-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KlTQjbT6APUXUDfxsPMoQjV5uorMrU2C4wZ3Y2cMrCJkU+CBmuC4Ld8UN4L+/mlB enZF+5loGUjVkWFSio2Lzg== 0001047469-98-011979.txt : 19980330 0001047469-98-011979.hdr.sgml : 19980330 ACCESSION NUMBER: 0001047469-98-011979 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST PIPE CO CENTRAL INDEX KEY: 0001001385 STANDARD INDUSTRIAL CLASSIFICATION: STEEL PIPE & TUBES [3317] IRS NUMBER: 930557988 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-27140 FILM NUMBER: 98575785 BUSINESS ADDRESS: STREET 1: 12005 N BURGARD STREET 2: P O BOX 83149 CITY: PORTLAND STATE: OR ZIP: 97203 BUSINESS PHONE: 5032851400 MAIL ADDRESS: STREET 1: 12005 N BURGARD STREET 2: P O BOX 83149 CITY: PORTLAND STATE: OR ZIP: 97203 10-K405 1 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ COMMISSION FILE NUMBER: 0-27140 NORTHWEST PIPE COMPANY (Exact name of registrant as specified in its charter) OREGON 93-0557988 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 12005 N. BURGARD PORTLAND, OREGON 97203 (Address of principal executive offices and zip code) 503-285-1400 (Registrant's telephone number including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant was $109,631,988 as of March 17, 1998 based upon the last sales price as reported by Nasdaq. The number of shares outstanding of the Registrant's Common Stock as of March 17, 1998 was 6,413,278 shares. The Index to Exhibits appears on page 16 of this document. -------------- -------------- DOCUMENTS INCORPORATED BY REFERENCE The Registrant has incorporated into Part III of Form 10-K by reference portions of its Proxy Statement for its Annual Meeting of Shareholders to be held on May 19, 1998 NORTHWEST PIPE COMPANY 1997 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PART I Page ---- Item 1 - Business 1 Item 2 - Properties 5 Item 3 - Legal Proceedings 6 Item 4 - Submission of Matters to a Vote of Security Holders 6 PART II Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters 6 Item 6 - Selected Financial Data 7 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 7A - Quantitative and Qualitative Disclosures About Market Risk 14 Item 8 - Financial Statements and Supplementary Financial Data 14 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 PART III Item 10 - Directors and Executive Officers of the Registrant 14 Item 11 - Executive Compensation 14 Item 12 - Security Ownership of Certain Beneficial Owners and Management 14 Item 13 - Certain Relationships and Related Transactions 14 PART IV Item 14 - Exhibits, Financial Statement Schedule and Reports on Form 8-K 15
PART I ITEM 1. BUSINESS GENERAL Northwest Pipe Company ("the Company") manufactures welded steel pipe in two business groups. In its water transmission business group, the Company is a leading supplier in the United States and Canada of large diameter, high pressure steel pipe used primarily for water transmission (the "Water Transmission" business). In its tubular products business group, the Company manufactures smaller diameter, electric resistance welded ("ERW") steel pipe for use in a wide range of construction, agricultural and industrial applications (the "Tubular Products" business). In 1997, Water Transmission and Tubular Products revenues represented approximately 66% and 34% of the Company's net sales, respectively. Headquartered in Portland, Oregon, the Company operates five manufacturing facilities. Water Transmission products are manufactured in Portland, Oregon; Denver, Colorado; Adelanto, California, and Riverside, California (both are near Los Angeles). Tubular Products are manufactured in Portland, Oregon, and Atchison, Kansas. In May 1996, the Company acquired Thompson Pipe and Steel Company, a manufacturer of steel water transmission pipe headquartered in Denver, Colorado. The principal assets acquired were steel pipe manufacturing facilities located in Denver, Colorado and Princeton, Kentucky. The Kentucky manufacturing facility was closed by Thompson Pipe and Steel Company in 1995, and the Company intends to sell the Kentucky facility. In December 1996, the Company acquired, from California Steel Pressure Pipe Company, certain assets of its Riverside, California plant, which included two spiral mills. The Riverside, California plant was closed in December 1996 by California Steel Pressure Pipe Company. In January 1997, the Company began producing water transmission pipe at the Riverside plant and managing this facility from its Adelanto, California facility. PRODUCTS WATER TRANSMISSION PRODUCTS. Water transmission pipe is used for (i) high pressure applications, typically requiring pipe able to withstand pressures in excess of 150 pounds per square inch, (ii) low pressure applications such as gravity-flow wastewater and sewers and (iii) other industrial and structural applications. All of the Company's Water Transmission products are made to custom specifications. Most of these products are for fully engineered, large diameter, high pressure water transmission lines. Other uses include pipe for piling and hydroelectric projects, waste water transmission and treatment plant piping. The Company has the capability to manufacture Water Transmission pipe in diameters ranging from 4" to 156" with wall thicknesses of 0.135" to 3.00". The Company has the capability to coat and line these products with cement mortar, polyethylene tapes, paints and coal tar enamel according to the customers' specifications. The Company maintains complete fabrication facilities and provides installation contractors with custom fabricated sections as well as straight pipe sections. TUBULAR PRODUCTS. The Company's Tubular Products range in size from 2 3/8" to 16" in diameter with wall thicknesses from 0.075" to 0.315". These products are typically sold to pipe distributors or original equipment manufacturers and are used for a wide variety of applications. The Company has historically focused on niche markets that typically generate strong margins. The tubular products industry, however, serves very large markets with products that generally have wall thicknesses greater than those that the Company has traditionally manufactured. The Company has added new product lines in its Tubular Products business as management identified opportunities for sustainable growth. In 1989, the Company entered the fire protection sprinkler system market with its branded product FLAME-OUT. In 1993, the Company began marketing WELL-LIFE, a water well casing product. These new products represented an expansion of the Company's focus from the light-wall, large diameter niche markets to include higher volume, more competitive markets. The Company acquired and has 1 installed a new tubular products mill in its Portland, Oregon facility, which was operational late in the first quarter of 1998. This new mill gives the Company the ability to manufacture products with smaller diameters and heavier wall thicknesses for uses in industrial piping, oil and gas transmission, fire protection systems and other applications. The Company intends to continue to pursue future opportunities to broaden its product lines by adding products that will take advantage of the Company's available manufacturing capacity, existing marketing channels and manufacturing expertise. MARKETING WATER TRANSMISSION. The primary customers for Water Transmission products are installation contractors for projects funded by public water agencies, including states, municipalities and water districts. Water Transmission products are manufactured at the Company's Oregon, California and Colorado facilities and are marketed primarily in the United States, Canada and Mexico. High freight costs reduce the Company's competitiveness as the distances from its manufacturing facilities increase. The Company's Water Transmission marketing strategy emphasizes early identification of potential water projects, promotion of specifications consistent with the Company's capabilities and close contact with the project designers and owners throughout the design phase. The Company's in-house sales force is composed of sales representatives, engineers and support personnel. These representatives and engineers work with public water agencies, contractors and engineering firms, often more than a year in advance of the project being bid, in order to identify and evaluate planned projects. As the public water agency continues the process of developing a pipeline project, the Company's professional engineers provide information to the agency or its design engineers promoting the advantages of coated and lined steel pipe. In certain cases, the Company's professional engineers may be successful in influencing the specifications to favor the Company's products. After the agencies complete the design, they publicize the upcoming bidding for a water transmission project. The Company then obtains detailed plans and develops its estimate for the pipe portion of the project. The Company typically bids to installation contractors who include the Company's bid in their proposal to the public water agency. The public water agency generally awards the entire project to the contractor with the lowest bid. Because a substantial portion of the Company's Water Transmission revenue is derived from sales to installation contractors for public water transmission projects, the Company's sales could be adversely impacted by a change in the number of projects planned by public water agencies, adjustments in governmental spending, general budgetary constraints or the inability of governmental entities to issue debt. A decline in the number of such projects or in the funding available for such projects could have a material adverse effect on the Company's business, financial condition and results of operations. TUBULAR PRODUCTS. The Company's Tubular Products are marketed through a network of direct sales force personnel and independent distributors in the United States and Canada. The Company's marketing strategy focuses on customer service and customer relationships. For example, the Company is willing to sell in small lot sizes and is able to provide mixed truckloads of finished products to its customers. Approximately 90% of the Company's Tubular Products sales have been to pipe distributors, and approximately 10% of sales have been to original equipment manufacturers (primarily irrigation system manufacturers). The Company's sales effort emphasizes regular personal contact with current and potential customers. The Company supplements this effort with targeted advertising, participation in trade shows and brochures. The Company's plant locations in Kansas and Oregon allow the Company to efficiently serve customers throughout the United States and in Canada. MANUFACTURING WATER TRANSMISSION. The Company manufactures Water Transmission products at its Oregon, California and Colorado facilities. The process begins with the preparation of engineered drawings of each unique piece of pipe in the project. These drawings are prepared on the Company's proprietary computer-aided design system and are used as blueprints for the manufacture of the pipe. After the drawings are completed and approved, manufacturing begins by feeding steel coil continuously at a specified angle into a spiral weld mill which cold 2 forms the band into a tubular configuration with a spiral seam. Automated arc welders, positioned on both the inside and the outside of the tube, are used to weld the seam. The welded tube is then cut at the specified length. After completion of the forming and welding phases, the finished cylinder is tested and inspected in accordance with project specifications, which may include 100% radiographic analysis of the weld seam. The cylinders are then coated and lined as specified. Possible coatings include coal tar enamel, polyethylene tape, paint, epoxies and cement mortar. Linings may be coal tar enamel, cement mortar or epoxies. Following coating and lining, certain pieces may be custom fabricated as required for the project. This process is performed in the Company's fabrication facilities. The pipe is final inspected and prepared for shipment. The Company ships its products to project sites by truck and rail. TUBULAR PRODUCTS. Tubular Products are manufactured by the ERW process at the Company's Oregon and Kansas facilities in diameters ranging from 2 3/8" to 16". This process begins by unrolling and slitting steel coils into narrower bands sized to the circumference of the finished product. Each band is re-coiled and fed into the material handling equipment at the front end of the ERW mill and fed through a series of rolls that cold-form it into a tubular configuration. The resultant tube is welded by high-frequency electric resistance welders and cut into the appropriate lengths. After exiting the mill, the products are straightened, inspected, tested and end-finished, and certain products are coated with lacquer. The Company acquired and has installed a new tubular products mill in its Portland, Oregon facility, which was operational late in the first quarter of 1998. This new mill gives the Company the ability to manufacture products with smaller diameters and heavier wall thicknesses for uses in industrial piping, oil and gas transmission, fire protection systems and other applications. TECHNOLOGY. Advances in technology help the Company produce high quality products at competitive prices. Recent investments in technological improvements include laser seam tracking systems, steel coil slitters, an ultraviolet light coating system and an in-line ultrasonic testing system. To stay abreast of technological developments in the United States and abroad, the Company participates in trade shows, industry associations, research projects and vendor trials of new products. QUALITY ASSURANCE. The Company has adopted quality assurance techniques and policies which govern every aspect of its operations to ensure high quality. During and after the manufacturing process, the Company performs many tests, including tensile, impact, hydrostatic, ultrasonic and radiographic tests. The Quality Assurance department reports directly to the chief executive officer. As a reflection of its commitment to quality, the Company has been certified for certain products or operations by Factory Mutual, Underwriters Laboratory, Steel Plate Fabricators Association, American Society for Mechanical Engineers, National Sanitary Foundation and the American Petroleum Institute. PRODUCT LIABILITY. The manufacturing and use of steel pipe involves a variety of risks. Certain losses may result or be alleged to result from defects in the Company's products, thereby subjecting the Company to claims for damages, including consequential damages. The Company warrants its products to be free of certain defects. The Company maintains insurance coverage against potential product liability claims in the amount of $27 million which it believes to be adequate. However, there can be no assurance that product liability claims exceeding the Company's insurance coverage will not be experienced in the future or that the Company will be able to maintain such insurance with adequate coverage. 3 BACKLOG The Company's backlog includes confirmed orders, including the balance of projects in process. The backlog also includes projects for which the Company has been notified it is the successful bidder even though a binding agreement has not been executed. Projects for which a binding contract has not been executed could be canceled. Binding orders received by the Company may also be subject to cancellation or postponement, however, cancellation would generally obligate the customer to pay the costs incurred by the Company. As of December 31, 1997 and 1996, the Company's backlog of orders was approximately $54.5 million and $51.4 million, respectively. Backlog as of December 31, 1997 includes projects having a value of approximately $5.9 million for which binding contracts had not yet been executed. Backlog orders as of any particular date may not be indicative of actual operating results for any fiscal period. There can be no assurance that any amount of backlog ultimately will be realized. COMPETITION WATER TRANSMISSION. The Company has several competitors in the Water Transmission segment of its business. High freight costs may limit the ability of manufacturers located in other market areas to compete with the Company. Most of the projects in this segment are competitively bid and price competition is vigorous. Price competition may reduce the gross margin on sales, which may adversely affect overall profitability. Other competitive factors include timely delivery and ability to meet customized specifications. The Company and Ameron International, Inc. are the principal competitors in the water transmission business in the western United States and southwestern Canada. Another competitor in this region is Continental Pipe. East of the Rocky Mountains, the Company's primary competition includes American Cast Iron Pipe Company, McWane Cast Iron Company and US Pipe & Foundry Company, all of which manufacture ductile iron pipe; Price Bros. and Gifford-Hill-American, Inc., which manufacture concrete cylinder pipe. The Company is not aware of any competitors that are currently planning to enter into the water transmission business within the Company's markets. The Company believes the cost of constructing a facility, the long lead time before a manufacturing plant could compete effectively, product acceptance and the high standards for product quality and manufacturing experience required by project specifications all serve as barriers to entry. However, no assurance can be given that a new or existing competitor will not establish new facilities or expand its capacity within the Company's market areas. New or expanded facilities or competitors could have a material adverse effect on the Company's business, financial condition and results of operations. TUBULAR PRODUCTS. The market for tubular products is highly fragmented and diversified with over 100 manufacturers in the United States and a number of foreign-based manufacturers that export such pipe into the United States. Manufacturers compete with one another primarily on the basis of price, established business relationships, customer service and delivery. In a number of sectors within the tubular products industry, competition may be less vigorous due to the existence of a relatively small number of companies with the capabilities to manufacture certain products. In particular, the Company operates in a variety of different markets that require pipe with lighter wall thicknesses in relation to diameters than many of the Company's competitors can manufacture. However, the Company is increasingly introducing products into higher volume markets with more competition than it experiences with its niche products. SUPPLIERS The Company purchases hot rolled steel coil produced by a number of primary steel producers including Geneva Steel Company, California Steel Industries, Inc., Lonestar Steel, Thyssen Trading and Nucor. Additionally, Oregon Steel Mills is in the process of adding steel coil manufacturing capabilities to its facility located approximately one mile from the Company's Portland manufacturing facility. The Company orders steel according to its business forecasts for its Tubular Products business group. Steel for the Water Transmission business is normally purchased only after a project has been awarded to the Company, however, the steel price is generally negotiated in advance of the bidding process. Purchased steel represents a substantial portion of the Company's cost of sales. The steel industry is highly cyclical in nature and steel prices are influenced by 4 numerous factors beyond the control of the Company, including general economic conditions, import duties, other trade restrictions and currency exchange rates. Historically, the Company has sought to recover increases in steel prices through price increases of its products. There can be no assurance that steel prices will not increase or that the Company will be successful in implementing related price increases on its products. The Company also relies on certain suppliers of coating materials, lining materials and certain custom fabricated items. The Company has at least two suppliers for most of its raw materials. The Company believes its relationships with its suppliers are positive and has no indication that it will experience shortages of raw materials or components essential to its production processes or that it will be forced to seek alternative sources of supply. Any shortages of raw materials may result in production delays and costs which could have a material adverse effect on the Company's business, financial condition and results of operations. ENVIRONMENTAL MATTERS The Company operates under numerous governmental permits and licenses relating to air emissions and water discharges, stormwater run-off, workplace safety and other matters. The Company is not aware of any current violations or citations relating to any of these permits or licenses. The Company has a policy of reducing use and consumption of hazardous materials in its operations by substituting non-hazardous materials when possible. The Company has completed discussions with the Oregon Department of Environmental Quality ("DEQ") with respect to the reporting requirements for calculating emissions of volatile organic compounds ("VOCs") from pipe coating and lining operations at its Portland, Oregon facility. The Company and DEQ have resolved the emissions calculation issues pursuant to a Mutual Agreement and Order ("MAO") dated October 4, 1995 and amended June 20, 1997. Pursuant to the MAO, the Company was required to periodically report its progress in finding alternative coatings that comply with the VOC content levels allowed by Condition 4 of the Company's air permit. The MAO as amended also required the Company to be in full compliance with this Condition 4 by January 1, 1998, or to have submitted an application for an alternative emission limit. In December 1997, the Company submitted a report to DEQ confirming its compliance with Condition 4. The DEQ has indicated informally that it is satisfied with the Company's compliance progress. DEQ will initiate formal acknowledgment that the terms of the MAO have been fully satisfied. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Environmental Matters" for a discussion of certain litigation with the U.S. Environmental Protection Agency. EMPLOYEES As of December 31, 1997, the Company had 687 full-time employees. Approximately 25% were salaried and approximately 75% were employed on an hourly basis. All of the hourly employees at Thompson Pipe and Steel Company are represented by a union. The Company considers its relations with its employees to be satisfactory. ITEM 2. PROPERTIES The Oregon facility consists of 300,000 square feet of covered manufacturing space, located on approximately 25 acres. The Company operates five pipe mills at its Oregon facility. The Kansas facility consists of 60,000 square feet of covered manufacturing space located on 40 acres. The Adelanto, California facility, which was built in 1990, consists of 85,000 square feet of covered manufacturing space located on 70 acres. The Company has two pipe mills located at each of the Kansas and Adelanto, California facilities. Thompson Pipe and Steel Company has a steel pipe manufacturing facility, including approximately 157,000 square feet of covered manufacturing space, located in Denver, Colorado on approximately 40 acres, and a facility, including approximately 336,120 square feet of covered manufacturing space, located in Princeton, Kentucky, on 5 approximately 64 acres. The Kentucky manufacturing facility was closed by Thompson Pipe and Steel Company in 1995, and the Company intends to sell this facility. The principal assets acquired by the Company from California Steel Pressure Pipe Company were two spiral mills and one ERW mill located in Riverside, California. The Company owns all of its facilities, except for the Riverside, California facility, which is leased to the Company with an option to purchase. The Company exercised its option to purchase the Oregon facility in December 1997, and intends to exercise its option to purchase the Riverside, California facility in 1998. The Company has available manufacturing capacity at each of its facilities and believes its facilities are adequate for its immediate and near-term requirements, and it does not anticipate the need for significant expansion in the next twelve months. ITEM 3. LEGAL PROCEEDINGS In addition to the matters described above in "ENVIRONMENTAL MATTERS", from time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of its business. The Company maintains insurance coverage against potential claims in amounts which it believes to be adequate. Management believes that it is not presently a party to any litigation, the outcome of which would have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's shareholders during the quarter ended December 31, 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is quoted on the Nasdaq National Market System under the symbol "NWPX." The Company's common stock commenced trading on November 30, 1995. The high and low sales prices as reported on the Nasdaq National Market System for each quarter in the years ended December 31, 1996 and 1997 were as follows.
LOW HIGH 1996 First Quarter $ 9 7/8 $ 13 1/2 Second Quarter 12 3/4 18 1/8 Third Quarter 15 3/4 20 1/2 Fourth Quarter 15 20 1997 First Quarter $ 15 7/8 $ 20 1/4 Second Quarter 14 3/4 18 1/2 Third Quarter 17 27 Fourth Quarter 21 27
There were 94 shareholders of record and approximately 1700 beneficial shareholders at March 23, 1998. There were no cash dividends declared or paid in fiscal years 1997 or 1996. The Company does not anticipate paying cash dividends in the foreseeable future. 6 ITEM 6. SELECTED FINANCIAL DATA
In thousands, except per share amounts YEAR ENDED DECEMBER 31, 1997 1996 1995 1994 1993 -------- -------- ------- ------ ------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales $150,833 $135,182 $97,715 $73,641 $54,437 Gross profit 31,117 30,942 19,576 11,980 6,529 Income (loss) before cumulative effect of accounting change (1) 1,100 10,404 5,107 2,161 (574) Net income 11,100 10,404 5,107 2,161 263 Loss per share before cumulative effect of accounting change (1) - - - - (0.27) Basic earnings per share (2) 1.73 1.92 6.11 3.10 0.38 Diluted earnings per share (2) 1.68 1.85 1.44 0.65 0.16 CONSOLIDATED BALANCE SHEET DATA: Working capital $ 51,051 $ 35,737 $22,438 $ 9,944 $ 3,234 Total assets 132,051 101,424 64,454 56,808 44,825 Long-term debt, less current maturities 39,944 14,356 12,040 20,998 16,251 Stockholders' equity 70,779 59,694 33,729 11,519 9,358
(1) Includes the effect of a benefit reflecting the cumulative effect of a change in method of accounting for income taxes, which was adopted on a prospective basis effective January 1, 1993. The cumulative effect of the change in accounting method was $837, which was recognized in the statement of operations for the year ended December 31, 1993. (2) Reflects, for all years, the presentation of basic and diluted earnings per share as required under Statement of Financial Accounting Standards No. 128, "Earnings Per Share", which was adopted by the Company in the year ended December 31, 1997. 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Report contain forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the Company's business, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to those discussed in this discussion and analysis of financial condition and results of operations, as well as those discussed elsewhere in this Report and from time to time in the Company's other Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. OVERVIEW The Company manufactures Water Transmission products in facilities located in Portland, Oregon; Denver, Colorado; Adelanto, California and Riverside, California. The Adelanto facility was constructed by the Company in 1990. The Denver, Colorado facility was obtained through the acquisition of Thompson Pipe and Steel Company in May 1996. The Riverside, California facility was purchased from California Steel Pressure Pipe Company in December 1996. Tubular Products are manufactured in the Company's Portland, Oregon and Atchison, Kansas facilities. The Company believes that the Tubular Products business, in conjunction with the Water Transmission business, provides a significant degree of market diversification, because the principal factors affecting demand for Water Transmission products are different from those affecting demand for Tubular Products. Demand for Water Transmission products is generally based on population growth and movement, changing water sources and replacement of aging infrastructure. Demand can vary dramatically within the Company's market area since each population center determines its own waterworks requirements. Demand for Tubular Products is influenced by non-residential construction, the agricultural economy and general economic conditions. The Company's net sales and net income may fluctuate significantly from quarter to quarter due to the size of certain Water Transmission orders, the schedule for deliveries of those orders and the inventory management policies of certain of the Company's Tubular Products customers. The Company has experienced such fluctuations in the past and may experience such fluctuations in the future. Results of operations in any period should not be considered indicative of the results to be expected for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Common Stock. No assurance can be given that the Company will remain profitable in any future period. The Company's business is subject to cyclical fluctuations based on general economic conditions and the economic conditions of the specific industries served. Future economic downturns could have a material adverse effect on the Company's business, financial condition and results of operations. 8 The following table sets forth, for the periods indicated, certain financial information regarding costs and expenses expressed as a percentage of total net sales and net sales of the Company's business segments.
Year Ended December 31, --------------------------- 1997 1996 1995 ------ ------ ------- Net sales Water transmission 65.8% 66.5% 62.6% Tubular products 34.2 33.5 37.4 ------ ------ ------- Total net sales 100.0 100.0 100.0 Cost of sales 79.4 77.1 80.0 ------ ------ ------- Gross profit 20.6 22.9 20.0 Selling, general and administrative expenses 7.5 8.5 8.0 ------ ------ ------- Income from operations 13.1 14.4 12.0 Interest expense 1.2 1.7 3.5 ------ ------ ------- Income before income taxes 11.9 12.7 8.5 Provision for income taxes 4.5 5.0 3.3 ------ ------ ------- Net income 7.4% 7.7% 5.2% ------ ------ ------- ------ ------ ------- Gross profit as a percentage of segment net sales: Water transmission 22.9% 26.0% 21.9% Tubular products 16.3 16.8 17.0
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Net sales increased 11.6% from $135.2 million in 1996 to $150.8 million in 1997. Sales increased in both business segments. Water Transmission net sales increased 10.4% from $89.9 million in 1996 to $99.3 million in 1997. The increase was primarily due to acquisitions made in 1996. Tubular Products net sales increased 13.9% from $45.2 million in 1996 to $51.5 million in 1997. The increase was primarily the result of increased demand in certain product lines. No single customer accounted for 10% or more of total net sales in 1997 or 1996. Gross profit increased slightly from $30.9 million (22.9% of total net sales) in 1996 to $31.1 million (20.6% of total net sales) in 1997. Water Transmission gross profit decreased 2.7% from $23.4 million (26.0% of segment net sales) in 1996 to $22.7 million (22.9% of segment net sales) in 1997. Water Transmission gross profit was impacted by lower bidding activity which resulted in unfavorable pricing pressures. In addition to lower bidding activity, weather related delays and delays in receipt of steel shipments in the latter half of 1997 may impact margins adversely in the first quarter of 1998. Gross profit from tubular products increased 10.5 % to $8.4 million (16.3% of segment net sales) in 1997 from $7.6 million (16.8% of segment net sales) in 1996. Selling, general and administrative expenses decreased slightly from $11.5 million (8.5% of total net sales) in 1996 to $11.4 million (7.5% of total net sales) in 1997. Interest expense decreased 17.0% to $1.8 million in 1997 from $2.2 million in 1996, due to lower interest rates and a reduction of average borrowings in 1997. The Company's effective tax rate was approximately 38.1% in 1997 compared to approximately 39.6% in 1996. The decrease in the effective tax rate was due primarily to a state tax credit in 1997. In connection with the acquisition of Thompson Pipe and Steel Company in May 1996, the Company acquired net operating loss carryforwards which, due to an "ownership change" as defined under Section 382 of the Internal Revenue Code 9 of 1986, as amended, are subject to an annual limitation of approximately $338,000 during the 15 year carryforward period. The Company had approximately $4.5 million of net carryforwards remaining at December 31, 1997. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net sales increased 38.3% from $97.7 million in 1995 to $135.2 million in 1996. Sales increased in both business segments. Water Transmission net sales increased 46.9% from $61.2 million in 1995 to $89.9 million in 1996, primarily as a result of an increase in the number of projects bid in the Company's geographical market areas and the number of successful bids in prior periods which resulted in increased production during 1996, and the acquisition of Thompson Pipe and Steel Company in May 1996. Tubular Products net sales increased 23.9% from $36.5 million in 1995 to $45.2 million in 1996. The increase was primarily the result of increased sales of well casing products. In 1996, no customer accounted for 10% or more of total net sales. In 1995, sales to a single customer represented 12% of total net sales. Gross profit increased 58.1% from $19.6 million (20.0% of total net sales) in 1995 to $30.9 million (22.9% of total net sales) in 1996. Water Transmission gross profit increased 74.6% from $13.4 million (21.9% of segment net sales) in 1995 to $23.4 million (26.0% of segment net sales) in 1996. This increase was primarily attributable to increased Water Transmission project bidding activity in 1996, which allowed the Company to obtain projects which were well suited to its manufacturing strengths, and resulted in comparatively higher margins. Additionally, improved margins resulted from increased plant utilization. Gross profit from Tubular Products increased 22.4% from $6.2 million (17.0% of segment net sales) in 1995 to $7.6 million (16.8% of segment net sales) in 1996, primarily as a result of increased sales volume. Selling, general and administrative expenses increased 47.9% from $7.8 million (8.0% of total net sales) in 1995 to $11.5 million (8.5% of total net sales) in 1996. The increase is largely attributable to the one-time costs associated with the acquisition of Thompson Pipe and Steel Company in May 1996, and to its operating costs since that time, as well as the costs of litigating an environmental issue with the EPA. During the third quarter of 1996 the parties to this dispute reached an agreement in principle to settle the litigation. SEE "BUSINESS--ENVIRONMENTAL MATTERS." The Company recorded an expense of $1.0 million, in the third quarter of 1996, in connection with this agreement. Interest expense decreased 36.5% from $3.4 million in 1995 to $2.2 million in 1996. This resulted from a decrease in average borrowings outstanding due to the application of the proceeds of the Company's initial public offering in November 1995 and the public offering in November 1996. The Company's effective tax rate was approximately 38.7% in 1995 compared to approximately 39.6% in 1996. The provision for income taxes in 1995 reflected the use of net operating loss carryforwards and tax credits which reduced the Company's tax provision. In connection with the acquisition of Thompson Pipe and Steel Company, the Company acquired net operating loss carryforwards of approximately $5.1 million which, due to an "ownership change" as defined under Section 382 of the Internal Revenue Code of 1986, as amended, are subject to an annual limitation of approximately $338,000 during the 15 year carryforward period. 10 LIQUIDITY AND CAPITAL RESOURCES In November 1995, the Company completed an initial public offering of 1.9 million shares of its common stock, which resulted in net proceeds to the Company of approximately $14.6 million. In November 1996, the Company completed a public offering of 2.3 million shares of its common stock, 1.1 million shares by the Company and 1.2 million shares by certain shareholders of the Company, which resulted in net proceeds to the Company of approximately $15.3 million. The Company finances operations with internally generated funds and available borrowings. At December 31, 1997, the Company had cash and cash equivalents of $904,000. Net cash used in operating activities in 1997 was $4.3 million. This was primarily a net result of $11.1 million of net income and non-cash adjustments for depreciation and amortization of $2.2 million; offset by increases in trade receivables of $2.1 million, refundable income taxes of $3.3 million and costs and estimated earnings in excess of billings on uncompleted contracts of $9.2 million, and decreases in accounts payable of $1.8 million and accrued and other liabilities of $4.3 million. The decreases in accounts payable and accrued and other liabilities were primarily attributable to timing of purchases and payments. The increases in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts resulted from delayed shipments in the latter half of 1997 primarily due to project delays, inclement weather, and other contractor related issues. Net cash used in investing activities in 1997 was $22.4 million, which primarily resulted from expenditures related to a new tubular products mill installed in its Portland, Oregon facility, which was operational late in the first quarter of 1998, and the installation of a rolled and welded manufacturing line in the Adelanto, California plant, which was operational in the fourth quarter of 1997. The remaining expenditures were for projects related to existing operations. Net cash provided by financing activities in 1997 was $23.4 million, which included the net effect of an additional $35.0 million in borrowings under Senior Notes and the repayment of long-term debt and capital lease obligations. The Company has four significant components of debt: $35.0 million of Senior Notes, without collateral, which bear interest at 6.87%; a $25.0 million credit agreement under which $7.0 million was outstanding at December 31, 1997; Industrial Development Bonds in the aggregate amount of $3.7 million with variable interest rates ranging from 3.85% to 4.55% at December 31, 1997; and capital leases aggregating $3.6 million bearing interest at rates ranging from 4.55% to 11.25% at December 31, 1997. In November 1997, the Company issued $35.0 million of 6.87% Senior Notes, without collateral (the "Notes"). Proceeds received under the Notes were used to reduce amounts outstanding under the Company's line of credit. The Notes mature November 15, 2007, and require semi-annual interest payments in November and May, and equal annual principal payments commencing on November 15, 2001 and continuing every year thereafter until final maturity. The $25.0 million line of credit agreement expires on October 20, 2000 and is without collateral. It bears interest at rates related to IBOR or LIBOR plus 0.65% (6.275% at December 31, 1997), or at prime less 0.5% (8.5% at December 31, 1997). At December 31, 1997, the Company had $7.0 million outstanding under the line of credit at a weighted average IBOR interest rate of 6.534%, and available additional borrowing capacity under the line of credit of $15.5 million. SEE NOTE 6 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. The Company's working capital requirements have increased due to the increase in the Company's Water Transmission business which is characterized by lengthy production periods and extended payment cycles. The Company anticipates that its existing cash and cash equivalents, cash flows expected to be generated by operations, amounts available under its credit agreement or Notes and amounts available under additional senior 11 notes anticipated to be issued in the second quarter of 1998, will be adequate to fund its working capital and capital requirements for at least the next twelve months. To the extent necessary, the Company may also satisfy capital requirements through additional bank borrowings, senior notes, and capital leases if such resources are available on satisfactory terms. The Company has from time to time evaluated and continues to evaluate opportunities for acquisitions and expansion and, consistent with this practice, is currently engaged in discussions with other parties regarding possible acquisitions. Any such transactions, if consummated, may use a portion of the Company's working capital or necessitate additional borrowings. YEAR 2000 ISSUE. The Company has made an assessment of the effect of the Year 2000 issue on its hardware, operating and applications software. The Company has or is obtaining certification that its primary operating systems and application software packages will properly recognize calendar dates beginning in the year 2000. In addition, the Company is discussing with its major vendors and customers the possibility of interface or service difficulties relating to the Year 2000 issue. The Company plans to complete its examination of the effect of the Year 2000 issue on all of its application and operating systems by the end of 1998. To date, no significant concerns have been identified and accordingly the Company does not currently expect to incur material costs in connection with the Year 2000 issue. There can be no assurance, however, that there will not be any Year 2000 related operating problems or material expenses that will arise with the Company's computer application and operating systems. RECENT ACCOUNTING PRONOUNCEMENTS. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes requirements for disclosure of comprehensive income. The objective of SFAS 130 is to report a measure of all changes in equity that result from transactions and economic events other than transactions with owners. Comprehensive income is the total of net income and all other non-owner changes in equity. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of earlier financial statements for comparative purposes is required. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). This statement will change the way public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. This statement is effective for fiscal years beginning after December 15, 1997. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). This statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The statement suggests combined formats for presentation of pension and other postretirement benefit disclosures. The statement also permits reduced disclosures for nonpublic entities. This statement is effective for fiscal years beginning after December 15, 1997. The Company's management has studied the implications of SFAS 130, SFAS 131 and SFAS 132, and based on the initial evaluation, expects the adoption to have no impact on the Company's financial condition or results of operations, but will require revised disclosures when the respective statements become effective. ENVIRONMENTAL MATTERS. As described in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, the Company has been identified as one of four potentially responsible parties with potential liability for a Superfund site in Clackamas, Oregon (the "Site"). In October 1995, the Company filed a complaint seeking a declaratory judgment from the Bankruptcy Court that any claims with respect to liability for 12 the costs of the Response Activities at the Site were discharged by the Bankruptcy Court's confirmation of the Company's Plan of Reorganization (the "Plan"). In September 1996, the Company entered into mediation with the EPA and the Oregon Department of Environmental Quality (the "ODEQ") (collectively, the "Agencies") in an attempt to resolve the matter without incurring the substantial additional expense of continuing the litigation. As a result of the mediation process, the Company and the Agencies entered into an agreement in principle with respect to a proposed settlement of the litigation (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the Company and the Agencies prepared a consent decree which embodies the terms of the Settlement Agreement (the "Consent Decree"). The Consent Decree was entered by the Bankruptcy Court on July 22, 1997. The Consent Decree relating to the portion of the Site that is vacant (the "Hall Property") which provides for the transfer of title to the Hall Property to the Agencies, and upon which the effectiveness of the Consent Decree was conditioned, was entered by the United States District Court on August 19, 1997. Under the terms of the Consent Decree, the Company on August 22, 1997 paid the Agencies $1.0 million and deposited an additional $2.3 million in an escrow account or cash escrow (the "Cash Escrow"), with the interest income on the Cash Escrow to be distributed to the EPA. The Consent Decree provides that the EPA will complete construction of the remedial action at the Site in accordance with its standards and will have the right to sell the Hall Property at any time during the clean-up process and for one year thereafter. If the Hall Property is sold by the Agencies, the $2.3 million held in the Cash Escrow will be returned to the Company. Once construction of the remedial action has been completed as evidenced by issuance of Remedial Action Reports (or their equivalents) and a Preliminary Close Out Report, and the Hall Property is usable for a "reasonable commercial or industrial use," the Agencies will have the option to continue to market the Hall Property for one year. If the Hall Property is not sold during this period, the Company believes the Agencies will elect to have the Hall Property conveyed to the Company in exchange for the $2.3 million held in the Cash Escrow. The Company would then be required to market the Hall Property for another year. If the Hall Property sells within one year thereafter, fifty percent of any net proceeds in excess of $2.3 million would be paid to the EPA. If the Company takes title to the Hall Property, the Agencies will provide a "Prospective Purchaser Agreement" for use by the Company at its option and for use by the Company's eligible successors in interest. The EPA would specify that any eligible prospective purchaser of the Hall Property would not be liable for any past environmental contamination or any ongoing remediation resulting from past operations at the Site. If the Company elects not to take ownership of the Hall Property, the Agencies would retain the $2.3 million held in Cash Escrow. If the Agencies are unable to complete construction of the remedial action and clean up soils so that the Hall Property can be used for a reasonable commercial or industrial use within ten years, they would be required to return the $2.3 million held in the Cash Escrow to the Company. The Consent Decree also contains covenants not to sue, reservations of rights, and protection for the Company from third party claims for contribution for environmental clean-up costs at the Site. The Company believes that once the Hall Property is available for a "reasonable commercial or industrial use," it would have a current value in excess of $2.3 million. Consequently, the Company does not believe that the $2.3 million to be held in the Cash Escrow is "impaired" under generally accepted accounting principles. Accordingly, the Company segregated the $2.3 million as a restricted asset on its consolidated balance sheet. The Company recorded the $1.0 million payment as an expense in the third quarter of 1996. SUBSEQUENT EVENTS. On March 6, 1998, the Company acquired all of the outstanding capital stock of Southwestern Pipe, Inc. ("Southwestern") and P&H Tube Corporation ("P&H"), both Texas corporations. The Company paid a purchase price of $40.1 million in cash, which is subject to a post-closing adjustment based upon changes in the working capital from February 28, 1998 to the closing date and the amount of outstanding indebtedness of the purchased companies at the closing date. The principal business of both Southwestern and P&H is the manufacture and sale of structural and mechanical tubing products. Southwestern owns and operates a manufacturing facility in Houston, Texas. P&H Tube owns and operates a manufacturing facility in Bossier City, Louisiana. The Company will continue to operate the acquired plant, equipment and other property for the same purpose, and will operate each of the companies as separate wholly owned subsidiaries of the Company. 13 On March 6, 1998, the Company amended its line of credit agreement to temporarily increase the line to $55.0 million. Additionally, the restriction associated with the ratio of maximum funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") was adjusted for one year from 3.0:1.0 to 3.25:1.0. The total commitment under the line of credit will be reduced to $30.0 million on the earliest of April 15, 1998 or the date that the Company receives the net proceeds from the issuance of senior notes in the amount of at least $20.0 million. The Company expects to issue additional senior notes totaling $40.0 million during the second quarter of 1998 to reduce the amounts borrowed under its line of credit and to reduce the available line of credit. Interest under the amended line of credit agreement is payable at IBOR plus 0.65% to 1.05% (0.65% at March 6, 1998) based on the Company's ratio, as defined, of funded debt to EBITDA. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Substantially all of the Company's liquid investments are at fixed interest rates, and therefore the fair value of these investments is affected by changes in market interest rates. However, substantially all of the Company's liquid investments mature within one year. As a result, the Company believes that the market risk arising from its holdings of financial instruments is minimal. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA The information required by this item is included under the caption QUARTERLY DATA, in Note 17 of Notes to Consolidated Financial Statements as listed in Item 14 of Part IV of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is included under the captions INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE in the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included under the caption EXECUTIVE COMPENSATION in the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included under the caption STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS in the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is included under the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders and is incorporated herein by reference. 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS The Financial Statements, together with the report thereon of Coopers & Lybrand L.L.P., are included on the pages indicated below.
Page ------ Report of Independent Accountants F-1 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995 F-5 Notes to Consolidated Financial Statements F-6
(a) (2) FINANCIAL STATEMENT SCHEDULE The following schedule and report of independent public accountants are filed herewith:
Page ------ Schedule II Valuation and Qualifying Accounts S-1 Report of Independent Accountants on Financial Statement Schedule S-2
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is included in the Consolidated Financial Statements or notes thereto. 15 (a) (3) EXHIBITS INCLUDED HEREIN:
Exhibit No. ----------- (1) 3.1 Second Restated Articles of Incorporation (1) 3.2 Second Amended and Restated Bylaws (1) 10.2 1986 Incentive Stock Option Plan* (1) 10.3 1995 Stock Incentive Plan* (1) 10.4 1995 Stock Option Plan for Nonemployee Directors* (1) 10.5 Registration Rights Agreement (1) 10.6 Loan Agreement dated May 1, 1990 between the Company and California Statewide Communities Development Authority (2) 10.7 Stock Purchase Agreement dated as of May 8, 1996 among Northwest Pipe Company, Thompson Pipe and Steel Company, CHL Holdings, Inc. and Inter-City Products Corporation (3) 10.8 Amended 1995 Stock Incentive Plan* (4) 10.9 Loan Agreement dated October 20, 1997 by and among Bank of America National Trust and Savings Association, Northwest Pipe Company, Thompson Pipe and Steel Company and Thompson Steel Pipe Company (4) 10.10 First Amendment to Loan Agreement dated October 20, 1997 (4) 10.11 Second Amendment to Loan Agreement dated November 26, 1997 (4) 10.12 Third Amendment to Loan Agreement dated March 6, 1998 (4) 10.13 Note Purchase Agreement dated November 1, 1997 (5) 10.14 Stock Purchase Agreement dated March 6, 1998 by and among Southwestern Pipe, Inc., P&H Tube Corporation, and the shareholders of Southwestern Pipe, Inc. and P&H Tube Corporation (4) 21 Subsidiaries of the Registrant (4) 23 Consent of Coopers & Lybrand L.L.P. (4) 27 Financial Data Schedule
*This exhibit constitutes a management contract or compensatory plan or arrangement. (1) Incorporated by reference to Exhibits to the Registrant's Registration Statement on Form S-1, as amended, effective November 30, 1995, Commission Registration No. 33-97308. (2) Incorporated by reference to Exhibits to the Company's Report on Form 8-K (as filed with the Securities and Exchange Commission on June 14, 1996). (3) Incorporated by reference to Exhibits to the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders. (4) Filed herewith. (5) Incorporated by reference to the Company's Report on Form 8-K (as filed with the Securities and Exchange Commission on March 20, 1998). (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1997. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd day of March 1998. NORTHWEST PIPE COMPANY By /s/ WILLIAM R. TAGMYER --------------------------- William R. Tagmyer Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated, on the 23rd day of March 1998. Signature Title - --------- ----- /s/ WILLIAM R. TAGMYER Chairman of the Board - ---------------------- and Chief Executive Officer William R. Tagmyer (Principal Executive Officer) /s/ BRIAN W. DUNHAM Director, President, Chief Operating Officer, - ---------------------- Treasurer and Secretary Brian W. Dunham /s/ JOHN D. MURAKAMI Vice President, Chief Financial Officer - ---------------------- (Principal Financial Officer) John D. Murakami /s/ WAYNE B. KINGSLEY Director - ---------------------- Wayne B. Kingsley /s/ NEIL R. THORNTON Director - ---------------------- Neil R. Thornton /s/ VERN B. RYLES, JR. Director - ---------------------- Vern B. Ryles, Jr. /s/ WARREN K KEARNS Director - ---------------------- Warren K. Kearns 17 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors Northwest Pipe Company We have audited the accompanying consolidated balance sheets of Northwest Pipe Company and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Northwest Pipe Company and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Portland, Oregon February 7, 1998, except for Note 18, for which the date is March 6, 1998 F-1 NORTHWEST PIPE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31, -------------------------------------------------- 1997 1996 1995 ------------- -------------- ------------ Net sales $ 150,833 $ 135,182 $ 97,715 Cost of sales 119,716 104,240 78,139 ------------- -------------- ------------ Gross profit 31,117 30,942 19,576 Selling, general and administrative expenses 11,382 11,530 7,798 ------------- -------------- ------------ Operating income 19,735 19,412 11,778 Interest expense 1,616 1,961 2,839 Interest expense to related parties 201 228 609 ------------- -------------- ------------ Income before income taxes 17,918 17,223 8,330 Provision for income taxes 6,818 6,819 3,223 ------------- -------------- ------------ Net income $ 11,100 $ 10,404 $ 5,107 ------------- -------------- ------------ ------------- -------------- ------------ Basic earnings per share $ 1.73 $ 1.92 $ 6.11 ------------- -------------- ------------ ------------- -------------- ------------ Diluted earnings per share $ 1.68 $ 1.85 $ 1.44 ------------- -------------- ------------ ------------- -------------- ------------ Shares used in per share calculations: Basic 6,405 5,408 836 ------------- -------------- ------------ ------------- -------------- ------------ Diluted 6,622 5,631 3,675 ------------- -------------- ------------ ------------- -------------- ------------
The accompanying notes are an integral part of these consolidated financial statements. F-2 NORTHWEST PIPE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands)
December 31, December 31, 1997 1996 --------------- ------------- ASSETS Current assets: Cash and cash equivalents $ 904 $ 4,302 Trade receivables, less allowance for doubtful accounts of $1,825 and $1,680 25,162 23,222 Costs and estimated earnings in excess of billings on uncompleted contracts 19,914 10,750 Inventories 20,530 20,484 Refundable income taxes 3,307 - Deferred income taxes 447 3,051 Prepaid expenses and other 1,402 1,289 --------------- ------------- Total current assets 71,666 63,098 Property and equipment, net 57,447 37,469 Restricted assets 2,300 - Other assets 638 857 --------------- ------------- $ 132,051 $ 101,424 --------------- ------------- --------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable to financial institution $ 7,000 $ 7,302 Current portion of long-term debt 250 2,100 Current portion of capital lease obligations 2,175 424 Accounts payable 8,116 9,930 Accrued liabilities 3,074 7,605 --------------- ------------- Total current liabilities 20,615 27,361 Long-term debt, less current portion 38,490 10,050 Capital lease obligations, less current portion 1,454 1,760 Capital lease obligations due to related party, less current portion - 2,546 Minimum pension liability 294 - Deferred income taxes 419 13 --------------- ------------- Total liabilities 61,272 41,730 Commitments and contingencies (Notes 8 and 13) Stockholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued or outstanding - - Common stock, $.01 par value, 15,000,000 shares authorized, 6,411,402 and 6,388,986 shares issued and outstanding 64 64 Additional paid-in-capital 38,725 38,546 Retained earnings 32,277 21,177 Minimum pension liability (287) (93) --------------- ------------- Total stockholders' equity 70,779 59,694 --------------- ------------- $ 132,051 $ 101,424 --------------- ------------- --------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 NORTHWEST PIPE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLAR AMOUNTS IN THOUSANDS)
COMMON STOCK ----------------------------------------------------------- Class A Class B Additional Minimum Total -------------- --------------- Paid in Retained Pension Stockholders' Shares Amount Shares Amount Shares Amount Capital Earnings Liability Equity ---------------------------------------------------------------------------------------------------------- Balances at December 31, 1994 448,394 $ 5 248,609 $ 3 $ 5,845 $ 5,666 $ 11,519 Net income Conversion of Class A 5,107 5,107 to common stock (448,394) (5) 448,394 $ 5 Conversion of Class B to common stock (248,609) (3) 248,609 3 Conversion of Series B and Series C Subor- dinated debt to common stock 2,629,296 26 2,464 2,490 Proceeds from sale of common stock, net of issuance costs of $1,558 1,932,000 19 14,594 14,613 ---------------------------------------------------------------------------------------------------------- Balances at December 31, 1995 - - - - 5,258,299 53 22,903 10,773 33,729 Net income 10,404 10,404 Issuance of common stock under stock option plans 59,069 1 65 66 Repurchase of common stock (174) (2) (2) Tax benefit of stock options exercised 238 238 Proceeds from sale of common stock, net of issuance costs of $400 1,071,792 10 15,249 15,259 Reclassification 93 (93) ---------------------------------------------------------------------------------------------------------- Balances at December 31, 1996 - - - - 6,388,986 64 38,546 21,177 (93) 59,694 Net income 11,100 11,100 Issuance of common stock under stock option plans 22,416 - 49 49 Minimum pension liability (194) (194) adjustment Tax benefit of stock options exercised 130 130 ---------------------------------------------------------------------------------------------------------- Balances at December 31, 1997 - - - - 6,411,402 $64 $38,725 $32,277 $(287) $70,779 ---------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements F-4 NORTHWEST PIPE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31, --------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,100 $ 10,404 $ 5,107 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,242 2,022 1,362 Provision for doubtful accounts 145 813 296 Deferred income tax provision 3,010 3 1,070 Changes in current assets and liabilities: Trade receivables (2,085) 1,106 (2,629) Costs and estimated earnings in excess of billings on uncompleted contracts (9,164) 1,031 (7,079) Inventories (46) (6,358) 2,336 Refundable income taxes (3,307) - - Prepaid expenses and other (113) 405 280 Accounts payable (1,814) (2,860) 2,048 Accrued and other liabilities (4,301) 389 962 -------- -------- -------- Net cash (used in) provided by operating activities (4,333) 6,955 3,753 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (20,351) (6,680) (2,556) Acquisition, net of cash acquired - (10,587) - Other assets (2,081) 96 148 -------- -------- -------- Net cash used in investing activities (22,432) (17,171) (2,408) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock 49 15,323 14,613 Proceeds from long-term debt 35,000 - - Payments on long-term debt (8,410) (3,286) (7,174) Net proceeds (payments) under notes payable (302) 1,845 (8,128) Payments on capital lease obligations (299) (106) (88) Payments on capital lease obligations to related party (2,671) (115) (106) -------- -------- -------- Net cash provided by (used in) financing activities 23,367 13,661 (883) -------- -------- -------- Net (decrease) increase in cash and cash equivalents (3,398) 3,445 462 Cash and cash equivalents, beginning of period 4,302 857 395 -------- -------- -------- Cash and cash equivalents, end of period $ 904 $ 4,302 $ 857 -------- -------- -------- -------- -------- -------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 2,157 $ 1,969 $ 4,009 Income taxes 6,741 7,901 1,274 SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION: Tax benefit of nonqualified stock options exercised $ 130 $ 238 $ - Long-term debt converted to common stock - - 2,490 Capital lease obligations incurred 1,869 - 62 Acquisition: Fair value of assets acquired $ - $ 27,403 $ - Fair value of liabilities assumed - 16,816 -
The accompanying notes are an integral part of these consolidated financial statements. F-5 NORTHWEST PIPE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements include the accounts of Northwest Pipe Company and its wholly owned subsidiaries (the "Company"). All significant intercompany balances have been eliminated. The Company manufactures steel pipe in two business groups at plants located in Portland, Oregon; Denver, Colorado; Adelanto, California; Atchison, Kansas and Riverside, California. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and short term highly liquid investments with remaining maturities of three months or less when purchased. INVENTORIES Inventories are stated at the lower of cost or market. Finished goods are stated at standard cost which approximates the first-in, first-out method of accounting. Raw material inventories of steel coil are stated at cost on a specific identification basis. Raw material inventories of coating and lining materials, as well as materials and supplies, are stated on an average cost basis. PROPERTY AND EQUIPMENT Property and equipment, including land, buildings and equipment under capital leases, are stated at cost. Maintenance and repairs are expensed as incurred and costs of improvements and renewals, including capitalized interest, are capitalized. Depreciation and amortization are determined by the straight-line method based on the estimated useful lives of the related assets. Upon disposal, costs and related accumulated depreciation of the assets are removed from the accounts and resulting gains or losses are reflected in operations. The Company leases land, buildings and equipment under long-term capital leases, which are being amortized on a straight-line basis over estimated useful lives. Estimated useful lives by major classes of property and equipment are as follows: Land improvements 20 years Buildings 30 years Equipment 5-18 years
REVENUE RECOGNITION Revenue from construction contracts in the Company's Water Transmission business group is recognized on the percentage-of-completion method, measured by the percentage of total costs incurred to date to the estimated total costs of each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. Selling, general and administrative costs are charged to expense as incurred. Provisions for losses on uncompleted contracts are made in the period such losses are known. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Revenue from the Company's Tubular Products business group is recognized when products are shipped. F-6 INCOME TAXES The Company records deferred income tax assets and liabilities based upon the difference between the financial statement and income tax bases of assets and liabilities using enacted income tax rates. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in net deferred income tax assets and liabilities. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" ("SFAS 128"), which supersedes APB Opinion No. 15 and specifies the computation, presentation and disclosure requirements for earnings per share. The Company adopted the provisions of SFAS 128 for the year ended December 31, 1997, which required the restatement of all previously reported per share amounts. As it relates to the Company, the principal differences between the provisions of SFAS 128 and previous authoritative pronouncements are exclusion of common stock equivalents in the determination of Basic Earnings Per Share and the market price at which common stock equivalents are calculated in the determination of Diluted Earnings Per Share. Basic earnings per common share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares outstanding during the year, and using the assumption that conversion of the Series B and Series C Convertible Subordinated Debentures and the Company's November 1995 initial public offering occurred as of the beginning of 1995. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade receivables. Trade receivables are with a large number of customers, including municipalities, manufacturers, distributors and contractors, dispersed across a wide geographic base. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments are the amounts at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, trade receivables, other current assets and current liabilities approximate fair value because of the short maturity for these instruments. The fair value approximates the carrying value of the Company's borrowings under its long-term arrangements based upon interest rates available for the same or similar loans. IMPAIRMENT OF LONG-LIVED ASSETS SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", establishes criteria for and requires recognition of impairment losses on long-lived assets. SFAS 121 also prescribes the accounting for long-lived assets that are expected to be disposed of in future periods. The Company adopted SFAS 121 in 1996. The adoption of this standard did not have any effect on the consolidated financial statements of the Company. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-7 SEGMENTS Water Transmission products are custom manufactured in accordance with project specifications. These products are used primarily for high pressure water transmission pipelines in the United States and Canada. Water Transmission products are manufactured in Portland, Oregon; Denver, Colorado; Adelanto, California, and Riverside, California and are sold primarily to public water agencies either directly or through an installation contractor. A substantial portion of the Company's Water Transmission revenue is derived from sales to installation contractors for public water transmission projects. As such, the Company's sales could be adversely impacted by a decline in the projects planned by public water agencies, governmental spending cuts, general budgetary constraints or the inability of governmental entities to issue debt. Tubular Products are manufactured in the Company's Portland, Oregon and Atchison, Kansas facilities. Tubular Products are marketed through a network of direct sales force personnel and independent distributors throughout the United States and Canada. These products are used for a variety of construction, agricultural and industrial purposes. RECLASSIFICATIONS Certain 1996 balances have been reclassified to conform with the 1997 presentation. The reclassifications had no impact on previously reported net income. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes requirements for disclosure of comprehensive income. The objective of SFAS 130 is to report a measure of all changes in equity that result from transactions and economic events other than transactions with owners. Comprehensive income is the total of net income and all other non-owner changes in equity. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Reclassification of earlier financial statements for comparative purposes is required. Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information", which will change the way public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues and its major customers. This Statement is effective for fiscal years beginning after December 15, 1997. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The statement suggests combined formats for presentation of pension and other postretirement benefit disclosures and is effective for fiscal years beginning after December 15, 1997. The Company's management has studied the implications of SFAS 130, SFAS 131 and SFAS 132, and based on the initial evaluation, expects the adoption to have no impact on the Company's financial condition or results of operations, but will require revised disclosures in 1998. F-8 2. ACQUISITION: In May 1996, the Company acquired Thompson Pipe and Steel Company ("Thompson Pipe and Steel"), a manufacturer of water transmission pipe headquartered in Denver, Colorado (the "Acquisition"). The Company purchased of all of the issued and outstanding capital stock of Thompson Pipe and Steel from Inter-City Products Corporation, a corporation based in Toronto, Canada, and its affiliates ("ICP") for approximately $6.1 million in cash. The principal assets acquired by the Company in the Acquisition were steel pipe manufacturing facilities located in Denver, Colorado and Princeton, Kentucky. The Kentucky manufacturing facility was closed by Thompson Pipe and Steel in 1995. The Company intends to continue operating the manufacturing facility in Denver, Colorado, and intends to dispose of the manufacturing facility located in Princeton, Kentucky. In December 1996, the Company acquired, from California Steel Pressure Pipe Company, certain assets of its Riverside, California plant for approximately $6.4 million in cash. The Riverside, California plant was closed in December 1996 by California Steel Pressure Pipe Company. In January 1997, the Company began producing smaller diameter water transmission pipe at the Riverside plant, and managing this facility from its Adelanto, California facility. The principal assets acquired by the Company in the acquisition were trade receivables, inventory, and machinery and equipment. The acquisitions were accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net assets acquired based upon the relative fair value of assets acquired. The accompanying consolidated financial statements include the results of operations from the dates of acquisition. 3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS:
December 31, 1997 1996 ------- -------- Costs incurred on uncompleted contracts $54,572 $ 41,944 Estimated earnings 11,804 9,588 ------- -------- 66,376 51,532 Less billings to date (46,462) (40,782) ------- -------- $19,914 $ 10,750 ------- -------- ------- --------
Costs and estimated earnings in excess of billings on uncompleted contracts represents revenue earned under the percentage of completion method but not billable based on the terms of the contracts. These amounts are billed based on the terms of the contracts which include achievement of milestones, partial shipments or completion of the contracts. F-9 4. INVENTORIES:
December 31, 1997 1996 -------- ------- Finished goods $ 5,854 $ 6,564 Raw materials 12,809 12,449 Materials and supplies 1,867 1,471 -------- ------- $20,530 $20,484 -------- ------- -------- -------
5. PROPERTY AND EQUIPMENT:
December 31, 1997 1996 -------- -------- Land and improvements $ 6,461 $ 4,534 Buildings 12,762 11,424 Equipment 34,063 33,418 Property and equipment under capital leases 3,232 3,452 Construction in progress 24,608 6,078 -------- -------- 81,126 58,906 Less accumulated depreciation and amortization (23,679) (21,437) -------- -------- $ 57,447 $ 37,469 -------- -------- -------- --------
Accumulated amortization associated with property and equipment under capital leases was $106 and $577 at December 31, 1997, and 1996, respectively. 6. NOTE PAYABLE TO FINANCIAL INSTITUTION: The Company had, at December 31, 1997, a $25.0 million line of credit. The Company had available borrowing capacity of $15.5 million at December 31, 1997 under this line of credit. The line of credit agreement expires in October 2000 and is without collateral. The line of credit bears interest at rates related to IBOR or LIBOR plus 0.65% (6.275% at December 31, 1997), or at prime less 0.5% (8.5% at December 31, 1997). At December 31, 1997, the Company had $7.0 million outstanding under the line of credit at a weighted average IBOR interest rate of 6.534%. (See Note 18) The Company had $7.3 million outstanding at December 31, 1996 under a line of credit with interest at prime plus 1.0% (9.25% at December 31, 1996). F-10 7. LONG-TERM DEBT:
December 31, 1997 1996 -------- -------- Industrial Development Bonds, issued in accordance with Internal Revenue Code Section 144(a), variable interest (3.85% and 4.55% at December 31, 1997 and 4.05% and 3.99% at December 31, 1996) payable monthly; annual principal payments of $250, collateralized by property and equipment and guaranteed by an irrevocable letter of credit from a bank $ 3,740 $ 3,990 Notes payable to Senior Lender - 8,100 Senior Notes, due in annual payments of $5.0 million beginning November 15, 2001, plus interest at 6.87% paid semi-annually, on May 15 and November 15, without collateral 35,000 - Other - 60 -------- -------- Total long-term debt $ 38,740 $ 12,150 -------- -------- -------- -------- Amounts are displayed on the consolidated balance sheet as follows: Current portion of long-term debt $ 250 $ 2,100 Long-term debt, less current portion 38,490 10,050 -------- -------- $ 38,740 $ 12,150 -------- -------- -------- --------
In November 1997, the Company issued $35.0 million of 6.87% Senior Notes (the "Notes"). Proceeds received under the Notes were used to reduce amounts outstanding under the Company's line of credit. The Notes require semi-annual interest payments in November and May, and equal annual principal payments commencing on November 15, 2001 and continuing every year thereafter until final maturity on November 15, 2007. The Company is required to maintain certain financial ratios under its loan agreements. As of December 31, 1997, the most restrictive of these are a requirement to maintain maximum funded debt, as defined, to earnings before interest, taxes, depreciation and amortization of 3.0 to 1.0 and a requirement to maintain a debt service coverage ratio of 2.0 to 1.0. (See Note 18) F-11 Future principal payments are as follows: 1998 $ 250 1999 250 2000 250 2001 5,740 2002 5,250 Thereafter 27,000 -------- $38,740 -------- --------
Interest expense of $1,817 is net of amounts capitalized of $707 in 1997. All interest costs incurred in 1996 and 1995 have been expensed. 8. LEASES: CAPITAL LEASES The Company leases land, buildings and improvements at its Kentucky and Riverside, California facilities. In addition, the Company has other capital leases for office and manufacturing equipment. The future minimum lease payments under these capital leases, and the present value of the minimum lease payments as of December 31, 1997 are as follows: 1998 $2,385 1999 306 2000 249 2001 240 2002 231 Thereafter 639 ------ Total minimum lease payments 4,050 Less amount representing interest 421 ------ Present value of minimum lease payments including current maturities of $2,175, with interest rates ranging from 4.55% to 11.25% $3,629 ------ ------
OPERATING LEASES The Company has entered into various equipment leases with terms of five years or less. Total rental expense for 1997, 1996 and 1995 was $1,323, $1,060 and $789, respectively. Future minimum payments for operating leases with initial or remaining terms in excess of one year are: 1998 $ 454 1999 295 2000 160 2001 140 2002 61 ------ $1,110 ------ ------
F-12 9. RELATED PARTY TRANSACTIONS: Multnomah Land & Equipment ("Multnomah") is a partnership in which a director of the Company is a general partner. In a previous year, the Company entered into two separate agreements to lease a pipe manufacturing facility and equipment from Multnomah. The amounts paid under these lease agreements were $315, $344, and $344 for 1997, 1996 and 1995, respectively. The Company exercised its option to acquire the pipe manufacturing facility in December 1997 for $2,557, in accordance with the terms of the agreement. 10. RETIREMENT PLANS: The Company has a defined contribution retirement plan covering substantially all of its employees. Total expense in 1997, 1996 and 1995 amounted to $412, $422 and $230, respectively. The Company matches up to 50% of employee contributions to the plan, subject to certain limitations. Thompson Pipe and Steel has two noncontributory defined benefit plans which cover substantially all employees. Benefits under the union pension plan are based upon a flat benefit formula, while benefits under the salaried benefit plan are based upon a final pay formula. The funding policy for each plan is based on current plan costs plus amortization of the unfunded plan liability. 11. CAPITAL STOCK: On July 28, 1995, the Board of Directors amended and restated the Company's Articles of Incorporation subject to approval by the stockholders of the Company. The revised articles, among other things, redesignated the Class A and Class B common stock of the Company as Common Stock, authorized a 0.858-for-1 reverse stock split of each outstanding share of Common Stock, increased the authorized capital stock of the Company to 15,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock, authorized the Board of Directors to issue blank check Preferred Stock, and provided for the classification of the Board of Directors into three classes with staggered terms. The Board of Directors, with stockholder approval, also authorized and approved the 1995 Stock Incentive Plan and the reservation of 429,000 shares of Common Stock after the stock split noted above for issuance thereunder, and the 1995 Stock Option Plan for Nonemployee Directors and the reservation of 100,000 shares of Common Stock (after the stock split) for issuance thereunder. On April 10, 1997, the stockholders authorized the reservation of an additional 200,000 shares of Common Stock for issuance under the 1995 Stock Incentive Plan. All share and per share amounts have been restated to retroactively reflect the aforementioned reverse stock split. On November 30, 1995, the Company completed an initial public offering (IPO) of 1,932,000 shares of common stock, including over allotments. In conjunction with the IPO, all of the Company's outstanding Series B and Series C Convertible Subordinated Debentures were converted into a total of 2,629,296 shares of the Company's Common Stock. On November 14, 1996, the Company completed a public offering of 2,300,000 shares of common stock, including over allotments; 1,071,792 shares were sold by the Company and 1,228,208 were sold by certain of the selling shareholders of the Company. 12. STOCK-BASED COMPENSATION PLANS The Company has two stock compensation plans for employees and directors. The 1995 Stock Incentive Plan provides for the grant of incentive options at an exercise price which is 100 percent of the fair value of the Company's stock on the date of grant. The 1995 Stock Option Plan for Nonemployee Directors provides for the grant of nonqualified options at an exercise price which is not less than 100 percent of the fair value on the grant date. The plans provide that options become exercisable according to vesting schedules which range from immediate to five years. Options terminate 10 years from the date of grant. F-13 There were 407,034, 362,534 and 382,001 shares of common stock reserved under the Company's stock compensation plans at December 31, 1997, 1996 and 1995, respectively. A summary of status of the Company's stock options as of December 31, 1997, 1996 and 1995 and changes during the year ended on those dates is presented below:
Exercise Price ---------------------------- Options Range -------- --------------- Balance, December 31, 1994 173,414 $0.87 - 1.00 Options granted 146,999 4.78 -------- --------------- Balance, December 31, 1995 320,413 0.87 - 4.78 Options granted 20,000 11.50 - 17.125 Options exercised (59,069) 0.90 - 4.78 Options canceled (534) 4.78 -------- --------------- Balance, December 31, 1996 280,810 0.87 - 17.125 Options granted 155,500 15.75 - 18.875 Options exercised (22,416) 0.90 - 4.78 Options canceled - - -------- --------------- Balance, December 31, 1997 413,894 $0.87 - $18.875 -------- --------------- -------- ---------------
The weighted average grant date fair value of options granted during the years ended December 31, 1997, 1996 and 1995 was $18.60, $14.19 and $4.78, respectively. The following table summarizes information about stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable - -------------------------------------------------------------- ------------------------- Weighted Weighted Weighted Average Average Average Range of Remaining Exercise Exercise Exercise Prices Number of Contractual Price Number of Price Per Share Options Life (years) Per Share Options Per Share - ----------------- ----------- ------------- ---------- ---------- --------- $0.87 - $1.00 102,195 4.04 $ 0.95 102,195 $ 0.95 $4.78 136,199 7.47 4.78 74,894 4.78 $11.50 - $15.75 20,000 8.68 13.64 12,165 14.53 $17.13 - $18.88 155,500 8.95 18.67 32,645 18.35 ----------- ---------- Totals 413,894 221,899 ----------- ---------- ----------- ----------
The following are the options exercisable at the corresponding weighted average exercise price at December 31, 1997, 1996 and 1995, respectively: 221,899 at $5.55; 183,978 at $2.95; and 207,199 at $1.57. SFAS No. 123, "Accounting for Stock-Based Compensation" was issued by the FASB in 1995 and, if fully adopted, changes the methods for the recognition of cost related to stock option plans. Adoption of SFAS 123 is optional. As a result, the Company continues to apply APB opinion No. 25 and related interpretations in accounting for its plans. However, in accordance with SFAS 123, pro forma disclosures as if the Company adopted the cost recognition requirements under SFAS 123 are presented below. F-14 The fair value of each option granted in 1997, 1996 and 1995 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Year Ended December 31, ------------------------------------------------------- 1997 1996 1995 ------------ ----------- ------------ Risk-free interest rate 6.12% -6.61% 5.23%-6.46% 5.92%-6.17% Expected dividend yield 0% 0% 0% Expected volatility 24.70% 19.48% 19.48% Expected lives five years five years five years
Had the Company used the fair value methodology for determining compensation expense, the Company's net income and earnings per share would approximate the pro forma amounts below (in thousands except per share data):
Year Ended December 31, ------------------------------------------------------- 1997 1996 1995 ------------ ----------- ------------ Net income - as reported $11,100 $10,404 $5,107 Net income - pro forma 10,507 10,350 4,975 Diluted earnings per share - as reported 1.68 1.85 1.44 Diluted earnings per share - pro forma 1.59 1.84 1.35
The effect of applying SFAS 123 in this pro forma disclosure is not indicative of future amounts. 13. COMMITMENTS AND CONTINGENCIES: ENVIRONMENTAL MATTERS GENERAL. The Company operates under numerous governmental permits and licenses relating to air emissions and water discharges, storm water run-off, workplace safety and other matters. The Company is not aware of any current violations or citations relating to any of these permits or licenses. The Company has a policy of reducing use and consumption of hazardous materials in its operations by substituting non-hazardous materials when possible. The Company has completed discussions with the Oregon Department of Environmental Quality ("DEQ") with respect to the reporting requirements for calculating emissions of volatile organic compounds ("VOCs") from pipe coating and lining operations at its Portland, Oregon facility. The Company and DEQ have resolved the emissions calculation issues pursuant to a Mutual Agreement and Order ("MAO") dated October 4, 1995 and amended June 20, 1997. Pursuant to the MAO, the Company was required to periodically report its progress in finding alternative coatings that comply with the VOC content levels allowed by Condition 4 of the Company's air permit. The MAO as amended also required the Company to be in full compliance with this Condition 4 by January 1, 1998, or to have submitted an application for an alternative emission limit. In December, 1997, the Company submitted a report to DEQ confirming its compliance with Condition 4. The DEQ has indicated informally that it is satisfied with the Company's compliance progress. DEQ will initiate formal acknowledgment that the terms of the MAO have been fully satisfied. SUPERFUND SITE. The Company has been identified as one of four potentially responsible parties with potential liability for a Superfund site in Clackamas, Oregon (the "Site"). In October 1995, the Company filed a complaint F-15 seeking a declaratory judgment from the Bankruptcy Court that any claims with respect to liability for the costs of the Response Activities at the Site were discharged by the Bankruptcy Court's confirmation of the Company's Plan of Reorganization (the "Plan"). In September 1996, the Company entered into mediation with the U.S. Environmental Protection Agency (the "EPA") and the Oregon Department of Environmental Quality (the "ODEQ") (collectively, the "Agencies"). As a result of the mediation process, the Company and the Agencies entered into an agreement in principle with respect to a proposed settlement of the litigation (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the Company and the Agencies prepared a consent decree which embodies the terms of the Settlement Agreement (the "Consent Decree"). The Consent Decree was entered by the Bankruptcy Court on July 22, 1997. The Consent Decree relating to the portion of the Site that is vacant (the "Hall Property"), which provides for the transfer of title to the Hall Property to the Agencies, and upon which the effectiveness of the Consent Decree was conditioned, was entered by the United States District Court on August 19, 1997. Under the terms of the Consent Decree, the Company on August 22, 1997 paid the Agencies $1.0 million and deposited an additional $2.3 million in an escrow account or cash escrow (the "Cash Escrow"), with the interest income on the Cash Escrow to be distributed to the EPA. The Consent Decree provides that the EPA will complete construction of the remedial action at the Site in accordance with its standards and will have the right to sell the Hall Property at any time during the clean-up process and for one year thereafter. If the Hall Property is sold by the Agencies, the $2.3 million held in the Cash Escrow will be returned to the Company. Once construction of the remedial action has been completed as evidenced by issuance of Remedial Action Reports (or their equivalents) and a Preliminary Close Out Report, and the Hall Property is usable for a "reasonable commercial or industrial use," the Agencies will have the option to continue to market the Hall Property for one year. If the Hall Property is not sold during this period, the Company believes the Agencies will elect to have the Hall Property conveyed to the Company in exchange for the $2.3 million held in the Cash Escrow. The Company would then be required to market the Hall Property for another year. If the Hall Property sells within one year thereafter, fifty percent of any net proceeds in excess of $2.3 million would be paid to the EPA. If the Company takes title to the Hall Property, the Agencies will provide a "Prospective Purchaser Agreement" for use by the Company at its option and for use by the Company's eligible successors in interest. The EPA would specify that any eligible prospective purchaser of the Hall Property would not be liable for any past environmental contamination or any ongoing remediation resulting from past operations at the Site. If the Company elects not to take ownership of the Hall Property, the Agencies would retain the $2.3 million held in Cash Escrow. If the Agencies are unable to complete construction of the remedial action and clean up soils so that the Hall Property can be used for a reasonable commercial or industrial use within ten years, they would be required to return the $2.3 million held in the Cash Escrow to the Company. The Consent Decree also contains covenants not to sue, reservations of rights, and protection for the Company from third party claims for contribution for environmental clean-up costs at the Site. The Company believes that once the Hall Property is available for a "reasonable commercial or industrial use," it would have a current value in excess of $2.3 million. Consequently, the Company does not believe that the $2.3 million to be held in the Cash Escrow is "impaired" under generally accepted accounting principles. Accordingly, the Company segregated the $2.3 million as a restricted asset on its consolidated balance sheet at December 31, 1997. The Company recorded the $1.0 million payment as an expense in the third quarter of 1996. F-16 LITIGATION In addition to the matters described above, from time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company maintains insurance coverage against potential claims in amounts which it believes to be adequate. Management believes that it is not presently a party to any litigation, the outcome of which would have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. COMMITMENTS As of December 31, 1997, the Company had outstanding raw material purchase commitments of approximately $16.8 million. 14. INCOME TAXES: The components of the provision for income taxes are as follows:
Year Ended December 31, ------------------------------ 1997 1996 1995 ------ ------ ------ Current: Federal $3,189 $5,394 $1,728 State 619 1,267 425 Deferred: Federal 2,624 136 940 State 386 22 130 ------ ------ ------ $6,818 $6,819 $3,223 ------ ------ ------ ------ ------ ------
The difference between the effective income tax rate and the statutory U.S. Federal income tax rate is explained as follows:
Year Ended December 31, ------------------------------ 1997 1996 1995 ------ ------ ------ Provision at statutory rate $6,092 $5,856 $2,832 State provision, net of federal benefit 896 836 280 Other (170) 127 111 ------ ------ ------ $6,818 $6,819 $3,223 ------ ------ ------ ------ ------ ------
F-17 The tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities are presented below:
December 31, ----------------------- 1997 1996 ------- ------- Deferred tax assets: Trade receivables, net $665 Property and equipment $ 730 752 Accrued warranty - 851 Accrued employee benefits 537 425 Inventories 316 453 Accrued environmental settlement - 396 Net operating loss carryforwards 1,763 2,010 Other 57 366 ------- ------- Total deferred tax assets $ 3,403 $ 5,918 ------- ------- ------- ------- Deferred tax liabilities: Trade receivables, net $ (542) $ - Property and equipment, principally due to differences in depreciation and amortization (2,815) (2,862) Other (18) (18) ------- ------- Total deferred tax liabilities (3,375) (2,880) ------- ------- Net deferred tax assets $ 28 $ 3,038 ------- ------- ------- ------- Deferred tax assets and liabilities are included in the consolidated balance sheets as follows: Deferred tax assets - current $ 447 $3,051 Deferred tax liabilities - noncurrent (419) (13) ------- ------- Net deferred tax assets $ 28 $ 3,038 ------- ------- ------- -------
As of December 31, 1997, the Company had approximately $4.5 million of net operating loss carryforwards as a result of the acquisition of Thompson Pipe and Steel which are limited in their use to approximately $338 per year during the 15 year carryforward period which expires in 2011. F-18 15. SEGMENT INFORMATION AND MAJOR CUSTOMERS: Information with respect to the segments of the business is as follows:
Year Ended December 31, ------------------------------------- 1997 1996 1995 -------- -------- ------- Net sales Water Transmission $ 99,317 $ 89,943 $61,215 Tubular Products 51,516 45,239 36,500 -------- -------- ------- $150,883 $135,182 $97,715 -------- -------- ------- -------- -------- ------- Identifiable assets Water Transmission $ 86,219 $ 69,576 $46,401 Tubular Products 37,813 24,267 14,755 Corporate 8,019 7,581 3,298 -------- -------- ------- $132,051 $101,424 $64,454 -------- -------- ------- -------- -------- ------- Operating income (loss) Water Transmission $ 17,543 $ 18,815 $10,994 Tubular Products 7,942 6,336 5,078 Corporate (5,750) (5,739) (4,294) -------- -------- ------- $ 19,735 $ 19,412 $11,778 -------- -------- ------- -------- -------- ------- Capital expenditures Water Transmission $ 8,235 $ 1,898 $ 1,256 Tubular Products 12,898 4,619 1,242 Corporate 1,087 163 120 -------- -------- ------- $ 22,220 $ 6,680 $ 2,618 -------- -------- ------- -------- -------- ------- Depreciation and amortization expense Water Transmission $1,781 $1,606 $ 1,020 Tubular Products 387 351 242 Corporate 74 65 100 -------- -------- ------- $2,242 $2,022 $ 1,362 -------- -------- ------- -------- -------- -------
No one customer represented over 10% of total sales in 1997 or 1996. During 1995 sales to one customer represented 12% of total sales. F-19 16. EARNINGS PER SHARE: The following is a reconciliation of the numerators and denominators of the basic and diluted computations of earnings per share.
Per Share Income Shares Amount -------- -------- --------- Year Ended December 31, 1997 - ----------------------------- Basic Earnings per Share: Income available to common shareholders $11,100 6,405 $1.73 --------- --------- Effect of dilutive securities Stock options issuable 217 Diluted Earnings per Share: Income available to common -------- -------- shareholders $11,100 6,622 $1.68 -------- -------- --------- -------- -------- --------- Year Ended December 31, 1996 - ----------------------------- Basic Earnings per Share: Income available to common $10,404 5,408 $1.92 shareholders --------- --------- Effect of dilutive securities Stock options issuable - 223 Diluted Earnings per Share: Income available to common -------- -------- shareholders $10,404 5,631 $1.85 -------- -------- --------- -------- -------- --------- Year Ended December 31, 1995 - ----------------------------- Basic Earnings per Share: Income available to common $ 5,107 836 $6.11 shareholders --------- --------- Effect of dilutive securities Stock options issuable 210 Conversion of Series B and C Subordinated Debentures 2,629 Diluted Earnings per Share: Net income Plus reduction in interest, net related to Series B and C Debentures 178 -------- -------- Income available to common Shareholders $ 5,285 3,675 $1.44 -------- -------- --------- -------- -------- ---------
F-20 17. QUARTERLY DATA (UNAUDITED): Summarized quarterly financial data for 1997 and 1996 is as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1997 Net sales: Water transmission $25,744 $22,482 $26,208 $24,883 Tubular products 12,013 14,959 13,531 11,013 ------- ------- ------- ------- Total net sales $37,757 $37,441 $39,739 $35,896 Gross profit: Water transmission $ 5,434 $ 5,639 $ 6,342 $ 5,318 Tubular products 2,076 2,498 2,161 1,649 ------- ------- ------- ------- Total gross profit $ 7,510 $ 8,137 $ 8,503 $ 6,967 Net income $ 2,415 $ 2,962 $ 3,299 $ 2,424 Earnings per share: Basic $0.38 $ 0.46 $ 0.51 $ 0.38 Diluted $0.37 $ 0.45 $ 0.50 $ 0.36 1996 Net sales: Water transmission $20,807 $20,877 $25,518 $22,741 Tubular products 10,164 12,241 12,842 9,992 ------- ------- ------- ------- Total net sales $30,971 $33,118 $38,360 $32,733 Gross profit: Water transmission $ 5,375 $ 5,339 $ 6,462 $ 6,182 Tubular products 2,006 2,145 1,908 1,525 ------- ------- ------- ------- Total gross profit $ 7,381 $ 7,484 $ 8,370 $ 7,707 Net income $ 2,769 $ 2,600 $ 2,677 $ 2,358 Earnings per share: Basic $ 0.53 $ 0.49 $ 0.51 $ 0.41 Diluted $ 0.50 $ 0.47 $ 0.49 $ 0.39
18. SUBSEQUENT EVENTS: On March 6, 1998, the Company acquired all of the outstanding capital stock of Southwestern Pipe, Inc. ("Southwestern") and P&H Tube Corporation ("P&H"), both Texas corporations. The Company paid a purchase price of $40.1 million in cash, which is subject to a post-closing adjustment based upon changes in the working capital from February 28, 1998 to the closing date and the amount of outstanding indebtedness of the purchased companies at the closing date. The principal business of both Southwestern and P&H is the manufacture and sale of structural and mechanical tubing products. Southwestern owns and operates a manufacturing facility in Houston, Texas. P&H Tube owns and operates a manufacturing facility in Bossier City, Louisiana. The Company will F-21 continue to operate the acquired plant, equipment and other property for the same purpose, and will operate each of the companies as separate wholly owned subsidiaries of the Company. On March 6, 1998, the Company amended its line of credit agreement to temporarily increase the line to $55.0 million. Additionally, the restriction associated with the ratio of maximum funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") was adjusted for one year from 3.0:1.0 to 3.25:1.0. The total commitment under the line of credit will be reduced to $30.0 million on the earliest of April 15, 1998 or the date that the Company receives the net proceeds from the issuance of senior notes in the amount of at least $20.0 million. The Company expects to issue additional senior notes totaling $40.0 million during the second quarter of 1998 to reduce the amounts borrowed under its line of credit and to reduce the available line of credit. Interest under the amended line of credit agreement is payable at IBOR plus 0.65% to 1.05% (0.65% at March 6, 1998) based on the Company's ratio, as defined, of funded debt to EBITDA. F-22 SCHEDULE II NORTHWEST PIPE COMPANY VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
BALANCE AT CHARGED DEDUCTION BALANCE AT BEGINNING TO PROFIT FROM CLOSE OF OF PERIOD AND LOSS RESERVES PERIOD ---------- --------- --------- ---------- Year ended December 31, 1997: Allowance for doubtful trade receivables $1,680 $266 $121 $1,825 Year ended December 31, 1996: Allowance for doubtful trade receivables $ 867 $921 $108 $1,680 Year ended December 31, 1995: Allowance for doubtful trade receivables $ 571 $427 $131 $ 867
S-1 REPORT OF INDEPENDENT ACCOUNTANTS Our report on the consolidated financial statements of Northwest Pipe Company and Subsidiaries is included on page F-1 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 15 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Portland, Oregon February 7, 1998, except for Note 18, for which the date is March 6, 1998 S-2 EX-10.9 2 EXHIBIT 10.9 BANK OF AMERICA / NORTHWEST PIPE COMPANY THOMPSON PIPE AND STEEL COMPANY THOMPSON STEEL PIPE COMPANY LOAN AGREEMENT Dated: October 20, 1997
TABLE OF CONTENTS ARTICLE 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . 1 Section 1.2 General Principles Applicable to Definitions.. . . . . . 10 Section 1.3 Accounting Terms.. . . . . . . . . . . . . . . . . . . . 10 ARTICLE 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.1 Revolving Loans. . . . . . . . . . . . . . . . . . . . . 11 Section 2.2 Manner of Borrowing. . . . . . . . . . . . . . . . . . . 11 Section 2.3 Agent's Right to Fund. . . . . . . . . . . . . . . . . . 11 Section 2.4 Repayment of Principal.. . . . . . . . . . . . . . . . . 12 Section 2.5 Optional Conversion of up to $10,000,000 of Revolving Loans .. . . . . . . . . . . . . . . . . . . . 12 Section 2.6 Interest on Loans. . . . . . . . . . . . . . . . . . . . 12 (a) General Provisions. . . . . . . . . . . . . . . . . . . . . . 12 (b) Selection of Alternative Rates. . . . . . . . . . . . . . . . 13 (c) Applicable Days For Computation of Interest.. . . . . . . . . 14 (d) Unavailable Offshore Related Rate or Long Term Rate . . . . . 14 (e) Compensation for Increased Costs. . . . . . . . . . . . . . . 14 Section 2.7 Prepayments. . . . . . . . . . . . . . . . . . . . . . . 16 Section 2.8 Manner of Payments.. . . . . . . . . . . . . . . . . . . 16 Section 2.9 Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 2.10 Sharing of Payments, Etc.. . . . . . . . . . . . . . . . 17 Section 2.11 Application of Payments. . . . . . . . . . . . . . . . . 17 ARTICLE 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.1 Conditions to Initial Loans. . . . . . . . . . . . . . . 18 (a) Loan Documents. . . . . . . . . . . . . . . . . . . . . . . . 18 (b) Borrower Authority. . . . . . . . . . . . . . . . . . . . . . 18 (c) Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . 18 (d) Officer's Certificate.. . . . . . . . . . . . . . . . . . . . 18 (e) Other Information . . . . . . . . . . . . . . . . . . . . . . 18 (f) Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (g) EQDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 (h) Material Adverse Change. . . . . . . . . . . . . . . . . . . 19 Section 3.2 Conditions to Loans. . . . . . . . . . . . . . . . . . . 19 (a) Prior Conditions. . . . . . . . . . . . . . . . . . . . . . . 19 (b) Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . 19 (c) No Default. . . . . . . . . . . . . . . . . . . . . . . . . . 19 (d) Other Information.. . . . . . . . . . . . . . . . . . . . . . 19 ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.1 Corporate Existence and Power. . . . . . . . . . . . . . 19 Section 4.2 Corporate Authorization. . . . . . . . . . . . . . . . . 20 Section 4.3 Government Approvals, Etc. . . . . . . . . . . . . . . . 20 Section 4.4 Binding Obligations, Etc.. . . . . . . . . . . . . . . . 20 Section 4.5 Litigation.. . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.6 Financial Condition. . . . . . . . . . . . . . . . . . . 20 Section 4.7 Title, Liens and Environmental Matters . . . . . . . . . 21 Section 4.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.9 Laws, Orders, Other Agreements.. . . . . . . . . . . . . 21 Section 4.10 Federal Reserve Regulations. . . . . . . . . . . . . . . 22 Section 4.11 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 4.12 Investment Company; Public Utility Holding Company . . . 22 Section 4.13 Solvency . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 4.14 Representations as a Whole . . . . . . . . . . . . . . . 23 ARTICLE 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 5.1 Use of Proceeds from Loans/Use of Letters of Credit. . . 23 Section 5.2 Preservation of Corporate Existence, Etc . . . . . . . . 23 Section 5.3 Visitation and Examination Rights. . . . . . . . . . . . 23 Section 5.4 Keeping of Books and Records.. . . . . . . . . . . . . . 24 Section 5.5 Maintenance of Property, Etc.. . . . . . . . . . . . . . 24 Section 5.6 Compliance with Laws, Etc. . . . . . . . . . . . . . . . 24 Section 5.7 Other Obligations. . . . . . . . . . . . . . . . . . . . 24 Section 5.8 Insurance. . . . . . . . . . . . . . . . . . . . . . . . 24 Section 5.9 Financial Information: . . . . . . . . . . . . . . . . . 24 (a) Annual 10-K and Annual Report and Audited Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 24 (b) Annual Consolidating Statements . . . . . . . . . . . . . . . 25 (c) Quarterly 10-Q Report, Unaudited Financial Statements and Consolidating Statements.. . . . . . . . . . . . . . . . . . . 25 (d) Quarterly Compliance Reports. . . . . . . . . . . . . . . . . 25 (e) Financial Forecast and Budget . . . . . . . . . . . . . . . . 25 (f) Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 5.10 Notification. . . . . . . . . . . . . . . . . . . . . . 26 Section 5.11 Additional Payments; Additional Acts:. . . . . . . . . . 26 Section 5.12 Minimum Debt Service Coverage Ratio:. . . . . . . . . . 27 Section 5.13 Maximum Funded Debt to EBITDA . . . . . . . . . . . . . 27 Section 5.14 Minimum Tangible Net Worth . . . . . . . . . . . . . . . 27 ARTICLE 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 6.1 Restriction on Borrowings, Capital Leases and Contract Purchases . . . . . . . . . . . . . . . . . . . . . . . 28 Section 6.2 Liquidation, Merger, Sale of Assets. . . . . . . . . . . 28 Section 6.3 Restrictions on Liens - Negative Pledge. . . . . . . . . 28 Section 6.4 Guaranties, Etc. . . . . . . . . . . . . . . . . . . . . 28 Section 6.5 Restrictions on Loans and Advances.. . . . . . . . . . . 29 Section 6.6 Restriction on Acquisitions. . . . . . . . . . . . . . . 29 Section 6.7 Change in Business.. . . . . . . . . . . . . . . . . . . 29 Section 6.8 ERISA Compliance:. . . . . . . . . . . . . . . . . . . . 29 ARTICLE 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 7.1 Events of Default: . . . . . . . . . . . . . . . . . . . 29 (a) Payment Default.. . . . . . . . . . . . . . . . . . . . . . . 30 (b) Breach of Warranty. . . . . . . . . . . . . . . . . . . . . . 30 (c) Breach of Certain Covenants.. . . . . . . . . . . . . . . . . 30 (d) Breach of Other Covenant. . . . . . . . . . . . . . . . . . . 30 (e) Cross-default.. . . . . . . . . . . . . . . . . . . . . . . . 30 (f) Cross-Default - Secured Letter of Credit Facility . . . . . . 30 (g) Voluntary Bankruptcy, Etc . . . . . . . . . . . . . . . . . . 30 (h) Involuntary Bankruptcy, Etc.. . . . . . . . . . . . . . . . . 30 (i) Insolvency, Etc.. . . . . . . . . . . . . . . . . . . . . . . 31 (j) Judgment. . . . . . . . . . . . . . . . . . . . . . . . . . . 31 (k) Government Approvals. . . . . . . . . . . . . . . . . . . . . 31 (l) Other Government Action.. . . . . . . . . . . . . . . . . . . 31 (m) Material Adverse Change . . . . . . . . . . . . . . . . . . . 31 Section 7.2 Consequences of Default. . . . . . . . . . . . . . . . . 32 ARTICLE 8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 8.1 Authorization and Action:. . . . . . . . . . . . . . . . 32 Section 8.2 Duties and Obligations.. . . . . . . . . . . . . . . . . 33 Section 8.3 Dealings Between Agent and Borrowers.. . . . . . . . . . 34 Section 8.4 Lender Credit Decision . . . . . . . . . . . . . . . . . 34 Section 8.5 Indemnification. . . . . . . . . . . . . . . . . . . . . 34 Section 8.6 Successor Agent. . . . . . . . . . . . . . . . . . . . . 35 Section 8.7 Independent Determination for Funding and Closing. . . . 35 ARTICLE 9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 9.1 Letters of Credit. . . . . . . . . . . . . . . . . . . . 35 Section 9.2 Manner of Requesting Letters of Credit.. . . . . . . . . 35 Section 9.3 Indemnification; Increased Costs.. . . . . . . . . . . . 36 Section 9.4 Payment by Borrowers . . . . . . . . . . . . . . . . . . 37 Section 9.5 Sale of Risk Participations. . . . . . . . . . . . . . . 37 Section 9.6 Procedure for Participations . . . . . . . . . . . . . . 38 Section 9.7 Payment Obligations. . . . . . . . . . . . . . . . . . . 38 (a) Reimbursements to Agent.. . . . . . . . . . . . . . . . . . . 38 (b) Payments to Lenders.. . . . . . . . . . . . . . . . . . . . . 38 ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 10.1 Bank of America Secured Letter of Credit Facility. . . . 39 Section 10.2 Northwest Pipe Company Security. . . . . . . . . . . . . 39 Section 10.3 Cross-Default. . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 11.1 No Waiver; Remedies Cumulative . . . . . . . . . . . . . 39 Section 11.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . 39 Section 11.3 Mandatory Arbitration. . . . . . . . . . . . . . . . . . 39 Section 11.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 11.5 Successors and Assigns . . . . . . . . . . . . . . . . . 40 Section 11.6 Severability.. . . . . . . . . . . . . . . . . . . . . . 40 Section 11.7 Additional Lenders . . . . . . . . . . . . . . . . . . . 40 Section 11.8 Joint and Several Liability; Reason for Execution. . . . 41 Section 11.9 Survival.. . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.10 Executed in Counterparts . . . . . . . . . . . . . . . . 41 Section 11.11 Entire Agreement; Amendment, Waiver. . . . . . . . . . . 41 Section 11.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.13 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . 41 Section 11.14 CERTAIN AGREEMENTS NOT ENFORCEABLE . . . . . . . . . . . 42
LOAN AGREEMENT This Loan Agreement ("Agreement") is made as of October 20, 1997, by and among the following parties: Bank of America National Trust and Savings Association ("Bank of America" and "Lender") Each of the several financial institutions which subsequently become a party to this Agreement pursuant to Section 11.7 (each individually a "Lender") Bank of America National Trust and Savings Association, in its capacity as Agent ("Agent") Northwest Pipe Company, an Oregon corporation (a "Borrower") Thompson Pipe and Steel Company, a Colorado corporation (a "Borrower") Thompson Steel Pipe Company, a Delaware corporation (a "Borrower") RECITALS A. Borrowers have requested that Lenders make revolving loans to Borrowers and issue letters of credit for the account of Borrowers. B. Lenders are willing to make revolving loans and to issue letters of credit upon the terms and conditions set forth below. Agent is willing to act as Agent for Lenders upon the terms and conditions set forth below. C. At the time this Agreement is executed, Bank of America is the only Lender. However, Bank of America may select one or more financial institutions to become Lenders in the future pursuant to Section 11.7. Therefore, in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: AGREEMENT ARTICLE 1 DEFINITIONS Section 1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms have the following meanings: 1 "AFFILIATE" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of a management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract or otherwise. "AGENT" means Bank of America National Trust and Savings Association and any successor agent selected pursuant to Section 8.6. "APPLICABLE INTEREST PERIOD" means with respect to any Loan or portion thereof accruing interest at an Offshore Related Rate or Long Term Rate, the period commencing on the first date Borrowers select to have such Offshore Related Rate or Long Term Rate applied to such Loan or portion thereof pursuant to Section 2.6(b) and ending on the date specified in the Interest Rate Notice given in respect of such Loan or portion thereof, provided that the Applicable Interest Period for Offshore Related Rate Loans based on LIBOR shall be in increments of one month, two months, three months, four months, five months or six months and for Offshore Related Rate Loans based on IBOR shall be in increments of one month, two months, three months, four months, five months and six months. The Applicable Interest Period for Long Term Rate Loans shall be one year or more. Applicable Interest Period means with respect to any Loan or portion thereof accruing interest at the Reference Related Rate, the period commencing on the date of this Agreement or the date Borrowers select to have such rate applied to such Loan or portion thereof and ending on the date Borrowers select to have another rate applied to such Loan or portion thereof. No Applicable Interest Period extending beyond Revolving Loan Maturity Date may be selected for a Revolving Loan. "APPLICABLE INTEREST RATE" means for each Loan the Reference Related Rate, Long Term Rate or an Offshore Related Rate, as designated by Borrowers in an Interest Rate Notice given with respect to such Loan or portion of such Loan or as otherwise determined pursuant to Section 2.6. "APPLICABLE MARGIN" means, with respect to Offshore Related Rate Loans, a margin determined as set forth below depending on the ratio of Funded Debt to EBITDA. Adjustments, with respect to borrowings or selections of Applicable Interest Rates, will be effective the first day of the month after Agent has received financial information needed to determine the relevant ratio with respect to future selections or borrowings. However, if such information is not given to Agent within the time required by Section 5.9, Agent may, at its option, adjust the Applicable Margin for Offshore Related Rate upwards, if applicable, as of the first day of the month following the date by which such information should have been received. The Applicable Margin in effect on the date of this Agreement is .65 percent. RATIO AT END OF PRIOR APPLICABLE MARGIN FOR FISCAL QUARTER OFFSHORE RELATED RATE LOANS - -------------------------------------------------------------------------------- 2 Less than 1.5:1 .65% Equal to or greater than 1.5:1 .75% Up to and including 2.25:1 Greater than 2.25:1 .875% "BORROWERS" means Northwest Pipe Company, Thompson Pipe and Steel Company and Thompson Steel Pipe Company. "BUSINESS DAY" means any day other than Saturday, Sunday or another day on which banks are authorized or obligated to close in Seattle, Washington, except in the context of the selection of an Offshore Related Rate Loan or the calculation of the IBOR Rate or the LIBOR Rate for any Applicable Interest Period, in which event "Business Day" means any day other than Saturday or Sunday on which dealings in foreign currencies and exchange between banks may be carried on in London, England and Seattle, Washington. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMERCIAL LETTER OF CREDIT" means any commercial letter of credit issued by Agent pursuant to the terms of Article 9. "COMMERCIAL LETTER OF CREDIT USAGE" means, as of any date of determination, the sum of (i) the aggregate face amount of all outstanding unmatured Commercial Letters of Credit issued pursuant to Article 9 PLUS (ii) the aggregate amount of all payments made by Agent under Commercial Letters of Credit and not yet reimbursed by Borrowers pursuant to Section 9.4. "COMMITMENT" means, with respect to each Lender, its obligation to extend Revolving Loans under this Agreement, and its obligation to purchase Letter of Credit Risk Participations pursuant to Article 9.5. In the case of Agent, "Commitment" also means its obligation to issue Letters of Credit under this Agreement. "CONTROLLED GROUP" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with Borrowers, are treated as a single employer under Section 414(b) or 414(c) of the Code. The term "Controlled Group" shall also include all members of a group of corporations or trades or businesses (whether or not incorporated) that together with Borrowers constitute an "affiliated service group," as defined in Code Section 414(m). "DEFAULT" means any event which but for the passage of time or the giving of notice or both would be an Event of Default. "EBITDA" means, for any period, net income (or net loss), plus the sum of (a) interest expense, (b) income tax expense, (c) depreciation expense, and (d) amortization 3 expense, in each case determined in accordance with GAAP. "EMPLOYEE PLAN" means any and all plans, programs and arrangement that constitute a Pension Plan or a Welfare Plan. "ENVIRONMENTAL LAWS" means all federal, state and local statutes, regulations, ordinances, and requirements, now or hereafter in effect, pertaining to environmental protection, contamination or cleanup, including without limitation (i) the Federal Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901, ET SEQ.), (ii) the Federal Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 ET SEQ.), (iii) the Federal Hazardous Materials Transportation Control Act (49 U.S.C. Section 1801, ET SEQ.), (iv) the Federal Clean Air Act (42 U.S.C. Section 7401, ET SEQ.), (v) the Federal Water Pollution Control Act, Federal Clean Water Act (33 U.S.C. Section 1251 ET SEQ.), (vi) the Federal Insecticide, Fungicide, and Rodenticide Act, Federal Pesticide Act (7 U.S.C. Section 136, ET SEQ.), (vii) the Federal Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.), (viii) the Federal Safe Drinking Water Act (42 U.S.C. Section fm ET SEQ.), (ix) Hazardous Substances, Radiation Sources, ORS Sections 453.01 ET SEQ., (x) Solid Waste Control, ORS Sections 459.005 ET SEQ., (xi) Hazardous Waste and Hazardous Materials I, ORS Sections 465.003 ET SEQ., (xii) Hazardous Waste and Hazardous Materials II, ORS Sections 466.005 ET SEQ., (xiii) Air Quality, ORS Sections 468A.005 ET SEQ., (xiv) Water Quality, ORS Sections 468B.005 ET SEQ., (xv) Oregon Drinking Water Quality Act, ORS 448.115 ET SEQ., (xvi) Ground Water Act of 1955, ORS Sections 537.505 ET SEQ. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "EVENT OF DEFAULT" has the meaning given in Section 7.1. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal, for each day during such period, to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on transactions received by Agent from three federal funds brokers of recognized standing selected by Agent. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. "FUNDED DEBT" means the aggregate amount for Borrowers and all Subsidiaries of: (a) any interest bearing indebtedness other than such indebtedness, the payment of which is secured by any Standby Letter of Credit described in Article 9 or Article 10, plus 4 (b) any other obligations of Borrowers or any Subsidiary under leases which have been or should have been recorded as capital leases, plus (c) all outstanding letters of credit whether commercial or standby, including Letters of Credit described in Article 9 or Article 10, and all other letters of credit, plus (d) all obligations guaranteed by any Borrower or Subsidiary. "FUNDED PRO RATA SHARE" shall mean, with respect to each Lender, a fraction. The numerator of the fraction will equal the sum of: (a) the aggregate outstanding principal amount of all such Lender's Loans, plus (b) the aggregate outstanding principal amount of all payments made by such Lender pursuant to Section 9.7(a) (including payments deemed made by Bank of America in its capacity as Lender to Agent), plus (c) in the case of Bank of America, the aggregate of the amounts paid by Agent under Letters of Credit to the extent Agent has not received payment with respect to Letters of Credit from Borrowers hereunder or from Lenders pursuant to Section 9.7(a). The denominator of the fraction will equal the sum of: (a) the aggregate outstanding principal amount of the Loans of all Lenders (including the Lender whose Funded Pro Rata Share is being calculated), plus (b) the aggregate face amount of all amounts paid by Agent under the Letters of Credit (to the extent not already paid or reimbursed by Borrowers). "GAAP" shall have the meaning given in Section 1.3. "GOVERNMENT APPROVAL" means an approval, permit, license, authorization, certificate, or consent of any Governmental Authority. "GOVERNMENTAL AUTHORITY" means the government of the United States or any State or any foreign country or any political subdivision of any thereof or any branch, department, agency, instrumentality, court, tribunal or regulatory authority which constitutes a part or exercises any sovereign power of any of the foregoing. 5 "HAZARDOUS SUBSTANCES" means any substance or material defined or designated as hazardous or toxic waste, hazardous or toxic material, a hazardous, toxic or radioactive substance, or other similar terms, by any federal, state or local environmental statute, regulation or ordinance presently in effect, including but not limited to the Environmental Laws. "INTEREST RATE NOTICE" shall hae the meaning given in Section 2.6(b). "LENDERS" has the meaning set forth in the introductory paragraph hereof. "LETTERS OF CREDIT" means Commercial Letters of Credit and Standby Letters of Credit. "LETTER OF CREDIT RISK PARTICIPATION" with respect to each Lender, means a risk participation purchased by such Lender pursuant to Article 9 with respect to a Letter of Credit (including risk participations deemed purchased from Agent by Bank of America in its capacity as Lender). "LETTER OF CREDIT USAGE" means Commercial Letter of Credit Usage PLUS Standby Letter of Credit Usage. "LIEN" means, for any of Borrowers or Subsidiaries any security interest, pledge, mortgage, charge, assignment, hypothecation, encumbrance, attachment, garnishment, execution or other voluntary or involuntary lien upon or affecting the revenues of such person or any real or personal property in which such person has or hereafter acquires any interest, EXCEPT (a) liens for Taxes which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof; (b) liens imposed by law (such as mechanics' liens) incurred in good faith in the ordinary course of business which are not delinquent or which remain payable without penalty or the validity or amount of which is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof with, in the case of liens on property of either Borrowers or any Subsidiary, provision having been made to the satisfaction of Agent for the payment thereof in the event the contest is determined adversely to either Borrowers or any Subsidiary; and (c) deposits or pledges under worker's compensation, unemployment insurance, social security or other similar laws or made to secure the performance of bids, tenders, contracts (except for repayment of borrowed money), or leases, or to secure statutory obligations or surety or appeal bonds or to secure indemnity, performance, customs or other similar bonds given in the ordinary course of business. "LOAN DOCUMENTS" means this Agreement and all other certificates, instruments and other documents executed by or on behalf of Borrowers and/or their Subsidiaries in connection with this Agreement or the transactions contemplated hereby. 6 "LOANS" means the Revolving Loans and the Term Loans. "LONG TERM RATE" means the fixed interest rate the Agent and the Borrowers agree will apply to the Long Term Rate Loan in question during the Applicable Interest Period. "LONG TERM RATE LOANS" means a borrowing that bears interest at the Long Term Rate. "MAJORITY LENDERS" means at any time Lenders having an aggregate Funded Pro Rata Share of at least sixty-six and two thirds percent (66 2/3%). "MONEY MARKET" means one or more wholesale funding markets available to Agent, including domestic negotiable certificates of deposit, eurodollar deposits, bank deposit notes or other appropriate money market instruments selected by Agent. "NET INCOME" means, for any period, the consolidated net income of Borrowers and Subsidiaries for such period, determined in accordance with GAAP. "NOTICE OF BORROWING" means a written or oral request for a Loan from Borrowers delivered to Agent in the manner, at the time, and containing the information required under Section 2.2. "OFFICER'S CERTIFICATE" means a certificate executed and delivered on behalf of Borrowers by their chief executive officer, chief operating officer or chief financial officer. "OFFSHORE RATE" means for any Applicable Interest Period, with respect to Offshore Related Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded to five decimal places) determined by the Agent as follows: Offshore Rate = [LIBOR OR IBOR] ---------------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "EURODOLLAR RESERVE PERCENTAGE" means for any day for any Applicable Interest Period the maximum reserve percentage, expressed as a decimal, in effect on such day (whether or not applicable to any Lender) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and 7 "LIBOR" means the rate of interest per annum (rounded to five decimal places) at which Bank of America's London branch would offer dollar deposits in the approximate amount of the relevant Offshore Related Rate Loan having a maturity comparable to the Applicable Interest Period in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Applicable Interest Period. "IBOR" means the rate of interest per annum (rounded to five decimal places) at which dollar deposits in the approximate amount of the relevant Offshore Related Rate Loan for the Applicable Interest Period would be offered by Bank of America's Grand Cayman Branch, Grand Cayman B.W.I to major banks in the offshore dollar interbank market at approximately 11:00 a.m. (New York City time) on the commencement of such Applicable Interest Period. "OFFSHORE RELATED RATE" means, for any Interest Period, with respect to Offshore Related Rate Loans comprising part of the same Borrowing, the rate of interest equal to the sum of (a) the Applicable Margin and (b) the Offshore Rate. "OFFSHORE RELATED RATE LOAN" means a Borrowing that bears interest based on the Offshore Related Rate. "PENSION PLAN" means an "employee pension benefit plan" (as such term is defined in ERISA) from time to time maintained by Borrowers or a member of the Controlled Group. "PERSON" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "PLAN" shall mean, at any time, an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (a) maintained by Borrowers or any member of the Controlled Group for employees of Borrowers or any member of the Controlled Group or (b) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which Borrowers or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five (5) plan years made contributions. "REFERENCE RATE" means the rate of interest publicly announced from time to time by Bank of America, as its Reference Rate. Reference Rate is set based on various factors, including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. Bank of America may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public 8 announcement of a change in the Reference Rate. "REFERENCE RELATED RATE" means for any interest period with respect to Reference Related Rate Loans comprising part of the same Borrowing, the rate of interest equal to the Reference Rate less .50%. "REFERENCE RELATED RATE LOAN" means a Borrowing that bears interest based at the Reference Related Rate. "REIMBURSEMENT AGREEMENTS" shall have the meaning given in Section 9.2. "REVOLVING LOAN MATURITY DATE" means September 30, 2000. Agent and Lenders will consider a one year extension to the Revolving Loan Maturity Date on each anniversary of this Agreement. However, any extension will require the consent of Agent and all Lenders in their sole discretion. "REVOLVING LOAN PRO RATA SHARE" means for: Bank of America, 100 percent, subject to adjustment as provided in Section 11.7. "REVOLVING LOANS" has the meaning given in Section 2.1. "SOLVENT" means with respect to any Borrower, that on a particular date, (a) the fair saleable value of the property of such Borrower (including all tangible and intangible property) is greater than the total amount of liabilities (including unmatured and contingent liabilities) of such Borrower, (b) such Borrower is able to pay its debts, commitments and other liabilities (including unmatured and contingent liabilities) as they mature in the normal course of business, (c) such Borrower does not have an unreasonably small capital, and (d) such Borrower is generally paying its debts as and when such debts become due. "STANDBY LETTER OF CREDIT" means any standby letter of credit issued by Agent pursuant to the terms of Article 9. "STANDBY LETTER OF CREDIT USAGE" means, as of any date of determination, the sum of (i) the aggregate face amount of all outstanding unmatured Standby Letters of Credit issued pursuant to Article 9 PLUS (ii) the aggregate amount of all payments made by Agent under Standby Letters of Credit and not yet reimbursed by Borrowers pursuant to Section 9.4. "SUBSIDIARY" shall mean any corporation directly or indirectly controlled by Borrowers. For the purposes of this definition, "controlled by" shall mean the possession, directly or indirectly of the power to direct or cause the direction of the management and policies of such Subsidiary, whether through the ownership of voting securities, by contract or otherwise. 9 "SUCCESSOR" means, for any corporation or banking association, any successor by merger or consolidation, or by acquisition of substantially all of the assets of the predecessor. "TAX" means, for any person, any tax, assessment, duty, levy, impost or other charge imposed by any Governmental Authority on such person or on any property, revenue, income, or franchise of such person and any interest or penalty with respect to any of the foregoing. "TANGIBLE NET WORTH" means, for Borrowers and Subsidiaries on a consolidated basis, the excess of total assets over total liabilities, but excluding intangible assets. Tangible Net Worth will be determined pursuant to GAAP. "TERM LOAN" means any Term Loan resulting from a conversion of a portion of the revolving loans as described in Section 2.5. "TOTAL COMMITMENT" means $45,000,000. However, Total Commitment will be reduced to $25,000,000 on the earlier of December 31, 1997 or the date that any Borrower receives the net proceeds from the private placement of notes in the amount of at least $20,000,000. "TOTAL REVOLVING LOAN COMMITMENT" means the amount of the Total Commitment less, at any time, the then total Letter of Credit Usage, and less the original amount of any Term Loans. The Total Revolving Loan Commitment will not increase as Term Loans are paid down. "TOTAL UTILIZATION" shall mean, as of any date of determination, the sum of the aggregate amount of all outstanding Revolving Loans, plus the Letter of Credit Usage, and plus the Term Loans, if any. "UNUSED COMMITMENT FEE" shall have the meaning given in Section 2.9(b). "UNUSED COMMITMENT FEE RATE" means an annual rate determined as set forth below depending upon the ratio of Funded Debt to EBITDA. The adjustment will be effective the first day of the month after Agent has received information needed to determine the relevant ratio. However, if such information is not given to Agent within the time required by Section 5.9, Agent may, at its option, adjust the Annual Unused Commitment Fee Rate upwards, if applicable, as of the first day of the month following the date by which such information should have been received. The Unused Commitment Fee Rate in effect upon the date of this Agreement is .175 percent. RATIO AT END OF PRIOR ANNUAL UNUSED FISCAL QUARTER COMMITMENT FEE RATE - -------------------------------------------------------------------------------- 10 Less than 1.5:1 .175% Equal to or greater than 1.5:1 .200% Up to and including 2.25:1 Greater than 2.25:1 .225% "WELFARE PLAN" means an "employee welfare benefit plan" (as such term is defined in ERISA) from time to time maintained by Borrowers or a member of the Controlled Group. Section 1.2 GENERAL PRINCIPLES APPLICABLE TO DEFINITIONS. Definitions given herein shall be equally applicable to both singular and plural forms of the terms therein defined and references herein to "he" or "it" shall be applicable to persons whether masculine, feminine or neuter. References herein to any document including, but without limitation, this Agreement shall be deemed a reference to such document as it now exists, and as, from time to time hereafter, the same may be amended. References herein to a "person" or "persons" shall be deemed to be references to an individual, corporation, partnership, trust, unincorporated association, joint venture, joint-stock company, government (including political subdivisions), Governmental Authority or agency or any other entity. References herein to any article, section, subsection, schedule or exhibit shall, unless otherwise indicated, be deemed a reference to sections and subsections within and schedules and exhibits to this Agreement. Section 1.3 ACCOUNTING TERMS. Except as otherwise provided herein, accounting terms not specifically defined shall be construed, and all accounting procedures shall be performed, in accordance with generally accepted United States accounting principles consistently applied ("GAAP") and as in effect on the date of application. ARTICLE 2 THE LOANS Section 2.1 REVOLVING LOANS. Subject to the terms and conditions of this Agreement, each Lender hereby severally agrees during the period beginning on the date hereof and ending on the Revolving Loan Maturity Date to make revolving loans duly requested hereunder (the "Revolving Loans") to Borrowers in amounts equal to such Lender's Revolving Loan Pro Rata Share of each requested loan PROVIDED that, after giving effect to any requested loan, absent such Lender's consent, the aggregate of all Revolving Loans outstanding from such Lender will not exceed at any one time its Revolving Loan Pro Rata Share of the Total Revolving Loan Commitment. The Revolving Loans described in this Section constitute a revolving credit and within the amount and time specified, Borrowers may pay, prepay and reborrow. 11 Section 2.2 MANNER OF BORROWING. For each requested Loan, Borrowers shall deliver to Agent a Notice of Borrowing specifying the date of a requested Borrowing and the amount thereof. Borrowers may give a Notice of Borrowing on the same day it wishes a Loan to be made, provided said Notice of Borrowing is received by Agent no later than 11:00 a.m. (Seattle time) on the date of the requested borrowing. Each Notice of Borrowing shall be given in writing or orally and promptly confirmed in writing, provided, however, that Agent may rely on any oral Notice of Borrowing even if Agent does not receive a written confirmation. If Borrowers simultaneously elect to have interest accrue on a Revolving Loan at an Offshore Related Rate calculated by reference to LIBOR by giving an Interest Rate Notice described in Section 2.6(b) in respect of such borrowing, the Notice of Borrowing shall be given no later than 11:00 a.m. three Business Days prior to the date of the requested borrowing. Requests for borrowing, or confirmations thereof, received after the designated hour will be deemed received on the next succeeding Business Day. Each such Notice of Borrowing shall be irrevocable and shall be deemed to constitute a representation and warranty by Borrowers that as of the date of such notice the statements set forth in Article 4 are true and correct and that no Default or Event of Default has occurred and is continuing. Agent is authorized to make Loans upon the request of any person authorized in writing by the President or the CEO of the Northwest Pipe Company to make such requests. Each Loan requested by Borrowers under this Section shall be in an amount of not less than $100,000 and an integral multiple of $100,000. On receipt of a Notice of Borrowing, Agent shall promptly notify each Lender by telephone, telex or telefax of the date of the requested borrowing and the amount thereof. Each Lender shall before 1:00 p.m. (Seattle time) on the date of the requested borrowing, pay such Lender's Revolving Loan Pro Rata Share of the aggregate principal amount of the requested borrowing in immediately available funds to Agent at its Commercial Loan Processing Center in Seattle, Washington. Upon fulfillment to Agent's satisfaction of the applicable conditions set forth in Article 3, and after receipt by Agent of such funds, Agent will promptly make such funds available to Borrowers by depositing them to the ordinary checking account maintained by Borrowers with Agent. Section 2.3 AGENT'S RIGHT TO FUND. Unless Agent shall have received notice from a Lender prior to 12:00 Noon (Seattle time) on the date of any requested borrowing that such Lender will not make available to Agent its share of the requested borrowing, Agent may assume that such Lender has made such funds available to Agent on the date such Loan is to be made in accordance with Section 2.2 and Agent may, in reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If and to the extent that such Lender shall not have so made such portion available to Agent, such Lender and Borrowers jointly and severally agree to pay to Agent forthwith on demand such corresponding amount, together with interest thereon for each day from the date such amount is made available to Borrowers until the date such amount is repaid to Agent, at (a) in the case of Borrowers, the Reference Related Rate and (b) in the case of such Lender, the Federal Funds Rate. Any such repayment by Borrowers shall be without prejudice to any rights it may have against the Lender that has failed to make available its funds for any requested borrowing. 12 Section 2.4 REPAYMENT OF PRINCIPAL. (a) On each day that the Total Utilization exceeds the Total Commitment, Borrowers shall repay Revolving Loans in such an amount as is necessary to reduce such Total Utilization to an amount equal to or less than the Total Commitment. If Borrowers shall pay any Offshore Related Rate Loan pursuant to this Section prior to the end of the Applicable Interest Period, Borrowers shall include with such payment any amount payable pursuant to Section 2.7 and applicable to the payment of such Offshore Related Rate Loan prior to the termination of the Applicable Interest Period. (b) Borrowers shall repay the principal amount of the Revolving Loans on or before the Revolving Loan Maturity Date. Section 2.5 OPTIONAL CONVERSION OF UP TO $10,000,000 OF REVOLVING LOANS. On the first day of any month, within 24 months of the date of this Agreement, if at that time, the conditions set forth in Section 3.2 are satisfied, Borrowers may convert a portion of not less than $500,000 of the Revolving Loans in increments of $100,000 to a Term Loan, but Borrowers shall not convert more than a total of $10,000,000 of Revolving Loans to Term Loans. Each such conversion will be accomplished by Borrowers giving written notice to Agent at least 5 business days prior to the date selected by Borrowers for conversion. Such notice will specify what portions of the Term Loan will bear interest at the available alternative rates described in Section 2.6(b). Principal payments on each Term Loan will be paid in 16 equal consecutive quarterly installments with the first principal payment being due at the end of the calendar quarter following conversion. Interest on each Term Loan will be payable monthly in arrears. All then unpaid principal and interest on each Term Loan will be due and payable no later than 48 months following such conversion . Section 2.6 INTEREST ON LOANS. (a) GENERAL PROVISIONS. Borrowers agree to pay to Lenders interest on the unpaid principal amount of each Loan from the date of such Loan until such Loan shall be due and payable at a per annum rate equal to the Applicable Interest Rate in effect from time to time with respect to such Loan (or respective portions thereof). In addition, at Lenders' option, during any period of time while an Event of Default has occurred and is continuing, interest shall accrue and be paid on the unpaid principal amount of each Loan or portion thereof at a per annum rate equal to 3% above the Applicable Interest Rate for such Loan or portion thereof. Accrued but unpaid interest on each Loan or portion thereof shall be paid in arrears on the first business day of each calendar month, and at the applicable maturity date. (b) SELECTION OF ALTERNATIVE RATES. (1) Borrowers may, subject to the requirements of this Section, elect on any Business Day to have interest accrue on any Loan or any portion thereof at an Offshore Related Rate for an Applicable Interest Period. Borrowers may also, subject to the 13 requirements of this Section, elect on any Business Day to have interest accrue on any Term Loan or portion thereof at a Long Term Rate for an Applicable Interest Period. Such notice (herein, an "Interest Rate Notice") shall be deemed delivered when communicated to Agent (in the case of an oral notice) or when received by Agent (in the case of written notice) except that an Interest Rate Notice communicated to or received by Agent after the specified time on any Business Day, shall be deemed to have been delivered or received on the immediately succeeding Business Day. Any oral Interest Rate Notice shall be promptly confirmed in writing, provided, however, that Agent may rely on any oral Interest Rate Notice even if Agent does not receive a written confirmation. Such Interest Rate Notice shall identify, subject to the conditions of this Section, the Loan or portions thereof to accrue interest at the Offshore Related Rate or the Long Term Rate and the Applicable Interest Period which Borrowers select. Any such Interest Rate Notice shall be irrevocable and shall constitute a representation and warranty by Borrower that as of the date of such Interest Rate Notice, the statements set forth in Article 4 are true and correct and that no Default or Event of Default has occurred and is continuing. An Interest Rate Notice specifying a LIBOR rate shall be given before 11:00 a.m. (Seattle time) three Business Days prior to the commencement of the Applicable Interest Period. An Interest Rate Notice specifying an IBOR rate shall be given before 9:00 a.m. (Seattle time) on the date of commencement of the Applicable Interest Period. An Interest Rate Notice specifying a Long Term Rate given at the time of a conversion described in Section 2.5 shall be given concurrently with the notice of conversion after agreement on the rate has been reached, and the rate so agreed upon and specified in the Interest Rate Notice will be effective for the Applicable Interest Period. An Interest Rate Notice specifying a Long Term Rate which is given other than in connection with a conversion described in Section 2.5 shall be given before 9:00 a.m. (Seattle time) on the date of commencement of the Applicable Interest Period. Any Interest Rate Notice which specifies an Offshore Related Rate but fails to identify an Applicable Interest Period shall be deemed to request an Applicable Interest Period of one month. Any Interest Rate Notice which specifies a Long Term Rate but fails to identify an Applicable Interest Period shall be deemed to request an Applicable Interest Period of one year. (2) Borrowers' right to select the Offshore Related Rate or Long Term Rate to apply to a Loan or any portion thereof shall be subject to the following conditions: (i) the aggregate of all Loans, or portions thereof, to accrue interest at a particular Offshore Related Rate or Long Term Rate for the same Applicable Interest Period shall be an integral multiple of $100,000 and not less than $500,000; (ii) no such rate may be selected for any Revolving Loan, or Term Loan, or portion thereof, which is already accruing interest at an Offshore Related Rate or Long Term Rate unless such selection is only to become effective at the maturity of the Applicable Interest Period then in effect; (iii) no Lender shall have given notice pursuant to Section 2.6(d) that the selected Offshore Rate or Long Term Rate is not available; and (iv) no Default or Event of Default shall have occurred and be continuing. (3) In the absence of an effective request for the application of an Offshore Related Rate or Long Term Rate, the Revolving Loans, Term Loans or remaining portions thereof shall accrue interest at the Reference Related Rate. 14 (4) The Interest Rate Notice may be given with and contained in any Notice of Borrowing. (5) If Borrowers deliver an Interest Rate Notice with any Notice of Borrowing for a Loan and Borrowers thereafter declines to take such Loan or a condition precedent to the making of such Loan is not satisfied or waived, Borrowers shall indemnify Agent and each Lender for all losses and any costs which Agent or any Lender may sustain as a consequence thereof including, without limitation, the costs of re-employment of funds at rates lower than the cost to Lenders of such funds. Payment of the amount owed shall be due within fifteen (15) days after Borrowers' receipt of Agent's statement calculating the sum due. (c) APPLICABLE DAYS FOR COMPUTATION OF INTEREST. Computations of interest shall be made on the basis of a year of 360 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. (d) UNAVAILABLE OFFSHORE RELATED RATE OR LONG TERM RATE. If any Lender reasonably determines that for any reason, fair and adequate means do not exist for establishing a particular Offshore Related Rate or Long Term Rate, or that an Offshore Related Rate or Long Term Rate will not adequately and fairly reflect the cost to it of making or maintaining the principal amount of a particular Offshore Related Rate Loan or Long Term Rate Loan or that accruing interest on any Offshore Related Rate Loan or Long Term Rate Loan has become unlawful or is contrary to any internal policies (of general application), such Lender may give notice of that fact to Agent and Borrowers. After such notice has been given and until such Lender notifies Borrowers and Agent that the circumstances giving rise to such notice no longer exist, the interest rate or rates so identified in such notice shall no longer be available. Any subsequent request by Borrowers to have interest accrue at such an Offshore Related Rate or Long Term Rate, as the case may be, shall be deemed to be a request for interest to accrue at the Reference Related Rate. If the circumstances giving rise to the notice described herein no longer exist, the Lender who had previously given notice of the unavailability of rate(s) shall notify Agent and Borrowers in writing of that fact, and Borrowers shall then once again become entitled to request that such Offshore Related Rate or Long Term Rate apply to the Loans in accordance with Section 2.6(b). (e) COMPENSATION FOR INCREASED COSTS. In the event that after the date hereof any change occurs in any applicable law, regulation, treaty or directive or interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof, or any condition is imposed by any Governmental Authority after the date hereof or any change occurs in any condition imposed by any Governmental Authority on or prior to the date hereof which: (1) subjects any Lender to any Tax (other than any Tax measured by such Lender's net or gross income), or changes the basis of taxation of any payments to any 15 Lender on account of principal of or interest on any Offshore Related Rate Loan or Long Term Rate Loan or fees in respect of such Lender's obligation to make Long Term Rate Loans or Offshore Related Rate Loans or other amounts payable with respect to such Loans; or (2) imposes, modifies or determines applicable any reserve, deposit or similar requirements against any assets held by, deposits with or for the account of, or loans or commitments by, the relevant office of any Lender in connection with its Long Term Rate Loans or Offshore Related Rate Loans to the extent the amount of which is in excess of, or was not applicable at the time of computation of, the amounts provided for in the definition of such Long Term Rate or Offshore Related Rate; or (3) affects the amount of capital required or expected to be maintained by banks generally or corporations controlling banks and any Lender determines that the amount by which it or any corporation controlling it is required or expected to maintain or increase its capital is increased by, or based upon, the existence of this Agreement or of any Lender's Loans or Commitments hereunder; (4) imposes upon any Lender any other condition with respect to its Offshore Loans or its obligation to make Long Term Rate or Offshore Related Rate Loans; which, as a result thereof, (i) increases the cost to any Lender of making or maintaining its Loans or its Commitments hereunder, or (ii) reduces the net amount of any payment received by any Lender in respect of its Long Term Rate Loans or Offshore Related Rate Loans (whether of principal, interest, commitment fees or otherwise), or (iii) requires any Lender to make any payment on or calculated by reference to the gross amount of any sum received by it in respect of its Long Term Rate or Offshore Related Rate Loans, in each case by an amount which any such Lender in its reasonable judgment deems material, then and in any such case Borrowers shall pay to Agent for the account of such Lender on demand such amount or amounts as will compensate such Lender for any increased cost, deduction or payment actually incurred or made by such Lender, PROVIDED, HOWEVER, Borrowers shall not be obligated for amounts hereunder unless, within 60 days after learning thereof any such Lender shall have advised Borrowers of the subjection, change, requirement or other condition forming the basis for such Lender's request for additional payment hereunder. If Borrowers are advised of any such subjection, change, requirement or other condition prior to the expiration of an Applicable Interest Period for any Long Term Rate Loan or Offshore Related Rate Loan, Borrowers may elect to prepay the Long Term Rate Loan or Offshore Related Rate Loan, as applicable, without penalty or premium if such prepayment would reduce or eliminate the amounts which Borrowers would otherwise be obligated to pay any Lender under the terms of this Section. The demand for payment by any Lender shall be delivered to both Agent and Borrowers and shall state the subjection or change which occurred or the reserve or deposit requirements or other conditions which have been imposed upon such Lender or the request, direction or requirement with which it has complied, together with the date thereof, the amount of such cost, reduction or payment and the manner in which such amount has been calculated. 16 The protection of this Section shall be available to each Lender regardless of any possible contention of invalidity or inapplicability of the relevant law, regulation, treaty, directive, condition or interpretation thereof. In the event that Borrowers pay any Lender the amount necessary to compensate such Lender for any charge, deduction or payment incurred or made by such Lender as provided in this Section, and such charge, deduction or payment or any part thereof is subsequently returned to such Lender as a result of the final determination of the invalidity or inapplicability of the relevant law, regulation, treaty, directive or condition, then such Lender shall remit to Borrowers the amount paid by Borrowers which has actually been returned to such Lender (together with any interest actually paid to such Lender on such returned amount), less such Lender's costs and expenses incurred in connection with such governmental regulation or any challenge made by such Lender with respect to its validity or applicability. Section 2.7 PREPAYMENTS. Reference Related Rate Loans may be repaid at any time without penalty or premium. Except as provided in Section 2.6(e), if an Offshore Related Rate Loan or Long Term Rate Loan is paid prior to the end of the Applicable Interest Period, a fee computed in the manner set out in Schedule 1 shall be assessed and paid at the time of such payment. Such fee shall be calculated by Agent. Except as provided in Section 2.6(e), such fee shall apply in all circumstances where an Offshore Related Rate Loan or Long Term Rate Loan is paid prior to the end of the Applicable Interest Period, regardless of whether such payment is voluntary, mandatory (including, without limitation, payments required pursuant to Section 2.4) or the result of Agent's or any Lender's collection efforts. Section 2.8 MANNER OF PAYMENTS. (a) Agent is authorized to deduct all interest and all other fees and expenses due from any of Borrowers' checking accounts maintained with Agent. If such payments are not taken from Borrowers' checking accounts, all payments and prepayments of principal and interest on any Loan and all other amounts payable hereunder by Borrowers to Agent or any Lender shall be made by paying the same in United State Dollars and in immediately available funds to Agent at its Commercial Loan Processing Center, Seattle, Washington not later than 12:00 Noon (Seattle time) on the date on which such payment or prepayment shall become due. (b) Borrowers hereby authorizes Agent and each Lender, if and to the extent any payment is not promptly made pursuant to this Agreement or any other Loan Document, to charge from time to time against any or all of the accounts of Borrowers with Agent or any Lender or any Affiliate of any Lender any amount due hereunder or under such other Loan Document. (c) Whenever any payment hereunder or under any other Loan Document shall be stated to be due would otherwise occur on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. In the case of an Offshore Loan or Long Term Base Loan, whenever the last day of any Applicable Interest Period would otherwise 17 occur on a day other than a Business Day, the last day of such Applicable Interest Period shall occur, on the next succeeding Business Day and such extension of time shall in such case be included in the computation and payment of interest, UNLESS, such extension would cause the last day of such Applicable Interest Period to occur in the next following calendar month, in which case the last day of such Applicable Interest Period shall occur, on the preceding Business Day and the calculation of interest will be adjusted accordingly. Section 2.9 FEES. (a) Borrowers agree to pay Bank of America, the sole Lender on the date hereof a loan initiation fee of $28,750. (b) Borrowers agree to pay Agent for the account of Lenders in proportion to their respective Revolving Loan Pro Rata Shares an Unused Commitment Fee. This fee will be payable quarterly in arrears commencing December 31, 1997, and will be computed by multiplying the Unused Commitment Fee Rate, based upon a 360-day year by the daily amount by which the Total Revolving Loan Commitment exceeds the aggregate of the Revolving Loans. Section 2.10 SHARING OF PAYMENTS, ETC. If any Lender shall obtain any payment in respect of Borrowers' obligations under the Loan Documents (whether voluntary or involuntary, through the exercise of any right of set off or otherwise) in excess of the amount it would have received if all payments had been made directly to Agent and apportioned in accordance with the terms hereof, such Lender shall hold such excess payment in trust for Agent and Lenders and shall forthwith remit the same to Agent for Agent's Lenders' accounts as herein provided. Section 2.11 APPLICATION OF PAYMENTS. Any payment made by Borrowers in respect of amounts owing by them under any of the Loan Documents, in the absence of a continuing Event of Default shall be applied in the manner directed by Borrowers, and in the absence of such direction shall be applied as follows: (a) FIRST, to fees, expenses and indemnities due under any Loan Document; (b) SECOND, to interest due under provision of any Loan Document; (c) THIRD, to any principal payment then due under any Loan; (d) FOURTH, to prepay the principal amount of any Reference Rate Related Loan then outstanding but not yet due; and (e) FIFTH, to prepay the principal amount of any Offshore Related Rate Loan or Long Term Base Rate Related Loan then outstanding but not yet due. 18 Any payments made by Borrowers on the Loans or received for Borrowers' account and from any source after the occurrence and during the continuation of an Event of Default shall be applied as follows: (a) FIRST, to fees, expenses and indemnities due under any Loan Document; (b) SECOND, to interest due under provision of any Loan Document; (c) THIRD, to any principal payment then due under any Loan; (d) FOURTH, to any liability of Borrowers under any Reimbursement Agreement or pursuant to Section 9.4. (e) FIFTH, to prepay the principal amount of any Reference Rate Related Loan then outstanding, whether or not due; (f) SIXTH, to prepay the principal amount of any Offshore Related Rate Loan or Base Rate Related Loan then outstanding, whether or not due; and (g) SEVENTH, as cash collateral security for Borrowers' obligations in respect of unmatured and unreimbursed Letters of Credit. ARTICLE 3 CONDITIONS TO LOANS Section 3.1 CONDITIONS TO INITIAL LOANS. In addition to the conditions set forth in Section 3.2, the obligation of each Lender to make its initial Loan and the obligation of Agent to issue any Letter of Credit is subject to fulfillment of the following conditions: (a) LOAN DOCUMENTS. Agent shall have received the Loan Documents, each been duly executed and delivered by Borrowers and the other parties thereto, and shall be satisfactory to Agent and each Lender in form and substance. (b) BORROWER AUTHORITY. Agent shall have received in form and substance satisfactory to it (i) a copy of a resolution adopted by the Board of Directors of Borrowers authorizing the execution, delivery and performance of this Agreement and the other Loan Documents certified by the Secretary of Borrowers; (ii) evidence of the authority and specimen signatures of the persons who have signed this Agreement and the other Loan Documents; (iii) Certificate of Existence or Certificate of Good Standing dated as of a recent date issued by the Secretary of State of each of the states where a Borrower is incorporated; and (iv) such other evidence of corporate authority as Agent shall reasonably require. (c) LEGAL OPINION. Agent on behalf of each Lender shall have received the 19 legal opinion of the law firm of Ater Wynne Hewitt Dodson & Skerritt, L.L.P., as counsel to Borrowers, substantially in the form attached as Exhibit 3.1 and dated as of the date hereof. (d) OFFICER'S CERTIFICATE. Agent shall have received a certificate of Borrowers' chief financial officer or president as to the accuracy of Borrowers' representations and warranties set forth in Article 4 and as to the absence of any Default or Event of Default. (e) OTHER INFORMATION. Agent shall have received such other statements, opinions, certificates, documents, undertakings and information with respect to the matters contemplated by this Agreement and the other Loan Documents as any Lender may reasonably request. (f) FEES. Agent shall have received payment from Borrowers of the fees described in Section 2.9(a). (g) EQDS. Agent shall have received from Borrowers a completed Environmental Questionnaire and Disclosure Statement and is satisfied with it. (h) MATERIAL ADVERSE CHANGE. There has been no material adverse change in the operations, business, or condition, including financial condition of the Borrowers and their Subsidiaries, taken as a whole since June 30, 1997. Section 3.2 CONDITIONS TO LOANS. The obligation of Lender to make any Loan hereunder, and the obligation of Agent to issue any Letters of Credit are subject to the fulfillment of the following conditions: (a) PRIOR CONDITIONS. All of the conditions set forth in Section 3.1 shall have been satisfied. (b) NOTICE OF BORROWING. Agent shall have received the Notice of Borrowing in respect of such Loan. (c) NO DEFAULT. At the date of the Loan, no Default or Event of Default shall have occurred and be continuing or will have occurred as the result of the making of the Loan; and the representations and warranties of Borrowers in Article 4 shall be true on and as of such date with the same force and effect as if made on and as of such date. (d) OTHER INFORMATION. Agent and each Lender shall have received such other statements, opinions, certificates, documents and information as it may reasonably request in order to satisfy itself that the foregoing conditions have been fulfilled. ARTICLE 4 20 REPRESENTATIONS AND WARRANTIES Borrowers represent and warrant as follows: Section 4.1 CORPORATE EXISTENCE AND POWER. Northwest Pipe Company is a corporation duly incorporated and validly existing under the laws of the State of Oregon. Thompson Pipe and Steel Company is a corporation duly incorporated and validly existing under the laws of the State of Colorado and is a wholly owned subsidiary of Northwest Pipe Company. Thompson Steel Pipe Company is a corporation duly incorporated and validly existing under the laws of the State of Delaware and is a wholly owned subsidiary of Thompson Pipe and Steel Company. Borrowers are duly qualified to do business in each other jurisdiction where the nature of their activities or the ownership of their properties requires such qualification, except to the extent that failure to be so qualified does not have a material adverse effect on its business, operations or financial condition. Borrowers have full corporate power and authority to carry on their business as presently conducted, to own and operate their properties and assets, and to execute, deliver and perform the Loan Documents. Except as described in this section, no Borrower has any Subsidiary. Section 4.2 CORPORATE AUTHORIZATION. The execution, delivery and performance by Borrowers and their Subsidiaries of the Loan Documents and any borrowing thereunder, has been duly authorized by all necessary corporate action, and does not require any shareholder approval or the approval or consent of any trustee or the holders of any Funded Indebtedness of Borrowers except such as have been obtained (certified copies thereof having been delivered to Agent), does not contravene any law, regulation, rule or order binding on them or their Articles of Incorporation or Bylaws and does not contravene the provisions of or constitute a default under any indenture or any material mortgage, contract or other agreement or instrument to which Borrowers or any of their Subsidiaries are a party or by which Borrowers or any of their Subsidiaries, or any of their properties, may be bound or affected. Section 4.3 GOVERNMENT APPROVALS, ETC. No Government Approval or filing or registration with any Governmental Authority is required for the making and performance by Borrowers of the Loan Documents or in connection with any of the transactions contemplated hereby or thereby, except such as have been heretofore obtained and are in full force and effect (certified copies thereof having been delivered to Agent), or except such approvals, filings or registrations, the absence of which would not have a material adverse effect on the business of Borrowers. Section 4.4 BINDING OBLIGATIONS, ETC. This Agreement has been duly executed and delivered by Borrowers and constitutes, and the other Loan Documents when duly executed and delivered by Borrowers will constitute, the legal, valid and binding obligations of Borrowers enforceable against Borrowers in accordance with their respective terms except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by the exercise of judicial discretion in accordance with general principles of equity. 21 Section 4.5 LITIGATION. Except as described on Schedule 4.5, there are no actions, proceedings, investigations, or claims against or affecting Borrowers or their Subsidiaries now pending before any court, arbitrator or Governmental Authority, which, if determined adversely to Borrowers or any Subsidiary, would be likely to have a material adverse effect on the Borrowers or any Subsidiary, or which seeks a judgment in excess of $500,000 which is not fully insured. Also, Borrowers do not have knowledge that any of the foregoing have been threatened or that a basis for any of the foregoing exists. Section 4.6 FINANCIAL CONDITION. The consolidated balance sheet of Borrowers and their Subsidiaries as at June 30, 1997, and the related statements of income and retained earnings of Borrowers and their Subsidiaries for the fiscal year then ended, copies of which have been furnished to Agent and Lenders, fairly present the consolidated financial condition of Borrowers and their Subsidiaries as at such date and the consolidated results of operations of Borrowers for the period then ended, all in accordance with GAAP. Neither Borrowers nor their Subsidiaries had on such date any material contingent liabilities, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in that balance sheet and in the notes to those financial statements and since that date there has been no material adverse change in the financial condition or operations of Borrowers or their Subsidiaries. Section 4.7 TITLE, LIENS AND ENVIRONMENTAL MATTERS. Borrowers or their Subsidiaries have good and marketable title to each of the properties and assets reflected on the financial statements described in Section 4.6 (except such as have been since sold or otherwise disposed of in the ordinary course of business). No assets or revenues of Borrowers or their Subsidiaries are subject to any material Lien except as required or permitted by this Agreement, disclosed in the financial statements described in Section 4.6 or otherwise disclosed to the Agent in writing prior to the date of this Agreement. Except as set forth in Schedule 4.7, to the best of Borrowers' knowledge, all properties of Borrowers and their Subsidiaries, and their use thereof comply in all material respects with applicable zoning and use restrictions and with applicable laws and regulations relating to the environment. Except as disclosed in Schedule 4.7, to the best of Borrowers' knowledge, there are no past or present events, conditions, circumstances, activities, practices, incidents or actions at or in connection with any of the realty or other premises owned, leased, operated, used or held at any time by Borrowers or their subsidiaries which could reasonably be expected to interfere with or prevent the continued material compliance with any laws or regulations relating to underground storage tanks or any other Environmental Laws or give rise to any material legal liability or otherwise form the basis of any claim, action, suit, proceedings, hearings or investigation against or affecting Borrowers in a material way under the Environmental Laws. Neither Borrowers nor their Subsidiaries have commissioned or otherwise come to possess any environmental audit or report concerning such premises or any portion thereof except such as have been disclosed to Lenders prior to the date hereof. Section 4.8 TAXES. Borrowers and their subsidiaries have filed all tax returns and reports required of them, have paid all Taxes which are shown to be due and payable on such 22 returns and reports, or have provided adequate reserves for payment all contested Tax payments. The charges, accruals and reserves on the books of Borrowers in respect of Taxes for all fiscal periods to date are accurate in all material respects and there are no material questions or disputes between Borrowers and any Governmental Authority with respect to any Taxes except as disclosed in the balance sheet referred to in Section 4.6 or otherwise disclosed to Agent in writing prior to the date of this Agreement. Section 4.9 LAWS, ORDERS, OTHER AGREEMENTS. Neither Borrowers nor any of their Subsidiaries is in violation of or subject to any contingent liability on account of any laws, statutes, rules, regulations and orders of any Governmental Authority, except for violations which in the aggregate do not have a material adverse effect on the business, operations or financial condition of Borrowers or such Subsidiary. Neither Borrowers nor any of their Subsidiaries is in material breach of or default under any material agreement to which it is a party or which is binding on it or any of its assets. Section 4.10 FEDERAL RESERVE REGULATIONS. Borrowers are not engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Federal Reserve Regulation U), and no part of the proceeds of any Loan will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any other purpose that violates the applicable provisions of any Federal Reserve Regulation. Borrowers will furnish to any Lender on request a statement conforming with the requirements of Regulation U. Section 4.11 ERISA. (a) No Employee Plan or trust created thereunder, or any trustee or administrator thereof, has engaged in a "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) which could subject such Employee Plan or any other Employee Plan, any trust created thereunder, or any trustee or administrator thereof, or any party dealing with any Employee Plan or any such trust to any material tax or penalty on prohibited transactions imposed by Section 502 of ERISA or Section 4975 of the Code. (b) Each Employee Plan has been operated in material compliance with its terms and applicable provisions of ERISA and the Code. Each Pension Plan intended to qualify under Section 401(a) of the Code has obtained (or is in the process of obtaining) a favorable determination letter from the IRS. (c) Except for underfunding revealed on Schedule B of 1996 IRS Form 5500, for both the Thompson Pipe & Steel Company Union Pension Plan and the Thompson Pipe & Steel Company Retirement Plan, (i) there is no "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code) with respect to any Employee Plan; (ii) no event has occurred, or is threatened or about to occur, that would constitute a 23 "reportable event" within the meaning of Section 4043(b) of ERISA; (iii) neither Borrowers nor any Affiliate have incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC"), except for the payment of premiums, which have been paid on a timely basis; (iv) with respect to any Employee Plan subject to Title IV of ERISA, such plan could be terminated as of the date of this Agreement without Borrowers incurring any liability under Title IV of ERISA, and all benefits accrued up to the date of this Agreement (whether or not vested) would be fully funded in accordance with the actuarial assumptions and methods utilized by such Employee Plan for valuation purposes; and (v) with respect to any Employee Plans that are "multiemployer plans" under Section 3(37) of ERISA, (1) neither Borrowers nor any Affiliate have incurred any withdrawal liability within the meaning of Section 4201 of ERISA, or had such liability asserted, (2) no such Employee Plan is in reorganization (under Section 4241(a) of ERISA), and (3) the vested and accrued liabilities of the Employee Plans are fully funded and if Borrowers or Affiliates were to withdraw from such plans, there would be no withdrawal liability, as defined in Title IV, subtitle E of ERISA. Section 4.12 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING COMPANY. Borrowers are not (a) an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended; or (b) a "holding company" or a "subsidiary company" of a "holding company" or an "Affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 4.13 SOLVENCY. Each Borrower is Solvent and shall be Solvent immediately after the consummation of the transactions contemplated by this Agreement. Borrowers are not incurring the obligations contemplated by this Agreement for the purposes of hindering or delaying or defrauding their respective present or future creditors. SECTION 4.14 REPRESENTATIONS AS A WHOLE. This Agreement, the other Loan Documents, the financial statements referred to in Section 4.6, and all other instruments, documents, certificates and statements furnished to Agent and Lenders by Borrowers, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained herein or therein not misleading. Without limiting the foregoing, each of the representations and warranties made by Borrowers in the other Loan Documents is true and correct on and as of the date when made, on and as of the date hereof, and on and as of each date this representation is deemed made hereunder with the same force and effect as if made on and as of such dates. ARTICLE 5 AFFIRMATIVE COVENANTS So long as Agent or any Lender shall have any Commitment hereunder or there shall be any outstanding Letters of Credit and until payment in full of each Loan and performance of all other obligations of Borrowers under this Agreement and the other Loan 24 Documents, Borrowers agree to do all of the following unless the Majority Lenders shall otherwise consent in writing. Section 5.1 USE OF PROCEEDS FROM LOANS/USE OF LETTERS OF CREDIT. The proceeds of the Loans will be used to repay existing secured debt, to finance accounts receivable and inventory of Borrowers and their Subsidiaries and in connection with the general corporate requirements incurred in the ordinary course of Borrowers' business. The Letters of Credit will be used to replace existing letters of credit supporting Caldwell County, Kentucky and "KREDA" industrial revenue bonds, or general corporate purposes. Section 5.2 PRESERVATION OF CORPORATE EXISTENCE, ETC. Borrowers will, and will cause their Subsidiaries to, preserve and maintain their corporate existence, rights, franchises and privileges in the jurisdictions of their incorporation and will, and will cause their Subsidiaries to, qualify and remain qualified as foreign corporations in each jurisdiction where qualification is necessary in view of their business and operations or the ownership of their properties. Section 5.3 VISITATION AND EXAMINATION RIGHTS. At any reasonable time, and from time to time, Borrowers will, and will cause each Subsidiary, to permit Agent and Lenders to examine and make copies of and abstracts from the records and books of account of and to visit the properties of Borrowers and each Subsidiary and to discuss the affairs, finances and accounts of Borrowers and each Subsidiary with any of its officers or directors. Section 5.4 KEEPING OF BOOKS AND RECORDS. Borrowers will keep adequate records and books of account in which complete entries will be made, in accordance with GAAP, reflecting all financial transactions of Borrowers and their Subsidiaries. Section 5.5 MAINTENANCE OF PROPERTY, ETC. Borrowers will maintain and preserve and will cause each Subsidiary to maintain and preserve all of their respective properties in reasonably good working order and condition, ordinary wear and tear excepted, and will from time to time make all needed repairs, renewals and replacements so that the efficiency of such properties shall be fully maintained and preserved. Section 5.6 COMPLIANCE WITH LAWS, ETC. Borrowers will comply and will cause each Subsidiary to comply in all material respects with all laws, regulations, rules, and orders of Governmental Authorities, including without limitation, Environmental Laws applicable to Borrowers or any Subsidiary or to their respective operations or property, except any thereof whose validity is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof. Section 5.7 OTHER OBLIGATIONS. Borrowers will pay and discharge and cause each Subsidiary to pay and discharge before the same shall become delinquent all material Funded Debt, Taxes and other material obligations for which either Borrowers or any Subsidiary is liable or to which their income or property is subject and all material claims for labor and 25 materials or supplies which claims if unpaid might become by law a Lien upon assets of either Borrowers or any Subsidiary. However, Borrowers and Subsidiaries may refuse to pay any item described above whose validity or amount is being contested in good faith by a Borrowers or Subsidiary in appropriate proceedings with provision having been made to the satisfaction of Agent for the payment thereof in the event the contest is determined adversely to such Borrowers or such Subsidiary. Section 5.8 INSURANCE. Borrowers will keep in force and will cause each Subsidiary to keep in force upon all of their respective properties and operations policies of insurance carried with responsible companies in such amounts and covering all such risks as shall be customary in the industry and reasonably satisfactory to Agent. Section 5.9 FINANCIAL INFORMATION. Borrowers will deliver to Agent in sufficient copies for distribution to Agent and each Lender: (a) ANNUAL 10-K AND ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS. As soon as available, and in any event within 105 days after the end of each fiscal year of Northwest Pipe Company the Annual Report and 10-K report of Northwest Pipe Company. Unless already included within the annual report and 10-K report, Borrowers will deliver to Agent, as soon as available, in any event within 105 days after the end of each fiscal year of Borrowers, the consolidated balance sheet of Borrowers and their Subsidiaries as of the end of such fiscal year and the related consolidated statements of income and retained earnings and statement of changes in financial position of Borrowers and their Subsidiaries for such fiscal year, accompanied by the audit report thereon by independent certified public accountants selected by Borrowers and reasonably satisfactory to Agent (which reports shall be prepared in accordance with GAAP and shall not be qualified by reason of restricted or limited examination of any material portion of the records of Borrowers or any Subsidiary and shall contain no disclaimer of opinion or adverse opinion except such as Agent in its sole discretion determines to be immaterial). (b) ANNUAL CONSOLIDATING STATEMENTS. As soon as available, and in any event within 105 days after the end of each fiscal year of Northwest Pipe Company, a copy of the unaudited division and product line consolidating income statements of the Borrowers and Subsidiaries as of the end of such year. (c) QUARTERLY 10-Q REPORT, UNAUDITED FINANCIAL STATEMENTS AND CONSOLIDATING STATEMENTS. As soon as available and in any event within 60 days after the end of each fiscal quarter, except for fiscal year end, the 10-Q report of Northwest Pipe Company. Unless already included within the 10-Q report, Borrowers will deliver to Agent, as soon as available, and in any event within 60 days after the end of each such fiscal quarter, the unaudited consolidated balance sheet and statement of income of Borrowers and their Subsidiaries as of the end of such quarter. At the same time, Borrowers shall deliver to Agent the division and product line consolidating income statements of Borrowers and their Subsidiaries as of the end of such fiscal quarter. The statements required in this subsection 26 shall be accompanied by a certificate of the chief financial officer of Borrowers certifying that the balance sheets and statements required in this subsection have been prepared in accordance with GAAP and present fairly the financial position and results of Borrowers and each Subsidiary, and that there has been no material adverse change in the financial condition or operations of Borrowers and their Subsidiaries as shown on the balance sheet as of such date. (d) QUARTERLY COMPLIANCE REPORTS. Within 60 days after the end of each of the first three fiscal quarters and within 105 days of Borrowers' fiscal year end, a certificate of the chief financial officer of Borrowers, that as of the close of such fiscal quarter or fiscal year no Event of Default had occurred, and was continuing, and that as of such date, Borrowers were in compliance with the provisions of Sections 5.12, 5.13 and 5.14. Such certificate shall show Borrowers' calculations with respect to Sections 5.12, 5.13 and 5.14. (e) FINANCIAL FORECAST AND BUDGET. As soon as available, and in any event within 90 days after the end of each fiscal year of Borrowers, a budget and a financial forecast forecasting the results of operations for the ensuing fiscal year in form satisfactory to Agent. Such budget and financial forecast will be in quarterly format and include both income and balance sheet forecasts. (f) OTHER. All other statements, reports and other information as Agent or any Lender may reasonably request concerning the financial condition and business affairs of Borrowers and their Subsidiaries. Section 5.10 NOTIFICATION. Promptly after learning thereof, Borrowers shall notify Agent of: (a) any action, proceeding, investigation or claim against or affecting Borrowers or any of their Subsidiaries instituted before any court, arbitrator or Governmental Authority or, to Borrowers' knowledge, threatened to be instituted, which might reasonably be determined adversely to Borrowers or any Subsidiary and which, if determined adversely, would be likely to have a material adverse effect on Borrowers or any Subsidiary, or which seeks a judgment exceeding $500,000, which is not fully insured; (b) any substantial dispute between either Borrowers or any Subsidiary and any Governmental Authority; (c) any labor controversy which has resulted in or, to Borrowers' knowledge, threatens to result in a strike which would materially affect the business operations of Borrowers or any Subsidiary; and (d) the occurrence of any Event of Default or Default. In the case of the occurrence of an Event of Default or Default, Borrowers will deliver to 27 Agent an Officer's Certificate specifying the nature thereof, the period of existence thereof, and what action Borrowers propose to take with respect thereto. Section 5.11 ADDITIONAL PAYMENTS; ADDITIONAL ACTS. From time to time, Borrowers will: (a) pay or reimburse Agent and Lenders on request for all Taxes (other than Taxes imposed on the net or gross income of Agent or Lenders) imposed on any Loan Document or payment and for all reasonable expenses, including legal fees, incurred by Agent in connection with the preparation of the Loan Documents or the making or administrating of the Loans or the issuance of any letter of credit; (b) pay or reimburse Agent and any Lender for all reasonable expenses, including legal fees, incurred by Agent or any Lender in connection with the enforcement by judicial proceedings of any of the rights of Agent or any Lender under the Loan Document, in which Lender or Agent prevails; (c) obtain and promptly furnish to Agent evidence of all such Government Approvals as may be required to enable Borrowers to comply with its obligations under the Loan Documents and to continue in business as conducted on the date hereof without material interruption or interference; and (d) execute and deliver all such instruments and perform all such other acts as Agent or any Lender may reasonably request to carry out the transactions contemplated by the Loan Documents. Section 5.12 MINIMUM DEBT SERVICE COVERAGE RATIO. Borrowers, and their Subsidiaries, on a consolidated basis, shall maintain a minimum debt service coverage ratio of not less than 2.0:1. The minimum debt service coverage ratio will be computed by dividing: (a) EBITDA, less (b) income taxes paid in cash, (c) less dividends paid in cash by the sum of: (a) current portion of long term debt, plus (b) interest expense, plus 28 (c) current portion of capital leases The minimum debt service coverage ratio will be based upon the then ended fiscal quarter plus the preceding three fiscal quarters. The current portion of long term debt, including the current portion of capital leases, will be measured as of the last day of the preceding fiscal year. Section 5.13 MAXIMUM FUNDED DEBT TO EBITDA. Borrowers and their Subsidiaries, on a consolidated basis, shall maintain for each period of four consecutive fiscal quarters a ratio of Funded Debt to EBITDA of no greater than:
PERIOD RATIO From the date of this Agreement through, 3.0:1 and including the four fiscal quarters ending June 30, 1999 For the four consecutive fiscal quarters 2.75:1 ending September 30, 1999 and thereafter
Section 5.14 MINIMUM TANGIBLE NET WORTH. Borrowers, and their Subsidiaries, on a consolidated basis shall have a minimum Tangible Net Worth equal to or greater than the sum of: (a) $58,000,000, plus (b) 70% of the cumulative Net Income of Borrowers and their Subsidiaries for all fiscal quarters ending after June 30, 1997 in which such Net Income was greater than zero, plus (c) 90% of the amount by which the shareholders' equity of Borrowers and their Subsidiaries has increased after June 30, 1997 solely as a result of the issuance of common or preferred stock or the conversion of debt securities into such stock. ARTICLE 6 NEGATIVE COVENANTS So long as Agent or any Lender shall have any Commitment hereunder or there shall be any outstanding Letter of Credit and until payment in full of each Loan and performance of all other obligations of Borrowers under this Agreement and the other Loan Documents, Borrowers agree that it will not do any of the following unless the Majority Lenders shall 29 otherwise consent in writing. Section 6.1 RESTRICTION ON BORROWINGS, CAPITAL LEASES AND CONTRACT PURCHASES. Borrowers shall not and shall not permit any Subsidiary to borrow money, enter into capital leases or enter into contracts to purchase any item on deferred payments in any fiscal year if the total of such borrowings, leases and contracts exceeds 3.5% of Borrowers' Tangible Net Worth in existence at the end of Borrowers' prior fiscal year. This restriction shall not apply to the issuance by Northwest Pipe Company of up to $35,000,000 in private placement notes or to the Loans, or the Letters of Credit described in Articles 9 and 10. Section 6.2 LIQUIDATION, MERGER, SALE OF ASSETS. Borrowers shall not, and shall not permit any Subsidiary to liquidate, dissolve or enter into any merger, consolidation, partnership or other combination, except that Thompson Pipe and Steel Company and/or Thompson Steel Pipe Company may be merged into Northwest Pipe Company and, except that Borrowers may make acquisitions by merger, as provided in Section 6.6 when Northwest Pipe Company is the survivor. Borrowers shall not sell, lease, or dispose of assets other than in the ordinary course of business, except that Borrowers in any one fiscal year may sell assets not in the ordinary course of business so long as the total of such sales does not exceed 20% of Tangible Net Worth as of the end of the prior fiscal year. In addition, Borrowers' existing facilities in the State of Kentucky may be sold and such sale will not be considered in applying the 20% of Tangible Net Worth restriction set forth in this Section. Section 6.3 RESTRICTIONS ON LIENS - NEGATIVE PLEDGE. Borrowers shall not, and shall not permit any Subsidiary to create or suffer any Liens upon their property except for liens securing the letter of credit facility described in Article 10. New Liens securing amounts not exceeding $500,000 in any one fiscal year are permitted. In addition, new liens secured by newly purchased tangible property are permitted subject, however, to the limits described in Section 6.1. Section 6.4 GUARANTIES, ETC. Borrowers shall not, and shall not permit any Subsidiary to assume, guaranty, endorse or otherwise become directly or contingently liable for, nor obligated to purchase, pay or provide funds for payment of, any obligation of any other Person, other than (a) by endorsement of negotiable instruments for deposit or collection or by similar transactions in the ordinary course of business. Notwithstanding the foregoing restriction, any Borrower may guaranty the obligation of any other Borrower. Section 6.5 RESTRICTIONS ON LOANS AND ADVANCES. Borrowers shall not, and shall not permit any Subsidiary to make any loan or advance to any officer, director, employee or Affiliate, except for advances for travel or other expenses in the ordinary course of business so long as the total of all advances and loans outstanding at any one time do not exceed $500,000. Section 6.6 RESTRICTION ON ACQUISITIONS. Borrowers shall not and shall not permit any Subsidiary to acquire any business without Agent's prior review and consent if the total 30 of all business acquisitions in any one fiscal year exceeds 20% of Tangible Net Worth as of the end of the prior fiscal year. For purposes of 20% limitation above, acquisitions accomplished by merger shall be valued at the fair value of all consideration given, including, without limitation, cash, notes, assumption of debt and stock. In addition, Borrowers shall not and shall not permit any Subsidiary to acquire any business if such acquisition is not approved by the board of directors of the company owning such business or is deemed by Agent to involve a hostile takeover. Section 6.7 CHANGE IN BUSINESS. Borrowers shall not, and shall not permit any Subsidiary to enter into a new business of substantial size which is unrelated to Borrowers' present business. Section 6.8 ERISA COMPLIANCE. Borrowers will not, and will not permit any member of the Controlled Group nor any Employee Plan to: (a) engage in any "prohibited transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of the Code) which could result in a material liability to Borrowers; (b) violate state or federal securities laws applicable to any Employee Plan in any material respect; or (c) take any action that renders the representations of Section 4.11 of this Agreement inaccurate. ARTICLE 7 EVENTS OF DEFAULT Section 7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "Event of Default" hereunder: (a) PAYMENT DEFAULT. Borrowers shall fail to pay when due any amount of principal of or interest on any Loan or any other amount payable by it under this Agreement or under any Reimbursement Agreement with Agent; or (b) BREACH OF WARRANTY. Any representation or warranty made or deemed made by Borrowers under or in connection with this Agreement or any Loan Document shall prove to have been incorrect in any material respect when made; or (c) BREACH OF CERTAIN COVENANTS. Borrowers shall have failed to comply with Sections 5.12, 5.13 or 5.14 or any provision of Article 6 of this Agreement; or 31 (d) BREACH OF OTHER COVENANT. Borrowers shall fail to perform or observe any other material covenant, obligation or term of any Loan Document executed by it and such failure shall remain unremedied for thirty (30) days after written notice thereof shall have been given to Borrowers by Agent; or (e) CROSS-DEFAULT. Borrowers or any Subsidiary shall fail (i) to pay when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) any indebtedness, other than an indebtedness arising under this Agreement, which in the aggregate exceeds $250,000 and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such indebtedness, or (ii) to perform any term or covenant on its part to be performed under any agreement or instrument relating to any such indebtedness and required to be performed and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such failure to perform is to accelerate or to permit the acceleration of the maturity of such indebtedness, or (iii) any such indebtedness shall be declared to be due and payable or required to be prepaid (other than by regularly scheduled required prepayment) prior to the stated maturity thereof; or (f) CROSS-DEFAULT - SECURED LETTER OF CREDIT FACILITY. An event of default shall occur under any agreement with Bank of America with respect to the Secured Letter of Credit Facility described in Article 10; or (g) VOLUNTARY BANKRUPTCY, ETC. Borrowers or any Subsidiary shall: (i) file a petition seeking relief for itself under Title 11 of the United States Code, as now constituted or hereafter amended, or file an answer consenting to, admitting the material allegations of or otherwise not controverting, or fail timely to controvert a petition filed against it seeking relief under Title 11 of the United State Code, as now constituted or hereafter amended; or (ii) file such petition or answer with respect to relief under the provisions of any other now existing or future applicable bankruptcy, insolvency, or other similar law of the United States of America or any state thereof or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or an arrangement, composition, extension or adjustment with creditors; or (h) INVOLUNTARY BANKRUPTCY, ETC. Either an order for relief shall be entered against Borrowers or any Subsidiary under Title 11 of the United States Code, as now constituted or hereafter amended, which order is not stayed; or upon the entry of an order, judgment or decree by operation of law or by a court having jurisdiction in the premises which is not stayed adjudging it a bankrupt or insolvent under, or ordering relief against it under, or approving as properly filed a petition seeking relief against it under the provisions of any other now existing or future applicable bankruptcy, insolvency or other similar law of the United States of America or any state thereof or of any other country or jurisdiction providing for the reorganization, winding-up or liquidation of corporations or any arrangement, composition, extension or adjustment with creditors; or appointing a receiver, liquidator, assignee, sequestrator, trustee or custodian of Borrowers, or any Subsidiary or of 32 any substantial part of its or their property, or ordering the reorganization, winding-up or liquidation of its or their affairs; or upon the expiration of ninety (90) days after the filing of any involuntary petition against it seeking any of the relief specified in Section 7.1(g) or this Section without the petition being dismissed prior to that time; or (i) INSOLVENCY, ETC. Borrowers or any Subsidiary shall (i) make a general assignment for the benefit of its creditors or (ii) consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, or custodian of all or a substantial part of the property of Borrowers or any Subsidiary, as the case may be, or (iii) admit its insolvency or inability to pay its debts generally as they become due, or (iv) fail generally to pay its debts as they become due, or (v) take any action (or suffer any action to be taken by its directors or shareholders) looking to the dissolution or liquidation of Borrowers or any Subsidiary, as the case may be; or (j) JUDGMENT. A final judgment or order for the payment of money in excess of $500,000 (to the extent not fully insured) shall be rendered against Borrowers or any Subsidiary and such judgment or order shall continue unsatisfied and in effect for a period of thirty (30) consecutive days; or (k) GOVERNMENT APPROVALS. Any Government Approval or registration or filing with any Governmental Authority now or hereafter required in connection with the performance by Borrower of its obligations set forth in the Loan Documents shall be revoked, withdrawn or withheld or shall fail to remain in full force and effect unless in the reasonable opinion of Agent such revocation, withdrawal or withholding would not be likely to have a material adverse effect on the ability of Borrowers to perform their obligations under the Loan Documents; or (l) OTHER GOVERNMENT ACTION. Any act of any Governmental Authority shall, in the reasonable opinion of Agent, deprive Borrowers or any Subsidiary of any substantial right, privilege, or franchise or substantially restrict the exercise thereof and such act is not revoked or rescinded within sixty (60) days after it becomes effective or within thirty (30) days after notice from Agent, whichever first occurs; or (m) MATERIAL ADVERSE CHANGE. There occurs a material adverse change in the operations, business or condition, including financial condition, of the Borrowers and their Subsidiaries, taken as a whole after the date of this Agreement. Section 7.2 CONSEQUENCES OF DEFAULT. If an Event of Default described in Section 7.1(g), 7.1(h) or 7.1(i) shall occur and be continuing, then in any such case, the Commitment shall be immediately terminated and, if any Loans shall have been made or issued, the principal of and interest on the Loans, and all other sums payable by Borrowers under the Loan Documents and the face amount of the Letters of Credit shall become immediately due and payable all without notice or demand of any kind. 33 If any other Event of Default shall occur and be continuing, then in any such case and at any time thereafter so long as any such Event of Default shall be continuing, Agent shall at the request, or may with the consent of the Majority Lenders, immediately terminate the Commitments, and, if any Loans or Letters of Credit shall have been made or issued, Agent shall at the request, or may with the consent of the Majority Lenders, declare the principal of and the interest on the Loans, the face amount of the Letters of Credit and all other sums payable by Borrowers under the Loan Documents immediately due, whereupon the same shall become immediately due and payable all without protest, presentment, notice or demand, all of which Borrowers expressly waives. ARTICLE 8 THE AGENT Section 8.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to Agent by the terms hereof, together with such powers as are reasonably incidental thereto. Agent shall have no duties or responsibilities except those expressly set forth in this Agreement. The duties of Agent shall be mechanical and administrative in nature; Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement or the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement or the other Loan Documents except as expressly set forth herein. In any instance where Agent is required or permitted to consent to or approve any action of Borrowers under this Agreement, such consent or approval shall be deemed to be administrative in nature and may be given or withheld in Agent's sole discretion unless the Loan Document states otherwise. As to any matters not expressly provided for by this Agreement, including enforcement or collection of the Loans, Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining) upon the instructions of the Majority Lenders, and such instructions shall be binding on all Lenders, PROVIDED that Agent shall not be required to take any action which exposes Agent to personal liability or which is contrary to the Loan Documents or applicable law. Without the consent of all Lenders, the Agent shall not: - Change any Lender's Commitment or the total of all Lenders' Commitments. - Change the definition of Majority Lenders. - Change the timing or rates of interest payments. - Change the timing or amounts of principal payment due in respect of Loans. 34 - Amend this Section 8.1. The terms of this Article shall not be amended without the prior written consent of Agent (acting for its own account). In the absence of instructions from the Majority Lenders, Agent shall have authority (but not the obligation), in its sole discretion, to take or not to take any action, unless this Agreement specifically requires the consent of Lenders, and any such action or failure to act shall be binding on all Lenders. Each Lender shall execute and deliver such additional instruments, including powers of attorney in favor of Agent, as may be necessary or desirable to enable Agent to exercise its powers hereunder. Section 8.2 DUTIES AND OBLIGATIONS. (a) Neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or any of them under or in connection with this Agreement or any other Loan Document except for its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, Agent (i) may treat each Lender which is a party hereto as the party entitled to receive payments hereunder until Agent receives written notice of the assignment of such Lender's interest herein signed by such Lender and made in accordance with the terms hereof and a written agreement of the assignee that it is bound hereby to the same extent as it would have been had it been an original party hereto, in each case in form satisfactory to Agent; (ii) may consult with legal counsel (including counsel for Borrowers), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement, any other Loan Document, or in any instrument or document furnished pursuant hereto or thereto; (iv) shall not have any duty to ascertain or to inquire as to the performance of any of the terms, covenants, or conditions of the Loan Documents, or of any instrument or document furnished pursuant thereto on the part of Borrowers or as to the use of the proceeds of any Loan or the proceeds received in respect of any Letter of Credit; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, effectiveness, or value of this Agreement, of any other Loan Document, or of any instrument or document furnished pursuant hereto or thereto; and (vi) shall incur no liability under or in respect to this Agreement or any other Loan Document by acting upon any oral or written notice, consent, certificate or other instrument or writing (which may be by cable, telex or telefax) believed by it to be genuine and signed, sent or made by the proper party or parties or by acting upon any representation or warranty of Borrowers made or deemed to be made in this Agreement or any other Loan Document. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 35 (b) Agent will promptly transmit to each Lender copies of all documents received from Borrowers pursuant to the requirements of this Agreement other than documents which by the terms of this Agreement, Borrowers are obligated to deliver directly to Lenders. (c) Each Lender or its assignee shall furnish to Agent in a timely fashion such documentation (including, but not limited to, IRS Forms Nos. W-8, 1001 and 4224) as may be reasonably requested by Agent to establish such Lender's status for tax withholding purposes. (d) Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default under any of the Loan Documents unless Agent has received written notice from a Lender or Borrowers referring to one or more of the Loan Documents, describing such Default or Event of Default and stating that such notice is a "notice of default." In the event that Agent receives such a notice, Agent shall promptly notify each Lender. Section 8.3 DEALINGS BETWEEN AGENT AND BORROWERS. With respect to its Commitment and the Loans made by it, Agent shall have the same rights, powers and responsibilities under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not Agent, and the term "Lender" as used herein and in the other Loan Documents shall unless otherwise expressly indicated include Agent in its Lender capacity. The limitations, disclaimers, waivers and the like set forth in Article 8 shall apply to the Agent solely in its capacity as Agent for Lenders, and not in its capacity as a Lender. Agent may accept deposits from, lend money to, act and generally engage in any kind of business with Borrowers and any person which may do business with Borrowers, all as if Agent were not Agent hereunder and without any duty to account therefor to Lenders. Section 8.4 LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently and without reliance upon Agent or the other Lenders and based upon such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon Agent or the other Lenders and based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. Section 8.5 INDEMNIFICATION. Lenders agree to indemnify Agent (to the extent not reimbursed by Borrowers) ratably according to their respective Funded Pro Rata Shares from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by Agent under this Agreement or any other Loan Document, except any such as result from Agent's gross 36 negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse Agent promptly on demand in proportion to its Funded Pro Rata Share for any out-of-pocket expenses, including legal fees, incurred by Agent in connection with the administration or enforcement or preservation of any rights under any Loan Document (to the extent that Agent is not reimbursed for such expenses by Borrowers) including without limitation, expenses incurred in connection with any Letter of Credit. Section 8.6 SUCCESSOR AGENT. Agent may give written notice of resignation at any time to Lenders. The Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may on behalf of Lenders, appoint a successor Agent, which shall be a bank organized under the laws of the United States or of any state thereof, or any Affiliate of such bank, and having a consolidated capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. Until the acceptance by such a successor Agent, the retiring Agent shall continue as "Agent" hereunder. After any retiring Agent's resignation hereunder as Agent shall become effective, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. Any company into which Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which Agent may sell or transfer all or substantially all of its agency relationships shall be the successor to Agent without the execution or filing of any paper or further act, anything herein to the contrary notwithstanding. Section 8.7 INDEPENDENT DETERMINATION FOR FUNDING AND CLOSING. For purposes of determining compliance with the conditions specified in Section 3.1 each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter sent by the Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender. This Section is solely for the benefit of the Agent and not for the benefit of Borrowers or any other person. ARTICLE 9 LETTERS OF CREDIT Section 9.1 LETTERS OF CREDIT. Borrowers may request that Agent issue letters of credit for Borrowers' account in accordance with the terms and conditions of this Article. 37 Section 9.2 MANNER OF REQUESTING LETTERS OF CREDIT. (a) From time to time, Borrowers may request that Agent issue Standby or Commercial Letters of Credit for Borrowers' account or extend or renew any existing Letters of Credit. Such request will be made by delivering a written request for the issuance, extension or renewal of such a Letter of Credit to Agent. Each such request shall be deemed to constitute a representation and warranty by Borrowers that as of the date of such request, statements set forth in Article 4 are true and correct and that no Default or Event of Default has occurred and is continuing. Each such request shall specify the face amount of the requested Letter of Credit, the proposed date of expiration, the name of the intended beneficiary thereof, and whether such Letter of Credit is a Standby Letter of Credit or a Commercial Letter of Credit or an extension or renewal thereof. (b) Borrowers shall pay Agent for the account of Lenders such letter of credit fees calculated and payable in accordance with Agent's normal and customary practices for commercial letters of credit and shall pay 9/10ths of 1% per annum of the face amount of any Standby Letter of Credit. The letter of credit fees shall be paid on issuance and annually thereafter. Each letter of credit requested hereunder shall be in a face amount such that after issuance of such letter of credit, the Total Utilization will not exceed the Total Revolving Loan Commitment. In addition, after such issuance, the Total Letter of Credit Usage must not exceed $5,000,000. Each Letter of Credit requested shall be issued with a maximum maturity of one year and shall have an expiration date not later than one year after the Revolving Loan Maturity Date. The maturity date for each Standby Letter of Credit may be automatically extended each year for an additional year unless the Agent gives Borrowers 45 days written notice to the contrary. (c) Borrowers shall execute a letter of credit application. Either as part of the application or as a separate document, Borrowers shall, at Agent's request, execute a reimbursement agreement, in the standard form then used by Agent, in respect of each Letter of Credit requested hereunder. Such reimbursement agreements may be amended from time to time, and are collectively referred to herein as the "Reimbursement Agreements". (d) Subject to the satisfaction of the conditions precedent set forth in Article 3 and Borrowers' compliance with the terms of this Section, Agent shall issue and deliver its letter of credit to Borrowers or to the designated beneficiary at such address as Borrowers may specify. New Letters of Credit and extensions or renewals of any existing Letters of Credit shall contain terms and conditions customarily included in Agent's letters of credit and shall otherwise be in a form acceptable to Agent. (e) In the event of any conflict between the terms of any Reimbursement Agreement or Letter of Credit and the terms of this Agreement, the terms of this Agreement shall control, unless Agent has otherwise agreed in a writing. 38 Section 9.3 INDEMNIFICATION; INCREASED COSTS. Borrowers agree to indemnify Agent, and any Lender on demand for any and all additional costs, expenses, or damages reasonably incurred by such Agent or Lender, directly or indirectly, arising out of the issuance of any Letter of Credit or the purchase of any Letter of Credit Risk Participation, including, without limitation, any costs of maintaining reserves in respect thereof and any premium rates imposed by the Federal Deposit Insurance Corporation. If at any time after the date of this agreement, the introduction of or any change in applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation of administration thereof, or compliance by agent or lender with any requests directed by such governmental authority (whether or not having the force of law) shall, with respect to any letter of credit or letter of credit risk participation, subject agent or such lender to any tax or impose, modify or deem applicable any reserve, special deposit or similar requirements against the assets of, deposits with or for the account of agent, or such lender or shall impose on agent or such lender any other conditions affecting the letters of credit or letter of credit risk participations and the result of any of the foregoing is to increase the cost to agent, or such lender of issuing a letter of credit or holding a letter of credit risk participation or to reduce the amount of any sum received or receivable by agent, or such lender with respect to the letters of credit or letter of credit risk participations, then, upon demand by agent, or such lender, borrowers shall pay to agent or such lender such additional amount or amounts as will compensate agent, or such lender for such increased cost or reduction. Borrowers agree to indemnify and hold agent and lenders (each, an "indemnitee") harmless from and against any and all (a) taxes payable in connection with letters of credit, letter of credit risk participations or the provisions of this agreement relating thereto, and (b) actions, claims, damages, losses, liabilities, fines, penalties, costs, and expenses of every nature, including reasonable attorney's fees, suffered or incurred by the indemnitee otherwise arising out of or relating to this article, any letter of credit, or any letter of credit risk participations; PROVIDED, HOWEVER, said indemnification shall not apply to the extent that any such action, claim, damage, loss, liability, fine, penalty, cost or expense arises out of or is based solely upon the indemnitee's willful misconduct or gross negligence. SECTION 9.4 PAYMENT BY BORROWERS. Borrowers agree to fully reimburse Agent for all amounts paid by Agent under, or in respect of, any Letter of Credit and to pay interest thereon at the Reference Related Rate then applicable to Revolving Loans from the date Agent makes such payment until the date of reimbursement pursuant to any demand for reimbursement by Agent. Such reimbursement shall be made in immediately available funds at Agent's Commercial Loan Processing Center not later than 11:00 a.m. (Seattle time) one day after Borrowers are first notified by Agent that Agent has made payment under the Letter of Credit. In addition, if Agent so elects pursuant to the terms of Section 7.2, following the occurrence of an Event of Default, the face amount of each Letter of Credit shall become immediately due and payable. If Borrowers shall default in its obligations to reimburse Agent or make any other payment required hereunder, interest shall accrue on the unpaid amount 39 thereof at a per annum rate equal to 3% above the Reference Related Rate changing as such Reference Related Rate changes from the date such amount becomes due and payable until payment in full by Borrower. Interest on such unpaid amounts shall be calculated on the basis of a year of 360 days and shall be payable on demand. Section 9.5 SALE OF RISK PARTICIPATIONS. Agent agrees to sell to each Lender (including itself), and each Lender severally agrees to unconditionally and irrevocably purchase from Agent, Letter of Credit Risk Participations. Each Letter of Credit Risk Participation sold hereunder shall be sold to Lenders in fractional amounts in proportion to their Revolving Loan Pro Rata Shares. Section 9.6 PROCEDURE FOR PARTICIPATIONS. Via telephone, telex, or facsimile, Agent will advise each Lender of its respective Loan Advance Pro Rata Share of each Letter of Credit on the same day Agent issues such Letter of Credit as requested by Borrowers pursuant to this Article. The notice shall contain the following information: (i) the face amount of the Letter of Credit issued, (ii) the number of Letter of Credit, (iii) the date of acceptance or issuance, (iv) the maturity or expiration date, and (v) the amount of such Lender's Revolving Pro Rata Share of any letter of credit fees received by Agent in respect of the Letter of Credit issued. Agent shall not have any duty to ascertain or to inquire as to the accuracy of the information furnished by Borrowers. Section 9.7 PAYMENT OBLIGATIONS. (a) REIMBURSEMENTS TO AGENT. In the event Borrowers fails to fully reimburse Agent for amounts disbursed under a Letter of Credit ("Letter of Credit Payment") by 12:00 Noon (Seattle time) on the date reimbursement is demanded, each Lender shall, upon receipt of notice from Agent of such failure, pay to Agent the amount of such Lender's Revolving Loan Pro Rata Share of the face amount of such Letter of Credit Payment, PROVIDED, HOWEVER, if Borrowers pay a portion but less than all of the face amount of any such Letter of Credit Payment, Lenders shall pay Agent only their respective Revolving Loan Pro Rata Shares of the difference between the face amount of the Letter of Credit Payment, as the case may be, and the amount paid by Borrowers on account of such Letter of Credit Payment. Each and every payment to be made by Lenders to Agent under this Section shall be made by federal wire transfer in immediately available funds. If any Lender receives notice from Agent by 1:00 p.m. (Seattle time) on any Business Day of its obligation to make payments under this subsection, then such Lender shall make such payment no later than 2:00 p.m. (Seattle time) on the day such notice is received. If any Lender receives such notice after 1:00 p.m. (Seattle time) on any Business Day, then such Lender shall make such payment by no later than 1:00 p.m. (Seattle time) on the next succeeding Business Day. If any Lender fails to make such payment by the date and time required, its obligation shall bear interest from and including the date when such payment was due until paid at the per annum rate equal to the Federal Funds Rate. (b) PAYMENTS TO LENDERS. Agent shall immediately remit to each Lender, 40 via federal wire transfer of funds, such Lender's Revolving Loan Pro Rata Share of any principal, interest, letter of credit fees or other amounts received from or for the account of Borrowers in respect of any Letter of Credit, PROVIDED, HOWEVER, Agent shall not remit to any Lender any amounts received from or for the account of Borrowers in payment of the face amount. In the event Agent is required to refund any amount which is paid to it or received by it from or for the account of Borrowers, then Lenders, to the extent they shall have previously received their Revolving Loan Pro Rata Share of such amount, agree to repay to Agent their respective Revolving Loan Pro Rata Shares of such amount. ARTICLE 10 SECURED LETTER OF CREDIT FACILITY Section 10.1 BANK OF AMERICA SECURED LETTER OF CREDIT FACILITY. By separate agreement, Bank of America has agreed to provide a Secured Letter of Credit Facility to Northwest Pipe Company of up to $3,500,000. Section 10.2 NORTHWEST PIPE COMPANY SECURITY. All obligations of Borrowers with respect to the Secured Letter of Credit Facility described above, will be secured by security interests in Adelanto, California machinery, equipment and fixtures. SECTION 10.3 CROSS-DEFAULT. Any Event of Default under this Agreement shall be an event of default under any agreement with respect to the Secured Letter of Credit Facility. ARTICLE 11 MISCELLANEOUS Section 11.1 NO WAIVER; REMEDIES CUMULATIVE. No failure by Agent or any Lender to exercise, and no delay in exercising, any right, power or remedy under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy under this Agreement or any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, power, or remedy. The exercise of any right, power, or remedy shall in no event constitute a cure or waiver of any Event of Default this Agreement or any other Loan Document or prejudice the rights of Agent or Lenders in the exercise of any right hereunder or thereunder. The rights and remedies provided herein and therein are cumulative and not exclusive of any right or remedy provided by law. Section 11.2 GOVERNING LAW. This Agreement and the other Loan Documents shall be governed by and construed in accordance with the laws of the State of Oregon. Section 11.3 MANDATORY ARBITRATION. Any controversy or claim between or among the parties, including those arising out of or relating to this Agreement or the other Loan 41 Documents and any claim based on or arising from an alleged tort, shall at the request of any party be determined by arbitration in Portland, Oregon. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Agreement, and under the Commercial Rules of the AAA. The arbitrator(s) shall give effect to statutes of limitation in determining any claim. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction. No provision of this Section shall limit the right of any party to this Agreement to exercise self-help remedies such as set off, foreclosure against or sale of any collateral or security, or to obtain provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The exercise of any such remedy does not waive the right of either party to resort to arbitration. Section 11.4 NOTICES. All notices and other communications provided for in any Loan Document shall be in writing or (unless otherwise specified) by facsimile and shall be mailed (with first class postage prepaid) or sent or delivered to each party at the address or facsimile number set forth under its name on the signature page hereof, or at such other address as shall be designated by such party in a written notice to each other party. Except as otherwise specified all notices sent by mail, if duly given, shall be effective three (3) Business Days after deposit into the mails, all notices sent by a nationally recognized overnight courier service, if duly given, shall be effective one (1) Business Day after delivery to such courier service, and all other notices and communications if duly given or made shall be effective upon receipt. Neither Agent nor any Lender shall incur any liability to Borrowers for actions taken in reliance on any telephonic notice referred to in this Agreement which Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow or give such telephonic notice hereunder on behalf of Borrowers. Section 11.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective Successors and assigns, PROVIDED that Borrowers may not assign or otherwise transfer all or any part of its rights or obligations hereunder or under any other Loan Document without the prior written consent of Agent and all Lenders. Except as provided in this Section or Section 11.7, no Lender shall have the right to sell or assign all or any portion of its Loans or of its right, title and interest therein or thereto or in or to any Loan Document to any other Person without Agent's and Borrowers' prior written consent and without providing Agent with a written agreement executed by such purchaser or assignee as provided in Section 8.2(a)(i). Borrowers' consent shall not be unreasonably withheld. Notwithstanding the foregoing, each Lender may grant participation, without consent, in all or any portion of its Loans and Commitment but such grant shall not entitle the participant to any direct rights against Borrowers under the terms of this Agreement or any other Loan Document. Any outright sale or assignment of a Lender's interest hereunder to another Lender must be to a commercial bank organized under the laws of the United States or any state thereof, having a combined capital and surplus of at least $100,000,000. Such sale made in conformance with the terms of this Section shall result in a corresponding adjustment to the selling and purchasing Lenders' Funded Pro Rata Share. 42 Section 11.6 SEVERABILITY. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall as to such jurisdiction be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. To the extent permitted by applicable law, the parties waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect. Section 11.7 ADDITIONAL LENDERS. With Borrowers' prior written consent, which will not be unreasonably withheld, Bank of America may select one or more financial institutions to purchase a portion of the Loans and Commitment and become a Lender or Lenders under this Agreement, but such financial institution must be a commercial bank organized under the laws of the United States, or any state thereof, having a combined capital and surplus of at least $100,000,000. Upon such financial institution(s) executing a counterpart of this Agreement, and delivery of a copy thereof to Borrowers, any such institution shall become a Lender with full rights as such and there shall be a corresponding adjustment to the Funded Pro Rata Share of Bank of America and such other Lender. Section 11.8 JOINT AND SEVERAL LIABILITY; REASON FOR EXECUTION. All liability of Borrowers hereunder is joint and several. Each Borrower is executing this Loan Agreement because each will receive working capital from the proceeds of the Loans. Loan proceeds will be allocated among Borrowers as they collectively agree. SECTION 11.9 SURVIVAL. The representations, warranties and indemnities of Borrowers in favor of Agent and Lenders shall survive indefinitely and, without limiting the foregoing, shall survive the execution and delivery of this Agreement, the Loan Documents and the other Loan Documents, the making of any Loans, the expiration of the Commitments and the repayment of all amounts due under the Loan Documents. Section 11.10 EXECUTED IN COUNTERPARTS. The Loan Documents may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section 11.11 ENTIRE AGREEMENT; AMENDMENT, WAIVER. This Agreement together with its schedules and exhibits comprise the entire agreement of the parties and may not be amended or modified except by written agreement of Borrowers and Agent executed in conformance with the terms hereof. No provision of this Agreement may be waived except in writing and then only in the specific instance and for the specific purpose for which given. Section 11.12 HEADINGS. The headings of the various provisions of this Agreement are for convenience of reference only, do not constitute a part hereof, and shall not affect the meaning or construction of any provision hereof. Section 11.13 WAIVER OF JURY TRIAL. BORROWERS, LENDERS, AND 43 AGENT WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OUR RISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY AS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. NOTHING CONTAINED IN THIS SECTION SHALL BE DEEMED TO IMPAIR OR REDUCE THE EFFECTIVENESS OF ANY OTHER SECTION OF THIS AGREEMENT REQUIRING ARBITRATION. Section 11.14 CERTAIN AGREEMENTS NOT ENFORCEABLE. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY LENDERS TO BE ENFORCEABLE. IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED BY THEIR RESPECTIVE OFFICERS OR AGENTS THEREUNTO DULY AUTHORIZED AS OF THE DATE FIRST ABOVE WRITTEN. BORROWERS: NORTHWEST PIPE COMPANY By: ------------------------------------ Its: ------------------------------------ Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 THOMPSON PIPE AND STEEL COMPANY 44 By: ------------------------------------ Its: ------------------------------------ Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 THOMPSON STEEL PIPE COMPANY By: ------------------------------------ Its: ------------------------------------ Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 LENDER: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ------------------------------------ Its: ------------------------------------ Address: Commercial Banking 121 S.W. Morrison Street Suite 1700 Portland, OR 97204 Fax No. (503) 275-1391 Attn: Robert L. Countryman AGENT: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ------------------------------------ Its: ------------------------------------ Address: Agency Services 701 Fifth Avenue, Floor 16 Seattle, WA 98104 Fax No. (206) 358-0971 45 Attn: Dora A. Brown 46 SCHEDULE 1 PREPAYMENT FEES FOR OFFSHORE RELATED RATE LOANS THE AMOUNT OF THE FEE TO BE PAID PURSUANT TO SECTION 2.7 SHALL DEPEND ON THE FOLLOWING: (1) The amount by which interest rates have changed between the Reference Date and the Prepayment Date. As used herein, "Reference Date" shall mean the first day of an Applicable Interest Period. As used herein, "Prepayment Date" shall mean the date Borrower either voluntarily or involuntarily prepays an Offshore Related Rate Loan. Certain U.S. Treasury rates are used as a benchmark to measure changes in interest rate levels. (a) A "Reference Rate" equal to the average interest rate yield at the Reference Date for U.S. Government Securities having maturities equivalent to that of the applicable Offshore Related Rate Loan will be determined in the manner described below for determining applicable rates but will be established as of the Reference Date for the Applicable Interest Period. This rate represents interest rate levels at the time a Loan is made or its interest rate fixed. (b) An "applicable rate," as determined as described below, represents interest rate levels as of the Prepayment Date. (2) The amount of principal prepaid. (3) A payment fee factor (see "payment fee factor schedule" below). This factor represents the economic loss to the Agent and Lenders resulting from a one dollar payment if rates were to drop by one percent from the time the rate was fixed. 47 CALCULATION OF PREPAYMENT FEES FOR OFFSHORE RELATED RATE LOANS If the reference rate is lower than or equal to the applicable rate, there is no payment fee. If the applicable rate is lower than the reference rate, the payment fee shall be equal to the difference between the reference rate and the applicable rate (expressed as a decimal), multiplied by the appropriate factor from the payment fee factor schedule, multiplied by the principal amount of the Offshore Related Rate Loan which is prepaid. EXAMPLE: An Offshore Related Rate Loan with principal of $850,000 is fully prepaid with 3 months remaining prior to the end of the Applicable Interest Period. A reference rate of 10% was assigned to the Offshore Related Rate Loan when the rate was fixed. The applicable rate (as determined by current 4-month U.S. Treasury rates) is 8.5%. Rates are therefore judged to have dropped by 1.5% since the rate was fixed, and a payment fee applies. A payment fee factor of .31 is determined from the tables below, and the payment fee is computed as follows: Payment Fee = (.10 - .085) x (.31) x ($850,000) = $3952.50 APPLICABLE RATES The applicable rate is equal to the average interest rate yield at the time of prepayment for U.S. Government Securities having maturities equivalent to the remaining portion of the Applicable Interest Period. The applicable rate shall be determined from the Federal Reserve Statistical Release (Publication H.15(519)) in the "This Week" (most recent week) column under the heading U.S. Government Securities - Treasury Bills - Secondary Market, interpolated to the nearest month. Rates listed in the Federal Reserve Statistical Release for maturities of less than one year are on a discount rate basis, and these rates shall be converted to a coupon equivalent basis, based upon a 360-day year. The Statistical Release published on Monday shall be used for calculation of payment fees payable on the following Tuesday through the following Monday, with appropriate adjustment if the day of publication changes. 48 PREPAYMENT FEE FACTOR SCHEDULES FOR OFFSHORE RELATED RATE LOANS(1) Months Remaining in the Applicable Interest Period for Offshore Related Rate Loans ---------------------------------------------------------- 0 1 2 3 4 5 6 - - - - - - - Factors 0 .10 .20 .31 .41 .51 .61 49 PREPAYMENT FEES FOR LONG TERM RATE LOANS The prepayment fee for Long Term Rate Loans will be the sum of fees calculated separately for each Prepaid Installment, as follows: (i) Agent will first determine the amount of interest which would have accrued each month for the Prepaid Installment had it remained outstanding until the applicable Original Payment Date, using the Long Term Rate; (ii) Agent will then subtract from each monthly interest amount determined in (i) above, the amount of interest which would accrue for that Prepaid Installment if it were reinvested from the date of prepayment through the Original Payment Date, using the Money Market Rate. (iii) If (i) minus (ii) for the Prepaid Installment is greater than zero, Agent will discount the monthly differences to the date of prepayment by the rate used in (ii) above. The sum of the discounted monthly differences is the prepayment fee for that Prepaid Installment. The following definitions will apply to the calculation of the prepayment fee for Long Term Rate Loans: "Money Market Rate" means the fixed interest rate per annum which Agent determines could be obtained by reinvesting a specified Prepaid Installment in the Money Market from the date of prepayment through the Original Payment Date. "Original Payment Dates" mean the date on which principal of the Long Term Rate Loan would have been paid if there had been no prepayment. If a portion of the principal would have been paid later than the end of the interest period in effect at the time of prepayment, then the Original Payment Date for that portion will be the last day of the interest period. "Prepaid Installment" means the amount of the prepaid principal of the Long Term Rate Loan which would have been paid on a single Original Payment Date. "Agent" may adjust the Money Market Rate to reflect the compounding, accrual basis, or other costs of the Long Term Rate Loan. Each of the rates is the Agent's estimate only and the Agent is under no obligation to actually reinvest any prepayment. The rates will be based on information from either the Telerate or Reuters information services, THE WALL STREET JOURNAL, or other information sources Agent deems appropriate. 50 Schedule 4.5 LITIGATION 51 Schedule 4.7 TITLE AND LIENS 52 Exhibit 3.1 LEGAL OPINION [TO BE PROVIDED] (1) If the remaining Applicable Interest Period or time prior to scheduled maturity is between any two time periods in the above schedules, interpolate between the corresponding factors. The Agent and the Lenders are not required to actually reinvest the paid principal in any U.S. Government Treasury obligations as a condition to receiving a payment fee as calculated above. 53 EX-10.10 3 EX-10.10 FIRST AMENDMENT TO LOAN AGREEMENT AND AGREEMENT WITH RESPECT TO LETTERS OF CREDIT UNDER REIMBURSEMENT AGREEMENT This amendment to Loan Agreement ("Amendment") is made as of October 20, 1997 by and among the following parties: Bank of America National Trust and Savings Association ("Bank of America") and "Lender") Bank of America National Trust and Savings Association, in its capacity as Agent ("Agent") Northwest Pipe Company, an Oregon corporation (a "Borrower") Thompson Pipe and Steel Company, a Colorado corporation (a "Borrower") Thompson Steel Pipe Company, a Delaware corporation (a "Borrower") RECITALS A. Borrowers, Lenders and Agent have executed a Loan Agreement dated the same date as this Amendment (the "Loan Agreement"). Article 9 of the Loan Agreement describes Lender's duty to issue certain letters of credit. Among the letters of credit contemplated by Article 9 of the Loan Agreement are two letters of credit to be substituted for letters of credit issued by Dai-Ichi Kangyo Bank, Ltd. which are numbers SDC-023600 and SDC-023595. B. In addition, Lender and Borrowers intend to execute a separate reimbursement agreement describing Lender's duty to issue a standby letter of credit to replace letter of credit number SDC-012926 issued by the Dai-Ichi Kangyo Bank, Ltd. (the "Reimbursement Agreement"). C. Because of the time involved in obtaining consent of the beneficiaries, Bank of America presently is unable to provide the letters of credit to substitute for the Dai-Ichi Kangyo Bank, Ltd. as contemplated by Article 9 to the Loan Agreement. The Dai-Ichi Kangyo Bank, Ltd. letters of credit referred to in this section are guaranteed by CIT Group/Business Credit, Inc. ("CIT"). D. Bank of America is not presently able to provide the letter of credit which will be described in the Reimbursement Agreement because of the time involved in obtaining approval of California Teachers Retirement System to a substitution of Bank of America letter of credit for the Dai-Ichi Kangyo Bank, Ltd. letter of credit, which was guaranteed by CIT. E. Notwithstanding the delays in issuing the letters of credit referred to above, the parties desire to execute the Loan Agreement at this time and to have Bank of America fund the loan described therein. 1 Therefore, in consideration of the premises and the mutual covenants contained herein, the parties agree as follows: 1. FUNDING OF LOAN AGREEMENT. Bank of America shall fund the loans described in the Loan Agreement as soon as conditions stated therein are met. 2. ISSUANCE OF LETTERS OF CREDIT UNDER LOAN AGREEMENT AND REIMBURSEMENT AGREEMENT. Bank of America will not now issue the standby letters of credit to replace any of the Dai-Ichi Kangyo Bank, Ltd. letters of credit described above, but will use its good faith best efforts to do so. The letter of credit to replace Dai-Ichi Kangyo Bank, Ltd. letter of credit will be issued pursuant to the Reimbursement Agreement substantially in the form of the most recent draft of the Reimbursement Agreement between the parties with modifications to make it consistent with the Loan Agreement. If Bank of America is not able to issue its letters of credit to replace the Dai-Ichi Kangyo Bank, Ltd. letters of credit by November 30, 1997, it will use its good faith best efforts to issue by November 30, 1997 back-up standby letters of credit in form and substance reasonably satisfactory to CIT in an aggregate amount of not less than 105 percent of the then outstanding Dai-Ichi Kangyo Bank, Ltd. letters of credit. Bank of America's obligation to issue substitute letters of credit or back-up letters of credit under this section, shall be conditioned upon the conditions of Article 3 of the Loan Agreement and similar conditions in the Reimbursement Agreement then being satisfied. 3. CONTINUING SECURITY INTEREST OF CIT. Until Bank of America has issued substitute letters of credit or back-up letters of credit as described herein, it acknowledges that CIT will retain security interests in Borrowers' property. Such continued security interest of CIT, so long as Bank of America has not issued the substitute or back-up letters of credit referred to herein, shall not constitute a default or misrepresentation by Borrowers under the Loan Agreement, and Borrowers' obligations to indemnify CIT in the event CIT should be called upon its guaranty of the Dai-Ichi Kangyo Bank, Ltd. letters of credit shall not constitute a default or misrepresentation under the Loan Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers or agents thereunto duly authorized as of the date first above written. BORROWERS: NORTHWEST PIPE COMPANY By: ----------------------------------- Its: ----------------------------------- Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 2 THOMPSON PIPE AND STEEL COMPANY By: ----------------------------------- Its: ----------------------------------- Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 THOMPSON STEEL PIPE COMPANY By: ----------------------------------- Its: ----------------------------------- Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 LENDER: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ----------------------------------- Its: ----------------------------------- Address: Commercial Banking 121 S.W. Morrison Street Suite 1700 Portland, OR 97204 Fax No. (503) 275-1391 Attn: Robert L. Countryman AGENT: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ----------------------------------- Its: ----------------------------------- Address: Agency Services 701 Fifth Avenue, Floor 16 Seattle, WA 98104 Fax No. (206) 358-0971 Attn: Dora A. Brown 3 EX-10.11 4 EX-10.11 SECOND AMENDMENT TO LOAN AGREEMENT This amendment to Loan Agreement ("Second Amendment") is made as November 26, 1997 by and among the following parties: Bank of America National Trust and Savings Association ("Bank of America") and "Lender") Bank of America National Trust and Savings Association, in its capacity as Agent ("Agent") Northwest Pipe Company, an Oregon corporation (a "Borrower") Thompson Pipe and Steel Company, a Colorado corporation (a "Borrower") Thompson Steel Pipe Company, a Delaware corporation (a "Borrower") RECITALS A. Borrowers, Lender and Agent have executed a Loan Agreement dated as of October 20, 1997 (the "Loan Agreement"). Article 9 of the Loan Agreement describes Lender's duty to issue certain letters of credit. Among the letters of credit contemplated by Article 9 of the Loan Agreement are two letters of credit to be substituted for letters of credit issued by Dai-Ichi Kangyo Bank, Ltd. which are numbers SDC-023600 and SDC-023595 (the "Dai-Ichi Letter of Credit"). B. Because of the time involved in obtaining consent of the beneficiaries, Bank of America presently is unable to provide the letters of credit to substitute for the Dai-Ichi Kangyo Bank, Ltd. as contemplated by Article 9 to the Loan Agreement. The Dai-Ichi Kangyo Bank, Ltd. letters of credit referred to in this section are guaranteed by CIT Group/Business Credit, Inc. ("CIT"). C. The parties executed a First Amendment to Loan Agreement and Agreement with respect to Letters of Credit under Reimbursement Agreement as of October 20, 1997 (the "First Amendment"). Therefore, in consideration of the promises and mutual covenants contained herein, the parties agree as follows: Bank of America will issue back-up standby letters of credit equaling 105% of the outstanding amount of the Dai-Ichi Letters of Credit. Such back-up standby letter of credit (the "Back-Up Letter of Credit") will be issued in favor of CIT as contemplated by Section 2 of the First Amendment. 1 Borrowers agree to fully reimburse Agent for all amounts paid by Agent under, or in respect of, any Back-Up Letter of Credit issued in favor of CIT and agree to pay interest thereon at the Reference Related Rate then applicable to Revolving Loans as defined in the Loan Agreement from the date Agent makes such payment until the date of reimbursement pursuant to any demand for reimbursement by Agent. Such reimbursement shall be made in immediately available funds at Agent's commercial loan processing center not later than 11:00 a.m. Seattle time one day after Borrowers are first notified by Agent that Agent has made payment under a Back-Up Letter of Credit. In addition, if Agent so elects pursuant to the terms of Section 7.2 of the Loan Agreement following the occurrence of an Event of Default, the face amount of such Back-Up Letter of Credit shall become immediately due and payable. If Borrowers shall default in their obligations to reimburse Agent or make any other payment required hereunder, interest shall accrue on the unpaid amount thereof at a per annum rate equal to three percent (3%) above the Reference Related Rate changing as such Reference Related Rate changes from the date such amount becomes due and payable until payment in full by Borrowers. Interest on such unpaid amounts shall be calculated on the basis of 360 days and shall be payable on demand. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers or agents thereunto duly authorized as of the date first above written. BORROWERS: NORTHWEST PIPE COMPANY By: ----------------------------------- Its: ----------------------------------- Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 THOMPSON PIPE AND STEEL COMPANY By: ----------------------------------- Its: ----------------------------------- Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 THOMPSON STEEL PIPE COMPANY By: ----------------------------------- Its: ----------------------------------- 2 Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 LENDER: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ----------------------------------- Its: ----------------------------------- Address: Commercial Banking 121 S.W. Morrison Street Suite 1700 Portland, OR 97204 Fax No. (503) 275-1391 Attn: Robert L. Countryman AGENT: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ----------------------------------- Its: ----------------------------------- Address: Agency Services 701 Fifth Avenue, Floor 16 Seattle, WA 98104 Fax No. (206) 358-0971 Attn: Dora A. Brown 3 EX-10.12 5 EX-10.12 THIRD AMENDMENT TO LOAN AGREEMENT This amendment to Loan Agreement ("Third Amendment") is made as of March 6, 1998 by and among the following parties: Bank of America National Trust and Savings Association ("Bank of America" and "Lender") Bank of America National Trust and Savings Association, in its capacity as Agent ("Agent") Northwest Pipe Company, an Oregon corporation (a "Borrower") Thompson Pipe and Steel Company, a Colorado corporation (a "Borrower") Thompson Steel Pipe Company, a Delaware corporation (a "Borrower") R E C I T A L S The Borrowers, the Lender and the Agent are parties to that certain Loan Agreement dated as of October 20, 1997, as amended by that certain First Amendment to Loan Agreement dated as of October 20, 1997, and a Second Amendment to Loan Agreement dated as of November 26, 1997 as the same may be amended, modified or extended from time to time (the "Loan Agreement") and the related Loan Documents described therein. The Borrowers have requested that the Lender and Agent increase the Total Commitment, as defined in the Loan Agreement, provide their consent to certain acquisitions described in SECTION 6.6 as amended herein, and make certain other modifications to the Loan Documents. The Parties now wish to amend the Loan Documents to increase the Total Commitment, as defined therein, subject to the terms and conditions set forth herein. NOW, THEREFORE, the parties agree as follows: A G R E E M E N T 1. DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have the meaning given in the Loan Agreement. 2. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is amended as follows: (a) AMENDMENT TO DEFINITIONS. In SECTION 1.1, amendments are made to the definitions, as follows: (1) APPLICABLE MARGIN. The definition of "Applicable Margin" is amended and restated to read as follows: Page 1 - THIRD AMENDMENT TO LOAN AGREEMENT "Applicable Margin" means, with respect to Offshore Related Rate Loans, a margin determined as set forth below depending on the ratio of Funded Debt to EBITDA. Adjustments, with respect to borrowings or selections of Applicable Interest Rates, will be effective the first day of the month after Agent has received financial information needed to determine the relevant ratio with respect to future selections or borrowings. However, if such information is not given to Agent within the time required by Section 5.9, Agent may, at its option, adjust the Applicable Margin for Offshore Related Rate upwards, if applicable, as of the first day of the month following the date by which such information should have been received. The Applicable Margin in effect on the date of this Third Amendment to Loan Agreement is .65 percent.
RATIO AT END OF PRIOR APPLICABLE MARGIN FOR FISCAL QUARTER OFFSHORE RELATED RATE LOANS Less than 1.5:1 .65% Equal to or greater than 1.5:1 .75% Up to and including 2.25:1 Greater than 2.25:1 .875% Up to and including 3.00:1 Greater than 3.00:1 1.050% Up to and including 3.25:1
For purposes of calculating this ratio, the EBITDA for the prior fiscal year for the "Acquisitions," as defined in SECTION 6.6 as amended herein, shall be included in the calculation. The Acquistions' EBITDA shall be incorporated on a decreasing pro-rata basis, with 100% of the Acquisitions' EBITDA included in the calculation for the first calendar quarter-end following closing of the Acquisitions, 75% included in the second quarter-end, 50% included in the third quarter-end, and 25% included in the fourth quarter-end. Beginning with the fifth quarter following the closing of the Acquisitions, the EBITDA for the Acquisitions' prior fiscal year shall no longer be incorporated in this calculation. (2) TOTAL COMMITMENT. The definition of "Total Commitment" is amended and restated to read as follows: "Total Commitment" means $55,000,000. However, Total Commitment will be reduced to $40,000,000 on the earliest of April 15, 1998, or the date that any Borrower receives the net proceeds from the currently anticipated private placement of notes in the amount of at least $20,000,000. Borrowers hereby consent to Bank of America's sale of at least $10,000,000 of the Loans and Commitment, consistent with SECTION 11.7 of the Loan Agreement, within sixty (60) days of execution of this Third Amendment to Loan Agreement. Page 2 - THIRD AMENDMENT TO LOAN AGREEMENT (3) UNUSED COMMITMENT FEE RATE. The definition of "Unused Commitment Fee Rate" is amended and restated to read as follows: "UNUSED COMMITMENT FEE RATE" means an annual rate determined as set forth below depending upon the ratio of Funded Debt to EBITDA. The adjustment will be effective the first day of the month after Agent has received information needed to determine the relevant ratio. However, if such information is not given to Agent within the time required by Section 5.9, Agent may, at its option, adjust the Annual Unused Commitment Fee Rate upwards, if applicable, as of the first day of the month following the date by which such information should have been received. The Unused Commitment Fee Rate in effect upon the date of this Third Amendment to Loan Agreement is .175 percent.
RATIO AT END OF PRIOR ANNUAL UNUSED FISCAL QUARTER COMMITMENT FEE RATE Less than 1.5:1 .175% Equal to or greater than 1.5:1 .200% Up to and including 2.25:1 Greater than 2.25:1 .225% Up to and including 3.00:1 Greater than 3.00:1 .250% Up to and including 3.25:1
For purposes of calculating this ratio, the EBITDA for the prior fiscal year for the "Acquisitions," as defined in SECTION 6.6 as amended herein, shall be included in the calculation. The Acquistions' EBITDA shall be incorporated on a decreasing pro-rata basis, with 100% of the Acquisitions' EBITDA included in the calculation for the first calendar quarter-end following closing of the Acquisitions, 75% included in the second quarter-end, 50% included in the third quarter-end, and 25% included in the fourth quarter-end. Beginning with the fifth quarter following the closing of the Acquisitions, the EBITDA for the Acquisitions' prior fiscal year shall no longer be incorporated in this calculation. (b) AMENDMENTS TO SECTION 2.9 FEES. SECTION 2.9 is hereby amended to add subsection (c) as follows: (c) Borrowers agree to pay Bank of America, the sole Lender on the date of this Third Amendment to Loan Agreement, a fee of $21,250, representing 0.075% of the permanent $15,000,000 increase in the Total Commitment amount and a $10,000 fee for the bridge commitment of $15,000.000. (c) AMENDMENTS TO SECTION 5.12 MINIMUM DEBT SERVICE COVERAGE RATIO. SECTION 5.12 is hereby amended and restated as follows: Page 3 - THIRD AMENDMENT TO LOAN AGREEMENT Borrowers, and their Subsidiaries, on a consolidated basis, shall maintain a minimum debt service coverage ratio of not less than 2.0:1. The minimum debt service coverage ratio will be computed by dividing: (a) EBITDA, less (b) income taxes paid in cash, (c) less dividends paid in cash by the sum of: (a) current portion of long term debt, plus (b) interest expense, plus (c) current portion of capital leases The minimum debt service coverage ratio will be based upon the then ended fiscal quarter plus the preceding three fiscal quarters. The current portion of long term debt, including the current portion of capital leases, will be measured as of the last day of the preceding fiscal year. For purposes of calculating this covenant, the EBITDA for the prior fiscal year for the "Acquisitions," as defined in SECTION 6.6 as amended herein, shall be included in the calculation. The Acquistions' EBITDA shall be incorporated on a decreasing pro-rata basis, with 100% of the Acquisitions' EBITDA included in the calculation for the first calendar quarter-end following closing of the Acquisitions, 75% included in the second quarter-end, 50% included in the third quarter-end, and 25% included in the fourth quarter-end. Beginning with the fifth quarter following the closing of the Acquisitions, the EBITDA for the Acquisitions' prior fiscal year shall no longer be incorporated in this calculation. (d) AMENDMENTS TO SECTION 5.13 MINIMUM FUNDED DEBT TO EBITDA. SECTION 5.13 is hereby amended and restated as follows: Borrowers and their Subsidiaries, on a consolidated basis, shall maintain for each period of four consecutive fiscal quarters a ratio of Funded Debt to EBITDA of no greater than:
PERIOD RATIO From the date of this Agreement through, and 3.25:1 including the four fiscal quarters ending March 31, 1999 For the four consecutive fiscal quarters 3.00:1 ending June 30, 1999, and continuing through March 21, 2000 For the four consecutive fiscal quarters 2.75:1 ending June 30, 2000 and thereafter
For purposes of calculating this covenant, the EBITDA for the prior fiscal year for the "Acquisitions," as defined in SECTION 6.6 as amended herein, shall be Page 4 - THIRD AMENDMENT TO LOAN AGREEMENT included in the calculation. The Acquistions' EBITDA shall be incorporated on a decreasing pro-rata basis, with 100% of the Acquisitions' EBITDA included in the calculation for the first calendar quarter-end following closing of the Acquisitions, 75% included in the second quarter-end, 50% included in the third quarter-end, and 25% included in the fourth quarter-end. Beginning with the fifth quarter following the closing of the Acquisitions, the EBITDA for the Acquisitions' prior fiscal year shall no longer be incorporated in this calculation. (e) AMENDMENTS TO SECTION 5.14 MINIMUM TANGIBLE NET WORTH. SECTION 5.14 is hereby amended and restated as follows: Borrowers, and their Subsidiaries, on a consolidated basis shall have a minimum Tangible Net Worth equal to or greater than the sum of: (a) $41,000,000, plus (b) 70% of the cumulative Net Income of Borrowers and their Subsidiaries for all fiscal quarters ending after December 31, 1997 in which such Net Income was greater than zero, plus (c) 90% of the amount by which the shareholders' equity of Borrowers and their Subsidiaries has increased after December 31, 1997 solely as a result of the issuance of common or preferred stock or the conversion of debt securities into such stock (f) AMENDMENTS TO SECTION 6.1 RESTRICTION ON BORROWINGS, CAPITAL LEASES AND CONTRACT PURCHASES. SECTION 6.1 is hereby amended and restated as follows: Borrowers shall not and shall not permit any Subsidiary to borrow money, enter into capital leases or enter into contracts to purchase any item on deferred payments in any fiscal year if the total of such borrowings, leases and contracts exceeds 3.5% of Borrowers' Tangible Net Worth in existence at the end of Borrowers' prior fiscal year. This restriction shall not apply to the issuance by Northwest Pipe Company of up to $65,000,000 in private placement notes or to the Loans, or the Letters of Credit described in Articles 9 and 10. (The limitation on the issuance of private placement notes shall apply to the aggregate of all such notes issued since October 20, 1997.) (g) AMENDMENTS TO SECTION 6.6 RESTRICTION ON ACQUISITIONS. SECTION 6.6 is hereby amended and restated as follows: Borrowers shall not and shall not permit any Subsidiary to acquire any business without Agent's prior review and consent if the total of all business acquisitions in any one fiscal year exceeds 10% of Tangible Net Worth as of the end of the prior fiscal year. For purposes of the 10% limitation above, acquisitions Page 5 - THIRD AMENDMENT TO LOAN AGREEMENT accomplished by merger shall be valued at the fair value of all consideration given, including, without limitation, cash, notes, assumption of debt and stock. In addition, Borrowers shall not and shall not permit any Subsidiary to acquire any business if such acquisition is not approved by the board of directors of the company owning such business or is deemed by Agent to involve a hostile takeover. Agent hereby consents to the acquisition of (i) Southwestern Pipe, Inc. and P&H Tube Corporation, and (ii) certain assets comprising the Parkersburg Plant from L.B. Foster Company (together, the "Acquisitions"). (h) AMENDMENTS TO SECTION 9.2 MANNER OF REQUESTING LETTERS OF CREDIT. SECTION 9.2(b) is hereby amended and restated as follows: (b) Borrowers shall pay Agent for the account of Lenders such letter of credit fees calculated and payable in accordance with Agent's normal and customary practices for commercial letters of credit and shall pay 9/10ths of 1% per annum of the face amount of any Standby Letter of Credit. The letter of credit fees shall be paid on issuance and annually thereafter. Each letter of credit requested hereunder shall be in a face amount such that after issuance of such letter of credit, the Total Utilization will not exceed the Total Revolving Loan Commitment. In addition, after such issuance, the Total Letter of Credit Usage must not exceed $6,000,000. Each Letter of Credit requested shall be issued with a maximum maturity of one year and shall have an expiration date not later than one year after the Revolving Loan Maturity Date. The maturity date for each Standby Letter of Credit may be automatically extended each year for an additional year unless the Agent gives Borrowers 45 days written notice to the contrary. 3. CONDITIONS TO EFFECTIVENESS. Notwithstanding anything contained herein to the contrary, this Amendment shall not become effective until each of the following conditions is fully and simultaneously satisfied: (a) DELIVERY OF AMENDMENT. The Borrowers, the Agent and the Lender shall have executed and delivered counterparts of this Amendment to the Agent; (b) REIMBURSEMENT FOR EXPENSES. The Borrowers shall have reimbursed the Agent for all expenses actually incurred by the Agent in connection with the preparation of the Loan Agreement and the other Loan Documents and shall have paid all other amounts due and owing under the Loan Documents. (c) CORPORATE AUTHORITY. The Agent shall have received in form and substance reasonably satisfactory to it (1) a copy of resolutions adopted by the Boards of Directors of the Borrowers authorizing the execution, delivery and performance of this Amendment, certified by the Secretaries of the Borrowers; (2) evidence of the authority and specimen signatures of the persons who have signed the Amendment Documents on behalf of the Borrowers; and (3) such Page 6 - THIRD AMENDMENT TO LOAN AGREEMENT other evidence of corporate authority as the Agent or any Lender shall request; (d) LEGAL OPINION. The Agent shall have received the written legal opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP, counsel for the Borrowers, addressed to the Agent and the Lender, dated as of the date hereof opining that (1) the Borrowers are duly incorporated, validly existing, and in good standing under the state law of their respective states of organization, (2) the execution and delivery of the Amendment has been duly authorized by the Borrowers, (3) the Amendment when duly executed and delivered by the Borrowers will constitute a legal, valid and binding obligation of the Borrowers enforceable in accordance with its terms, and the Loan Agreement as amended hereby will constitute a legal, valid, binding obligation of the Borrowers enforceable in accordance with its terms, and (4) the execution and delivery of the Amendment by the Borrowers will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time) a default under the Articles of Incorporation or Bylaws of the borrowers or any indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument to which the Borrowers or any of their properties may be bound or affected, or violate any law or any order, rule, or regulation binding on the Borrowers; (e) REPRESENTATIONS TRUE; NO DEFAULT. The representations of the Borrowers as set forth in ARTICLE 4 of the Loan Agreement shall be true on and as of the date of this Amendment with the same force and effect as if made on and as of this date. No Event of Default and no event which, with notice or lapse of time or both, would constitute an Event of Default, shall have occurred and be continuing or will occur as a result of the execution of the Amendment. (f) OTHER DOCUMENTS. The Agent and the Lender shall have received such other documents, instruments, and undertakings as the Agent and the Lender may reasonably request. 4. NO FURTHER AMENDMENT. Except as expressly modified by this Amendment, the Loan Agreement and the other Loan Documents shall remain unmodified and in full force and effect and the parties hereby ratify their respective obligations thereunder. Without limiting the foregoing, the Borrower expressly reaffirms and ratifies its obligation to pay or reimburse the Agent and the Lender on request for all reasonable expenses, including legal fees, actually incurred by the Agent or such Lender in connection with the preparation of this Amendment, the other Amendment Documents, and the closing of the transactions contemplated hereby and thereby. 5. MISCELLANEOUS. (a) ENTIRE AGREEMENT. This Amendment comprises the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, representations or commitments. Page 7 - THIRD AMENDMENT TO LOAN AGREEMENT (b) COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same Amendment. (c) GOVERNING LAW. This Amendment and the other agreements provided for herein and the rights and obligations of the parties hereto and thereto shall be construed and interpreted in accordance with the laws of the State of Oregon. (d) CERTAIN AGREEMENTS NOT ENFORCEABLE. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. EXECUTED AND DELIVERED by the duly authorized officers of the parties as of the date first above written. BORROWERS: NORTHWEST PIPE COMPANY By: ----------------------------------- Its: ----------------------------------- Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 THOMPSON PIPE AND STEEL COMPANY By: ----------------------------------- Its: ----------------------------------- Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 THOMPSON STEEL PIPE COMPANY Page 8 - THIRD AMENDMENT TO LOAN AGREEMENT By: ----------------------------------- Its: ----------------------------------- Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 LENDER: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ----------------------------------- Its: ----------------------------------- Address: Commercial Banking 121 S.W. Morrison Street Suite 1700 Portland, OR 97204 Fax No. (503) 275-1391 Attn: Robert L. Countryman AGENT: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ----------------------------------- Its: ----------------------------------- Address: Agency Services 701 Fifth Avenue, Floor 16 Seattle, WA 98104 Fax No. (206) 358-0971 Attn: Dora A. Brown Page 9 - THIRD AMENDMENT TO LOAN AGREEMENT EX-10.13 6 EX-10.13 NORTHWEST PIPE COMPANY $35,000,000 Principal Amount 6.87% Senior Notes Due November 15, 2007 ________ NOTE PURCHASE AGREEMENT _________ Dated as of November 1, 1997 TABLE OF CONTENTS
Section Page - ------- ---- 1. AUTHORIZATION OF NOTES 1 2. SALE AND PURCHASE OF NOTES 1 3. CLOSING 1 4. CONDITIONS TO CLOSING 2 4.1. Representations and Warranties 2 4.2. Performance; No Default 2 4.3. Compliance Certificates 2 4.4. Opinions of Counsel 3 4.5. Purchase Permitted By Applicable Law, etc 3 4.6. Sale of Other Notes 3 4.7. Payment of Special Counsel Fees 3 4.8. Private Placement Number 3 4.9. Changes in Corporate Structure 4 4.10. Proceedings and Documents 4 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY 4 5.1. Organization; Power and Authority 4 5.2. Authorization, etc 4 5.3. Disclosure 4 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates 5 5.5. Financial Statements 6 5.6. Compliance with Laws, Other Instruments, etc 6 1 5.7. Governmental Authorizations, etc. 6 5.8. Litigation; Observance of Agreements, Statutes and Orders 6 5.9. Taxes 7 5.10. Title to Property; Leases 7 5.11. Licenses, Permits, etc 7 5.12. Compliance with ERISA 8 5.13. Private Offering by the Company 9 5.14. Use of Proceeds; Margin Regulations 9 5.15. Existing Indebtedness; Future Liens 9 5.16. Foreign Assets Control Regulations, etc 10 5.17. Status under Certain Statutes 10 5.18. Environmental Matters 10 6. REPRESENTATIONS OF THE PURCHASER 11 6.1. Purchase for Investment 11 6.2. Source of Funds 11 7. INFORMATION AS TO COMPANY 12 7.1. Financial and Business Information 12 7.2. Officers Certificate 15 7.3. Inspection 15 8. PREPAYMENT OF THE NOTES 16 8.1. Required Prepayments 16 8.2. Optional Prepayments with Make-Whole Amount 16 8.3. Allocation of Partial Prepayments 17 8.4. Maturity; Surrender, etc 17 8.5. Purchase of Notes 17 2 8.6. Make-Whole Amount 17 9. AFFIRMATIVE COVENANTS 19 9.1. Compliance with Law 19 9.2. Insurance 19 9.3. Maintenance of Properties 19 9.4. Payment of Taxes and Claims 19 9.5. Corporate Existence, etc 20 10. NEGATIVE COVENANTS 20 10.1. Consolidated Indebtedness; Indebtedness of Restricted Subsidiaries 20 10.2. Consolidated Net Worth 21 10.3. Liens 21 10.4. Sale of Assets 22 10.5. Merger, Consolidation, etc 23 10.6. Disposition of Stock of Restricted Subsidiaries. 24 10.7. Transactions with Affiliates 24 10.8. Designation of Unrestricted Subsidiaries 25 10.9. Nature of Business 25 11. EVENTS OF DEFAULT 25 12. REMEDIES ON DEFAULT, ETC 27 12.1. Acceleration 27 12.2. Other Remedies 28 12.3. Rescission 28 12.4. No Waivers or Election of Remedies, Expenses, etc 28 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES 29 13.1. Registration of Notes 29 3 13.2. Transfer and Exchange of Notes 29 13.3. Replacement of Notes 29 14. PAYMENTS ON NOTES 30 14.1. Place of Payment 30 14.2. Home Office Payment 30 15. EXPENSES, ETC 31 15.1. Transaction Expenses 31 15.2. Survival 31 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT 31 17. AMENDMENT AND WAIVER 31 17.1. Requirements 31 17.2. Solicitation of Holders of Notes 32 17.3. Binding Effect, etc 32 17.4. Notes held by Company, etc 33 18. NOTICES 33 19. REPRODUCTION OF DOCUMENTS 33 20. CONFIDENTIAL INFORMATION 34 21. SUBSTITUTION OF PURCHASER 35 22. MISCELLANEOUS 35 22.1. Successors and Assigns 35 22.2. Payments Due on Non-Business Days 35 22.3. Severability 35 4 22.4. Construction 35 22.5. Counterparts 36 22.6. Governing Law 36
SCHEDULE A -- Information Relating to Purchasers SCHEDULE B -- Defined Terms SCHEDULE B-1 -- Existing Investments SCHEDULE 4.9 -- Changes in Corporate Structure SCHEDULE 5.3 -- Disclosure Materials SCHEDULE 5.4 -- Organization and Ownership of Shares of Subsidiaries; Affiliates SCHEDULE 5.5 -- Financial Statements SCHEDULE 5.8 -- Litigation SCHEDULE 5.11 -- Licenses, Permits, etc. SCHEDULE 5.12 -- Compliance with ERISA SCHEDULE 5.14 -- Use of Proceeds SCHEDULE 5.15 -- Existing Indebtedness; Future Liens SCHEDULE 10.3 -- Liens EXHIBIT 1 -- Form of 6.87% Senior Note due November 15, 2007 EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers 5 NORTHWEST PIPE COMPANY 12005 N. Burgard Portland, Oregon 97203-0149 (503) 285-1400 6.87% Senior Notes due November 15, 2007 As of November 1, 1997 TO EACH OF THE PURCHASERS LISTED IN THE ATTACHED SCHEDULE A: Ladies and Gentlemen: Northwest Pipe Company, an Oregon corporation (the "Company"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. The Company has authorized the issue and sale of $35,000,000 aggregate principal amount of its 6.87% Senior Notes due November 15, 2007 (the "Notes", such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. You and the other purchasers are sometimes referred to herein individually as a "Purchaser" and collectively as the "Purchasers." 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, Notes in the principal amount specified opposite your name in Schedule A at the purchase price of 100% of the principal amount thereof. Your obligation hereunder and the obligations of the other Purchasers hereunder are several and not joint obligations and you shall have no obligation and no liability to any Person for the performance or non-performance by any other Purchaser hereunder. 3. CLOSING. The sale and purchase of the Notes to be purchased by you and the other Purchasers shall occur at the offices of Gardner, Carton & Douglas, Quaker Tower, Suite 3400, 321 North Clark Street, Chicago, Illinois 60610 at 9:00 a.m., Chicago time, at a closing (the "Closing") on November 15, 1997 or on such other Business Day thereafter on or prior to November 20, 1997 as may be agreed upon by the Company and the Purchasers. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $500,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 2801200849 at Bank of America, 1001 SW Fifth Avenue, P.O. Box 3066, Unit 2092, Portland, Oregon 97208, ABA Number 323070380. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any 1 rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. 4.2. PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by this Agreement had it applied since such date. 4.3. COMPLIANCE CERTIFICATES. OFFICER'S CERTIFICATE. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. SECRETARY'S CERTIFICATE. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and the Agreements. 4.4. OPINIONS OF COUNSEL. You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from Ater Wynne Hewitt Dodson & Skerritt, LLP, counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you) and (b) from Gardner, Carton & Douglas, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of the Closing your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.6. SALE OF OTHER NOTES. 2 Contemporaneously with the Closing the Company shall sell to the other Purchasers and the other Purchasers shall purchase the Notes to be purchased by them at the Closing as specified in Schedule A. 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing. 4.8. PRIVATE PLACEMENT NUMBER. A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes by Gardner, Carton & Douglas. 4.9. CHANGES IN CORPORATE STRUCTURE. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 4.10. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that: 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof. 5.2. AUTHORIZATION, ETC. This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of 3 creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3. DISCLOSURE. The Company, through its agent, BancAmerica Robertson Stephens, has delivered to you and each other Purchaser a copy of a Private Placement Memorandum, dated September 1997 (the "Memorandum"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 31, 1996, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary and whether such Subsidiary is a Restricted Subsidiary, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers. All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. 4 5.5. FINANCIAL STATEMENTS. The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. 5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS. Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9. TAXES. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith 5 by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended December 31, 1996. 5.10. TITLE TO PROPERTY; LEASES. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11. LICENSES, PERMITS, ETC. Except as disclosed in Schedule 5.11, the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; to the best knowledge of the Company, no product of the Company infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.12. COMPLIANCE WITH ERISA. The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. Except as described in Schedule 5.12, the present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified 6 for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term "benefit liabilities" has the meaning specified in section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in section 3 of ERISA. The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. The expected postretirement benefit obligation (determined as of the last day of the Company s most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you, the other Purchasers and not more than 29 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the proceeds of the sale of the Notes to repay existing Indebtedness and for general corporate purposes as more fully set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 5.0% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5.0% of the value of such assets. As used in this Section, the terms "margin stock" and "purpose of buying or carrying" shall have the meanings assigned to them in said Regulation G. 5.15. EXISTING INDEBTEDNESS; FUTURE LIENS. Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of October 31, 1997, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such 7 Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.3. 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended. 5.18. ENVIRONMENTAL MATTERS. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, neither the Company nor any Subsidiary has knowledge of any facts that would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in violation of any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and to the knowledge of the Company after diligent inquiry, all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 6. REPRESENTATIONS OF THE PURCHASER. 6.1. PURCHASE FOR INVESTMENT. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a 8 view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. 6.2. SOURCE OF FUNDS. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or the Source is either (i) an insurance company pooled separate account, within the meaning of Prohibited Transaction Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (c); or the Source is a governmental plan; or the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA; or the Source is an "insurance company general account" as such term is defined in the Department of Labor Prohibited Transaction Class Exemption 95-60 (issued July 12, 1995) ("PTE 95-60") and as of the date of this Agreement there is no "employee benefit plan" with 9 respect to which the aggregate amount of such general account's reserves and liabilities for the contracts held by or on behalf of such employee benefit plan and all other employee benefit plans maintained by the same employer (and affiliates thereof as defined in Section V(a)(1) of PTE 95-60) or by the same employee organization (in each case determined in accordance with the provisions of PTE 95-60) exceeds 10% of the total reserves and liabilities of such general account (as determined under PTE 95-60) (exclusive of separate account liabilities) plus surplus as set forth in the National Association of Insurance Commissioners Annual Statement filed with the state of domicile of such Purchaser. As used in this Section 6.2, the terms "employee benefit plan", "governmental plan", "party in interest" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.1. FINANCIAL AND BUSINESS INFORMATION The Company shall deliver to each holder of Notes that is an Institutional Investor: QUARTERLY STATEMENTS -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); ANNUAL STATEMENTS -- within 105 days after the end of each fiscal year of the Company, duplicate copies of, a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and 10 cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances; provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section (b); SEC AND OTHER REPORTS -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; ERISA MATTERS -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and 11 REQUESTED INFORMATION -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. 7.2. OFFICER'S CERTIFICATE. Each set of financial statements delivered to a holder of Notes pursuant to Section (a) or Section (b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: COVENANT COMPLIANCE -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.6 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and EVENT OF DEFAULT -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3. INSPECTION. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: NO DEFAULT -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and DEFAULT -- if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PREPAYMENT OF THE NOTES 12 8.1. REQUIRED PREPAYMENTS. On November 15, 2001 and on each November 15 thereafter to and including November 15, 2006 the Company will prepay $5,000,000 principal amount (or such lesser principal amount as shall then be outstanding) of the Notes at par and without payment of the Make-Whole Amount or any premium, provided that upon any partial prepayment of the Notes pursuant to Section 8.2 or purchase of the Notes permitted by Section 8.5 the principal amount of each required prepayment of the Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment or purchase. 8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than $1,000,000 of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus accrued interest to the date of redemption and the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. 8.3. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. Each partial prepayment pursuant to Section 8.2 shall be applied first to the payment due on such Notes at final maturity and thereafter to any required prepayments on such Notes, in inverse order of maturity. 8.4. MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.5. PURCHASE OF NOTES. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes. The Company will promptly 13 cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. 8.6. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "CALLED PRINCIPAL" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "DISCOUNTED VALUE" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Note, 0.50% plus the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Access Service (or such other display as may replace Page 678 on Telerate Access Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the duration closest to and less than the Remaining Average Life. "REMAINING AVERAGE LIFE" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on 14 which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "SETTLEMENT DATE" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 9.1. COMPLIANCE WITH LAW. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.2. INSURANCE. The Company will and will cause each of its Restricted Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3. MAINTENANCE OF PROPERTIES. The Company will and will cause each of its Restricted Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4. PAYMENT OF TAXES AND CLAIMS. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or 15 assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.5. CORPORATE EXISTENCE, ETC. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.4 and 10.5, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless merged into the Company or a Wholly-Owned Restricted Subsidiary) and all rights and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 10.1. CONSOLIDATED INDEBTEDNESS; INDEBTEDNESS OF RESTRICTED SUBSIDIARIES. The Company will not permit: Consolidated Indebtedness to exceed 58% of Consolidated Total Capitalization at any time; and Any Restricted Subsidiary to create, assume, guaranty or otherwise incur any Indebtedness other than: Indebtedness owed to the Company or another Restricted Subsidiary; Indebtedness of a Restricted Subsidiary outstanding at the date of the acquisition of such Restricted Subsidiary; provided that such Indebtedness was not incurred in contemplation of such Subsidiary becoming a Restricted Subsidiary and immediately after giving effect thereto, no Default or Event of Default would exist; and other Indebtedness; provided that after giving effect thereto and to the application of the proceeds therefrom, Priority Debt outstanding would not exceed 20% of Consolidated Net Worth. For purposes of this Section 10.1, any Person becoming a Restricted Subsidiary shall be deemed at the time of becoming a Restricted Subsidiary to have incurred all of its then outstanding Indebtedness and any Person extending, renewing or refunding any Indebtedness shall be deemed to have incurred such Indebtedness at the time of such extension, renewal or refunding. So long as CIT Group/Business Credit, Inc. holds any Liens on any of the assets or property of the Company or any Restricted Subsidiary, the Company will not, and will not permit any Restricted Subsidiary to, incur or assume any Indebtedness owing to CIT Group/Business Credit, Inc. (other than Indebtedness not exceeding $6.2 million in the aggregate arising under outstanding letters of credit). 10.2. CONSOLIDATED NET WORTH. The Company will not permit Consolidated Net Worth at any time to be less than $50,000,000 plus 16 the cumulative sum of 40% of Consolidated Net Income (but only if a positive number) for each completed fiscal quarter subsequent to June 30, 1997. 10.3. LIENS. The Company will not, and will not permit any Restricted Subsidiary to, permit to exist, create, assume or incur, directly or indirectly, any Lien on its properties or assets, whether now owned or hereafter acquired, except: Liens for taxes, assessments or other governmental charges not then due and delinquent or the validity of which is being contested in good faith by appropriate proceedings and as to which the Company has established adequate reserves on its books in accordance with GAAP; Liens incidental to the conduct of business or the ownership of properties and assets and not incurred in connection with the borrowing of money (including landlords', carriers', warehousemen's, lessor's, mechanics' and materialmen's liens) that in the aggregate do not materially interfere with the conduct of the business of the Company and its Restricted Subsidiaries taken as a whole or materially impair the use or value of the property or assets subject thereto; Liens resulting from judgments not exceeding $2,000,000 in the aggregate as to which the Company has established adequate reserves on its books in accordance with GAAP, provided that any such judgment so secured has not, within 60 days after the entry thereof, been discharged or execution thereof stayed pending appeal, or has not been discharged within 60 days after the expiration of any such stay; encumbrances in the nature of leases, subleases, zoning restrictions, easements, rights-of-way and other rights and restrictions of record on the use of real property and defects in title arising or incurred in the ordinary course of business, which, individually or in the aggregate, do not materially impair the use or value of the property or assets subject thereto; Liens securing Indebtedness of the Company or a Restricted Subsidiary to the Company or to another Wholly-Owned Restricted Subsidiary; Liens existing on property or assets of the Company or any Restricted Subsidiary as of the date of this Agreement that are described in Schedule 10.3; Liens on property acquired, constructed or improved by the Company or a Restricted Subsidiary after the date of Closing that are created, incurred or assumed contemporaneously with, or within 180 days after, the acquisition or, in the case of property constructed or improved, after completion of construction or improvement thereof, to secure all or any portion of the purchase price thereof (or for which legally binding contracts to provide such financing have been obtained), provided that (i) such Liens do not extend to any other property of the Company or any Restricted Subsidiary, (ii) the Indebtedness secured thereby does not exceed the lesser of the cost or the fair market value (as determined in good faith by the board of directors of the Company) of the property subject to such Liens and (iii) the Indebtedness secured by such Liens is permitted under Section 10.1; Liens (i) existing on property of a Person immediately prior to such Person's consolidation with, merger into or acquisitions by the Company or a Restricted Subsidiary and (ii) existing on property at the time of its acquisition by the Company or a Restricted Subsidiary, provided that such Liens were not created in contemplation thereof and do not extend to any other property of the Company or any Restricted Subsidiary; 17 Liens created under Capital Leases permitted by Section 10.9; Liens resulting from extensions, renewals or refundings of any Lien permitted by paragraphs (a) through (i) above, provided that (i) there is no increase in the principal amount or decrease in maturity of the Indebtedness secured thereby at the time of such extension, renewal or refunding, (ii) such Liens do not extend to any property not subject thereto at the time of such extension, renewal or refunding and (iii) immediately after such extension, renewal or refunding, no Default or Event of Default does or would exist; and Liens not otherwise permitted by paragraphs (a) through (j) above to secure Indebtedness, provided that Priority Debt does not at any time exceed 20% of Consolidated Net Worth. 10.4. SALE OF ASSETS. Except as permitted by Section 10.5, the Company will not, and will not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose of, including by way of merger (collectively a "DISPOSITION"), any assets, including capital stock of Subsidiaries, in one or a series of transactions, to any Person, other than Dispositions in the ordinary course of business and Dispositions by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or another Restricted Subsidiary, unless such Disposition is for fair market value and the aggregate net book value of all assets so disposed of in any period of four fiscal quarters of the Company then next ending pursuant to this Section 10.4 does not exceed 10% of the book value of total assets of the Company and its Restricted Subsidiaries determined as of the end of the immediately preceding fiscal quarter. Notwithstanding the foregoing, the Company may, or may permit any Restricted Subsidiary to, make a Disposition and the assets subject to such Disposition shall not be subject to or included in the foregoing limitation and computation contained in the preceding sentence to the extent that (x) such assets are leased back by the Company or any Restricted Subsidiary, as lessee, within 180 days of the Disposition thereof, or (y) the net proceeds from such Disposition are, within 180 days of such Disposition, (A) reinvested in productive fixed assets by the Company or a Restricted Subsidiary or (B) applied to the pro rata payment or prepayment of the Notes and other outstanding Consolidated Indebtedness that is not subordinated to the Notes. Any prepayment of Notes pursuant to this Section 10.4 shall be in accordance with Sections 8.2 and 8.3, without regard to the minimum prepayment requirements of Section 8.2. Furthermore, this Section 10.3 shall not apply to the disposition of the Company's plant located in Kentucky if the outstanding industrial revenue bond secured by such plant is paid in full in connection with said Disposition. 10.5. MERGER, CONSOLIDATION, ETC. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or merge with any other Person or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to any Person except that: the Company may consolidate or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person, provided that: the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer, sale or lease all or substantially all of the assets of the Company as an entirety, as the case may be, shall be a solvent corporation organized and existing under the laws of the United States or any State thereof (including the District of Columbia), and, if the Company is not such corporation, (x) shall have executed and delivered to each holder of any Notes its 18 assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes and (y) shall have caused to be delivered to each holder of any Notes an opinion of independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer, sale or lease all or substantially all of the assets of the Company as an entirety, as the case may be, could incur immediately thereafter $1.00 of additional Indebtedness without violating Section 10.1; immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and Any Restricted Subsidiary may (x) merge into the Company (provided that the Company is the surviving corporation) or another Restricted Subsidiary or (y) sell, transfer or lease all or any part of its assets to the Company or another Restricted Subsidiary, or (z) merge or consolidate with, or sell, transfer or lease all or substantially all of its assets to, any Person in a transaction that is permitted by Section 10.4 or, as a result of which, such Person becomes an Restricted Subsidiary; provided in each instance set forth in clauses (x) through (z) that, immediately before and after giving effect thereto, there shall exist no Default or Event of Default; No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.5 from its liability under this Agreement or the Notes. 10.6. DISPOSITION OF STOCK OF RESTRICTED SUBSIDIARIES. The Company (i) will not permit any Restricted Subsidiary to issue its capital stock, or any warrants, rights or options to purchase, or securities convertible into or exchangeable for, such capital stock, to any Person other than the Company or another Restricted Subsidiary, and (ii) will not, and will not permit any Restricted Subsidiary to, sell, transfer or otherwise dispose of any shares of capital stock of a Restricted Subsidiary if such sale would be prohibited by Section 10.4. If a Restricted Subsidiary at any time ceases to be such as a result of a sale or issuance of its capital stock, any Liens on property of the Company or any other Restricted Subsidiary securing Indebtedness owed to such Restricted Subsidiary, which is not contemporaneously repaid, together with such Indebtedness, shall be deemed to have been incurred by the Company or such other Restricted Subsidiary, as the case may be, at the time such Restricted Subsidiary ceases to be a Restricted Subsidiary. 10.7. TRANSACTIONS WITH AFFILIATES. The Company will not and will not permit any Restricted Subsidiary to enter into directly or indirectly any transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Restricted Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. Notwithstanding the foregoing, this Section 10.7 shall not apply to the exercise by the Company of its option to purchase the land and manufacturing facility described in Note 9 of the Notes to Consolidated Financial Statements of the Company for the fiscal year ended December 31, 1996. 19 10.8. DESIGNATION OF UNRESTRICTED SUBSIDIARIES. The Company may designate any Restricted Subsidiary as an Unrestricted Subsidiary unless such Subsidiary has been designated an Unrestricted Subsidiary more than once previously or has previously been designated a Restricted Subsidiary and only if immediately before and after such designation there exists no Default or Event of Default. 10.9. NATURE OF BUSINESS. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business if, as a result, the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, are engaged on the date of this Agreement as described in the Memorandum. 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or the Company defaults in the performance of or compliance with any term contained in or Sections 10.1 through 10.9 or fails to obtain by December 15, 1997 a release from CIT Group/Business Credit, Inc. of all Liens on property or assets of the Company or any Restricted Subsidiary in its favor; or the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note; or any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any Material respect on the date as of which made; or (i) the Company or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $5,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $5,000,000 or of any mortgage, indenture or other agreement relating thereto beyond any period of grace provided with respect thereto, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (x) the Company or any 20 Restricted Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $5,000,000, or (y) one or more Persons have the right to require the Company or any Restricted Subsidiary so to purchase or repay such Indebtedness; or the Company or any Restricted Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Restricted Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Restricted Subsidiaries, or any such petition shall be filed against the Company or any of its Restricted Subsidiaries and such petition shall not be dismissed within 60 days; or a final judgment or judgments for the payment of money aggregating in excess of $5,000,000 are rendered against one or more of the Company and its Restricted Subsidiaries and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $2,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(j), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 12. REMEDIES ON DEFAULT, ETC. 12.1. ACCELERATION. 21 If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. If any other Event of Default has occurred and is continuing, any holder or holders of more than 33% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.2. OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3. RESCISSION. At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 67% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 22 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1. REGISTRATION OF NOTES. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. You agree to transfer your Notes only to one or more Institutional Investors. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2. 13.3. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or 23 another holder of a Note that is an Institutional Investor, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON NOTES. 14.1. PLACE OF PAYMENT. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Chicago, Illinois at the principal office of Bank of America National Trust & Savings Association in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. 14.2. HOME OFFICE PAYMENT. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1. TRANSACTION EXPENSES. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorney's fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or 24 bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 15.2. SURVIVAL. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1. REQUIREMENTS. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. 17.2. Solicitation of Holders of Notes. SOLICITATION. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. PAYMENT. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof 25 unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "THIS AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4. NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Brian W. Dunham, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by 26 applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu 27 of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 22. MISCELLANEOUS. 22.1. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 22.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 22.3. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.4. CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 22.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.6. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. * * * * * 28 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, NORTHWEST PIPE COMPANY By: /s/ Brian W. Dunham Name: Brian W. Dunham Title: Executive Vice President 29 The foregoing is agreed to as of the date thereof. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: /s/ Mary Ann McCarthy ---------------------------- Name: Mary Ann McCarthy Title: Managing Director CM LIFE INSURANCE COMPANY By: /s/ Mary Ann McCarthy ---------------------------- Name: Mary Ann McCarthy Title: Managing Director NATIONWIDE LIFE INSURANCE COMPANY By: /s/ James W. Pruden ---------------------------- Name: James W. Pruden Title: Vice President Municipal Securities LONDON LIFE INSURANCE COMPANY By: /s/ R J Ritchie By: /s/ Ruth Ann McConkey ------------------------------ --------------------------- Name: R J Ritchie Name: Ruth Ann McConkey Title: VP Credit Group Title: Manager, U.S. Fixed Income 30 SCHEDULE A INFORMATION RELATING TO PURCHASERS Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- -------------------- MASSACHUSETTS MUTUAL LIFE $14,000,000 INSURANCE COMPANY (1) All payments by Federal Funds wire transfer of immediately available funds to: Citibank, N.A. 111 Wall Street New York, NY 10043 ABA No. 021000089 For MassMutual Long Term Pool Account No. 4067-3488 Re: Description of security, principal and interest split Identifying each payment as Northwest Pipe Company 6.87% Senior Note, interest and principal (2) Notices related to payments: Telephone advice of payment to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878 and Massachusetts Mutual Life Insurance Company 1295 State Street Springfield, MA 01111 Attn: Securities Custody and Collection Department - F 381 (3) All other communications: Massachusetts Mutual Life Insurance Company 1295 State Street Springfield, MA 01111 Attn: Securities Investment Division Tax ID # 04-1590850 31 SCHEDULE A INFORMATION RELATING TO PURCHASERS Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- ---------------------- MASSACHUSETTS MUTUAL LIFE $4,000,000 INSURANCE COMPANY (1) All payments by Federal Funds wire transfer of immediately available funds to: Chase Manhattan Bank, N.A. 4 Chase MetroTech Center New York, NY 10081 ABA No. 021000021 For MassMutual IFM Non-Traditional Account No. 910-2509073 Re: Description of security, principal and interest split Identifying each payment as Northwest Pipe Company 6.87% Senior Note, interest and principal (2) Notices related to payments: Telephone advice of payment to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878 and Massachusetts Mutual Life Insurance Company 1295 State Street Springfield, MA 01111 Attn: Securities Custody and Collection Department - F 381 (3) All other communications: Massachusetts Mutual Life Insurance Company 1295 State Street Springfield, MA 01111 Attn: Securities Investment Division Tax ID # 04-1590850 32 SCHEDULE A INFORMATION RELATING TO PURCHASERS Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- ---------------------- CM LIFE INSURANCE COMPANY $2,000,000 (1) All payments by Federal Funds wire transfer of immediately available funds to: Citibank, N.A. 111 Wall Street New York, NY 10043 ABA No. 021000089 For Segment 43 - Universal Life Account No. 4068-6561 Re: Description of security, principal and interest split Identifying each payment as Northwest Pipe Company 6.87% Senior Note, interest and principal (2) Notices related to payments: Telephone advice of payment to the Securities Custody and Collection Department of Massachusetts Mutual Life Insurance Company at (413) 744-3878 and Massachusetts Mutual Life Insurance Company 1295 State Street Springfield, MA 01111 Attn: Securities Custody and Collection Department - F 381 (3) All other communications: CM Life Insurance Company c/o Massachusetts Mutual Life Insurance Company 1295 State Street Springfield, MA 01111 Attn: Securities Investment Division Tax ID # 06-1041383 33 SCHEDULE A INFORMATION RELATING TO PURCHASERS Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- ---------------------- NATIONWIDE LIFE INSURANCE COMPANY $10,000,000 (1) All payments by Federal Funds wire transfer of immediately available funds to: The Bank of New York ABA #021-000-018 BNF: IOC566 F/A/O Nationwide Life Insurance Company Attn: P&I Department PPN# ________ Security Description: with sufficient information to identify the source and application of such funds (2) Notices related to payments: Nationwide Life Insurance Company c/o The Bank of New York P.O. Box 19266 Attn: P&I Department Newark, NJ 07195 with a copy to: Nationwide Life Insurance Company Attn: Investment Accounting One Nationwide Plaza (1-32-05) Columbus, Ohio 43215-2220 (3) All other communications: Nationwide Life Insurance Company One Nationwide Plaza (1-33-07) Columbus, Ohio 43215-2220 Attn: Corporate Fixed-Income Securities (4) Deliver original Note to: The Bank of New York One Wall Street 3rd Floor - Window A New York, NY 10286 F/A/O Nationwide Life Insurance Co. Acct# 267829 34 Tax ID # 31-4156830 35 SCHEDULE A INFORMATION RELATING TO PURCHASERS Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- ---------------------- LONDON LIFE INSURANCE COMPANY $5,000,000 (1) All payments by Federal Funds wire transfer of immediately available funds to: Bank of New York 1 Wall Street New York, NY 10286 Re: Account Name: Royal Trust Corporation of Canada Account # 298310 ABA# 021000018 with sufficient information to identify the source and application of such funds (2) Notices related to payments: London Life Insurance Company 255 Dufferin Avenue London, Ontario N6A 4K1 Attention: Manager U.S. Fixed Income (Private Placements) Securities Department (3) All other communications: London Life Insurance Company 255 Dufferin Avenue London, Ontario N6A 4K1 Attention: Manager U.S. Fixed Income (Private Placements) Securities Department (4) Deliver original Note to: Bank of New York 1 Wall Street Window A Third Floor New York, NY 10286 Re: Account Name: Royal Trust Corporation of Canada Account# 298310 Tax ID # 52-1548741 36 SCHEDULE B DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "AFFILIATE" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests and (c) any officer or director of such Person. As used in this definition, "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in Chicago, Illinois or Portland, Oregon are required or authorized to be closed. "CAPITAL LEASE" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "CLOSING" is defined in Section 3. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMPANY" means Northwest Pipe Company, an Oregon corporation. "CONFIDENTIAL INFORMATION" is defined in Section 20. "CONSOLIDATED INDEBTEDNESS" means Indebtedness of the Company and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, for any period, the net income (or deficit) of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, but excluding in any event (a) net losses or undistributed net income of any Person (other than a Restricted Subsidiary) in which the Company has an ownership interest; (b) net losses or undistributed net income of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary; (c) gains or net losses (net of any tax effect) resulting from the sale of any capital assets other than in the ordinary course of business; (d) extraordinary, unusual, or nonrecurring gains or losses; (e) gains resulting from the write-up of assets; (f) earnings of any Subsidiary unavailable for payment to the Company; and (g) proceeds of any life insurance policy. 37 "CONSOLIDATED NET WORTH" means consolidated stockholders' equity of the Company and its Restricted Subsidiaries determined in accordance with GAAP less the amount by which Restricted Investments made after the Closing exceed 10% of Consolidated Net Worth. "CONSOLIDATED TOTAL CAPITALIZATION" means the sum of Consolidated Indebtedness and Consolidated Net Worth. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DEFAULT RATE" means that rate of interest that is the greater of (i) 2.0% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2.0% over the rate of interest publicly announced by Bank America National Trust & Savings Association in Chicago, Illinois as its "base" or "prime" rate. "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EVENT OF DEFAULT" is defined in Section 11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "GOVERNMENTAL AUTHORITY" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "GUARANTY" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: 38 (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polycholorinated biphenyls). "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "INDEBTEDNESS" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); and (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof. 39 Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note and (b) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "INVESTMENT" means any investment made, in cash or by delivery of property, directly or indirectly, by any Person, in (i) any other Person, whether by acquisition of capital stock, Indebtedness, or other obligations or securities or by loan, advance, capital contribution or otherwise or (ii) any property. "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAKE-WHOLE AMOUNT" is defined in Section 8.6. "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Restricted Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Restricted Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes. "MEMORANDUM" is defined in Section 5.3. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTES" is defined in Section 1. "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "PREFERRED STOCK" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount 40 upon liquidation or dissolution of such corporation. "PRIORITY DEBT" means, at any time, the sum, without duplication, of (i) Indebtedness of Restricted Subsidiaries, (ii) outstanding Indebtedness of the Company guaranteed by a Restricted Subsidiary and (iii) the aggregate amount of Consolidated Indebtedness secured by Liens, other than Liens permitted under Section 10.3 (a) through (j). "PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "PURCHASER" is defined in Section 1. "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "REQUIRED HOLDERS" means, at any time, the holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement. "RESTRICTED INVESTMENTS" means all Investments except: (a) Investments in Restricted Subsidiaries; (b) Investments in a Person that, as a result thereof, becomes a Restricted Subsidiary; (c) Investments in current assets (as determined in accordance with GAAP) arising from the sale of goods and services in the ordinary course of business; (d) Investments in property to be used in the ordinary course of business; (d) Investments in: (i) obligations of or fully guaranteed by the United States of America or an agency thereof maturing within three years from the date of acquisition; (ii) municipal securities maturing within three years, which are rated in one of the top two rating classifications by at least one rating agency of recognized national standing; (iii) certificates of deposit, EuroDollar deposits or banker s acceptances maturing within one year from the date of acquisition issued by commercial banks, which are rated in one of the top two rating classifications by at least one rating agency of recognized national standing; (iv) commercial paper maturing within 270 days, which is rated in one of the top two rating classifications by at least one rating agency of recognized national standing; and (v) money market instrument programs that are classified as current assets in accordance with GAAP; and 41 (e) Investments existing as of the date of Closing that are listed in the attached Schedule B-1. "RESTRICTED SUBSIDIARY" means any Subsidiary (a) of which more than 50% of the voting securities are owned by the Company and/or one or more Wholly-Owned Restricted Subsidiaries; (b) that is organized under the laws of the United States; (c) that maintains substantially all of its assets and conducts substantially all of its business within the United States, Canada or Mexico; (d) that the Company has designated a Restricted Subsidiary by notice in writing given to the holders of the Notes and (e) that the Company has not designated as a Restricted Subsidiary more than once previously or as an Unrestricted Subsidiary more than once previously. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "SWAPS" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "UNRESTRICTED SUBSIDIARY" means any Subsidiary not designated a Restricted Subsidiary. "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company s other Wholly-Owned Subsidiaries at such time. 42 EXHIBIT 1 [FORM OF NOTE] NORTHWEST PIPE COMPANY 6.87% SENIOR NOTE DUE NOVEMBER 15, 2007 No. [_____] [Date] $[_______] PPN[______________] FOR VALUE RECEIVED, the undersigned, NORTHWEST PIPE COMPANY (herein called the "Company"), a corporation organized and existing under the laws of the State of Oregon, hereby promises to pay to [ ], or registered assigns, the principal sum of [ ] DOLLARS on November 15, 2007, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.87% per annum from the date hereof, payable semiannually, on May 15 and November 15 in each year, commencing with the May 15 or November 15 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 8.87% or (ii) 2.0% over the rate of interest publicly announced by Bank of America National Trust & Savings Association from time to time in Chicago, Illinois as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of the Company or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of November 1, 1997 (as from time to time amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreements. 43 This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note also is subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. This Note and the Note Purchase Agreement are governed and construed in accordance with the substantive laws of the State of Illinois. NORTHWEST PIPE COMPANY By: Name: Title: 44 Exhibit 4.4(a) FORM OF OPINION OF COUNSEL TO THE COMPANY The opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP, of the Company, shall be to the effect that: 1. Each of the Company and each Subsidiary incorporated under the laws of the United States or any state thereof, including the District of Columbia, is a corporation duly incorporated, validly existing in good standing under the laws of the state of its incorporation, and each has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted, and, in the case of the Company, to enter into and perform the Note Purchase Agreement and to issue and sell the Notes. 2. Each of the Company and each Subsidiary is duly qualified or licensed and in good standing as a foreign corporation authorized to do business in each jurisdiction where the nature of its or their businesses or the character of its or their properties makes such qualification or licensing necessary, except where such failure to be so qualified or licensed would not have a Material Adverse Effect. 3. The Note Purchase Agreement and the Notes have been duly authorized by proper corporate action on the part of the Company, have been duly executed and delivered by an authorized officer of the Company, constitute the legal, valid and binding agreements of the Company, and are enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 4. The offering, sale and delivery of the Notes do not require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 5. No authorization, approval or consent of, and no designation, filing, declaration, registration and/or qualification with, any Governmental Authority is necessary or required in connection with the execution, delivery and performance by the Company of the Note Purchase Agreement or the offering, issuance and sale by the Company of the Notes. 6. The issuance and sale of the Notes by the Company, the performance of the terms and conditions of the Notes and the Note Purchase Agreement and the execution and delivery of the Note Purchase Agreement do not conflict with, or result in any breach or violation of any of the provisions of, or constitute a default under, or result in the creation or imposition of any Lien on, the property of the Company or any Subsidiary pursuant to the provisions of (i) the charter or by-laws, each as amended, of the Company or any Subsidiary, (ii) any loan agreement or evidence of Indebtedness known to such counsel to which the Company or any Subsidiary is a party or by which any of them or their property is bound or may be affected, (iii) any other agreement or instrument known to such counsel to which the Company or any Subsidiary is a party or by which any of them or their property is bound or may be affected, (iv) any law (including usury laws) or regulation applicable to the Company, or (v) any order, writ, injunction or decree known to such counsel of any court or Governmental Authority applicable to the Company or any Subsidiary. 7. All of the issued and outstanding shares of capital stock of each Subsidiary incorporated in the United States or any state thereof, including the District of Columbia, have been duly and validly 45 issued, are fully paid and nonassessable and are owned of record by the Company free and clear of any perfected pledge or, to the knowledge of such counsel, any other perfected Lien. 8. There are no actions, suits or proceedings pending, or, to such counsel's knowledge, threatened against, or affecting the Company or any Subsidiary, at law or in equity or before or by any Governmental Authority, that are likely to result, individually or in the aggregate, in a Material Adverse Effect. 9. Neither the Company nor any Subsidiary is (i) a "public utility company" or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," or an "affiliate" of such a "subsidiary company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), (ii) a "public utility" as defined in the Federal Power Act, as amended, or (iii) an "investment company" or an "affiliated person" thereof, as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). 10. The issuance of the Notes and the intended use of the proceeds of the sale of the Notes do not violate or conflict with Regulation G, T or X of the Board of Governors of the Federal Reserve System. The opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP shall cover such other matters relating to the sale of the Notes as the Purchasers may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Company and with respect to matters governed by the laws of any jurisdiction other than the United States of America, the Delaware General Corporation Law and the laws of the State of Oregon, such counsel may rely upon the opinions of counsel deemed (and stated in their opinion to be deemed) by him or her to be competent and reliable. 46 EXHIBIT 4.4(b) FORM OF OPINION OF SPECIAL COUNSEL TO THE PURCHASERS The opinion of Gardner, Carton & Douglas, special counsel to the Purchasers, shall be to the effect that: 1. The Company is a corporation organized and validly existing in good standing under the laws of the State of its incorporation, with all requisite corporate power and authority to enter into the Agreement and to issue and sell the Notes. 2. The Agreement and the Notes have been duly authorized by proper corporate action on the part of the Company, have been duly executed and delivered by an authorized officer of the Company, and constitute the legal, valid and binding agreements of the Company, enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the enforcement of the rights of creditors or by equitable principles, regardless of whether enforcement is sought in a proceeding in equity or at law. 3. Based upon the representations set forth in the Agreement, the offering, sale and delivery of the Notes do not require the registration of the Notes under the Securities Act of 1933, as amended, nor the qualification of an indenture under the Trust Indenture Act of 1939, as amended. 4. The issuance and sale of the Notes and compliance with the terms and provisions of the Notes and the Agreement will not conflict with or result in any breach of any of the provisions of the Certificate or Articles of Incorporation or By-Laws of the Company. 5. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal or state, is necessary in connection with the execution and delivery of the Note Purchase Agreement or the Notes. The opinion of Gardner, Carton & Douglas also shall state that the opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP, counsel to the Company, delivered to you pursuant to the Agreement, is satisfactory in form and scope to Gardner, Carton & Douglas, and, in its opinion, the Purchasers and it are justified in relying thereon and shall cover such other matters relating to the sale of the Notes as the Purchasers may reasonably request. 47 EX-21 7 EX-21 EXHIBIT 21 NORTHWEST PIPE COMPANY SUBSIDIARIES OF THE REGISTRANT Thompson Pipe and Steel Company (a Colorado Corporation) Thompson Steel Pipe Company (a Delaware Corporation) Southwestern Pipe, Inc. (a Texas Corporation) P&H Tube Corporation (a Texas Corporation) EX-23 8 EX-23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Northwest Pipe Company on Form S-8 (File Nos. 333-20165 and 333-20167) of our report dated February 7, 1998, except for Note 18 for which the date is March 6, 1998, on our audits of the consolidated financial statements and financial statement schedule of Northwest Pipe Company and Subsidiaries as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Portland, Oregon March 25, 1998 EX-27 9 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 904 0 26,987 1,825 20,530 71,666 81,126 23,679 132,051 20,615 0 0 0 64 70,715 132,051 150,833 150,833 119,716 119,716 11,382 0 1,817 17,918 6,818 11,100 0 0 0 11,100 1.73 1.68
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