisions to pay, or provide for the payment of, the redemption
price of Bonds on the redemption date and to fully reimburse the Bank and the
Participating Bank with respect to all drawings on the Letter of Credit, such
amount to be paid to the Trustee, plus (ii) an amount of money equal to the
Additional Payments accrued and to accrue until actual final payment and
redemption of the Bonds, such amount or applicable portions thereof to be paid
to the Trustee or to the Persons to whom those Additional Payments are or will
be due. The requirement of clause (ii) above with respect to Additional
Payments to accrue may be met if provisions satisfactory to the Trustee and
the Issuer are made for paying those amounts as they accrue.
Section 6.3. Mandatory Redemption. The Borrower shall deliver or cause
to be delivered to the Trustee the moneys needed to redeem the Bonds in
accordance with the mandatory redemption provisions set forth in the Bonds and
the Indenture and to fully reimburse the Bank and the Participating Bank with
respect to all drawings on the Letter of Credit with respect thereto.
Whenever the Bonds are subject to mandatory redemption pursuant to the
Indenture, the Borrower will cooperate with the Issuer and the Trustee in
effecting such redemption.
Section 6.4. Actions by Issuer. At the request of the Borrower or the
Trustee, the Issuer shall take all steps required of it under the applicable
provisions of the Indenture or the Bonds to effect the redemption of all or a
portion of the Bonds pursuant to this Article.
(End of Article VI)
<PAGE>
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7. 1. Events of Default. Each of the following shall be an
Event of Default:
(a) Failure by the Borrower to make or cause to be made any Loan
Payment or Purchase Payment on or prior to the date on which such payment is
due and payable;
(b) Failure by the Borrower to observe and perform any other
agreement, term or condition contained in this Agreement and continuation of
such failure for a period of 30 days after notice thereof shall have been
given to the Borrower by the Issuer or the Trustee, or for such longer period
as the Issuer and the Trustee may agree to in writing; provided that if the
failure is other than the payment of money and is of such nature that it can
be corrected but not within the applicable period, such failure shall not
constitute an Event of Default so long as the Borrower institutes curative
action within the applicable period and diligently pursues such action to
completion;
(c) The Borrower shall (i) apply for or consent to the appointment of
a receiver, trustee, liquidator or custodian or the like of itself or of its
property, or (ii) admit in writing its inability to pay its debts generally as
they become due, or (iii) make a general assignment for the benefit of
creditors, or (iv) be adjudicated a bankrupt or insolvent, or (v) commence a
voluntary case under the United States Bankruptcy Code, or file a voluntary
petition or answer seeking reorganization, an arrangement with creditors or an
order for relief, or seeking to take advantage of any insolvency law or file
an answer admitting the material allegations of a petition filed against it in
any bankruptcy, reorganization, or insolvency proceeding, or action shall be
taken by it for the purpose of effecting any of the foregoing, or (vi) have
instituted against it, without the application, approval or consent of the
Borrower, a proceeding in any court of competent jurisdiction, under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking in respect of the Borrower an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or the like of the
Borrower or of all or any substantial part of its assets, or other like relief
in respect thereof under any bankruptcy or insolvency law, and, if such
proceeding is being contested by the Borrower in good faith, the same shall
(A) result in the entry of an order for relief or any such adjudication or
(B) appointment or (B) remain unvacated, undismissed and undischarged for a
(C) period of 60 days;
(d) Any representation or warranty made by the Borrower herein or any
statement in any report, certificate, financial statement or other instrument
furnished in connection with this Agreement or with the purchase of the Bonds
shall at any time prove to have been false or misleading in any material
respect when made or given;
(e) For any reason the Bonds are declared due and payable by
acceleration in accordance with Section 7.03 of the Standard Provisions;
(f) The Trustee receives notice from the Participating Bank (i)
stating that an Event of Default as defined in the Reimbursement Agreement has
occurred and is continuing and (ii) directing the Trustee to call the Bonds
for mandatory purchase or to declare the principal of the outstanding Bonds
immediately due and payable;
<PAGE>
(g) The Trustee receives notice from the Bank (i) stating that an
Event of Default as defined in the Participating Bank Agreement has occurred
and is continuing and (ii) directing the Trustee to call the Bonds for
mandatory purchase or to declare the principal of the outstanding Bonds
immediately due and payable;
(h) The Trustee receives notice from the Bank prior to the tenth
Business Day following payment of a drawing under the Letter of Credit for
interest on Bonds which remain outstanding after the application of the
proceeds of such drawing, stating that the Letter of Credit will not be
reinstated with respect to such interest; or
(i) A Misuse of Bond Proceeds occurs, or the Borrower fails to
complete the Project (except for immaterial items) and commence operations at
the Project within three years from the Series Issue Date, or fails to
maintain (or to cause to be maintained) or within such period to create and
thereafter maintain (or to cause to be created and thereafter be maintained)
at least 50% of the employment at the Project projected in the Local Entity's
application to the Issuer on behalf of the Borrower pursuant to which the
Bonds were issued, or ceases or permits to be ceased operations at the Project
(other than temporary cessation beyond the control of the Borrower and its
lessee), or sells, assigns or otherwise disposes of (whether in one
transaction or in a series of transactions) its interest in the Project or any
substantial portion thereof (other than leases permitted under Section 5.4) or
undertakes or permits any demolition or removal of a substantial portion of
the Project without the prior written consent of the Issuer (except as
otherwise permitted under Section 5.2), or assigns its interest under this
Agreement in violation of Section 8.9.
The declaration of an Event of Default under paragraph (c) above, and the
exercise of remedies upon any such declaration, shall be subject to any
applicable limitations of federal bankruptcy law affecting or precluding that
declaration or exercise during the pendency of or immediately following any
bankruptcy, liquidation or reorganization proceedings.
Section 7.2. Remedies on Default.
(a) Whenever an Event of Default shall have happened and be
subsisting, any one or more of the following remedial steps may be taken:
(1) If acceleration of the principal amount of the Bonds has been
declared pursuant to Section 7.03 of the Standard Provisions, the Trustee
shall declare all Loan Payments to be immediately due and payable, whereupon
the same shall become immediately due and payable; and
(2) The Issuer or the Trustee may pursue any and all remedies now or
hereafter existing at law or in equity to collect all amounts then due and
thereafter to become due under this Agreement or the Letter of Credit or to
enforce the performance and observance of any other obligation or agreement of
the Borrower under this Agreement.
(b) The Borrower covenants that, in case it shall fail to pay or
cause to be paid any Loan Payments or Purchase Payments as and when the same
shall become due and payable whether at maturity or by acceleration or
otherwise, then, upon demand of the Trustee, the Borrower will pay to the
Trustee the whole amount that then shall have become due and payable
hereunder; and, in addition thereto, such further amounts as shall be
sufficient to cover the costs and expenses of collection, including a
reasonable compensation to the Trustee, its agents and counsel, and any
expenses or liabilities incurred by the Issuer or the Trustee. In case the
<PAGE>
Borrower shall fail forthwith to pay such amounts upon such demand, the
Trustee shall be entitled and empowered to institute any actions or
proceedings at law or in equity for the collection of the sums so due and
unpaid.
(c) In case there shall be pending proceedings for the bankruptcy or
reorganization of the Borrower under the federal bankruptcy laws or any other
applicable law, or in case a receiver or trustee shall have been appointed for
the benefit of the creditors or the property of the Borrower, the Trustee
shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount due
hereunder, including interest owing and unpaid in respect thereof, and, in
case of any judicial proceedings, to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee allowed in such judicial proceedings relative to the
Borrower, its creditors or its property, and to collect and receive any moneys
or other property payable or deliverable on any such claims, and to distribute
the same after the deduction of its charges and expenses. Any receiver,
assignee or trustee in bankruptcy or reorganization is hereby authorized to
make such payments to the Issuer or the Trustee, and to pay to the Issuer or
<PAGE>
the Trustee any amount due it for compensation and expenses, including counsel
fees incurred by it up to the date of such distribution.
Notwithstanding the foregoing, the Trustee shall not be obligated to take
any step which in its opinion will or might cause it to expend money or
otherwise incur liability unless and until a satisfactory indemnity bond has
been furnished to the Trustee at no cost or expense to the Trustee. Any
amounts collected as Loan Payments or applicable to Loan Payments and any
other amounts which would be applicable to payment of Bond Service collected
pursuant to action taken under this Section shall, after the deduction of the
Trustee's charges and expenses, be paid into the Bond Fund and applied in
accordance with the provisions of the Indenture or, if the outstanding Bonds
have been paid and discharged in accordance with the provisions of the
Indenture, shall be paid as provided in Article X of the Standard Provisions
for transfers of remaining amounts in the Bond Fund.
The provisions of this Section are subject to the further limitation that
the annulment by the Trustee of its declaration that all of the Bonds are
immediately due and payable also shall constitute an annulment of any
corresponding declaration made pursuant to Subsection 7.2(a)(1); provided that
no such waiver or rescission shall extend to or affect any subsequent or other
default or impair any right consequent thereon.
Section 7.3. Remedies Not Exclusive. No remedy conferred upon or
reserved to the Issuer or the Trustee by this Agreement 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 the Letter of Credit, or now or hereafter
existing at law or in equity. No delay or omission to exercise any right or
power accruing upon any default shall impair that 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 and as often as may be deemed expedient. In order
to entitle the Issuer or the Trustee to exercise any remedy reserved to it in
this Article, it shall not be necessary to give any notice, other than any
notice required by law or for which express provision is made herein.
Section 7.4. Payment of Legal Fees and Expenses. If an Event of Default
should occur and the Issuer or the Trustee should incur expenses, including
attorneys' fees, in connection with the enforcement of this Agreement or the
Letter of Credit or the collection of sums due thereunder, the Borrower shall
reimburse the Issuer and the Trustee, as applicable, for the expenses so
incurred, upon demand.
<PAGE>
Section 7.5. No Waiver. No failure by the Issuer or the Trustee to
insist upon the strict performance by the Borrower of any provision hereof
shall constitute a waiver of their right to strict performance and no express
waiver shall be deemed to apply to any other existing or subsequent right to
remedy the failure by the Borrower to observe or comply with any provision
hereof.
The Issuer and the Trustee may waive any Event of Default hereunder only
with the prior written consent of the Bank and the Participating Bank;
provided that the Trustee shall not waive an Event of Default under Section
7.1 (i) without the prior written consent of the Issuer.
Section 7.6. Notice of Default. The Borrower shall immediately notify
the Trustee, the Issuer, the Participating Bank and the Bank in writing if it
becomes aware of the occurrence of any Event of Default hereunder or of any
fact, condition or event which, with the giving of notice or passage of time
or both, would become an Event of Default.
(End of Article VII)
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Term of Agreement. This Agreement shall be and remain in
full force and effect from the Series Issue Date until such time as all of the
Bonds shall have been fully paid (or provision made for such payment) pursuant
to the Indenture, the Indenture shall have been released pursuant to Section
10.01 thereof, and all other sums payable by the Borrower under this Agreement
and the Reimbursement Agreement shall have been paid, except for obligations
of the Borrower under Section 5.10, which shall survive any termination of this
Agreement.
Section 8.2. Notices. All notices, certificates, requests or other
communications hereunder shall be in writing and shall be deemed to be
sufficiently given when mailed by registered or certified mail, postage
prepaid, sent by telecopier or nationally recognized overnight courier or
delivered in person and addressed as follows:
If to the Borrower: Webco Industries, Inc.
P.O. Box 100
Sand Springs, OK 74063
Attention: Michael P. Howard, Vice President
If to the Issuer: Pennsylvania Economic Development Financing
Authority
Department of Community and Economic Development
466 Forum Building
Harrisburg, PA 17120
<PAGE>
If to the Trustee: Chase Manhattan Trust Company, National
Association,
Trustee
1650 Market Street, 52nd Floor
Philadelphia, PA 19103
Attention: Global Trust Services
If to the Remarketing Advisor:
PNC Capital Markets, Inc.
One PNC Plaza
Fifth and Wood, 25th Floor
Pittsburgh, PA 15222-2707
Attention: Remarketing Desk
If to the Bank: PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Financial Institutions Group
with a copy to:
PNC Bank, National Association
3rd Floor Annex
237 Fifth Avenue
Pittsburgh, PA 15222
Attention: Letter of Credit Department
If to the Participating Bank:
American National Bank and Trust Company of Chicago
One North LaSalle
9th Floor
Chicago, IL 60690
Attention: Donna Evans, Vice President
The Borrower, the Issuer, the Trustee, the Bank, the Participating Bank and
the Remarketing Advisor, by notice given hereunder to the Persons listed
above, may designate any further or different addresses to which subsequent
notices, certificates, requests or other communications shall be sent.
Section 8.3. Limitation of Liability: No Personal Liability. In the
exercise of the powers of the Issuer, the Trustee or the Remarketing Advisor
hereunder or under the Indenture, including without limitation the application
of moneys and the investment of funds, neither the Issuer, the Trustee, the
Remarketing Advisor nor their members, directors, officers, employees or
agents shall be accountable to the Borrower for any action taken or omitted by
any of them in good faith and with the belief that it is authorized or within
the discretion or rights or powers conferred. The Issuer, the Trustee, the
Remarketing Advisor and their members, directors, officers, employees and
agents shall be protected in acting upon any paper or document believed to be
genuine, and any of them may conclusively rely upon the advice of counsel and
may (but need not) require further evidence of any fact or matter before
taking any action. In the event of any default by the Issuer hereunder, the
liability of the Issuer to the Borrower shall be enforceable only out of the
<PAGE>
Issuer's interest under this Agreement and there shall be no other recourse
for damages by the Borrower against the Issuer, its members, directors,
officers, attorneys, agents and employees, or any of the property now or
hereafter owned by it or them. All covenants, obligations and agreements of
the Issuer contained in this Agreement or the Indenture shall be effective to
the extent authorized and permitted by applicable law. No such covenant,
obligation or agreement shall be deemed to be a covenant, obligation or
agreement of any present or future member, director, officer, agent or
employee of the Issuer, and no official executing the Bonds shall be liable
personally on the Bonds or be subject to any personal liability or
accountability by reason of the issuance thereof or by reason of the
covenants, obligations or agreements of the Issuer contained in this Agreement
or the Indenture.
Section 8.4. Binding Effect. This Agreement shall inure to the benefit
of and shall be binding in accordance with its terms upon the Issuer, the
Borrower and their respective successors and assigns; provided that this
Agreement may not be assigned by the Borrower (except in connection with a
sale or transfer of assets pursuant to Section 5.1 or in compliance with
Section 8.9) and may not be assigned by the Issuer except to the Trustee
pursuant to the Indenture or as otherwise may be necessary to enforce or
secure payment of Bond Service. This Agreement may be enforced only by the
parties, their assignees and others who may, by law, stand in their respective
places. In addition, the Remarketing Advisor, the Bank and the Participating
Bank are hereby explicitly recognized as third party beneficiaries of this
Agreement.
Section 8.5. Amendments. Except as otherwise expressly provided in this
Agreement or the Indenture, subsequent to the issuance of the Bonds and unless
and until all conditions provided for in the Indenture for release of the
Indenture are met, this Agreement may not be effectively amended, modified or
terminated except by an instrument in writing signed by the Borrower and the
Issuer, consented to by the Trustee, and in accordance with the provisions of
Article IX of the Standard Provisions, as applicable.
Section 8.6. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be regarded as an original and all of
which shall constitute one and the same instrument.
Section 8.7. Severability. If any provision of this Agreement is
determined by a court to be invalid or unenforceable, such determination shall
not affect any other provision hereof, each of which shall be construed and
enforced as if the invalid or unenforceable portion were not contained herein.
Such invalidity or unenforceability shall not affect any valid and enforceable
application thereof, and each such provision shall be deemed to be effective,
operative and entered into in the manner and to the full extent permitted by
applicable law.
Section 8.8. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the Commonwealth of Pennsylvania and for all
purposes shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania.
Section 8.9. Assignment. The Borrower shall not assign this Agreement
or any interest of the Borrower herein, either in whole or in part, without
the prior written consent of the Trustee, which consent shall be given if the
following conditions are fulfilled: (i) the assignee assumes in writing all
of the obligations of the Borrower hereunder; (ii) the assignee provides the
Trustee with an opinion of Counsel satisfactory to the Trustee to the effect
that neither the validity nor the enforceability of this Agreement shall be
adversely affected by such assignment; (iii) the Project shall continue in the
opinion of Bond Counsel to be a "project" as such term is defined in the Act
after such assignment; (iv) such assignment shall not, in the opinion of Bond
Counsel, have an adverse effect on the exclusion from gross income for federal
income tax purposes of interest on the Bonds; (v) the assignee shall not be a
<PAGE>
Disqualified Contractor; and (vi) consent by the Issuer, which consent shall
not be unreasonably withheld. For purposes of this Section, no foreclosure by
the Participating Bank, or conveyance in lieu thereof, or other transfer to
the Participating Bank or an affiliate of the Participating Bank, shall, of
itself, be deemed an assignment for purposes of this Section or a sale,
transfer, assignment or other disposition for purposes of Section 5.2.
Subject to the foregoing, the terms "Issuer", "Borrower", "Trustee" and
"Remarketing Advisor" shall, where the context requires, include the
respective successors and assigns of such persons. No assignment pursuant to
this Section shall release the Borrower from its obligations under this
Agreement, unless the Participating Bank has consented to such release.
Section 8.10. Receipt of Indenture. The Borrower hereby acknowledges
that it has received an executed copy of the Indenture and of the Standard
Provisions incorporated therein and is familiar with their provisions, and
agrees that it is subject to and bound by the terms thereof and it will take
all such actions as are required or contemplated of it under the Indenture to
preserve and protect the rights of the Trustee and of the Holders and the Bank
and the Participating Bank thereunder and that it will not take any action
which would cause a default thereunder. Any redemption of Bonds prior to
maturity shall be effected as provided in the Indenture.
(End of Article VIII)
<PAGE>
IN WITNESS WHEREOF, the issuer and the Borrower, intending to be legally
bound, have caused this Agreement to be duly executed in their respective
names, all as of the date first above written.
[SEAL] PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY
Attest: Kelly Stephens By: Kimberly Kaufman
Assistant Secretary Executive Director
(SEAL.] WEBCO INDUSTRIES, INC.
Attest: Larry W. Sandel By: /s/Michael P. Howard
Title: Assistant Secretary Title: Chief Financial Officer
This execution page is part of the Loan Agreement dated as of December 1,
1998 between Pennsylvania Economic Development Financing Authority and Webco
Industries, Inc.
<PAGE>
EXHIBIT A
WEBCO INDUSTRIES- INC PROJECT
The Project consists of a 37,500 square-foot expansion to an existing
109,00 square-foot building and related equipment, to be located in Oil City,
Venango County, Pennsylvania, to be acquired, constructed and equipped by the
Borrower and operated by the Borrower as a facility for the manufacture of
high carbon steel and stainless steel tubing products used by industrial
plants, utility plants, co-generation and other facilities.
<PAGE>
Sources and Uses of Funds
Other
Bond Borrowed
Proceeds Funds Equity Total
New Construction $1,564,240 $ 1,320,000 $ 2,884,240
Acquisition of New $ 980,000 $ 650,000 $10,460,000 $ 12,090,000
Equipment
Costs of Issuance $ 20,000 $ 3,000 $ 23,000
Other $ 200,000 $ 200,000
Total $1,000,000 $2,414,240 $11,783,00 $ 15,197,240
<PAGE>
EXHIBIT B
Form of Disbursement Request
STATEMENT NO. REQUESTING DISBURSEMENT OF FUNDS FROM PROJECT FUND
PURSUANT TO SECTION 3.4 OF THE LOAN AGREEMENT DATED AS OF DECEMBER 1, 1998
("LOAN AGREEMENT") BETWEEN PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING
AUTHORITY ("ISSUER") AND WEBCO INDUSTRIES, INC. ("BORROWER").
The terms used herein shall have the meanings specified for such terms in
or pursuant to the Loan Agreement. Pursuant to Section 3.4 of the Loan
Agreement, the undersigned Authorized Representative of the Borrower hereby
requests and authorizes the Trustee to pay to the Borrower or to the person(s)
listed on the Disbursement Schedule attached hereto out of the moneys
deposited in the Project Fund the aggregate sum of $ to
reimburse the Borrower or to pay such person(s), as indicated in the
Disbursement Schedule, for the items of Project Cost listed in the
Disbursement Schedule.
In connection with the foregoing request and authorization, the undersigned
hereby certifies that:
(a) Each item for which disbursement is requested hereunder is due, is an
item of incurred Project Cost properly reimbursable or payable out of the
Project Fund in accordance with the terms and conditions of the Loan Agreement
and none of those items has formed the basis for any disbursement heretofore
made from the Project Fund.
(b) Each such item is or was necessary or appropriate in connection with
the acquisition, construction, equipment and/or qualified refinancing of the
Project.
(c) Each such item is as described in the information statement filed by
the Issuer in connection with the issuance of the Bonds (as defined in the
Loan Agreement), as required by Section 149(e) of the Code; provided that if
any such item is not as described in that information statement, attached
hereto is an opinion of Bond Counsel that such disbursement will not result in
the interest on the Bonds becoming included in the gross income of the Holders
for federal income tax purposes.
(d) The reimbursement or payment of the Project Costs requisitioned hereby
will comply with the restrictions contained in Sections 3.4, 5.11 and 5.12 of
the Loan Agreement.
(e) This statement and all exhibits hereto, including the Disbursement
Schedule, shall constitute full warrant, protection and authority to the
Trustee for its actions taken pursuant hereto.
<PAGE>
Dated:
WEBCO INDUSTRIES, INC.
By:
Authorized Representative
Approved by American National Bank and Trust Company of Chicago
By:
Authorized Signatory
DISBURSEMENT SCHEDULE
TO STATEMENT NO. REQUESTING AND AUTHORIZING DISBURSEMENT OF FUNDS FROM
PROJECT FUND PURSUANT TO SECTION 3.4 OF THE LOAN AGREEMENT DATED AS OF
DECEMBER 1, 1998 BETWEEN PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY
AND WEBCO INDUSTRIES, INC.
PAYEE AMOUNT PURPOSE
<PAGE>
EXHIBIT C
NONDISCRIMINATION CLAUSE
During the term of this contract, the Borrower agrees as to itself and
each tenant of the Project controlling, controlled by or under common control
with the Borrower (each of the Borrower and each such tenant, a "Contractor")
as follows:
1. Contractor shall not discriminate against any employee, applicant
for employment, independent contractor or any other person because of race,
color, religious creed, handicap, ancestry, national origin, age or sex.
Contractor shall take affirmative action to insure that applicants are
employed, and that employees or agents are treated during employment, without
regard to their race, color, religious creed, handicap, ancestry, national
original age or sex. Such affirmative action shall include, but not limited
to: employment, upgrading, demotion or transfer, recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training. Contractor shall post in
conspicuous places, available to employees, applicants for employment and
other persons, a notice to be provided by the contracting agency setting forth
the provisions of this nondiscrimination clause.
2. Contractor shall in advertisements or requests for employment
placed by it or on its behalf, state that all qualified applicants will
receive consideration for employment without regard to race, color, religious
creed, handicap, ancestry, national origin, age or sex.
3. Contractor shall send to each labor union or workers'
representative with which it has a collective bargaining agreement or other
contract or understanding, a notice advising said labor union or workers'
representative of its commitment to this nondiscrimination clause. Similar
notice shall be sent to every other source of recruitment regularly utilized
by Contractor.
4. It shall be no defense to a finding of noncompliance with this
nondiscrimination clause that Contractor had delegated some of its employment
practices to any union, training program or other source of recruitment which
prevents it from meeting its obligations. However, if the evidence indicates
that Contractor was not on notice of the third-party discrimination or made a
good faith effort to correct it, such factor shall be considered a mitigating
circumstance in determining appropriate sanctions.
5. Where the practices of a union or of any training program or other
program of recruitment will result in the exclusion of minority group persons,
so that Contractor will be unable to meet its obligations under this
nondiscrimination clause, Contractor shall then employ and fill vacancies
through other nondiscriminatory employment procedures.
6. Contractor shall comply with all applicable state and federal laws
prohibiting discrimination in hiring or employment opportunities. In the
event of Contractor's noncompliance with the nondiscrimination clause of this
contract or with any such laws, the Loan Payments may be accelerated, and
Contractor may be declared temporarily ineligible for further Commonwealth of
Pennsylvania contracts, and other sanctions may be imposed and remedies
invoked.
7. Contractor shall furnish all necessary employment documents and
records to, and permit access to its books, records and accounts by, the
contracting agency for purposes of investigation to ascertain compliance with
the provisions of this clause. If Contractor does not possess documents or
<PAGE>
records reflecting the necessary information requested, it shall furnish such
information on reporting forms supplied by the contracting agency.
8. Contractor shall actively recruit minority subcontractors and
women subcontractors or subcontractors with substantial minority or women
representation among their employees.
9. Contractor shall include the provisions of this nondiscrimination
clause in every subcontract, so that such provisions will be binding upon each
subcontractor.
10. Contractor obligations under this clause are limited to
Contractor's facilities within Pennsylvania or, where the contract is for
purchase of goods manufactured outside of Pennsylvania, the facilities at
which such goods are actually produced.
EXHIBIT 10.12
REIMBURSEMENT AGREEMENT
THIS AGREEMENT, made as of December 1, 1998 between WEBCO INDUSTRIES,
INC. (the "Borrower"), an Oklahoma corporation, and AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO (the "Bank").
RECITALS:
A. Borrower is a party to that certain Loan and Security Agreement
(as amended, modified or supplemented from time to time, the "Loan and
Security Agreement") dated as of July 15, 1998 by and among Borrower, the
financial institutions party thereto (the "Lenders") and American National
Bank and Trust Company of Chicago, in its capacity as agent for the Lenders
(the "Agent").
B. Pennsylvania Economic Development Financing Authority (the
"Issuer") has issued its Economic Development Revenue Bonds, 1998 Series G-15
(Webco Industries, Inc. Project) in the aggregate principal amount of
$1,000,000 (the "Bonds") under a Trust Indenture dated as of December 1, 1998
(as amended, modified or supplemented from time to time, the "Indenture")
between the Issuer and Chase Manhattan Trust Company, National Association,
as Trustee (including any successor trustee, the "Trustee").
C. Pursuant to a Loan Agreement dated as of December 1, 1998 between
the Issuer and the Borrower (as amended, modified or supplemented from time
to time, the "Loan Agreement"), the proceeds of the Bonds are being applied
to finance the Project (as defined in the Loan Agreement).
D. In order to facilitate the issuance and sale of the Bonds and to
enhance the marketability of the Bonds, the Issuer has asked PNC Bank,
National Association (the "Letter of Credit Bank") to issue its Irrevocable
Letter of Credit (together with any amendment thereto and any substitute
letter of credit issued by the Letter of Credit Bank therefor, the "Letter of
Credit") to the Trustee authorizing the Trustee to make one or more draws on
the Letter of Credit Bank up to an aggregate of $1,024,568.00 (as reduced and
reinstated from time to time in accordance with the provisions of the Letter
of Credit, the "Letter of Credit Amount"), of which originally (i) $1,000,000
shall be in respect of principal of the Bonds and (ii) $24,568.00 shall be in
respect of accrued interest on the Bonds. The purpose of the Letter of Credit
is to provide funds for the payment of principal of and interest on the Bonds
and the purchase price of Bonds which have been tendered for purchase
pursuant to the tender option provisions thereof and of the Indenture to the
extent remarketing proceeds or other funds are not available therefor in
accordance with the provisions of the Indenture.
E. The Letter of Credit Bank will only issue the Letter of Credit
for the account of a banking institution acceptable to the Letter of Credit
Bank. To such end and to achieve interest cost savings and other savings for
the Borrower, the Borrower has asked the Bank to enter into a Participation
and Reimbursement Agreement dated as of December 1, 1998 with the Letter of
Credit Bank (as amended, modified or supplemented from time to time, the
"Participating Bank Agreement") under which the Bank will become obligated to
reimburse the Letter of Credit Bank for all drawings under the Letter of
<PAGE>
Credit and to make certain other payments to the Letter of Credit Bank.
F. The Bank is willing to enter into the Participating Bank
Agreement for the account of the Borrower upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the undertakings
herein set forth and intending to be legally bound, the Borrower and the Bank
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Capitalized terms used herein and not
otherwise defined herein shall have the meanings given such terms in the Loan
and Security Agreement and the Letter of Credit to the extent the same are
defined therein. In addition to terms defined elsewhere herein, the following
terms shall have the meanings specified in this Article, unless the context
otherwise requires:
"Bond Documents" means the Bonds, the Indenture, the Loan Agreement, the
Remarketing Agreement and any other agreements or instruments relating
thereto.
"Closing Date" means December 16, 1998.
"Default" means an event which, with the giving of notice or lapse of
time or both, would constitute an Event of Default.
"Event of Default" shall have the meaning ascribed to such term in
Section 8.01.
"Pledged Bonds" shall have the meaning ascribed to such term in Section
3.03.
"Project Fund" shall have the meaning ascribed to such term in the
Indenture.
"Remarketing Advisor" means PNC Capital Markets, Inc. and its successors
and assigns as Remarketing Advisor under the Indenture.
"Remarketing Agreement" means the Remarketing Agreement dated as of
December 1, 1998 between the Remarketing Advisor and the Borrower relating to
the Remarketing Advisor's duties under the Indenture.
"Security Documents" means the Bond Pledge Agreement, the financing
statements and continuation statements delivered pursuant to Section 3.03 and
any other instruments delivered to the Bank from time to time to secure
obligations of the Borrower under this Agreement.
"Unremarketed Tendered Bonds" means Bonds which (a) have been tendered
for purchase pursuant to the tender option provisions of the Bonds and the
<PAGE>
Indenture and (b) have not been successfully remarketed by the Remarketing
Advisor prior to 10:00 am., Philadelphia, Pennsylvania time on the date of
purchase thereof pursuant to such tender.
Section 1.02. Commercial Terms. All terms used but not otherwise
defined herein which are defined in the Illinois Uniform Commercial Code on
the date hereof shall have the respective meanings assigned to them therein
as of the date hereof.
Section 1.03. Rules of Construction; Time of Day. In this
Agreement, unless otherwise indicated, (i) defined terms may be used in the
singular or the plural and the use of any gender includes all genders, (ii)
the words "hereof, "herein", "hereto", "hereby " and "hereunder" refer to
this entire Agreement (including all Schedules and Exhibits hereto), and
(iii) all references to particular Articles, Sections, Schedules or Exhibits
are references to the Articles, Sections, Schedules or Exhibits of this
Agreement unless otherwise specified. References to any time of the day in
this Agreement shall, unless otherwise specified, refer to Chicago, Illinois
time.
ARTICLE II
CREDIT AND REIMBURSEMENT
Section 2.01. Credit. The Borrower hereby requests the Bank to
enter into the Participating Bank Agreement with the Letter of Credit Bank.
At the request and for the account of the Borrower and subject to
satisfaction of each of the conditions precedent set forth in Article IV
hereof, the Bank will enter into the Participating Bank Agreement with the
Letter of Credit Bank on the Closing Date. Borrower hereby acknowledges and
agrees that (i) the Borrower has received copies of the Participating Bank
Agreement and the Letter of Credit and is familiar with their terms, (ii) the
Borrower will immediately reimburse the Bank for all advances made by the
Bank to the Letter of Credit Bank and all other amounts paid by the Bank
under the Participating Bank Agreement in accordance with the terms of this
Agreement (whether for principal, interest, expenses, advances, indemnities,
damages or otherwise) and failing to make such payment to the Bank, the Bank
as Agent, may charge the same to Borrower's Loan Account, and (iii) the
Borrower will take all action required or contemplated on its part to comply
with the terms of the Participating Bank Agreement.
Section 2.02. Reimbursement and Other Payments to Bank.
(a) Reimbursement Payments and Interest. Without limiting the
generality of the foregoing, the Borrower shall pay or cause to be paid to
the Bank:
(1) a sum equal to the issuance fee, each commitment fee, and all
other fees payable by the Bank to the Letter of Credit Bank under Section
2.04 or 2.05 of the Participating Bank Agreement, on the earlier of (i) the
day such commitment fee becomes due and payable by the Bank or (ii) the day
such commitment fee is actually paid by the Bank;
(2) a sum equal to each amount drawn under the Letter of Credit by
<PAGE>
an Interest Drawing, a Principal Drawing or a Final Payment Drawing, on the
earlier of (i) the day reimbursement for such amount becomes due and payable
by the Bank to the Letter of Credit Bank under Section 2.02 of the
Participating Bank Agreement or any other provision of the Participating Bank
Agreement or (ii) the day reimbursement for such amount is actually made by
or on behalf of the Bank to the Letter of Credit Bank;
(3) a sum equal to each amount drawn against the Interest Component
of the Letter of Credit Amount by a Liquidity Drawing on the same Business
Day that such amount is so drawn;
(4) a sum equal to each amount drawn against the Principal Component
of the Letter of Credit Amount by a Liquidity Drawing, on the same Business
Day that such amount is so drawn;
(5) a sum equal to each drawing fee, each transfer fee and all
charges and expenses payable by the Bank to Letter of Credit Bank under
Section 2.06 of the Participating Bank Agreement, on the day that such
drawing fee, transfer fee or other charge or expense becomes due and payable
by the Bank;
(6) a sum equal to each amount of costs, fees or expenses incurred
by or imposed on the Letter of Credit Bank and payable by the Bank to the
Letter of Credit Bank under Section 9.03 of the Participating Bank Agreement,
on the day that such amount becomes due and payable by the Bank;
(7) a sum equal to each other amount payable by the Bank to the
Letter of Credit Bank under Section 4.04, 7.02, 8.01 or 8.02 or any other
Section of the Participating Bank Agreement, on the day that such amount
becomes due and payable by the Bank; and
(8) a sum equal to each amount of interest payable by the Bank to
the Letter of Credit Bank under Section 2.03 or 4.05 of the Participating
Bank Agreement, on the earlier of (i) the day such interest becomes due and
payable by the Bank or (ii) the day such interest is actually paid by the
Bank.
Each sum payable to the Bank under this Section 2.02(a) and all other sums
payable under this Agreement shall bear interest from the date such sum is
paid by the Bank (in addition to interest payable under Section 2.02(a)(8)
until such sum is paid in full (it being understood and agreed that any sum
paid to the Bank after 1:00 p.m. on a Business Day shall bear interest as if
it was paid at 9:00 am. on the next following Business Day), at a fluctuating
rate per annum (computed for the actual number of days elapsed, based on a
360-day year) equal to the from time to time Post-Default Rate applicable to
Base Rate Advances comprising part of the Revolving Loans until such sum and
all other amounts due and payable under this Agreement have been paid in
full. All interest accruing on amounts payable under this Agreement shall be
payable on demand.
(b) [Intentionally deleted]
(c) L/C Fees. Borrower shall pay to Agent, for the ratable benefit
of Lenders, an L/C Fee as provided and on the same basis as set forth in
<PAGE>
Section 2.20(G)(i) of the Loan and Security, provided that for the purposes
hereof the "average daily outstanding amount of Letter of Credit Obligations"
shall be deemed to be equal to the average daily Nominal Amount of the Letter
of Credit. Computations of L/C Fees under this Section shall be for the
actual number of days in the applicable period, based on a 360-day year. As
used herein, the term "Nominal Amount" shall mean the original face amount of
the Letter of Credit, less all permanent reductions in the amount drawable
thereunder which are not (or are no longer) subject to reinstatement.
(d) Increased Costs. If, after the Closing Date, any enactment,
promulgation or adoption of or change in any applicable foreign or domestic
law, regulation or rule or in the interpretation or administration thereof by
any court, administrative or governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof,
or compliance by the Bank or any Lender (or any controlling affiliate of any
thereof) with any guideline, request or directive issued after the date
hereof (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall either (i) impose, modify or deem
applicable any reserve, special deposit, insurance assessment or similar
requirement (including without limitation a guideline, request or directive
which affects the manner in which the Bank or any Lender allocates capital
resources to its commitments and/or risks, including its obligations and/or
risks under the Participating Bank Agreement, this Agreement or the Loan and
Security Agreement), (ii) affect the amount of capital required or expected
to be maintained the Bank or any Lender (or any controlling affiliate of any
thereof), (iii) subject the Bank or any Lender to any tax, levy, impost,
duty, deduction, withholding or other charge or change the basis of taxation
of the Bank or any Lender (other than a change in a rate of tax based on
income of the Bank or any Lender), or (iv) impose on the Bank or any Lender
any other condition regarding this Agreement, the Loan and Security Agreement
or the Security Documents and the result of any event referred to in clause
(i), (ii), (iii) or (iv) of this sentence shall be to increase the direct or
indirect cost to the Bank or any Lender of entering into or maintaining the
Participating Bank Agreement, of agreeing to make, making or maintaining the
loans under the Loan and Security Agreement or of funding or maintaining the
obligations and/or risks of the Bank or any Lender under this Agreement or
the Loan and Security Agreement or to reduce the amounts receivable by the
Bank or any Lender hereunder or under the Loan and Security Agreement or to
reduce the rate of return on the capital of the Bank or any Lender (or any
controlling affiliate of any thereof) in connection with the Participating
Bank Agreement, this Agreement or the Loan and Security Agreement (which
increase in cost, reduction in amounts receivable or reduction in rate of
return shall be determined by the Bank's or any Lender's reasonable
allocation of such cost increase, reduction in amounts receivable or
reduction in rate of return resulting from such event), then upon demand by
the Bank or any Lender, the Borrower shall pay to the Bank or such Lender,
from time to time as specified by the Bank or such Lender, as the case may
be, additional amounts that in the aggregate shall be sufficient to
compensate the Bank or such Lender, as the case may be, for such increased
cost, reduction in amounts receivable or reduction in rate of return. A
certificate as to such increased cost, reduction in amounts receivable or
reduction in rate of return submitted by the Bank or such Lender, as the case
may be, to the Borrower containing an explanation of such increased cost,
reduction in amounts receivable or reduction in rate of return and the manner
of calculation thereof shall, in absence of manifest error, be conclusive and
binding for all purposes.
(e) General Interest Accrual. Except as otherwise provided in
Section 2.02(a) all payments to the Bank under this Agreement (including
<PAGE>
without limitation all payments becoming due under Sections 2.02(c) and
2.02(d) shall be accompanied by interest thereon, from the date such
payments become due until they are paid in full, at a fluctuating rate per
annum. (computed for the actual number of days elapsed, based on a 360-day
year) equal to the from time to time Post-Default
Rate applicable to Base Rate Advances comprising part of the Revolving Loans,
until all amounts due and payable pursuant to this Agreement have been paid
in full.
(f) Place of Payment. All payments by the Borrower to the Bank under
this Agreement at any time shall be made in lawful currency of the United
States at the Bank's office in the manner provided for the making of payments
under the Loan and Security Agreement at such time.
Section 2.03. Payments Under Loan Agreement. The Borrower shall
make all Loan Payments, Purchase Payments and Additional Payments (each, as
defined in the Loan Agreement) to the Trustee at least two (2) Business Days
before the same are due under the Loan Agreement.
Section 2.04. Obligations Absolute. The obligations of the Borrower
under this Agreement shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement,
under all circumstances whatsoever, including without limitation the
following circumstances: (i) any lack of validity or enforceability of the
Letter of Credit, the Participating Bank Agreement, the Loan and Security
Agreement, any Financing Agreement, the Bond Documents or any other agreement
or document relating thereto; (ii) any amendment or waiver of or any consent
to or departure from the Letter of Credit, the Participating Bank Agreement,
the Loan and Security Agreement, any Financing Agreement, the Bond Documents
or any document relating thereto; (iii) the existence of any claim, set-off,
defense or other right which the Borrower may have at any time against the
Letter of Credit Bank. the Agent, the Bank, any Lender or the Trustee (or any
persons or entities for whom the Letter of Credit Bank or the Trustee may be
acting), the Remarketing Advisor, the Bank, the Agent, any Lender or any
other Person, whether in connection with this Agreement, the transactions
described herein or any unrelated transaction; or (iv) any of the
circumstances contemplated in clauses (1) through (7), inclusive, of Section
2.06(a). The Borrower understands and agrees that no payment by it under any
other agreement (whether voluntary or otherwise) shall constitute a defense
to its obligations hereunder, except to the extent that the Bank has been
indefeasibly paid in full or indefeasibly credited for such payment.
Section 2.05. Indemnification. In addition to any and all rights of
the Bank to reimbursement, indemnification or subrogation or any other rights
of the Bank at law or in equity, to the extent permitted by applicable law,
the Borrower hereby indemnifies and holds harmless the Bank, the Agent and
Lenders (and their respective shareholders, directors, officers, employees
and agents) (collectively, the "Indemnitees") from and against any and. all
claims, damages, losses, liabilities, costs or expenses (including interest,
penalties and reasonable attorneys' fees for counsel of each Indemnitee's
choice) whatsoever which any Indemnitee may incur (or which may be claimed
<PAGE>
against any Indemnitee by any person or entity whatsoever) by reason of or in
connection with (a) the issuance or a transfer of, or payment or failure to
pay under, the Letter of Credit, (b) the entering into, or payment or failure
to pay under, the Participating Bank Agreement, (c) any breach by the
Borrower, the Bank, the Participating Bank or the Issuer of any
representation, warranty, covenant, term or condition in, or the occurrence
of any default under, this Agreement, the Participating Bank Agreement, the
Security Documents or the Bond Documents, including all reasonable fees or
expenses resulting from the settlement or defense of any claims or
liabilities arising as a result of any such breach or default, and (d)
involvement of any Indemnitee in any legal suit, investigation, proceeding,
inquiry or action as a consequence, direct or indirect, of the Bank's
entering into this Agreement, the Participating Bank Agreement, or any other
event or transaction contemplated by any of the foregoing; provided the
Borrower shall not be required to indemnify any Indemnitee for any claims,
damages, losses, liabilities, costs or expenses to the extent, but only to
the extent, solely and proximately caused by the willful misconduct or gross
negligence of such Indemnitee as determined by a final court order of a court
having jurisdiction in the premises. Nothing in this Section is intended to
limit the Borrower's reimbursement and interest payment obligations contained
in Section 2.02(a). The obligations of the Borrower under this Section shall
survive the termination of this Agreement.
Section 2.06. Liability of Bank.
(a) As between the Borrower and the Bank and the other Indemnitees,
the Borrower assumes all risks of the acts or omissions of the Trustee and
the Letter of Credit Bank with respect to the Letter of Credit or the
Participating Bank Agreement. No Indemnitee shall be liable or responsible
for: (1) the use which may be made of the Letter of Credit or for any acts or
omissions of the Trustee or the Letter of Credit Bank in connection therewith
or with the Participating Bank Agreement; (2) the form, validity,
sufficiency, accuracy or genuineness of any documents (including without
limitation any documents presented under the Letter of Credit or the
Participating Bank Agreement), or of any statement therein or endorsement
thereon, even if any such documents, statements or endorsements should in
fact prove to be in any or all respects invalid, insufficient, fraudulent,
forged, inaccurate or untrue; (3) the payment by the Letter of Credit Bank or
the Bank against presentation of documents which do not comply with the terms
of the Letter of Credit or the Participating Bank Agreement, including
failure of any documents to bear any reference or adequate reference to the
Letter of Credit or the Participating Bank Agreement, or any other failure by
the Trustee or the Letter of Credit Bank to comply fully with conditions
required in order to effect or honor a drawing under the Letter of Credit or
in order to entitle the Letter of Credit Bank to payment under the
Participating Bank Agreement; (4) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign the
Letter of Credit or the rights or benefit thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any
reason; (5) errors, omissions, interruptions, losses or delays in
transmission or delivery of any messages by mail, cable, telegraph, telex,
telephone or otherwise; (6) any loss or delay in the transmission or
otherwise of any document or draft required in order to effect a drawing
under the Letter of Credit or in order to entitle the Letter of Credit Bank
to payment under the Participating Bank Agreement; or (7) any other
circumstances whatsoever in making or failing to make payment under the
Letter of Credit or the Participating Bank Agreement; except only that the
<PAGE>
Borrower shall have a claim against the Bank, and the Bank shall be liable to
the Borrower, to the extent, but only to the extent, of any direct, as
opposed to consequential, damages suffered by the Borrower which the Borrower
proves were solely and proximately caused by the Bank's willful misconduct or
gross negligence as finally determined by a court of competent jurisdiction.
(b) Except for the Bank's payment obligations under the
Participating Bank Agreement, no Indemnitee shall have any liability to the
Borrower or any other person as a result of any reduction of the credit
rating of the Bank or any deterioration in the Bank's financial condition. No
reduction of the credit rating of the Bank or any deterioration in the Bank's
financial condition shall reduce or in any way diminish the obligations of
the Borrower to the Indemnitees under this Agreement, including without
limitation the Borrower's obligation to pay facing and letter of credit fees
to the Bank and the Lenders and to reimburse the Bank, the Agent and the
Lenders for any amounts paid to the Letter of Credit Bank.
ARTICLE III
SECURITY
Section 3.01. Security and Subrogation under Indenture. The
Borrower and the Bank intend that (i) the Bank will have the security and
benefit of the Bond Documents as provided in the indenture and (ii) in the
event of reimbursement of the Letter of Credit Bank by the Bank for one or
more draws under the Letter of Credit and the application thereof to the
payment of Bonds, the Bank, individually and as Agent, will be subrogated pro
tanto to the rights of the Trustee and the holders of such Bonds and the
Letter of Credit Bank in and to all funds and security held by the Trustee
under the Indenture for the payment of the principal of and interest on such
Bonds, including without limitation all project funds, debt service funds and
other funds and securities and other instruments comprising investments
thereof. In addition, the Bank, individually and as Agent, shall have any and
all other subrogation rights available to the Bank, individually and as
Agent, at law or in equity.
Section 3.02. Pledge of Rights to Certain Funds and Investments. To
secure the Borrower's obligations to the Bank under this Agreement and all
other Liabilities, the Borrower hereby pledges to the Bank, individually and
as Agent, and grants to the Bank, individually and as Agent, a security
interest in, all of the Borrower's right, title and interest in and to all
funds and investments thereof now or hereafter held by the Trustee under the
Indenture as security for the payment of the Bonds, including without
limitation any. and all project funds, debt service funds and other funds and
securities and other instruments comprising investments thereof and interest
and other income derived therefrom held as security for the payment of the
Bonds, such pledge, assignment and grant being under and subject only to the
rights of the Trustee and the Letter of Credit Bank under the Indenture. The
Borrower covenants and agrees that it will defend the Bank's rights and
security interests created by this Section against the claims and demands of
all persons. In addition to its other rights and remedies under this
Agreement and the Bond Documents, the Bank shall have all the rights and
remedies of a secured party under the Illinois Uniform Commercial Code or
other applicable law with respect to the security interests created by this
Section. The Bank's Tights under this Section are in addition to, and not in
lieu of, its rights described in Section 3.01.
<PAGE>
Section 3.03. Pledged Bonds. To secure the Borrower's obligations
to the Bank, Agent and Lenders under this Agreement and all other
Liabilities, the Borrower shall enter into the Bond Pledge Agreement.
Unremarketed Tendered Bonds shall be pledged to the Bank, individually and as
Agent, and delivered to and held by the Trustee as agent for the Bank,
individually and as Agent, under the Bond Pledge Agreement, such pledge,
assignment and grant being under and subject only to the rights of the
Trustee and the Letter of Credit Bank under the Indenture. Unremarketed
Tendered Bonds, which are so held by the Trustee are herein referred to as
"Pledged Bonds".
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01. [Intentionally Omitted]
Section 4.02. Documentation. As conditions precedent to the Bank's
entering into the Participating Bank Agreement, the Bank shall (a) have
received (i) each of the following in form and substance satisfactory to the
Bank: executed copies of this Agreement and the Bond Pledge Agreement, and
true and correct copies of the Bond Documents and all documentation delivered
in connection therewith, (ii) such other documents, instruments and things as
the Bank may require, and (b) have determined in it sole discretion to enter
into the Bank Participation Agreement.
Section 4.03. Issuance of Bonds. On the Closing Date all conditions
precedent to the issuance and original sale of the Bonds shall have been
satisfied, and the Bonds shall have been duly issued and delivered.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
Section 5.01. Representations in Other Documents. The Borrower
hereby makes to and for the benefit of the Bank, the Agent and each Lender
each of the representations and warranties of the Borrower contained in the
Loan and Security Agreement and the Bond Documents and the other documents
delivered by the Borrower in connection therewith. Each such representation
and warranty shall be deemed to be repeated and restated as of the date
hereof and as the date of issuance of the Letter of Credit.
ARTICLE VI
GENERAL COVENANTS
<PAGE>
So long as any amount is available under the Letter of Credit or any
amount is due and owing to the Letter of Credit Bank under the Participating
Bank Agreement or any amount is due and owing to the Bank hereunder, the
Borrower covenants that, except to the extent the Bank shall otherwise
consent in writing, each of the following covenants shall be performed and
complied with by the Borrower as indicated:
Section 6.01. Compliance with Bond Documents and Other Contracts.
The Borrower will comply with all of its covenants and agreements under the
Bond Documents, as the same may hereafter be amended or supplemented from
time to time.
Section 6.02. Consents Under Bond Documents. The Borrower will
obtain the consent of the Bank whenever the consent of the Issuer or the
Trustee is required to be obtained under the Bond Documents.
Section 6.03. Amendments to Bond Documents. The Borrower will not
consent to or enter into any amendment of or supplement to the Bond
Documents.
Section 6.04. Limitation on Optional Calls. The Borrower will not
exercise its rights under the Bond Documents to direct the Issuer to call the
Bonds for any optional redemption thereof, unless the Borrower deposits with
the Trustee funds sufficient to redeem the Bonds prior to such direction.
ARTICLE VII
[INTENTIONALLY OMITTED]
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.01. Defaults. Each of the following shall constitute an
event of default hereunder ("Event of Default"):
(a) Failure by the Borrower to pay or cause to be paid when due any
amount due under this Agreement;
(b) Failure by the Borrower to perform or comply with any of the
other terms or conditions contained in this Agreement or any Security
Document;
(c) Any of the representations or warranties of the Borrower set
forth in this Agreement, the Loan and Security Agreement, the Security
Documents, the Bond Documents or any other document furnished to the Bank
pursuant to the terms hereof is false or misleading in any material respect;
<PAGE>
(d) Any material provision of this Agreement or the Security
Documents to which the Borrower is a party shall at any time for any reason
cease to be valid and binding on the Borrower, or shall be declared to be
null and void, or shall be violative of any applicable law relating to a
maximum amount of interest permitted to be contracted for, charged or
received, or the validity or enforceability thereof shall be contested by the
Borrower or any governmental agency, court or authority, or the Borrower
shall deny that it has any or further liability or obligation under this
Agreement or the Security Documents to which the Borrower is a party;
(e) The occurrence of an Event of Default as defined in the
Indenture, the Loan Agreement or any of the Security Documents; or
(f) The occurrence of a "Default" (as such term is defined in the
Loan and Security Agreement) or the Loan and Security Agreement shall be
terminated or the Revolving Credit Commitment shall be terminated.
Section 8.02. Remedies. If an Event of Default has occurred and is
continuing uncured, the Bank may:
(a) Notify the Trustee and the Letter of Credit Bank of such Event
of Default, direct the Trustee to declare an Event of Default, as defined in
the Indenture, to call the Bonds for mandatory purchase or declare the
principal of the Bonds immediately due and payable and to draw on the Letter
of Credit, and direct the Trustee to exercise remedies under the Bond
Documents;
(b) Declare the Borrower's obligations hereunder to be, whereupon
the same shall become, immediately due and payable;
(c) Decline to approve any further disbursement of the Bond proceeds
from the Project Fund to or for the benefit of the Borrower or any other
person;
(d) Subject to the provisions of the Bond Documents, (i) direct the
Trustee to disburse moneys from the Project Fund, and pay out additional sums
of the Bank (which sums shall be immediately due and payable by the Borrower
to the Bank, shall bear interest from the date of payment by the Bank until
the date of repayment at the rate specified in Section 2.02(e) and use any
property of the Borrower associated with the Project, or any property of the
Borrower in which the Bank has or obtains an interest, including any funds
which have not been disbursed from the Project Fund and any funds which may
be transferred by the Trustee to the Bank (which funds the Borrower hereby
assigns and quit claim to the Bank), for application to or as a reserve for
payment of any or all of the following with respect to the completion,
protection, management, operation or maintenance of the Project or the
protection of the Bank's interest therein, and in such connection deliver or
disburse the same to such entities in such amounts and with such preferences
and priorities as the Bank in its sole discretion shall determine, either
with or without vouchers or orders executed by the Borrower: (A) all sums due
from the Borrower to the Bank; (B) premiums and costs of title and any other
insurance; (C) leasing fees and brokerage or sales commissions; (D) fees,
costs and expenses of the Bank and its counsel in connection with the
preparation, enforcement, performance and filing of this Agreement, the
<PAGE>
Security Documents and the other documents contemplated hereby; (E) any taxes
(including federal, state and local taxes) or other governmental charges; (F)
any sums required to indemnify and hold the Bank harmless from any act or
omission of the Bank (except such as are grossly negligent or due to its
willful misconduct) under this Agreement or any other document; (G)
architectural and engineering costs; (H) any sums due to contractors,
subcontractors, mechanics or materialmen for work or services actually
finished on or for the Project; (I) federal or state claims for any required
withholding of taxes on wages; and (J) other costs and expenses which are
required to complete, manage or operate the Project or to protect the Project
from injury or maintain the Bank's security position prior to the rights of
all others; (ii) place additional encumbrances upon the Project; (iii) with
the Borrower's consent, convey the Project, subject to the Bank's rights, to
any nominee of the Bank; and (iv) employ leasing and sales agents and
negotiate and execute leases, sales contracts and financing undertakings in
connection with all or any part of the Project; and
(e) Exercise, or cause to be exercised, any and all such remedies as
it may have under this Agreement, the Loan and Security Agreement or any
other Financing Agreement, the Security Documents or any other document or at
law or in equity.
In any event, Borrower shall after the occurrence of an Event of Default
deposit cash collateral with the Bank as required by the terms of Subsection
5.5 of the Loan and Security Agreement.
Section 8.03. Waivers; Consents. No waiver of; or consent with
respect to, any provision of this Agreement or the Security Documents shall
in any event be effective unless the, same shall be in writing and signed by
the Bank, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given.
Section 8.04. No Waiver; Remedies Cumulative. No failure on the
part of the Bank to exercise, and no delay in exercising, any right hereunder
or the Security Documents shall operate as a waiver thereof; and no single or
partial exercise of any right hereunder shall preclude any other or further
exercise thereof or the exercise of any other right. To the extent permitted
by applicable law, the remedies herein and in the LSD, the Security Documents
and the Bond Documents provided are cumulative and not exclusive of any
remedies available under any other document or at law or in equity.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Notices. All notices and other communications provided
for hereunder at any time shall be sent as provided in the Loan and Security
Agreement at such time.
Section 9.02. Successors and Assigns. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their
respective successors and assigns, including without limitation the Agent and
<PAGE>
the Lenders. The Borrower may not assign its rights under this Agreement
without the prior written consent of the Bank. The Borrower and the Bank
intend that no other person (other than the Agent and the Lenders) shall have
any claim or interest under this Agreement or right of action hereon or
hereunder.
Section 9.03. Survival of Representations, Warranties and Covenants.
All representations, warranties and covenants made by the Borrower herein and
in any document delivered pursuant hereto shall survive the delivery of this
Agreement and the Participating Bank Agreement and any advances under the
Participating Bank Agreement.
Section 9.04. Counterparts. The execution hereof by each party
hereto shall constitute a contract between them for the uses and purposes
herein set forth, and this Agreement may be executed in any number of
counterparts, with each executed counterpart constituting an original and all
counterparts together constituting one agreement.
Section 9.05. Costs, Expenses and Taxes. The Borrower agrees to pay
on demand all costs and expenses of the Bank and the Agent in connection with
the preparation, execution and delivery of this Agreement, the Participating
Bank Agreement, the Security Documents, the Bond Documents and any other
documents that may be delivered in connection with this Agreement, the
Participating Bank Agreement, the Security Documents or the Bond Documents or
any amendments thereto, including, without limitation, the reasonable fees
and expenses of counsel for the Bank and the Agent with respect thereto and
with respect to advising the Bank and the Agent and/or any one or more
Participating Banks as to their rights and responsibilities under this
Agreement, their Participating Bank Agreement, the Security Documents, the
Bond Documents and such other documents, and all costs and expenses, if any,
including without limitation reasonable counsel fees and expenses of the
Bank, the Agent and each Lender in connection with the enforcement of this
Agreement, the Participating Bank Agreement, the Security Documents, the Bond
Documents and such other documents. In addition, the Borrower shall pay any
and all stamp and other taxes and fees payable or determined to be payable in
connection with the execution and delivery of this Agreement, the
Participating Bank Agreement, the Security Documents and such other documents
and agrees to indemnify and to hold the Bank, the Agent and the Lenders
harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
Section 9.06. Amendments. This Agreement may be amended by an
instrument in writing executed and delivered by the Borrower and the Bank.
Section 9.07. Severability. If any provision hereof is found by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction, it shall be ineffective as to such jurisdiction only to the
extent of such prohibition or unenforceability, and such prohibition or
unenforceability shall not invalidate the balance of such provision as to
such jurisdiction to the extent it is not prohibited or unenforceable, nor
invalidate such provision in any other jurisdiction, nor invalidate the other
provisions hereof, all of which shall be liberally construed in favor of the
Bank in order to effect the provisions of this Agreement.
Section 9.08. Financing Agreement Conflicts. This Agreement shall
be deemed to be a Financing Agreement for the purposes of the Loan and
Security Agreement. Insofar as any of the provisions of this Agreement, the
<PAGE>
Loan and Security Agreement, any other Financing Agreement or any of the
Security Documents shall conflict, the document giving the Bank, the Agent
and the Lenders the greatest rights shall control to the extent the same is
enforceable under applicable law.
Section 9.09. Reliance by Bank, Agent and Lenders. All covenants,
agreements, representations and warranties made herein by Borrower shall,
notwithstanding any investigation by Bank, Agent or any Lender, be deemed to
be material to and to have been relied upon by Bank, Agent and each Lender.
Section 9.10. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE
EXECUTED AND HAS BEEN DELIVERED AND ACCEPTED IN CHICAGO, ILLINOIS BY SIGNING
AND DELIVERING IT THERE. ANY DISPUTE BETWEEN THE PARTIES HERETO ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH
THE INTERNAL LAWS AND NOT THE CONFLICTS OF LAW PROVISIONS OF THE STATE OF
ILLINOIS.
Section 9.11. Table of Contents and Headings. The table of
contents, article and section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 9.12. Lenders. The Borrower acknowledges, that, for the
convenience of all parties, this Agreement is being entered into with, and
Security Documents are being delivered to, the Bank only and that the
Borrower's obligations under this Agreement and the Security Documents are
and will be undertaken for the benefit of, and as an inducement to, the Agent
and the Lenders, as well as the Bank. Without limiting the foregoing, the
Borrower acknowledges that Sections 2.02(e) and 2.05 and the indemnity of the
Bank under Section 9.05 are also for the benefit of the Agent and the Lenders
as if such sections specifically referred to the Agent and the Lenders and
their participations in the payment obligations of the Borrower and the
funding obligations of the Bank, and the Borrower agrees to make any payments
required by such provisions for the account of any one or more Lenders on
demand of the Bank.
Section 9.13 CONSENT TO JURISDICTION.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SECTION 9.13(B)
HEREOF, EACH OF THE PARTIES HERETO AGREE THAT ALL DISPUTES BETWEEN THEM
ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY
STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS, BUT THE PARTIES
HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY BE HEARD BY A COURT
LOCATED OUTSIDE OF COOK COUNTY, ILLINOIS. BORROWER WAIVES IN ALL DISPUTES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE
DISPUTE.
<PAGE>
(B) OTHER JURISDICTIONS. BORROWER AGREES THAT BANK, AGENT AND ANY
LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST BORROWER OR ITS PROPERTY
("PROPERTY") IN A COURT IN ANY LOCATION TO ENABLE BANK, AGENT OR ANY LENDER
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE LIABILITIES, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF BANK AGENT OR ANY
LENDER. BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIM
IN ANY PROCEEDING BROUGHT BY BANK, AGENT OR ANY LENDER TO REALIZE ON
PROPERTY, COLLATERAL OR ANY OTHER SECURITY FOR THE LIABILITIES, OR TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF BANK AGENT OR ANY LENDER.
BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
IN WHICH BANK, AGENT OR ANY LENDER HAS COMMENCED A PROCEEDING DESCRIBED IN
THIS SECTION 9.13(B).
Section 9.14 SERVICE OF PROCESS. BORROWER HEREBY WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND IRREVOCABLY APPOINTS PRENTICE-HALL
CORPORATION SYSTEM, INC., BORROWER'S REGISTERED AGENT, AS BORROWER'S AGENT
FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS WITHIN THE STATE OF ILLINOIS
(THE "SP AGENT"). BANK AGREES TO PROMPTLY FORWARD BY REGISTERED MAIL (NO
RETURN RECEIPT REQUIRED) A COPY OF ANY PROCESS SO SERVED BY IT UPON THE SP
AGENT TO BORROWER AT ITS ADDRESS SET FORTH IN SUBSECTION 11.17 OF THE LOAN
AND SECURITY AGREEMENT. BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS AS
AFORESAID. BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS
OUT OF THE COURTS REFERRED TO IN SECTION 9.13 HEREOF IN ANY SUCH ACTION OR
PROCEEDING BY MAILING COPIES OF SUCH SERVICE BY REGISTERED MAIL, POSTAGE
PREPAID, TO BORROWER AT SAID ADDRESS. NOTHING IN THIS AGREEMENT SHALL AFFECT
THE RIGHT OF BANK, AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW BUT ANY FAILURE TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY
WAY THE SERVICE OF SUCH PROCESS.
Section 9.15 WAIVER OF JURY TRIAL AND BOND.
(A) WAIVER OF JURY TRIAL. BORROWER AND BANK EACH WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN ANY OF THEM ARISING OUT OF, CONNECTED
WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM
IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS
RELATED THERETO. BORROWER AND BANK HEREBY AGREE AND CONSENT THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
<PAGE>
WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY
OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(B) WAIVER OF BOND. BORROWER WAIVES THE POSTING OF ANY BOND
OTHERWISE REQUIRED OF BANK, AGENT OR ANY LENDER IN CONNECTION WITH ANY
JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR
LEVY UPON COLLATERAL OR ANY OTHER SECURITY FOR THE LIABILITIES, TO ENFORCE
ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF BANK, AGENT OR ANY
LENDER OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER,
PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT, OR ANY OTHER AGREEMENT
OR DOCUMENT BETWEEN BANK, AGENT OR ANY LENDER AND BORROWER.
Section 9.16 ADVICE OF COUNSEL. BORROWER ACKNOWLEDGES AND
REPRESENTS TO BANK THAT BORROWER HAS DISCUSSED THIS AGREEMENT AND THE OTHER
FINANCING AGREEMENTS WITH ITS LAWYERS AND ANY AND ALL ISSUES WITH RESPECT TO
THIS AGREEMENT AND THE OTHER FINANCING AGREEMENTS HAVE BEEN RESOLVED TO
BORROWER'S SATISFACTION.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement
to be duly executed and delivered as of the date first above written.
WEBCO INDUSTRIES, INC.
By: /s/Michael P. Howard
Title: Chief Financial Officer
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /s/Donna Evans
Title: Vice President
<PAGE>
EXHIBIT 10.13
AMENDMENT NO. 2
TO LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT (this "Amendment") is
entered into as of December 1, 1998 by and among Webco Industries, Inc., an
Oklahoma corporation (the "Borrower"), the financial institutions named on the
signature page hereto (the "Lenders") and American National Bank and Trust
Company of Chicago, as agent for the Lenders (the "Agent").
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Agent have entered into that
certain Loan and Security Agreement dated as of July 15, 1997 (as heretofore
amended, the "Loan Agreement");
WHEREAS, the Borrower desires to expand its facility (the "Project")
located in Oil City, Pennsylvania (the "Oil City Property");
WHEREAS, in order to finance the Project, Borrower seeks loans from the
Lenders and The Pennsylvania Economic Development Finance Authority (the
"Authority"); and
WHEREAS, the Borrower, the Lenders and the Agent desire to further amend
the Loan Agreement on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Definitions. Terms defined in the Loan Agreement which are used
herein shall have the same meanings as are set forth in the Loan Agreement for
such terms unless otherwise defined herein.
2. Amendments. Subject to Section 4 below:
(a) Subsection 1.1 of the Loan Agreement is hereby amended by
adding the following definitions in their proper alphabetical place:
"Amendment No. 2" shall mean that certain Amendment No. 2 to Loan and
Security Agreement dated as of December 1, 1998 among Borrower, Agent and
Lenders.
"CAPEX Commitment" of any Lender shall mean the amount set forth opposite
such Lender's name on Schedule 1, as such schedule may be amended from time to
time, under the heading "CAPEX Commitment," less the initial principal amount
of all CAPEX Loans made by such Lender, and as such CAPEX Commitment may be
otherwise adjusted from time to time pursuant to the terms of this Agreement.
"CAPEX Equipment" shall mean Equipment purchased after November 1, 1998
and installed in Borrower's facility in Oil City, Pennsylvania which is free
and clear of all Liens other than the Lien of Agent and which is acceptable to
Agent in its discretion.
<PAGE>
"CAPEX Term Loan" shall have the meaning set forth in Subsection 2.1(B)
hereof.
"CAPEX Term Note" shall have the meaning set forth in Subsection 2.1(B)
below.
"CAPEX Proportionate Share" shall mean, as to each Lender at any time,
the percentage obtained by dividing (i) the amount of the CAPEX Commitment of
such Lender in effect at such time (or, if the CAPEX Commitments have been
terminated, the sum of the outstanding principal amount of the CAPEX Loans
owed to such Lender at such time), by (ii) the aggregate amount of the CAPEX
Commitments from all Lenders (or if the CAPEX Commitments have been
terminated, the aggregate outstanding CAPEX Loans owed to all Lenders at such
time).
"Hard Cost" shall mean, with respect to CAPEX Equipment, the actual
invoice cost of such Equipment, excluding installation, make-ready, software,
and other items not constituting the actual cost for such Equipment.
"1997 Proportionate Share" shall mean, as to each Lender at any time,
the percentage obtained by dividing (i) the outstanding principal amount of
the 1997 Term Loan owed to such Lender at such time, by (ii) the aggregate
outstanding principal amount of the 1997 Term Loans owed to all Lenders at
such time.
"1997 Term Loan" shall have the meaning set forth in Subsection 2.1(A)
hereof.
"1997 Term Note" shall have the meaning set forth in Subsection 2.1(A)
below.
"Participation Agreement" shall mean the "Participating Bank Agreement"
(as such term is defined in the Reimbursement Agreement).
"PEDFA L/C Bank" shall mean the "Letter of Credit Bank" (as defined in
the Participation Agreement).
"PEDFA Letter of Credit" shall mean the "Letter of Credit" (as defined in
the Participation Agreement).
<PAGE>
"Reimbursement Agreement" shall mean that certain Reimbursement Agreement
dated as of December 1, 1998 between ANB and PNC Bank, National Association,
as the same may be amended, modified or supplemented from time to time.
"Total CAPEX Commitments" shall mean the aggregate of the CAPEX
Commitments of all Lenders, which in the aggregate shall not exceed
$5,000,000.
(b) Subsection 1.1 of the Loan Agreement is hereby further
amended by amending and restating the following definitions in their entirety:
"Advance" shall mean a borrowing hereunder consisting of the aggregate
amount of all or a portion of the several Revolving Loans, Term Loans or CAPEX
Loans made by Lenders to Borrower of the same type and, in the case of LIBOR
Rate Advances, for the same Interest Period.
"Applicable LIBOR Margin" shall mean, as to any Advance consisting of all
or any portion of any Revolving Loans, Term Loans, and CAPEX Loans, 1.75%,
2.0% and 2.0%, respectively; provided, however, effective thirty (30) days
(the "Change Date") after Lenders' receipt of the audited financial statements
required to be provided by Borrower pursuant to Subsection 7.1(B) for any
Fiscal Year (commencing with Borrower's Fiscal Year ending July 31, 1998), if:
(i) all of the following conditions are satisfied (the "Tier 1 Conditions"):
(a) Borrower's EBIDA for such Fiscal Year is at least $12,000,000, (b)
Borrower's Leverage Ratio is not more than .8 to 1.0 as of the last day of
such Fiscal Year and (c) no Default or Event of Default has occurred and is
continuing, then the Applicable LIBOR Margin shall be, or shall remain, as the
case may be, 1.25% and 1.50% as to Advances consisting of all or any portion
of the Revolving Loans and 1997 Term Loans, respectively; (ii) all of the Tier
1 Conditions are not satisfied, but all of the following conditions are
satisfied (the "Tier 2 Conditions"): (a) Borrower's EBIDA for such Fiscal Year
is at least $10,000,000, (b) Borrower's Leverage Ratio is not more than .82 to
1.0 as of the last day of such Fiscal Year and (c) no Default or Event of
Default has occurred and is continuing, then the Applicable LIBOR Margin shall
be, or shall remain, as the case may be, 1.50% and 1.75% as to Advances
consisting of all or any portion of the Revolving Loans and 1997 Term Loans,
respectively; or (iii) neither the Tier 1 Conditions nor the Tier 2 Conditions
are satisfied, then the Applicable LIBOR Margin shall be, or shall remain, as
the case may be, 1.75% and 2.00% as to Advances consisting of all or any
portion of the Revolving Loans and 1997 Term Loans, respectively; and provided
that the Applicable LIBOR Margin applicable to Advances consisting of all or
any part of the CAPEX Loan shall be 2.00% at all times.
"Collateral Documents" shall mean all contracts, instruments and other
documents now or hereafter executed and delivered in connection with this
Agreement, pursuant to which Liens are granted to Agent or any one or more of
Lenders in the Collateral for the benefit of Agent and/or Lenders and/or the
Issuing Bank and shall, in any event, include the collateral pledged pursuant
to the Pledge Agreement (as defined in the Participation Agreement).
<PAGE>
"Fee Letter" shall mean, collectively, that certain letter agreement
captioned "Fee Letter," dated as of July 15, 1997, between Agent and Borrower,
and that certain letter agreement captioned "Fee Letter," dated as of December
1, 1998 between Agent and Borrower, in each case as the same may be amended,
modified or supplemented from time to time.
"Financing Agreements" shall mean, collectively, all agreements,
instruments and documents, including, without limitation, this Agreement and
any security agreements, loan agreements, notes, letter of credit
applications, guarantees, mortgages, deeds of trust, leasehold mortgages,
leasehold deeds of trust, subordination agreements, pledges, powers of
attorney, consents, assignments, intercreditor agreements, mortgagee waivers,
reimbursement agreements, contracts, notices, leases, financing statements and
all other written matter whether heretofore, now or hereafter executed by or
on behalf of Borrower and delivered to any one or more of Agent, the Issuing
Bank and Lenders, together with all agreements, documents and instruments
referred to therein or contemplated thereby, and further including without
limitation the Mortgages, the Reimbursement Agreement, the Participation
Agreement, the Pledge Agreement and any other Collateral Documents.
"Initial Credit Event" shall mean the making of the 1997 Term Loans.
"Issuing Bank" shall mean ANB and any other Lender that may be designated
by Agent from time to time as an Issuing Bank, and shall include ANB as a
party to the Participation Agreement and the Reimbursement Agreement.
"Letter of Credit Obligations" shall mean, at any time, the sum of (i)
the aggregate undrawn face amount of all Letters of Credit outstanding at such
time (including without limitation the PEDFA Letter of Credit), plus (ii) the
aggregate amount of all drawings under Letters of Credit (including without
limitation the PEDFA Letter of Credit) or payments to the PEDFA L/C Bank for
which the Issuing Bank has not at such time been reimbursed (either by
Borrower, or by a Revolving Loan made by Agent or Lenders), plus (iii) the
aggregate amount of all payments made by each Lender to the Issuing Bank with
respect to such Lender's participation in Letters of Credit (including such
Lender's participation in ANB's obligations and rights under the Reimbursement
Agreement and the Participation Agreement) as provided in Subsection 2.19(C)
hereof for which Borrower has not at such time reimbursed Lenders, whether by
way of the Revolving Loans or otherwise.
"Letters of Credit" shall mean all letters of credit issued (or deemed to
be issued) for the account of Borrower pursuant to Subsection 2.19 hereof (and
in any event shall include the PEDFA Letter of Credit) and all amendments,
renewals, extensions or replacements thereof.
<PAGE>
"Liabilities" shall mean all of Borrower's liabilities, obligations and
indebtedness to any one or more of Agent, Lenders and the Issuing Bank
(including without limitation all obligations of Borrower under the
Reimbursement Agreement) of any and every kind and nature, whether heretofore,
now or hereafter owing, arising, due or payable and howsoever evidenced,
created, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed or otherwise (including obligations of performance) and
whether arising or existing under written agreement, oral agreement or
operation of law, including, without limitation, all of Borrower's contingent
reimbursement obligations with respect to Interest Rate Obligations, Letters
of Credit, all other Letter of Credit Obligations and all of Borrower's other
indebtedness and obligations to any one or more of Agent, any Lender and the
Issuing Bank under this Agreement and the other Financing Agreements.
"LIBOR Base Rate" shall mean, with respect to a LIBOR Rate Advance for
the relevant Interest Period, the rate determined by Agent to be the rate at
which deposits in Dollars are offered by BankOne, N.A. (or, if no such
deposits are so offered by such bank, then by such other national bank as
Agent may reasonably select) to prime banks in the London interbank market at
approximately 11:00 a.m. London time two (2) Business Days prior to the first
day of such Interest Period, in the approximate amount of the relevant LIBOR
Rate Advance and having a maturity approximately equal to such Interest
Period.
"Mortgages" shall mean that certain Term Loan and Revolving Credit
Mortgage, Assignment of Leases, Security Agreement and Fixture Filing dated as
of July 15, 1997, that certain Term Loan and Revolving Credit Mortgage,
Assignment of Leases, Security Agreement and Fixture Filing dated as of
December 1, 1998 and any other mortgage, deed of trust, leasehold mortgage and
similar instrument or agreement executed by Borrower in favor of Agent in
connection herewith, in each case, as amended, supplemented or otherwise
modified from time to time.
"Percentage" shall mean, with respect to each Lender, collectively, such
Lender's Proportionate Share, 1997 Term Proportionate Share, CAPEX
Proportionate Share and Revolving Proportionate Share.
"Proportionate Share" shall mean, as to each Lender at any time, the
percentage obtained by dividing (i) the sum of (a) the outstanding principal
amount of the 1997 Term Loans owed to such Lender at such time, plus (b) the
amount of the CAPEX Commitment of such Lender in effect at such time (or, if
the CAPEX Commitments have been terminated, the sum of the outstanding
principal amount of the CAPEX Loans owed to such Lender at such time), plus
(c) the amount of the Revolving Credit Commitment of such Lender in effect at
such time (or, if the Total Revolving Commitments have been terminated, the
sum of the outstanding principal amount of the Revolving Loans owed to such
Lender at such time (after giving effect to Subsection 2.5) plus such Lender's
Revolving Proportionate Share of Letter of Credit Obligations existing at such
time), by (ii) the aggregate amount of each of the foregoing items for all
Lenders in effect at such time.
<PAGE>
"Term Loans" shall have the meaning given such term in Subsection 2.1(B)
hereof, and "Term Loan" shall mean any thereof.
"Term Notes" shall have the meaning given such term in Subsection 2.1(B)
hereof, and "Term Note" shall mean any thereof.
"Total Revolving Commitments" shall mean the aggregate of the Revolving
Credit Commitments of all Lenders, which in the aggregate shall not exceed
$25,000,000.
(c) The definition of the term "Term Proportionate Share"
contained in Subsection 1.1 of the Loan Agreement is hereby deleted.
(d) Subsection 2.1 of the Loan Agreement is amended and restated
in its entirety as follows:
2.1 Term Loan Facilities .
(A) Subject to the terms and conditions set forth in this
Agreement (including, without limitation, the conditions precedent set forth
in Subsections 4.1 and 4.2), on the Closing Date, upon the request of
Borrower, each Lender shall, severally in proportion to its Proportionate
Share of $25,000,000, make a term loan to Borrower (collectively, the "1997
Term Loans"). The 1997 Term Loans advanced by each Lender shall be evidenced,
in part, by a promissory note made by Borrower in favor of such Lender (each,
a 1997 "Term Note") in the form attached to Amendment No. 2 as Exhibit A-1
thereto with the blanks appropriately filled and, the provisions of any 1997
Term Note notwithstanding, shall become immediately due and payable as
provided in Subsection 9.1 hereof, and, without notice or demand, upon the
termination of this Agreement pursuant to Subsections 2.14 or 2.20(E) hereof.
(B) Subject to the terms and conditions set forth in this
Agreement (including, without limitation, the conditions precedent set forth
in Subsections 4.2 and 4.3), after the Closing Date and to the earlier of
March 31, 2000 and the Termination Date, upon the request of Borrower, each of
Lenders shall, severally in proportion to its CAPEX Proportionate Share of the
amount of loans requested pursuant to this Subsection 2.1(B), make term loans
to Borrower (the "CAPEX Loans"; the CAPEX Loans and the 1997 Term Loans are
herein referred to, collectively, as the "Term Loans"); provided that the
aggregate initial principal amount of all CAPEX Loans shall not exceed the
amount of the aggregate CAPEX Commitments. The aggregate amount of CAPEX
Loans made at any time shall not be greater than eighty percent (80%) of the
Hard Cost of CAPEX Equipment of Borrower for which such CAPEX Loans are
requested (excluding CAPEX Equipment which has been the subject of any other
CAPEX Loan). Subject to the foregoing, CAPEX Loans to be made at any time
shall be in an aggregate principal amount of $500,000 or a greater integral
<PAGE>
multiple of $100,000. The CAPEX Loans advanced by each Lender shall be
evidenced, in part, by a promissory note of Borrower made by Borrower in favor
of such Lender (each, a "CAPEX Note"; the CAPEX Notes and the 1997 Term Notes
are herein referred to, collectively, as the "Term Notes") substantially in
the form attached to Amendment No. 2 as Exhibit A-3 thereto with the blanks
appropriately filled and, the provisions of any CAPEX Note notwithstanding,
shall become immediately due and payable as provided in Subsection 9.1 hereof,
and, without notice or demand, upon the termination of this Agreement pursuant
to Subsections 2.14 or 2.20E hereof.
(C) Each of the Term Loans shall consist of one or more Base
Rate Advances or LIBOR Rate Advances (the "Type of Advance"), as duly
requested by Borrower pursuant to this Agreement. Borrower shall maintain a
sufficient amount of Base Rate Advances so that the making of payments on the
Term Loans in accordance with the terms of this Agreement will not necessitate
a payment of a LIBOR Rate Advance on a day other than the last day of the
Interest Period applicable thereto.
(D) Subject to Subsections 9.1, 2.14 and 2.20(E), the Term Loans
shall mature and be due and payable on August 31, 2002. Borrower shall prepay
the Term Loans as set forth in Subsections 2.6(D) and (E) and, subject to
Subsections 2.4(E) and 2.20(C), Borrower may prepay the 1997 Term Loans or the
CAPEX Loans, in whole or in part, together with payment of all accrued
interest on the principal amount to be prepaid upon five (5) Business Days
prior written notice to Agent and Lenders; provided, however, that each such
optional prepayment if in part shall be in an aggregate principal amount of
not less than $1,000,000 or an integral multiple thereof. All payments on the
1997 Term Loans or the CAPEX Loans shall be made on a pro rata basis for the
account of Lenders pursuant to their respective 1997 Term Proportionate Shares
or CAPEX Proportionate Shares. No portion of any Term Loan that has been
repaid may be reborrowed.
(e) Subsections 2.6(B), (C), (D) and (E) of the Loan Agreement
are amended and restated in their entirety as follows:
(B) On the Termination Date, the Revolving Credit Commitment and
CAPEX Commitment of each Lender shall automatically reduce to zero and may not
be reinstated.
(C) Borrower may not reduce the Total Revolving Commitments or
the total CAPEX Commitment (scheduled termination of the CAPEX Commitment
shall not be deemed to be a reduction in full for the purpose of this
Subsection 2.6(C)) in full or in part except in whole or in part, and, if in
part, in integral multiples of $1,000,000, upon thirty (30) days' prior
written notice to Lenders and upon payment of a Commitment Reduction Fee as
provided in Subsection 2.20(C). Any such reduction shall be applied ratably
<PAGE>
to the Lenders' respective Revolving Credit Commitments or the Total CAPEX
Commitments as designated by Borrower.
(D) To the extent that the "value" (as such term is defined in
Subsection 8.17) of Equipment sold in any Fiscal Year plus the amount of "Net
Proceeds" and "Net Awards" (as such terms are defined in the Mortgage) in such
Fiscal Year (the "Aggregate Value") exceeds $500,000 and such excess is
greater than the aggregate amount of Capital Expenditures incurred within 180
days of the date of such excess (or such longer period to which Agent consents
in its sole discretion) (the "Unreinvested Amount"), then Borrower shall cause
the Loans to be immediately prepaid in an aggregate amount equal to the
Unreinvested Amount; provided, that prepayments made pursuant to this
Subsection 2.6(D) shall (i) first be applied against the outstanding balance
of 1997 Term Loans in inverse order of their maturity; (ii) second be applied
against the outstanding principal balance of the CAPEX Loans in inverse order
of their maturity; (iii) third, be applied against the outstanding principal
balance of Revolving Loans, and (iv) be applied against any other outstanding
Liabilities or, at Agent's discretion, be held by Agent as cash collateral for
Letter of Credit Obligations or other Liabilities.
(E) Borrower shall make a prepayment on the aggregate
outstanding principal amount of the 1997 Term Loans on August 1, 2000 and on
the first day of each month thereafter to and including August 1, 2002 in the
aggregate monthly amount of $208,333 and (subject to subsections 9.1, 2.14 and
2.20 (E) ) shall pay the remaining outstanding principal balance of the Term
Loans on August 31, 2002. Prior to the Termination Date, each CAPEX Loan
shall be payable in 60 substantially equal (rounded up to the nearest whole
dollar) monthly installments commencing on the first day of the first month
following the date on which the CAPEX Commitment has been fully drawn, or if
earlier, April 1, 2000, and continuing on the first day of each month
thereafter until paid in full and subject to Subsections 9.1. 2.14 and
2.20(E)) shall pay the remaining outstanding principal balance of the CAPEX Loan
on August 31, 2002.
(f) Subsections 2.11(B), 2.11(C), 2.11(F), 2.20(B), 10.10(B),
and 11.6(G) of the Loan Agreement are amended by inserting immediately after
the words "Revolving Credit Commitment" each time they appear therein the
words "and CAPEX Commitment".
(g) Subsections 2.13(C) and 10.9(C) of the Loan Agreement are
amended by inserting immediately after the words "Revolving Credit Commitment"
each time they appear therein the words "or CAPEX Commitment".
(h) Subsection 2.19(A) of the Loan Agreement is amended by (i)
deleting the dollar amount "$2,000,000" contained therein and inserting in
lieu thereof the dollar amount "$3,000,000", and (ii) adding the following at
the end thereof:
<PAGE>
In addition, ANB shall enter into the Reimbursement Agreement and the
Participation Agreement.
(i) Subsection 2.19(B) of the Loan Agreement is amended by
adding the following at the end thereof:
Notwithstanding the foregoing, the PEDFA Letter of Credit shall be in the form
issued by the PEDFA L/C Bank, and contain the terms set forth therein, and
Borrower shall enter into the Reimbursement Agreement with respect thereto.
(j) Subsection 2.19(C) of the Loan Agreement is amended by
adding the following at the end thereof:
Immediately upon issuance or amendment of the PEDFA Letter of Credit, each
Lender shall be deemed to have irrevocably and unconditionally purchased and
received from ANB, without recourse or warranty, an undivided interest and
participation to the extent of such Lender's Revolving Proportionate Share in
the liability, obligations and rights of ANB under the Participation
Agreement, the Reimbursement Agreement (including, without limitation, all
obligations of Borrower with respect thereto, other than amounts owing to the
Issuing Bank consisting of Issuing Bank Fees) and any security therefor or
guaranty pertaining thereto.
(k) Subsection 2.19(D) of the Loan Agreement is amended by adding
the following at the end thereof:
The foregoing provisions of this Subsection 2.19(D) shall not apply to the
PEDFA Letter of Credit.
(l) Subsection 2.19(E) of the Loan Agreement is amended and
restated in its entirety as follows:
(E) Payment of Amounts Drawn Under Letters of Credit . In the
event of any drawing under any Letter of Credit (other than the PEDFA Letter
of Credit) by the beneficiary thereof, the Issuing Bank shall notify Agent,
which shall notify Borrower of such draw, not later than 12:00 Noon, Chicago
time, on the Business Day immediately prior to the date on which the Issuing
Bank intends to honor such drawing. Borrower shall give notice to be received
by Agent and the Issuing Bank not later than 2:00 P.M., Chicago time, on such
Business Day if it intends to reimburse the Issuing Bank for the amount of
such drawing with funds other than the proceeds of Revolving Loans. Such
notice from Borrower shall be irrevocable and, if given, Borrower shall
reimburse the Issuing Bank not later than the close of business Chicago time
on the day on which such drawing is honored in an amount in immediately
available funds equal to the amount of such drawing. If Agent shall not have
timely received such notice and in the case of all payments under the
Participation Agreement (i) Borrower shall be deemed to have timely given a
<PAGE>
Notice of Borrowing to Agent to make a Base Rate Advance on the date on which
such drawing is honored or payment made in an amount equal to the amount of
such drawing or payment, as the case may be, and (ii) subject to satisfaction
or waiver of the conditions specified in Section 2 hereof and the other terms
and conditions of Advances contained herein, Lenders shall, on the date of
such drawing or payment, as the case may be, make Revolving Loans in the
amount of such drawing or payment, as the case may be, the proceeds of which
shall be applied directly by Agent to reimburse the Issuing Bank for the
amount of such drawing or payment, as the case may be. If for any reason,
proceeds of such Revolving Loans are not received by the Issuing Bank on such
date in an amount equal to the amount of such drawing or payment, Borrower
shall be obligated to and shall reimburse the Issuing Bank, on the business
day (under the laws of the jurisdiction of the Issuing Bank) immediately
following the date of such drawing or payment, in an amount in immediately
available funds equal to the excess of the amount of such drawing or payment
over the amount of such Revolving Loans, if any, which are so received, plus
accrued interest on such amount at the rate set forth in Subsection 2.20(A)
hereof for Base Rate Advances on the Revolving Loans.
(m) Subsection 2.19((F) of the Loan Agreement is amended and
restated in its entirety as follows:
(F) Payment by Lenders . In the event that Borrower does not
reimburse the Issuing Bank for the full amount of any drawing or any payment
under the Participation Agreement pursuant to Subsection 2.19(E), unless Agent
shall elect to make a Revolving Loan in accordance with Subsection 2.5(B),
Agent shall promptly notify each Lender of the unreimbursed amount of such
drawing or such payment under the Participation Agreement and of such Lender's
respective participation therein. Unless Agent shall have so elected, each
Lender shall make available to Agent for the benefit of the Issuing Bank an
amount equal to such Lender's respective participation in immediately
available funds, not later than 2:00 P.M. Chicago time on the business day
(under the laws of the jurisdiction of the Issuing Bank) after the date
notified by Agent. In addition, in the event that any Lender fails to make
available to Agent the amount of any such Lender's participation in such
Letter of Credit Obligations as provided in this Subsection 2.19(F), Agent
<PAGE>
may, but shall not be obligated to, fund the amount of such Defaulting
Lender's participation in such Letter of Credit and recover such amount on
demand from such Defaulting Lender in accordance with Subsection 2.13(A). In
the event that any Lender fails to make available to Agent the amount of such
Lender's participation in such Letter of Credit as provided in this Subsection
2.19(F), and Agent does not elect to fund to the Issuing Bank such Defaulting
Lender's participation in such Letter of Credit as provided in the immediately
preceding sentence, the Issuing Bank shall be entitled to recover such amount
on demand from such Lender together with interest at the Federal Funds Rate
for the first three Business Days while such amount remains unpaid and
thereafter at the Base Rate. Agent shall distribute to each Lender which has
paid all amounts payable by it under this Subsection 2.19(F) with respect to
any Letter of Credit issued by the Issuing Bank such Lender's Revolving
Proportionate Share of all payments subsequently received by Agent from
Borrower in reimbursement of drawings honored by the Issuing Bank under such
Letter of Credit or payments made by ANB under the Participation Agreement
when such reimbursement payments are received from Borrower.
(n) Subsections 2.20(C), 2.20(E), 2.20(J) and 11.1 of the Loan
Agreement are amended by inserting immediately after the words "Total
Revolving Commitments" each time they appear therein the words "or Total CAPEX
Commitments".
(o) Subsection 2.20(G) of the Loan Agreement is amended and
restated in its entirety as follows:
(G) Letter of Credit Fees .
(i) Agent, for the ratable benefit of Lenders, shall be entitled
to charge to the account of Borrower on the last day of each month, a fee (the
"L/C Fee"), in an amount equal to one and one-half of one percent (1.50%) per
annum of the average daily outstanding Letter of Credit Obligations (including
without limitation the outstanding amount of the PEDFA Letter of Credit before
giving effect to any reductions therein which are subject to reinstatement)
for each month (or portion thereof) from the date of the execution of this
Agreement, payable monthly in arrears on the first Business Day of each
following month. Notwithstanding the foregoing, following the occurrence and
during the continuance of a Default (or, in the event of a Default other than
as described in Subsections 9.1(A), (H) or (I) of this Agreement, from the
date of notice to such effect to Borrower from Agent) the L/C Fee shall be
payable at a rate equal to the rate at which the L/C Fees are charged pursuant
to the immediately preceding sentence, plus two and one-quarter of one percent
(2.25%) per annum and shall be payable as provided above or, if sooner, on
demand. The L/C Fee shall be computed on the basis of a 360-day year for
actual days elapsed.
(ii) Borrower shall pay the Issuing Bank all of the Issuing
Bank's customary charges for out-of-pocket and administrative expenses upon
the issuance of any Letter of Credit and for any other out-of-pocket costs,
fees and expenses incurred by the Issuing Bank in connection with the
application for, issuance of, draws or payments under, or amendment to any
Letter of Credit. Agent shall be entitled to charge to the account of
Borrower therefor, together with, as and when incurred by Agent or any Lender,
any other charges, fees, costs and expenses charged to Agent or any Lender for
Borrower's account by the Issuing Bank (other than any fees charged to Agent
or any Lender which would be duplicative of the L/C Fee paid to Agent for the
benefit of Lenders) (collectively, including the amounts described in the
first sentence of this Subsection 2.20(G)(ii), the "Issuing Bank Fees") in
connection with the issuance of any Letters of Credit by the Issuing Bank.
Each determination by Agent of L/C Fees, Issuing Bank Fees and other fees
under this Subsection 2.20(G) shall be conclusive and binding for all
purposes, absent manifest error.
<PAGE>
(p) Subsections 2.20(J) and 11.19 of the Loan Agreement are
amended by inserting therein immediately following the words "Letter of
Credit" each time they appear therein, the following:
", or entering into the Participation Agreement or the Reimbursement
Agreement or with respect to or in connection with obligations thereunder,"
(q) Section 4 of the Loan Agreement is amended by inserting
therein immediately after Subsection 4.2 thereof a new Subsection 4.3 as
follows:
4.3 CAPEX Loans . As to each CAPEX Loan requested by Borrower,
(a) at least 5 Business Days before such CAPEX Loan is to be made, Agent shall
have received a request by Borrower therefor in the form of Exhibit A-2 to
Amendment No. 2, and copies of invoices and checks representing full payment
for the proposed CAPEX Equipment together with a detailed description thereof;
(b) the Equipment for which such CAPEX Loan has been requested and which is
the subject thereof shall be delivered to Borrower and located on its
premises, Borrower shall have paid for such CAPEX Equipment in full (other
than for any amount to be paid directly by Lenders to the seller of such CAPEX
Equipment, or which will be paid immediately by Borrower to such seller, in
each case out of the proceeds of such CAPEX Loan) and received good and
marketable title thereto, free and clear of any purchase money security
interest or other Lien (other than any purchase money security interest as
shall be released upon Lenders' direct payment to the seller of such CAPEX
Equipment, or upon Borrower's immediate payment to such seller, in each case
out of the proceeds of the CAPEX Loan) and Agent shall have a first priority
perfected security interest therein; (c) Agent shall have received
confirmation from Borrower's insurer or an authorized agent of such insurer to
the effect that such CAPEX Equipment is fully insured on a replacement cost
basis and on a basis which is not subject to any coinsurance penalty; and (d)
Agent shall have received such other information, certificates, instruments,
lien waivers, payoff letters, termination statements and other documents as
Agent may reasonably request.
(r) The first sentence of Subsection 5.5 of the Loan Agreement
is amended and restated in its entirety as follows:
In the event that there are any outstanding Letter of Credit
Obligations, at any time after (i) the occurrence of a Default, (ii) demand by
Agent for payment of the Liabilities as provided in Subsection 9.1 hereof,
(iii) there exists no unpaid principal balance of the Liabilities, (iv) this
Agreement shall terminate for any reason pursuant to Subsection 2.14 hereof,
(v) the amount of (a) the aggregate outstanding principal balance of the
Revolving Loan plus the aggregate amount of Letter of Credit Obligations shall
exceed the amount of (b) the Current Asset Base plus the aggregate amount of
Letter of Credit Obligations, or (vi) termination of the Revolving Credit
<PAGE>
Commitments, Agent may request of Borrower, and Borrower thereupon shall
deliver to Agent, cash collateral for any Letter of Credit.
(s) Subsection 7.1 of the Loan Agreement is amended by
renumbering Subsection "(H)" thereof to be Subsection "(I)" and inserting
immediately after Subsection (G) thereof a new Subsection (H) as follows:
(H) PEDFA Matters. As soon as reasonably practicable, and in
any event within two (2) Business Days thereof, Borrower shall give each
Lender notice of any breach, default or Event of Default under any Related
Documents (as defined in the Participation Agreement); and
(t) Subsection 8.6 of the Loan Agreement is amended and restated
in its entirety as follows:
8.6 Capital Investment Limitations; Lease Limitations .
Borrower shall not incur Capital Expenditures in any Fiscal Year in an amount
in excess of the sum of (i) the net proceeds received by Borrower in such
Fiscal Year from the sale of Equipment and (ii) the amount set forth below
opposite such Fiscal Year, plus (iii) any excess amount from the immediately
prior Fiscal Year (commencing with any excess from the Fiscal Year ending July
31, 1999 and excluding, for the purpose of computing such excess, any excess
amount from a prior Fiscal Year):
Fiscal Years Ending: Amount:
July 31, 1999 $ 17,850,000
July 31, 2000 $ 7,000,000
July 31, 2001 and thereafter $ 5,000,000
Notwithstanding the foregoing, the amount set forth above for Borrower's
Fiscal Year ending July 31, 1999 shall be reduced to $7,850,000 if the
Borrower does not complete the contemplated expansion of its plant in Oil
City, Pennsylvania by July 31, 2000 as heretofore described to Lenders (the
"Oil City Project").
(u) Subsection 8.15(A) of the Loan Agreement is amended and
restated in its entirety as follows:
(A) Debt Coverage Ratio. Permit its Debt Coverage Ratio for any
twelve month period ending with the last day of a fiscal quarter (i) ending on
or after July 31, 1997 and on or before July 31, 1999 to be less than 2.5 to
1.0, or (ii) ending after July 31, 1999 to be less than 2.25 to 1.0. As used
herein the term "Debt Coverage Ratio" shall mean for any period, without
duplication, Borrower's ratio of (A) EBIDA to (B) an amount equal to the sum
of the following for such period: (i) the sum of interest expense; plus (ii)
the sum of all principal payments on Indebtedness, other than required
<PAGE>
principal payments on the Revolving Loan; plus (iii) the aggregate amount of
all Dividends and Distributions (except to the extent the same are payable
solely in capital stock of Borrower).
(v) Subsection 9.1 of the Loan Agreement is amended by deleting
the words "Revolving Loans" contained therein and inserting in lieu thereof
the words "Revolving Loans or CAPEX Loans".
(w) Subsection 9.1(M) of the Loan Agreement is amended and
restated in its entirety as follows:
(M) (i) a default, breach, or Event of Default shall occur under any
Related Document or (ii), as to more than $250,000 in Indebtedness in the
aggregate at any time (a) Borrower shall fail to make any payment due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise)
on any other obligation for borrowed money and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness; or (b) any such Indebtedness shall
be declared to be due and payable or required to be prepaid (other than by a
regularly scheduled required prepayment) or accelerated prior to the stated
maturity thereof;
(x) Subsection 10.7 of the Loan Agreement is amended by
inserting immediately after the words "Letter of Credit" appearing therein the
following: "or as a party to the Participation Agreement and Reimbursement
Agreement".
(y) The last sentence of Subsection 10.9(A) of the Loan
Agreement is amended and restated in its entirety as follows:
In the event that Agent ceases to be, in its individual capacity, a Lender
whose aggregate holding of outstanding Term Loans and Revolving Loans plus the
amount of its unused Revolving Loan Commitment and unused CAPEX Commitment
plus the amount of its Revolving Proportionate Share of Letter of Credit
Obligations equals or exceeds $10,000,000 then such Agent may be removed by
the Required Lenders (other than Agent in its capacity as a Lender or as the
Issuing Bank (including Agent as party to the Reimbursement Agreement) and
without giving effect to any portion of the Loans, Revolving Credit Commitment
or CAPEX Commitment made by Agent in its capacity as a Lender or Letter of
Credit issued by Agent in its capacity as the Issuing Bank or Agent as party
to the Reimbursement Agreement) provided that the Required Lenders concurrently
appoint a successor Agent to which Borrower consents (which
consent shall not be unreasonably withheld).
(z) Subsections 10.10(B) and 11.6(E) of the Loan Agreement are
amended by inserting immediately after the words "Revolving Credit
Commitments" each time they appear therein the words "and CAPEX Commitments".
<PAGE>
(aa) Subsection 10.14 of the Loan Agreement is amended and
restated in its entirety as follows:
10.14 Allocation of Payments . Prior to the occurrence of a
Default described in Subsection 9.1 (H), or acceleration of the maturity of
the Liabilities, payments on the Liabilities shall be allocated to Lenders as
follow: (i) payments of principal of, and interest on, the 1997 Term Loans
and Prepayment Fees relating to the prepayment of 1997 Term Loans shall be
allocated to Lenders based on their respective 1997 Term Proportionate Share,
(ii) payments of principal of, and interest on, the CAPEX Loans and the
Facility Fees, Prepayment Fees and Commitment Reduction Fees relating to any
payments on the CAPEX Loans or any reduction in the CAPEX Commitments shall be
allocated to Lenders based on their respective CAPEX Proportionate Share, and
(iii) payments of principal of, and interest on, the Revolving Loans and the
Facility Fees, the L/C Fees, Prepayment Fees, and the Commitment Reduction
Fees relating to any payments on the Revolving Loans or any reduction in the
Total Revolving Commitments shall be allocated based on their respective
Revolving Proportionate Share, subject to Subsection 2.5.
(bb) The second to the last sentence of Subsection 11.1 of the
Loan Agreement is amended and restated in its entirety as follows:
In addition, Borrower and Lenders hereby authorize Agent to modify this
Agreement by unilaterally amending or supplementing Schedule 1 from time to
time in the manner requested by Borrower, Agent or any Lender in order to
reflect any assignments or transfers of the Loans, and assignments, transfers
or reductions in the Total Revolving Commitment or Total CAPEX Commitment as
provided for hereunder; provided, however, that Agent shall promptly deliver a
copy of any such modification to Borrower and each Lender. All Defaults shall
continue until the same are waived in accordance with this Subsection 11.1.
(cc) Subsection 11.6(C) of the Loan Agreement is amended by
inserting immediately after the words "Total Revolving Commitments" each time
they appear therein the words "and Total CAPEX Commitments".
(dd) Subsection 11.6(F) of the Loan Agreement is amended by
inserting immediately after the words "Revolving Credit Commitment" each time
they appear therein the words ", CAPEX Commitment".
(ee) Schedule 1 and Exhibits A-1 and A-2 to the Loan Agreement
are amended and restated in their entirety as annexed hereto.
1. Consent. Subject to Section 4 of this Amendment, Lenders hereby
consent: (a) notwithstanding the terms of Subsection 8.1 of the Loan
<PAGE>
Agreement, to (i) the liens established under (X) the Indenture (as defined in
the Reimbursement Agreement) as to funds on deposit with the Trustee (as
defined in the Indenture) to secure Borrower's obligations under the Bonds,
and (Y) the Pledge Agreement to secure the Letter of Credit Obligations, and
(ii) deposits made with manufacturers on equipment purchased as part of the
Oil City Project to secure Borrower's obligations to pay for such equipment
provided that such deposits are applied against the purchase price for such
equipment at or before passage of title thereto to Borrower; and (b)
notwithstanding the terms of Subsection 8.2 of the Loan Agreement, to Borrower's
indebtedness under the Related Documents as to the Bonds (as defined in the
Indenture).
2.
3. Conditions of Effectiveness. Sections 2 and 3 of this Amendment
shall become effective on the date (the "Effective Date") when each of the
following conditions have been completely, and substantially concurrently,
satisfied as determined by the Agent:
4.
(a) Documents. The Agent shall have received each of the
following agreements, instruments and other documents, in each case in form
and substance acceptable to the Agent:
(i) seven (7) copies of this Amendment executed by each of the
parties hereto;
(ii) each Lender shall have received a new Term Note,
Revolving Note and CAPEX Note (collectively, the "New Notes") substantially in
the amount required under the Loan Agreement in the forms annexed hereto as
Exhibits A-1, A-2, and A-3, respectively, executed by an authorized officer of
the Borrower;
(iii) seven (7) copies of certificates of an assistant secretary
or secretary of Borrower as to the resolutions of their respective boards of
directors, and if necessary, shareholders authorizing the execution, delivery
and performance of this Amendment, the New Notes, and the other documents
contemplated hereby, with Borrower's articles of incorporation (copies
attached), certified by the secretary of state of the state of Borrower's
incorporation, bylaws (copies attached), and the incumbency and specimen of
the officers of Borrower authorized under the resolutions referred to above;
(iv) seven (7) copies of opinions of counsel to Borrower as to
such matters as Agent and its counsel may request and in form and substance
satisfactory to Agent and its counsel; and
(v) such other documents, certificates, agreements, opinions and
items as the Agent may reasonably request in connection with this Agreement in
form and substance satisfactory to the Agent and the Lenders, including, but
not limited to the items described on the closing checklist attached hereto as
Exhibit B.
<PAGE>
(b) Closing Fee. Borrower shall have paid to Agent for the
ratable benefit of Lenders a non-refundable fee in the amount of $50,000 to
induce Lenders to enter into this Amendment, and Borrower shall have paid to
Agent any unpaid fees due and payable pursuant to the Fee Letter.
(c) Representations and Warranties; No Default. As of the
Effective Date, the representations and warranties contained herein and in the
New Agreement shall be true and complete, and no Default or Event of Default
thereunder shall exist.
(d) Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and by the
Acquisition Documents and all documents incident thereto shall be in form and
substance satisfactory to the Agent and each Lender, as determined in their
sole and absolute discretion.
1. Representations, Warranties and Agreements of the Borrower.
2.
(a) The Borrower represents and warrants that this Amendment, the
Loan Agreement as amended hereby and the New Notes, constitute legal, valid
and binding obligations of the Borrower and are enforceable against the
Borrower in accordance with their terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally or by general equitable principles.
(b)
(c) The Borrower hereby reaffirms all covenants, representations and
warranties made in the Loan Agreement as amended hereby. The Borrower hereby
agrees that all covenants, representations and warranties made in the Loan
Agreement shall be deemed to have been remade as of the date hereof and (if
different) the Effective Date.
(d)
(e) The Borrower represents and warrants that as of the date hereof,
and (if different) as of the Effective Date, there exists no Default or Event
of Default after giving effect to this Amendment, the New Notes and
consummation of the transactions contemplated hereby and thereby.
(f)
3. Reference to the Effect on the Loan Agreement.
4.
(a) On and after the Effective Date, (i) each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of
like import shall mean and be a reference to the Loan Agreement as amended
hereby, (ii) each reference to the Loan Agreement in all other Financing
Agreements shall mean and be a reference to the Loan Agreement, as amended
hereby, and (iii) each reference to the Notes in the Loan Agreement and the
other Financing Agreements shall be deemed to be a reference to the Notes as
delivered pursuant hereto.
<PAGE>
(a) Except as specifically amended above, the Loan Agreement, and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(b)
(c) Except as expressly set forth in Section 3 above, the execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any Default or Event of Default (including without limitation any Defaults or
Events of Default existing on the date hereof), nor operate as a waiver of any
right, power or remedy of the Agent or the Lenders (including without
limitation any rights, powers or remedies of the Agent or the Lenders with
respect to the Defaults or Events of Default existing on the date hereof), nor
constitute a waiver of, or consent to and departure from, any provision of the
Loan Agreement, or any of the other Financing Agreements.
1. Governing Law. This Amendment shall be governed by and construed in
accordance with the internal laws (as opposed to conflicts of law provisions)
of the State of Illinois.
2.
3. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
4.
5. Counterparts. This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the
same instrument. Delivery by any party of telecopied copies of executed
counterparts hereof shall constitute execution and delivery hereof by such
party.
6.
7. 10. Assignment and Asssumption. On the Effective Date, as a
result of the changes to Schedule 1 to the Loan Agreement provided for in this
Amendment, ANB's percentage of the 1997 Term Loans and the Revolving Loans
shall be reduced. To give effect thereto, ANB shall be deemed to have
assigned to each of NationsBank, N.A. and Bank of Oklahoma, N.A. (and such
Lenders shall be deemed to purchased and assumed) $581,363 of the outstanding
1997 Term Loans and $465,090 of the Revolving Commitment as fully as if ANB
and NationsBank, N.A. and Bank of Oklahoma, N.A., respectively, had entered
into an Assignment and Assumption Agreement in the form provided for in the
Loan Agreement immediately before the amendments contemplated by this
Amendment, so that after giving effect to this section, the outstanding 1997
Term Loans and Revolving Commitments shall be as set forth on Schedule 1 to this
Amendment.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first above written.
WEBCO INDUSTRIES, INC.
By: /s/Michael P. Howard
Title: Chief Financial Officer
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, individually and as
Agent
By: Donna Evans
Title: Vice President
NATIONSBANK, N.A.
By: Gaye L Stathis
Title: Vice President
BANK OF OKLAHOMA, N.A.
By: Robert Mattax
Title: Vice President
<PAGE>
EXHIBIT A-1
TERM NOTE
$____________ Chicago, Illinois
December 1, 1998
FOR VALUE RECEIVED, the undersigned, WEBCO INDUSTRIES, INC., an Oklahoma
corporation ("Borrower"), hereby unconditionally promises to pay to the order
of ______________________ ("Lender") on the earlier of (a) the Termination
Date and (b) August 31, 2002 at the office of American National Bank and Trust
Company of Chicago, 33 North LaSalle Street, Chicago, Illinois 60690, for the
account of Lender and in accordance with the provisions of the Loan and
Security Agreement dated as of July 15, 1997 among Borrower, the financial
institutions listed on Schedule 1 thereto (together with their respective
successors and assigns, the "Lenders") and American National Bank and Trust
Company of Chicago acting as agent for the Lenders (in such capacity, the
"Agent"), as amended, modified or supplemented from time to time (the "Loan
Agreement"), in lawful money of the United States of America and in
immediately available funds, the principal sum of _______________________ AND
00/100 DOLLARS ($_______), or, if less, the aggregate unpaid principal amount
of all Term Loans (as defined in the Loan Agreement) made by Lender to
Borrower. This Note is referred to in and was executed and delivered pursuant
to the Loan Agreement, to which reference is hereby made for a statement of
the terms and conditions under which the loans evidenced hereby were made and
are to be repaid. All terms which are capitalized and used herein (which are
not otherwise specifically defined herein) and which are defined in the Loan
Agreement shall be used in this Note as defined in the Loan Agreement.
Borrower further promises to pay interest at said office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in the Loan Agreement. Interest shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
Subject to the provisions contained in the Loan Agreement relating to the
determination of Interest Periods for LIBOR Rate Advances, if any payment
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day, and
interest shall be payable thereon during such extension at the applicable rate
specified in the Loan Agreement. In no contingency or event whatsoever shall
interest charged hereunder, however such interest may be characterized or
computed, exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that Lender has received
interest hereunder in excess of the highest rate applicable hereto, Lender
shall promptly refund such excess interest to Borrower.
<PAGE>
Payments received by Agent for the account of Lender from Borrower on
this Note shall be applied as provided in the Loan Agreement and may be
applied to the payment of interest which is due and payable before application
to the outstanding principal balance hereof, subject to Agent's rights to
otherwise apply such payments as provided in the Loan Agreement.
Upon and after the occurrence of a Default or as otherwise provided in
the Loan Agreement, this Note may, as provided in the Loan Agreement, and
without prior demand, notice or legal process of any kind (except as otherwise
expressly required in the Loan Agreement), be declared, and thereupon
immediately shall become, due and payable. This Note shall also become
immediately due and payable upon the termination of the Loan Agreement.
Borrower, and all endorsers and other persons obligated hereon, hereby
waive presentment, demand, protest, notice of demand, notice of protest and
notice of nonpayment and agree to pay all costs of collection, including
reasonable attorneys' fees and expenses.
This Note is secured by certain Liens created in favor of Agent for the
benefit of Lender under the Collateral Documents.
This Note has been delivered at and shall be deemed to have been made at
Chicago, Illinois and shall be interpreted and the rights and liabilities of
the parties hereto determined in accordance with the internal laws (as opposed
to conflicts of law provisions) and decisions of the State of Illinois.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
Notwithstanding any of the foregoing provisions of this Note, all
principal of, and accrued interest on, this Note shall become immediately due
and payable as provided in Subsection 9.1 of the Loan Agreement and, without
notice or demand, upon the termination of the Loan Agreement pursuant to
Subsections 2.14 or 2.20(E) of the Loan Agreement.
Whenever in this Note reference is made to Agent, Lender or Borrower,
such reference shall be deemed to include, as applicable, a reference to their
respective successors and assigns. The provisions of this Note shall be
binding upon and shall inure to the benefit of said successors and assigns.
Borrower's successors and assigns shall include, without limitation, a receiver,
trustee or debtor in possession of or for Borrower.
The unpaid principal balance of the indebtedness heretofore evidenced by
that certain Term Note dated July ___, 1997 made by Borrower in favor of
Lender (the "Original Term Note") remains outstanding as of the date hereof
and shall continue to be secured pursuant to the terms of the Loan Agreement
and the other Financing Agreements providing for such security. To the extent
that the principal balance of this Term Note includes Borrower's indebtedness
heretofore evidenced by the Original Term Note, this Term Note (i) merely
<PAGE>
reevidences the indebtedness heretofore evidenced by the Original Term Note,
(ii) is given in substitution for, and not as payment of, the Original Term
Note, and (iii) is in no way intended to constitute a novation of the Original
Term Note.
WEBCO INDUSTRIES, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A-2
REVOLVING NOTE
$_____________ Chicago, Illinois
December 1, 1998
FOR VALUE RECEIVED, the undersigned, WEBCO INDUSTRIES, INC., an Oklahoma
corporation ("Borrower"), hereby unconditionally promises to pay to the order
of _____________________ ("Lender") on the Termination Date at the office of
American National Bank and Trust Company of Chicago, 33 North LaSalle Street,
Chicago, Illinois 60690, for the account of Lender and in accordance with the
provisions of the Loan and Security Agreement dated as of July 15, 1997 among
Borrower, the financial institutions listed on Schedule 1 thereto (together
with their respective successors and assigns, the "Lenders") and American
National Bank and Trust Company of Chicago acting as agent for the Lenders (in
such capacity, the "Agent"), as amended, modified or supplemented from time to
time (the "Loan Agreement"), in lawful money of the United States of America
and in immediately available funds, the principal sum of
____________________________ AND 00/100 DOLLARS ($____________), or, if less,
the aggregate unpaid principal amount of all Revolving Loans (as defined in
the Loan Agreement) made by Lender to Borrower. This Note is referred to in
and was executed and delivered pursuant to the Loan Agreement, to which
reference is hereby made for a statement of the terms and conditions under
which the loans evidenced hereby were made and are to be repaid. All terms
which are capitalized and used herein (which are not otherwise specifically
defined herein) and which are defined in the Loan Agreement shall be used in
this Note as defined in the Loan Agreement.
Borrower further promises to pay interest at said office on the unpaid
principal amount hereof from time to time outstanding at the rates and on the
dates specified in the Loan Agreement. Interest shall be calculated on the
basis of a 360-day year for the actual number of days elapsed.
Subject to the provisions contained in the Loan Agreement relating to the
determination of Interest Periods for LIBOR Rate Advances, if any payment
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day, and
interest shall be payable thereon during such extension at the applicable rate
specified in the Loan Agreement. In no contingency or event whatsoever shall
interest charged hereunder, however such interest may be characterized or
computed, exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that Lender has received
interest hereunder in excess of the highest rate applicable hereto, Lender
shall promptly refund such excess interest to Borrower.
<PAGE>
Payments received by Agent for the account of Lender from Borrower on
this Note shall be applied as provided in the Loan Agreement and may be
applied to the payment of interest which is due and payable before application
to the outstanding principal balance hereof, subject to Agent's rights to
otherwise apply such payments as provided in the Loan Agreement.
Upon and after the occurrence of a Default or as otherwise provided in
the Loan Agreement, this Note may, as provided in the Loan Agreement, and
without prior demand, notice or legal process of any kind (except as otherwise
expressly required in the Loan Agreement), be declared, and thereupon
immediately shall become, due and payable. This Note shall also become
immediately due and payable upon the termination of the Loan Agreement.
Borrower, and all endorsers and other persons obligated hereon, hereby
waive presentment, demand, protest, notice of demand, notice of protest and
notice of nonpayment and agree to pay all costs of collection, including
reasonable attorneys' fees and expenses.
This Note is secured by certain Liens created in favor of Agent for the
benefit of Lender under the Collateral Documents.
This Note has been delivered at and shall be deemed to have been made at
Chicago, Illinois and shall be interpreted and the rights and liabilities of
the parties hereto determined in accordance with the internal laws (as opposed
to conflicts of law provisions) and decisions of the State of Illinois.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
Notwithstanding any of the foregoing provisions of this Note, all
principal of, and accrued interest on, this Note shall become immediately due
and payable as provided in Subsection 9.1 of the Loan Agreement and, without
notice or demand, upon the termination of the Loan Agreement pursuant to
Subsections 2.14 or 2.20(E) of the Loan Agreement.
Whenever in this Note reference is made to Agent, Lender or Borrower,
such reference shall be deemed to include, as applicable, a reference to their
respective successors and assigns. The provisions of this Note shall be
binding upon and shall inure to the benefit of said successors and assigns.
Borrower's successors and assigns shall include, without limitation, a
receiver, trustee or debtor in possession of or for Borrower.
The unpaid principal balance of the indebtedness heretofore evidenced by
that certain Revolving Note dated July ___, 1997 made by Borrower in favor of
Lender (the "Original Revolving Note") remains outstanding as of the date
hereof and shall continue to be secured pursuant to the terms of the Loan
Agreement and the other Financing Agreements providing for such security. To
the extent that the principal balance of this Revolving Note includes
Borrower's indebtedness heretofore evidenced by the Original Revolving Note,
this Revolving Note (i) merely reevidences the indebtedness heretofore
evidenced by the Original Revolving Note, (ii) is given in substitution for,
<PAGE>
and not as payment of, the Original Revolving Note, and (iii) is in no way
intended to constitute a novation of the Original Revolving Note.
WEBCO INDUSTRIES, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A-3
CAPEX NOTE
$____________ Chicago, Illinois
December 1, 1998
FOR VALUE RECEIVED, the undersigned, WEBCO INDUSTRIES, INC., an Oklahoma
corporation ("Borrower"), hereby unconditionally promises to pay to the order
of ______________________ ("Lender") on the earlier of (a) the Termination
Date and (b) August 31, 2002 at the office of American National Bank and Trust
Company of Chicago, 33 North LaSalle Street, Chicago, Illinois 60690, for the
account of Lender and in accordance with the provisions of the Loan and
Security Agreement dated as of July 15, 1997 among Borrower, the financial
institutions listed on Schedule 1 thereto (together with their respective
successors and assigns, the "Lenders") and American National Bank and Trust
Company of Chicago acting as agent for the Lenders (in such capacity, the
"Agent"), as amended, modified or supplemented from time to time (the "Loan
Agreement"), in lawful money of the United States of America and in
immediately available funds, the principal sum of _______________________ AND
00/100 DOLLARS ($_______), or, if less, the aggregate unpaid principal amount
of all CAPEX Loans (as defined in the Loan Agreement) made by Lender to
Borrower. This Note is referred to in and was executed and delivered pursuant
to the Loan Agreement, to which reference is hereby made for a statement of
the terms and conditions under which the loans evidenced hereby were made and
are to be repaid. All terms which are capitalized and used herein (which are
not otherwise specifically defined herein) and which are defined in the Loan
Agreement shall be used in this Note as defined in the Loan Agreement.
Borrower further promises to pay interest at said office on the unpaid
principal amount hereof from time to time outstanding at the rates and on
the dates specified in the Loan Agreement. Interest shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
Subject to the provisions contained in the Loan Agreement relating to the
determination of Interest Periods for LIBOR Rate Advances, if any payment
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day, and
interest shall be payable thereon during such extension at the applicable rate
specified in the Loan Agreement. In no contingency or event whatsoever shall
interest charged hereunder, however such interest may be characterized or
computed, exceed the highest rate permissible under any law which a court of
competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that Lender has received
interest hereunder in excess of the highest rate applicable hereto, Lender
shall promptly refund such excess interest to Borrower.
<PAGE>
Payments received by Agent for the account of Lender from Borrower on
this Note shall be applied as provided in the Loan Agreement and may be
applied to the payment of interest which is due and payable before application
to the outstanding principal balance hereof, subject to Agent's rights to
otherwise apply such payments as provided in the Loan Agreement.
Upon and after the occurrence of a Default or as otherwise provided in
the Loan Agreement, this Note may, as provided in the Loan Agreement, and
without prior demand, notice or legal process of any kind (except as otherwise
expressly required in the Loan Agreement), be declared, and thereupon
immediately shall become, due and payable. This Note shall also become
immediately due and payable upon the termination of the Loan Agreement.
Borrower, and all endorsers and other persons obligated hereon, hereby
waive presentment, demand, protest, notice of demand, notice of protest and
notice of nonpayment and agree to pay all costs of collection, including
reasonable attorneys' fees and expenses.
This Note is secured by certain Liens created in favor of Agent for the
benefit of Lender under the Collateral Documents.
This Note has been delivered at and shall be deemed to have been made at
Chicago, Illinois and shall be interpreted and the rights and liabilities of
the parties hereto determined in accordance with the internal laws (as opposed
to conflicts of law provisions) and decisions of the State of Illinois.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Note.
Notwithstanding any of the foregoing provisions of this Note, all
principal of, and accrued interest on, this Note shall become immediately due
and payable as provided in Subsection 9.1 of the Loan Agreement and, without
notice or demand, upon the termination of the Loan Agreement pursuant to
Subsections 2.14 or 2.20(E) of the Loan Agreement.
<PAGE>
Whenever in this Note reference is made to Agent, Lender or Borrower,
such reference shall be deemed to include, as applicable, a reference to their
respective successors and assigns. The provisions of this Note shall be
binding upon and shall inure to the benefit of said successors and assigns.
Borrower's successors and assigns shall include, without limitation, a
receiver, trustee or debtor in possession of or for Borrower.
WEBCO INDUSTRIES, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT B
1. Post-closing letter between Agent and Borrower.
2. Fee letter between Agent and Borrower.
SCHEDULE 1
CAPEX Address for
Name of Lender Revolving Credit 1997 Term Loans Commitment Notices
Commitment
American National $12,727,274 $12,727,274 $2,545,456 American National
Bank and Trust Bank and Trust
Company of Chicago Company of Chicago
One N. LaSalle Street
Chicago, Illinois 60690
Attn: Donna Evans
Title: Vice President
Tel: 312-661-5648
Fax: 312-661-6929
NationsBank, $6,136,363 $6,136,363 $1,227,272 NationsBank, N.A.
N.A. NationsBank Business Credit
600 Peachtree Street -13th Floor
Atlanta, Georgia 30308
Attn: Gaye Stathis
Title: Vice President
Tel: 404/607-5933
Fax: 404/607-6437
Bank of Oklahoma, $6,136,363 $6,136,363 $1,227,272 Bank of Oklahoma
N.A.
Bank of Oklahoma Tower
8 Southeast
1 Williams Center
Tulsa, Oklahoma 74172
Attn: Pamela J. Been
Title: Commercial Banking Officer
Tel: 918/588-6077
Fax: 918/588-6880
Total $25,000,000 $25,000,000 $5,000,000
<PAGE>
EXHIBIT 15.1
WEBCO INDUSTRIES, INC.
LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D.C. 20549
Re: Webco Industries, Inc.
Registration on Form S-3 and S-8
We are aware that our report dated February 19, 1999, on our review of the
interim financial information of Webco Industries, Inc. for the periods ended
January 31, 1999 and 1998, and included in this Form 10-Q is incorporated by
reference in the Company's registration statements on Form S-3 (File nos. 333-
22779 and 333-67923) and S-8 (File no. 333-49219). Pursuant to Rule 436(c)
under the Securities Act of 1933, these reports should not be considered a
part of the registration statement prepared or certified by us within the
meaning of Sections 7 and 11 of the Act.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
March 11, 199
<PAGE>
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