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HomeMy WebLinkAboutS13-95 (2) 4 1. t 3036715 September 3. 1995 ORDINANCE NO. S13-95 AN ORDINANCE AUTHORIZING THE ISSUANCE OF $2,300,000 AGGREGATE PRINCIPAL AMOUNT ADJUSTABLE RATE ECONOMIC DEVELOPMENT REVENUE BONDS (GIBSON GUITAR CORP. PROJECT), SERIES 1995, BY THE CITY OF ELGIN, ILLINOIS, PURSUANT TO ITS HOME RULE POWERS UNDER SECTION 6(A) OF ARTICLE VII OF THE CONSTITUTION OF THE STATE OF ILLINOIS AND IN CONFORMANCE WITH ORDINANCE NO S2-80 ADOPTED BY THE CITY COUNCIL OF THE ISSUER ON FEBRUARY 13, 1980, AS SUPPLEMENTED AND AMENDED; AUTHORIZING THE LENDING OF THE PROCEEDS OF SAID BONDS TO GIBSON GUITAR CORP. FOR THE PURPOSE OF FINANCING ALL OR A PORTION OF THE COSTS OF A PROJECT CONSISTING OF THE ACQUISITION OF LAND WITHIN THE CITY OF ELGIN, KANE COUNTY, ILLINOIS, AND THE ACQUISITION, CONSTRUCTION AND EQUIPPING OF A MANUFACTURING FACILITY THEREON; AUTHORIZING THE EXECUTION AND DELIVERY OF A TRUST INDENTURE, A LOAN AGREEMENT, A REMARKETING AGREEMENT, A LIMITED OFFERING AGREEMENT, A TAX REGULATORY AGREEMENT, A PRELIMINARY LIMITED OFFERING MEMORANDUM AND A LIMITED OFFERING MEMORANDUM; APPROVING RELATED DOCUMENTS; AUTHORIZING THE EXECUTION AND DELIVERY OF RELATED DOCUMENTS; AND PRESCRIBING OTHER MATTERS RELATED THERETO. WHEREAS, the City of Elgin, Illinois (the "Issuer") is a home rule unit of government under Section 6(a) of Article VII of the 1970 Constitution of the State of Illinois and is authorized under Ordinance No. S2-80 adopted by the City Council of the Issuer on February 13, 1980, as supplemented and amended by Ordinance No. S4-84 adopted by the City Council of the Issuer on November 26, 1984, and by Ordinance No. S1-85 adopted by the City Council of the Issuer on February 25, 1985 (said ordinances collectively being the "Enabling Ordinance") to issue revenue bonds to finance the "Project Costs" of "Economic Development Projects"; and WHEREAS, Gibson Guitar Corp., a Delaware corporation (the "Borrower"), proposes to acquire land within the boundaries of the Issuer and to acquire. construct and equip a manufacturing facility thereon (the "Project"); and WHEREAS, by a resolution passed and duly adopted by the City Council of the Issuer on May 24, 1995 (the "Inducement Resolution"), the Issuer entered into a Memorandn;n of Agreement with the Borrower providing for the actions of the parties necessary for the issuance: of revenue bonds to finance the Project; and WHEREAS, the Borrower, in reliance upon and pursuant to the Inducem:r Resolution, has proceeded with the developing and planning of the Project; and WHEREAS, it is now proposed that the Issuer issue its Adjustable Rate Economic Development Revenue Bonds (Gibson Guitar Corp. Project), Series 1995, in an aggregate principal amount not to exceed $2,300,000 (the "Bonds") to provide moneys to make a loan to the Borrower for the purpose of financing all or a portion of the costs of the acquisition, construction and equipping the Project; and WHEREAS, the proceeds of the Bonds will be loaned to the Borrower pursuant to a Loan Agreement dated as of September 1, 1995 (the "Loan Agreement"), between the Issuer and the Borrower; and WHEREAS, the Issuer will execute a Trust Indenture dated as of September 1, 1995 (the "Indenture"), between the Issuer and American National Bank and Trust Company of Chicago, as trustee (said bank, in its individual capacity, being herein the "Bank", and in its capacity as trustee under the Indenture, being herein the "Trustee"); pledging, among other things, the income and revenues received under the Loan Agreement as security for the Bonds; and WHEREAS, as further security for the Bonds, the Borrower will cause to be delivered to the Trustee an irrevocable direct pay letter of credit (the "Letter of Credit") issued by the Bank; and WHEREAS, the Borrower has requested the Issuer to enter into a Limited Offering Agreement to be dated the date of issuance of the Bonds (the "Limited Offering Agreement") with the Borrower and the Bank (the Bank, in its capacity as placement agent under the Limited Offering Agreement, being herein the "Offering Agent") with respect to the initial placement of the Bonds and a Remarketing Agreement dated as of September 1, 1995 (the "Remarketing Agreement") with the Borrower and the Bank as remarketing agent for the Bonds (the Bank, in such capacity, being the "Remarketing Agent"); and WHEREAS, copies of the forms of the following documents relating to the transactions described above have been filed with the Issuer: (a) the Indenture with a copy of the form of the Bonds attached as an exhibit; (b) the Loan Agreement; (c) the Limited Offering Agreement; (d) the Remarketing Agreement; (e) the Letter of Credit; (f) a Preliminary Limited Offering Memorandum with respect to the Bonds ("Preliminary Limited Offering Memorandum"); and (g) a Tax Regulatory Agreement to be dated the date of issuance of the Bonds, among• the Issuer, the Borrower and the Trustee (the "Tax Agreement"); and - 2 - • • WHEREAS, it appears that each of the instruments above referred to, which are now before this meeting, is in appropriate form and each instrument referred to in (a), (b), (c), (d), (f) and (g) above is an appropriate instrument to be executed and delivered by the Issuer for the purpose intended; and WHEREAS, pursuant to the requirements of Section 147(f) of the Internal Revenue Code of 1986, as amended (the "Code"), a public hearing for which there was reasonable public notice has been held by the Issuer concerning the issuance of the Bonds; NOW, THEREFORE, Be and It is Hereby Ordained by the City Council of the City of Elgin, Illinois, as follows: Section 1. Findings. It is hereby found, determined and declared by the City Council of the Issuer that: (a) the Project will (i) provide increased employment opportunities and relieve conditions of unemployment and underemployment within the Issuer, (ii) encourage the increase of industry and commerce within the Issuer, and (iii) increase the tax base within the Issuer, thereby furthering valid public purposes; (b) the Project, the financing of the Project and the issuance of the Bonds are determined to serve a valid public purpose in accordance with the Constitution and laws of the State of Illinois and are approved; (c) the Project is an "Economic Development Project" within the meaning of the Enabling Ordinance and the financing thereof through the issuance of the Bonds and the loan of the proceeds thereof pursuant to the Loan Agreement is consistent with the purposes of the Enabling Ordinance; (d) the Project, the issuance and sale of the Bonds to finance the same, the execution and delivery of the Bonds, the Indenture, the Loan Agreement, the Limited Offering Agreement, Remarketing Agreement and the Tax Agreement, and the performance of all covenants and agreements of the Issuer contained therein and of all other acts and things required under the Constitution and laws of the State of Illinois to make the Bonds, the Indenture, the Loan Agreement, the Limited Offering Agreement, the Remarketing Agreement and the Tax Agreement valid and binding obligations of the Issuer in accordance with their terms, are authorized by the Constitution and laws of the State of Illinois and by the Enabling Ordinance; (e) it is desirable that the Bonds in an aggregate principal amount not to exceed $2,300,000, initially dated the date of the original issuance thereof, be issued by the Issuer upon the terms set forth in the Indenture, under the provisions of which the Issuer's interest in the Loan Agreement and the payments due the Issuer thereunder will be pledged and assigned to the Bondholder as security for the payment of principal of, premium, if any, and interest on the Bonds; - 3 - • (f) no member of the City Council of the Issuer or officer, agent or employee of the Issuer has an interest, financial, employment or other, in the Borrower or in the transactions contemplated hereby or by the Indenture, the Loan Agreement, the Limited Offering Agreement or the Remarketing Agreement, or the issuance and sale of the Bonds; and (g) it is the intention of the Issuer that the Bonds be reimbursement bonds for the purpose of Section 1.150-2 of the Income Tax Regulations issued pursuant to the Code and that the proceeds of the Bonds be used, in whole or in part, to reimburse expenditures made prior to the issuance of the Bonds. Section 2. For the purpose of financing a portion of the cost of the Project, the issuance of revenue bonds of the Issuer to be known as the "City of Elgin, Illinois, Adjustable Rate Economic Development Revenue Bonds (Gibson Guitar Corp. Project) Series 1995" in an aggregate principal amount not to exceed $2,300,000 is hereby authorized. The Borrower has agreed that to the extent bond proceeds are not sufficient to pay all of the costs of financing the Project, the Borrower will pay all such excess costs in order to complete the financing of the Project. Any such payments made by the Borrower shall in no manner affect or reduce the payments required by the Loan Agreement hereinafter authorized and approved. Section 3. The Bonds shall be issued in such form and denominations as are set forth in the Indenture and the interest on the Bonds will be payable on the dates and at such places as are specified in or determined pursuant to the Indenture but not later than January 1, 2016. The Bonds shall have an original issue date, shall mature, shall be subject to redemption and shall bear interest as provided in the Indenture. The Bonds shall initially bear interest at the Weekly Rate (as defined in the Indenture) as determined by the Remarketing Agent pursuant to and in accordance with the Indenture; provided that the initial Weekly Rate shall not exceed 7% per annum. The Bonds shall be dated and numbered as provided in the Indenture. The form of the Bonds and the provisions for execution, authentication, payment and registration shall be substantially as set forth in the Indenture. Subject to the limitations contained in this Ordinance, the Issuer hereby delegates to the Mayor of the Issuer, whose determination shall be conclusively evidenced by his execution of the Indenture, the power and duty to determine (i) the original issue date of the Bonds, (ii) the principal amount of the Bonds, (iii) the initial interest rate for the Bonds, and (iv) the final maturity for the Bonds. Section 4. The Bonds shall be special, limited obligations of the Issuer and, except to the extent payable from Bond proceeds or moneys from the investment thereof, shall be payable solely from the revenues and receipts and other amounts received by or on behalf of the Issuer pursuant to the Loan Agreement, from certain funds pledged under the Indenture, and from funds received by the Trustee under the Letter of Credit or such other Credit Facility (as defined in the Indenture), if any, as may then be held by the Trustee for the benefit of owners of the Bonds. The Bonds and interest and premium, if any, thereon shall not be deemed to constitute an indebtedness or an obligation of the Issuer, the State of Illinois or any political subdivision therefor within the purview of any constitutional limitation or statutory provision or a charge against the general credit or taxing powers of any of them. No taxing powers of the Issuer, the State of Illinois or any political subdivision thereof are available to pay the Bonds or interest or premium, if any, thereon. The - 4 - • • • special, limited nature of the obligation represented by the Bonds is more fully set forth in the Indenture. Section 5. The payments under the Loan Agreement to be received by the Issuer under the terms of the Loan Agreement hereinafter authorized, as represented by the Borrower, are calculated to be sufficient to pay the principal of and premium, if any, and interest on the Bonds as the same become due and payable, and all of such payments shall be pledged for that purpose pursuant to, and in addition to such other purposes as are more fully set forth and provided for in, the Indenture. Section 6. The execution, delivery and performance of the Indenture, the Loan Agreement and the Remarketing Agreement by the Issuer are hereby authorized. The Indenture, the Loan Agreement and the Remarketing Agreement shall be in substantially the forms submitted to this meeting as hereinabove recited, with such changes, insertions or omissions as may be approved by the Mayor or City Clerk of the Issuer, whose approval thereof shall be conclusively evidenced by his execution of each such instrument. Section 7. The offering of the Bonds for sale by the Offering Agent and the execution, delivery and performance of the Limited Offering Agreement by the Issuer are hereby authorized. The Limited Offering Agreement shall be in substantially the form submitted to this meeting as hereinabove recited, with such changes, insertions or omissions as may be approved by the Mayor or City Clerk of the Issuer, whose approval thereof shall be conclusively evidenced by his execution of the Limited Offering Agreement. Section 8. The Issuer does hereby authorize and approve the distribution of the Preliminary Limited Offering Memorandum by the Offering Agent substantially in the form submitted herewith, with such modifications, revisions, insertions, deletions, amendments and supplements to the Preliminary Limited Offering Memorandum as shall be approved by the officer executing the Limited Offering Agreement, with such execution to constitute conclusive evidence of such person's approval and the Issuer's approval of any such modifications, revisions, insertions, deletions, amendments or supplements to the form of the Preliminary Limited Offering Memorandum. The Issuer does hereby authorize and approve the distribution of an Limited Offering Memorandum (the "Limited Offering Memorandum") substantially in the form of the Preliminary Limited Offering Memorandum with such modifications, amendments and supplements to the final Limited Offering Memorandum as shall be approved by the officer executing the Limited Offering Agreement, with such execution to constitute conclusive evidence of such person's approval and the Issuer's approval of any such modifications, amendments or supplements, but subject to the limitations and representations with respect thereto made by the Issuer as set forth in the Limited Offering Agreement and in the Limited Offering Memorandum. Section 9. The Issuer does hereby authorize and approve the execution by its Mayor or City Clerk and the delivery of the Tax Agreement which imposes certain requirements relating to the Project and the investment and use of funds held by the Trustee under the Indenture to ensure compliance with the provisions of the Code. The Tax Agreement shall be in substantially the form - 5 - • • as shall be approved by the Mayor or City Clerk of the Issuer executing the same, with such execution to constitute conclusive evidence of such person's approval. Section 10. The Letter of Credit in substantially the form submitted to this meeting as hereinabove recited is hereby approved. Section 11. The execution and delivery of the Bonds to the Trustee for authentication, acceptance and redelivery of the authenticated Bonds, and the delivery of the Bonds to the purchasers thereof or their duly authorized attorneys-in-fact, against receipt by the Trustee of the amount of the purchase price for the Bonds in payment therefor, together with the payment of certain expenses in connection with the issuance of the Bonds, are hereby authorized. Section 12. The Mayor of the Issuer, or any person authorized to carry out the duties of said office, is hereby authorized to execute on behalf of the Issuer the Indenture, the Loan Agreement, the Limited Offering Agreement, the Remarketing Agreement, the Tax Agreement, the Preliminary Limited Offering Memorandum, the Limited Offering Memorandum and the Bonds, and the City Clerk of the Issuer, or any person authorized to carry out the duties of said office, is hereby authorized to attest such documents, and the Mayor and City Clerk are hereby authorized to deliver such instruments and documents on behalf of the Issuer and to execute and deliver all such instruments, documents or certificates, and to do and perform all such things and acts, as each shall deem necessary or appropriate in furtherance of the issuance of the Bonds and the carrying out of the transactions authorized by this Ordinance or contemplated by the instruments referred to in this Ordinance. The Bonds shall be executed on behalf of the Issuer by its Mayor with his manual or facsimile signature and attested by the manual or facsimile signature of the City Clerk of the Issuer. Section 13. The Indenture, the Loan Agreement, the Limited Offering Agreement, the Remarketing Agreement, the Preliminary Limited Offering Memorandum, the Limited Offering Memorandum, the Tax Agreement and the Letter of Credit, as approved or acknowledged by this Ordinance, all of which are hereby incorporated in this Ordinance by reference thereto, shall be placed on file at the office of the Issuer and made available for public inspection by any interested party immediately following the passage and approval of this Ordinance. Section 14. The Mayor and the City Clerk are hereby authorized to take all actions and execute all additional documents, including, without limitation, an IRS Form 8038 and a Letter of Representations with The Depositary Trust Company, as are reasonably necessary and appropriate to the issuance of the Bonds. Section 15. American National Bank and Trust Company of Chicago, at the direction of the o w B rro er, is hereby designated as the Trustee under the Indenture. Section 16. The Issuer hereby makes the election described in Section 144(a)(4)(A) of the Internal Revenue Code of 1986, as amended, to issue the Bonds in the aggregate principal amount as set forth in the Indenture as executed pursuant to this Ordinance (subject to the limitations set forth herein). - 6 - Section 17. The provisions of this Ordinance shall constitute a contract between the Issuer and the owners of the Bonds hereby authorized, and after the issuance of the Bonds, no modification, alteration, amendment or supplement to the provisions of this Ordinance shall be made except as otherwise provided in the Indenture. Section 18. If any section, paragraph, clause or provision of this Ordinance shall be ruled by any court of competent jurisdiction to be invalid, the invalidity of such section, paragraph, clause or provision shall not affect any of the remaining sections, paragraphs, clauses or provisions hereof. Section 19. The Issuer hereby determines that all meetings of the Issuer at which action was taken in connection with the authorization and approval of the Indenture, the Loan Agreement, the Limited Offering Agreement, the Remarketing Agreement, the Preliminary Limited Offering Memorandum, the Limited Offering Memorandum, the Letter of Credit and the Tax Agreement, and the authorization of the issuance of the Bonds, were duly and legally called and held proper public meetings, open to the public at all times in compliance with all requirements of law and rules of procedure of the Issuer and the State, and notice of the time and place of each meeting was given and minutes of such meetings have been kept and are or will be made available as required by procedures adopted by the Issuer and by "An Act in relation to meetings", and all laws amendatory thereof and supplementary thereto. Section 20. All ordinances and resolutions and parts thereof in conflict with the provisions of this Ordinance are, to the extent of such conflict, hereby repealed. Section 21. This Ordinance shall be in full force and effect from and after its passage and approval. PASSED this 13th day of September,. 1995 VOTE: AYES 7 NAYS 0 ABSENT 0 APPROVED this 18th day of October, 1995. c/ Kevin Kelly Mayor Attest: • s/ Dolonna Mecum Dolouna Mecum, City Clerk - 7 - ARIANO, ANDERSON, BAZOS, HARDY & CASTILLO A PARTNERSHIP OF PROFESSIONAL CORPORATIONS FRANKV.ARIANOATTORNEYS AT LAW 474SUMMIT STREET ALLENLEN M.ANDERNDERSON OTHER PETER C.BAZOS 1250 LARKIN AVENUE, SUITE 100 ELGIN,ILLINOIS 60120 RALPH C.HARDY ELGIN, ILLINOIS 60123 TELEPHONE(708)695-2400 WILLIAM F.CASTILLO TELEPHONE (708) 742-8800 FAX(708)695-8397 DANIEL A.WEILER GARY M.VANEK FAX (708) 742-9777 STATE BANK OF HUNTLEY BUILDING BRETT E.ANDERSON HUNTLEY,ILLINOIS 60142 (708)669-5020 CHAD I.BUTTELL June 20, 1995 Mr. Raymond H. Moller, Director Business Services and Properties City of Elgin 150 Dexter Court Elgin, Illinois 60120-5555 Dear Ray: Enclosed is one fully executed copy of the Memorandum of Agreement which has been signed by my client, Gibson Guitar Corp. V ry ly yours, PETE . BAZOS PCB/drg Enclosure cc: Mr. Howard Goldfinger w36\10969.1et VJ / SEYFARTH, SHAW, FAIRWEyATHER & GERALDSON ATTORNEYS AT LAW 916 CONNECTICUT AVENUE.N.W. 55 EAST MONROE STREET - SUITE 4200 400 CAPITOL MALL-SUITE 2350 WASHINGRON.D.C.900084004 SACRAMENRO CA 958144420 uosl 4e69400 CHICAGO. ILLINOIS 60603-5803 19101 ee9.e8118 FAX 1106 616.6393 FAX 19191 9694939 (312)346-8000 ONE CENTURY PLAZA-SUITE 8300 FAX(312)269-8889 700 I.OUISIANA STREET-SUITE 3900HOUSTON.TX 770094731 9029 CENTURY PARE EAST LOS ANTI e3 ELES.CA 900e7 90 17131 9969300 01a s77.7900 FAX 17131 996•!3{0 FAX 01101 901.6219 INTERNATIONAL WRITERS DIRECT DIAL - 900 THIRD AVENUE AVENUE I.OUJISE 500.SOlVE 9 NEW YORE.NY 100614798 1050 BRUSSELS.BEI.OIVM 1910 7166000 13191 269-8882 TELEPHONE 1391191947.60.25 FAX alb 759411e FAX 18l1191 e40.70.71 AFFILIATE FIRM 101 CALIFORNIA STREET-SUITE 9900 SAN FRANCISCO.CA 94111.6969 MATRAY.MATRAY S HAL ET 141513974613 BRUSSELS AND LIEGE.BELGIUM FAX 4151 3974549 COLOGNE.GERMANY September 5, 1995 Mr. Erwin W. Jentsch City of Elgin 150 Dexter Court Elgin, Illinois 60120-555 RE: $2,300,000 City of Elgin, Illinois, Economic Development Bond (Gibson Guitar Corp. Project), Series 1995 Dear Mr. Jentsch: I am enclosing a copy of an ordinance authorizing the issuance of the captioned bonds. These bonds are being issued for the benefit of Gibson Guitar Corp. and are intended to finance the acquisition, construction and equipping of a facility within the corporate boundaries of the City of Elgin. A TEFRA hearing has been scheduled with respect to these bonds for the City Council meeting on September 13, 1995. We would appreciate your placing the enclosed ordinance on the agenda of the City Council to be considered on September 13, after the TEFRA hearing. Of course, should you need any changes to be made in this ordinance, we will be most willing to make the same. Very truly yours, SEYFARTH, SHAW, F: ' AT .- R & GERALDSON .By '� David au DAS/cb El Elail • Agenda Item No . S ;,-,., May 8, 1995 TO: Mayor and Members of the City Council FROM: Richard B. Helwig, City Manager SUBJECT: Industrial Development Bond ( IDB) Application for Gibson Strings & Accessories, a division of Gibson Guitar Corp. PURPOSE The purpose of this memorandum is to approve an Inducement Resolution for Gibson Strings & Accessories, a division of Gibson Guitar Corp. using a portion of the City' s 1996 IDB authority. BACKGROUND Provisions in the Federal Tax Code allow home rule cities to issue private activity revenue bonds (also called industrial revenue or industrial development bonds) not to exceed $50/capita per calendar year. In Elgin' s case, this would amount to approximately $3 . 8 million per year. Qualified "small issue" private activity revenue bond financing permits a state or local governmental entity to finance manufacturing facilities for a business entity at a lower interest cost than they could obtain by the issuance of their own taxable debt. Interest on the bonds issued by the City of Elgin for such purposes is not included in federal gross income of the bondholder. When bonds are to be issued, the City would enter into an agreement with the company in which they agree to acquire, equipment, renovate or construct manufacturing facilities . Simultaneously, the City agrees to issue its bonds to finance a portion or all of the costs of the project. The private entity agrees to make all payments in amounts sufficient to meet debt service on the City' s bonds . Since the bonds are payable solely from revenues derived from the business, it is the credit of the business (or if there is a guaranty, an insurance policy or a letter of credit securing the bonds, the credit of the guarantor, the insurer or the issuer of the letter of credit) that will determine the interest rate of the bonds . This year, Elgin Corrugated Box, through American r Industrial Revenue Bond Application May 8, 1995 Page 2 National Bank - Elgin, requested a portion of the City' s IDB 1995 authority to help finance their expansion. Project Gibson Strings is applying for City approval of a $2 , 000, 000 industrial revenue bond, likely to be sold through American National Bank. Proceeds will be used to purchase land for $333, 000 to construct a new 28, 000 square foot building (ex- pandable to 40, 000 square feet) for $1, 000, 000, purchase equipment for $627, 000 and pay legal and financing costs. The project is located in Fox Bluff Corporate Center. The company is currently located in Elgin, near the Elgin Community College main campus . The new building of approxi- mately 28,000 square feet will replace a 17, 800 square foot facility. Management reports a 25% increase in employment over the past year, with production requiring two shifts and additional space. The new building will permit a third divi- sion of the company to be added to the Elgin facility. The product of the company is manufacturing guitar strings, parts and accessories . The market is international, with domestic sales through independent, specialized retailers and foreign sales to wholesalers . Some 69 people work for the company, of which 49 live in Elgin. New job generation will be 31 positions . All positions are full-time. The new posi- tions will be two clerical, 20 factory, six supervisory and three managerial . Average salaries are $24 , 000 with factory labor salaries about $16 ,000 . Benefit to the City' s tax base will likely be some $300,000 to $500, 000 of equalized assessed valuation. At a tax rate of $1 . 90 and $7 . 80 for the City and all governments, expected revenues will be $6 , 000 and $30, 000, respectively. Review Process Speer Financial performed a financial analysis of the company. Additionally, American National Bank, which is lending the money, has completed an analysis of the company and feels comfortable that their loan will be repaid. Speer's report, which recommends approval of Gibson String' s IDB application, is attached to this memorandum. COMMUNITY GROUPS/INTERESTED PERSONS CONTACTED None. FINANCIAL IMPACT All costs pertaining to the IDB issuance will be borne by Gibson String, the issuer. In no way is the City responsible for the repayment of the bonds . Should the company default, the actual lender of the money (ANB) will suffer the loss . Industrial Revenue Bond Application . May 8, 1995 Page 3 Approximately $300,000 would remain available in IDB funding for 1996 . Gibson Strings & Accessories, along with the IDB application, has paid the required $2 , 500 fee. LEGAL IMPACT The inducement resolution expresses the City' s intent to issue the requested bonds if the terms and conditions of sale are agreed upon. RECOMMENDATION It is recommended that an Inducement Resolution be passed for $2 . 0 million in Industrial Development Bonds . Respectfully submitted, ztkuN-7-2 ames R. Nowicki }irrance Director p/ Raymond H. Moller, Director Business Services and Properties l4 :7 Richard B. Helwig City Manager amp Attachments • 05.05/95 16: 51 /71 312 346 8833 SPEER FINANCIAL OO2.004 SPEER FINANCIAL, INC. PUBLIC FINANCE CONSULTANTS SINCE 1954 EI.WOOD BARCE RICHARD A.I'AvIA KEVIN W WCANNA DAVID F.PHILups LARRY P BURCER DANIEL D.FORBES MARIAN bMRRfTu] CHAIRMAN PJIPHRu3 PRFSIIRwf RR VIR nutiro +T VILE MKIIkiFIT VIC2►HIp7D'V!• May 5, 1995 The Honorable Kevin B. Kelly and Members of the City Council Cityof Elgin gin 150 Dexter Court Elgin, IL 60120 Dear Mayor and Council: Pursuant to the request of the City, Speer Financial, Inc. has reviewed the industrial revenue bond application, and supporting documentation including audited financial staten.ents, of Gibson Strings & Accessories, a division of Gibson Guitar Corp. The audits are on 2. calendar year basis and are prepared by Grant Thornton. Gibson Strings is applying for City approval of a $2,000,000 industrial revenue bond, likely to be sold through American National Bank. Proceeds will be used to purchase land for • $333,000, construct a new 28,000 square foot building (expandable to 40,000 square feet) for $1,000,000, purchase equipment for $627,000 and pay legal and financing costs. The project is located in Fox Bluff Corporate Center. The company is currently located in Elgin, near the Elgin Community College main campus. The new building of approximately 28,000 square feet will replace a 17,800 square foot facility. Management reports a 25% increase in employment over the past year, with production requiring two shifts and additional space. The new building will permit a third division of the company to be added to the Elgin facility. The product of the company is manufacturing guitar strings, parts and accessories. The market is international, with domestic sales through independent, specialized retailers and foreign sales to wholesalers. Some 69 people work for the company, of which 49 live in Elgin. New job generation will be 31 positions. All positions are full-time. The new positions will be two clerical, 20 factory, six supervisory and three managerial. Average salaries are $24,000 with factory labor salaries about $16,000. Benefit to the City's tax base will likely be some$300,000 to $400,000 of equalized assessed valuation. At a tax rate of$1.90 and $7.80 for the City and all governments, expected revenues will be $6,000 and $30,000, respectively. Eitncial Analysis • As the accompanying table indicates, the parent company has been rapidly growing over the past five years. The table details the parent; no segment information is available. 05/05/95 16:51 '$1 312 346 8833 SPEER FINANCIAL 003.001 SPEER FINANCIAL, INC. -2- Sales revenues of Gibson Guitar and its subsidiaries have been growing significantly, with a 1 19% increase 1990 to 1994 and a 25% increase 1993 to 1994. Expenses have grown at about the same rate (114% and 24%, respectively). Net income has been stable as a percentage of sales over the past three years: 3.2%, 2.8%, and 3.4%. The expansion of sales has been reflected in the balance sheet for 1993 and 1994. Accounts receivables increased, doubling over two years. Inventory has also risen, although not unexpectedly for a growing business. As accounts receivable have risen, so have accounts payable. The $2,000,000 of bonds are to be retired over 20 years at $50,000 of principal plus interest annually for each of the first five years. The remaining $1,750,000 will be retired with approximately level debt service over the next 15 years. The bonds will pay interest on a floating rate. Maximum annual debt service (at an estimated high rate of 9%) should be no more than $275,000. Results of 1994 provide ten times coverage of this amount, without considering income tax benefits. This is a very comfortable number. The company does not have a lot of long-term debt (about $9,000,000), although short-term debt is approximately $15,000,000. Conclusion In summary, we find the company, based on its audited financial information, to be financially strong. The IRB project will expand its presence in Elgin. We find this a good credit and worthwhile project and recommend that the City proceed with the inducement resolution. We would be pleased to discuss this with you. Sincerely, 6,..227t1;C Kevin W. McCanna President KWM/dv -r 0 o GIBSON GUITAR AND SUBSIDIARIES CALENDAR YEARS i1�99 p - . y PGev , 1rslCim. $40,826,621 $44,804,849 $53,265,042 $70,942,858 $88,508,480 El . Dir xt Caen - 30,250,266 33,847,873 39,610,191 51,286,441 63,134,277 8,122,703 9,789,804 9,476,080 15,330,085 19,017,508 H n1. M. rrw.r h+'4wT 38,372,969 43,637,677 49,086,271 66,616,526 82,151,785 H !!. \iA 41 l., LT'. Other eases . 1,236,150 1,094,881 2,503,302 2,331,754 3,363,113 a • 'T 1,217,502 72,291 1,675,469 1,994,578 2,993,582 • Balance Sheet - Parta! A a_ Cam; $88,856 $24,618 $162,282 $182,459 $92,139 ActIOntseRec itb1e ' 4,703,857 6,031,808 6,844,659 9,676,581 14,081,045 ' co 9,629,786 10,989,433 10,210,488 12,609,045 15,160,725 n I ungIb ' 1,080,096 1,107,868 1,198,312 1,544,399 1,887,246' c, Current bi It 7,646,237 I 12,222,381 11,852,693 17,839,017 25,117,667 el r Equity , , 2,984,327 i 3,056,618 4,847,201 7,089,665 10,083,247 May 5, 1995 it,. o , 0 1 ' CITY OF ELGIN . Application for Industrial Development Bond Financing Business Name: Gibson Strings&Accessories,a Division of Gibson Guitar Corp. Address: 1725 Fleetwood Dr. City, State: Elgin,IL 60123 Representative: Howard Goldfmger Telephone: 708-741-7315 Fax: 708-741-4644 Federal Tax ID Number: 73-1244520 Amount of Proposed Bond Issue: $2,000,000 Name of Bond Purchaser: Public Deal Form of Organization of Borrower: Corporation Name of Bond Counsel: David A. Saunders Seyfarth, Shaw,Fairweather&Geraldson Name of Corporate Lawyer: Peter C.Bazos Ariano,Anderson, Bazos,Hardy&Castillo Proposed Use of Proceeds: To construct a 28,000-30,000 square foot manufacturing facility,expandable to 40,000 square feet. Also,to provide financing for manufacturing machinery and equipment. All expenditures are being made to provide the needed capacity to accommodate the growth of the company presently and in the future. Is proposal a new facility? Yes. To be constructed on Lot 17 in the Fox Bluff Corporate Center. Is the proposal industrial/ commercial/Retail? Industrial What is the principal product of the company? Guitar strings,parts,and accessories What are the proposed financing arrangements? See attached Exhibit A (Commitment Letter) Give the approximate dates of construction: July of 1995 through January of 1996 ECONOMIC A. Project Costs 1. Construction Costs: $1,000,000 2. Financing Costs: $40,000 3. Equipment Costs: $627,000 4. Land: $333,000 5. Architectural: $0 (included in Construction Costs) 6. Legal: $45,000 7. Other: $4,500 B. Financial Stability 1. Prospectus: See Exhibit B 2. Reports to stockholders: N/A 3. Five-year independently audited financial statement: See Exhibit B 4. Most recent interim financial report: See Exhibit B 5. Dun&Bradstreet Report: See Exhibit B 6. Name and address of project lender: American National Bank and Trust Company of Chicago-Elgin Division. 24 East Chicago Street Elgin, IL 60120 7. Commitment letter for financing: See Exhibit A 8. Name,address and contact of bond purchaser: None. Public deal. 9. Estimated tax yield: $28,000-$30,000 in real estate tax annually plus increase in Illinois income taxes. 10. Estimated increased payroll: $11,334.22 per week. 11. Estimated assessed value of additional and total real property: $2,250,000. 12. Number of years in business: 101 years (Company was acquired by current management in 1986). Is any litigation pending by or against company? X Yes * No •Normal commercial litigation. Type of Product: Guitar strings,parts,and accessories. Description of Product: Several products as mentioned above. Market area served: United States and International. 2 C. Employment 1. Number of Current Employees: Full Time: 69 Part Time: 0 Managers: 3 of the 69 Employees living in Elgin: 49 2. Number of new jobs created/retained (please specify) a. Permanent Full Time: 31 b. Permanent Part Time: 0 c. Seasonal/Temporary: 0 3. Type of new jobs created/retained • a. Clerical: 2 b. Labor: 20 c. Supervisory: 6 d. Managerial: 3 4. Average employee salary(present): Average salary for the facility is$465.20 weekly. And salary for labor is$306.57. As employees develop their skills, incentives are given where hourly performance standards are exceeded. 5. Yearly payroll (present): $1,514,093.75 (1994)(est. 1995: $1,669,137.60). 6. Employee skills required: Previous experience in manufacturing is desired but not required. Clerical: experience,technical skills, and/or education; Labor: skilled and unskilled; Supervisory and managerial: experience in industry, technical skills,high school and/or college education. D. Environmental 1. Plant a. Location: Lot 17 in Fox Bluff Corporate Center b. Land Size: 3.73 acres Square Feet: 162,394 c. Present Plant: 17,834 sq. ft. New Plant: 28,000-30,000 expandable to 40,000 sq. ft. d. Present Land Coverage: 44,348 sq.ft.(1.03 acres) • 2. Pollution 1. Water/Sewer effluent: 100% Domestic None Industrial None Unusual Wastes 2. Air/Foreign or toxic substances: None 3. Odors: No exterior odors. 4. Glare: None 5. Noise: No exterior noise. • 6. Pollution devices required: None 7. According to City Engineer, are there adequate number of Water and Sewer Connection to the site? _X Yes _No E. Community Services 1. Traffic Number of vehicles into site per day: Trucks: 5 Cars: 40-45 Other Vehicles: 0 2. Ability of street to carry additional land: a. Access(sketch of ingress/egress patterns)-Forthcoming. b. Safety(plans to facilitate any substantial traffic movement)-Forthcoming. 3. Utility Requirements a. Water used per day: 1,100 gallons(this is on the high end). b. Fire protection adequate? Yes, sprinkler system to Fire Dept. &ADT connection(alarm system). c. Additional water or sewer requirements(i.e.,pretreatment,extensions): None. d. Type of Sewage: 100%domestic. 4. Projected annual electrical usage: 57,000 KWH per month. Projected annual gas usage: 2,400 therms per month. 5. Schools Will you project significantly increased school enrollment: No. 4 CLVIC AWARENESS A. Provide evidence of past civic activity: Employer and corporate contributions to the United Way. Contributions to the Special Olympics. Contribution to the Shriner's Circus. Donations of strings to prisons.Elgin Chamber of Commerce, B. How will your company support local civic activities? Gibson Strings le Acc esorios will continue to support the above-mentioned entitles and plans to increase involvement going forward. All supportive financial documents and infa„uation required by the City of E'!gin must be supplied before application will be considered by the City Council of the City of Elgin. We agree to all the conditions as specified in applicable city ordinances. Title: Ctf Q(\ f f _ Title: VI C R 1 U EA(t. Chief Executive Officer Chief Financial Officcr Date: PD/3 JI • EXHIBIT A • 71) 1. May 3, 1995 Mr. Howard Goldfmger Gibson Strings and Accessories 1725 Fleetwood Drive Elgin, IL 60123 Dear Howard: American National Bank and Trust Company of Chicago is pleased to commit to provide the following loans to Gibson Strings and Accessories, a division of Gibson Guitar Corp., on the terms and conditions hereinafter set forth. INTERIM CONSTRUCTION LOAN BORROWER Gibson Strings and Accessories, a division of Gibson Guitar Corp. AMOUNT Up to $2,000,000, subject to an 80% advance on the "As Completed Value" appraisal of the real estate, improvements constructed thereon, and machinery, equipment, and fixtures installed as such improvements. PURPOSE To finance the construction of a 28,000 - 30,000 square foot building in Fox Bluff Corporate Center in Elgin, IL. TERM 8 - 9 months. REPAYMENT Interest monthly, principal at maturity. COLLATERAL 1st mortgage on commercial real estate and building located on Lot 17 in the Fox Bluff Corporate Center in Elgin, IL. RATE The Bank's prime rate, floating. COMMITMENT FEE None. DISBURSEMENTS Construction draws are made once a month and are disbursed via a title company after our inspecting architect verifies that the work paid for by the draw has been completed. • DRAF1 IRB FINANCING BORROWER Gibson Strings and Accessories, a division of Gibson Guitar Corp. AMOUNT Up to $2,000,000, subject to an 80% advance on the appraised value of the real estate and other qualified assets. PURPOSE End financing for 28,000 - 30,000 square foot building in Fox Bluff Corporate Center in Elgin, IL (refinance interim construction loan outlined on previous page). TERM 5 year call provisions. REPAYMENT Principal plus interest based on a 20 year, step-up amortization. COLLATERAL 1st mortgage on the land and building located in Fox Bluff Corporate Center in Elgin,IL, a first priority lien on existing machinery and equipment, as well as a security interest in other qualified assets. RATE Various, depending on the option chosen by Gibson Guitar Corp. per our IRB proposal. COMMITMENT FEE None. UNFUNDED BOND PROCEEDS Gibson Strings and Accessories has up to three years to utilize excess bond proceeds to purchase qualified assets. These funds will be held in an escrow account in the interim and may be invested. GENERAL TERMS AND CONDITIONS FINANCIAL REPORTING Audited financial statements prepared by Grant Thornton or another CPA firm acceptable to the Bank to be submitted within 90 days after the fiscal year end for Gibson Guitar Corp. Quarterly per book financial statements for Gibson Guitar Corp. submitted within 30 days after quarter end. APPRAISAL Amounts financed under the construction line,term loans, and IRB will not exceed 80%of the appraised value of the underlying assets securing the loans as determined by appraisals acceptable to the Bank, performed by an appraisers retained by the Bank, and paid for by Gibson Strings and Accessories. D RA F ENVIRONMENTAL AUDIT All real estate securing the IRB will be subjected to a Phase I environmental audit acceptable to the Bank, performed by an auditor retained by the Bank, and paid for by Gibson Strings and Accessories. RELATIONSHIP The Bank would expect to handle the local banking needs of Gibson Strings and Accessories including receipts, disbursements, and other related services as necessary. COVENANTS Covenants will mirror those in place in other borrowing agreements with other lenders of Gibson Strings and Accessories and Gibson Guitar Corp. CROSS DEFAULT The IRB will be cross defaulted with all other borrowing agreements with other lenders of Gibson Strings and Accessories and Gibson Guitar Corp. LEGAL FEES All legal fees incurred by the Bank in connection with documenting this transaction will be paid by Gibson Strings and Accessories, subject to agreed fee schedule outlined in American National Bank's IRB proposal in Appendix A. DOCUMENTATION Documentation of this transaction must be acceptable to the Bank and its counsel, in their commercially reasonable judgement. The commitment shall become effective upon your written acceptance below. This commitment shall remain effective until June 1, 1995 and is not assignable. If the terms of this commitment are acceptable to you,please evidence your acceptance by signing below in the space indicated. Agreed and accepted this day of 1995. Gibson Strings and Accessories, a division of Gibson Guitar Corp. By: By: Henry Juszkiewicz Roger Mitchell Its: Chief Executive Officer Its: Chief Financial Officer American National Bank and Trust Company of Chicago By: Its: EXHIBIT B GIBSON GUITAR CORP. General Information Gibson Guitar Corp. (the "Company") designs, manufactures and markets the finest quality acoustic and electric guitars, other fretted instruments such as banjos and mandolins, and a variety of guitar-related products and accessories including amplifiers, strings, picks and straps. The Company's product lines also include a well respected brand of drums and other percussion instruments, as well as electronically synthesized fretted and other musical instruments. The Company believes that it is one of the largest manufacturers and distributors of quality guitars in the world. It markets its products under a variety of well known and well-respected proprietary brand names, including Gibson, Epiphone, Steinberger, Tobias, Dobro, Oberheim, Zeta, Slingeriand and Tour Wear. Gibson is the leading premium-priced brand electric guitar in the United States, as well as a leading brand of acoustic and electric guitars worldwide. During the year ended December 31, 1994, the vast majority of the Company's revenues were derived from the sale of Gibson and Epiphone brand guitars, and approximately 45% of revenues were made to customers outside of the United States. Gibson brand fretted instruments have been manufactured in the United States continuously since 1894. The Company currently manufactures virtually all of its product lines in its ten United States manufacturing facilities, with the exception of its Epiphone product line, most of which is manufactured to the Company's design and quality specifications by several overseas sources, primarily in South Korea, and certain amplifier and accessories product lines are manufactured by various domestic and overseas sources. Since the Company was acquired by a group including current senior management in January 1986, net sales have grown from $11.4 million in 1986 to $88.5 million in 1994, and operating profit has increased from $854,000 to $6.4 million during the same period. These results were achieved primarily as a result of efforts by management to (i) capitalize on the strength of the Company's brand names to capture market share, (ii) emphasize and maintain product quality, (iii) extend and enhance existing product lines, (iv) develop new product lines through acquisitions or internal new product development, (v) increase sales in foreign markets where consumers generally prefer top-line United States brand name guitars, and (vi) improve operating and manufacturing efficiencies. The Company's strategy is to continue these efforts in order to strengthen its position of market leadership in the guitar and other fretted instrument markets and to diversify into complementary product lines of electronic and computer-based musical' instruments through intensified new product development. The Company sells its products in the United States through its direct sales force to primarily independent, specialized music product retailers. Outside the United States, the Company sells its products to independent wholesale distributors which service retail markets in Europe, Latin and South America, Asia and Africa. The Company markets its products through advertising and marketing campaigns which emphasize the quality and reputation of its products and the endorsement and use of its products by popular musicians. Many professional musicians and entertainers currently endorse the Company's products, and the Company maintains entertainment relations offices in New York, Los Angeles, San Francisco, Nashville, Orlando, London, Paris, Tokyo and Hamburg. • Music Products Industry and the Guitar Market The music products industry in which the Company operates is a large, mature and highly segmented international industry which includes musical instruments, sound reinforcement products (such as amplifiers and microphones), printed music and miscellaneous music-related accessories. The music products industry is highly segmented at both the manufacturing and retail levels. The fretted instrument segment of the music products industry consists primarily of acoustic and electric guitars. As reported by the National Association of Music Merchants, the trade association of music product retailers in the United States, the following table sets forth factory unit shipments to domestic retailers of acoustic and electric guitars during the last five years: 12 Q 1191 1922 1993 1994 Acoustic guitars 311,843 336,748 396,767 492,200 555,576 Electric guitars 320.264 297,504 284.995 369,068 395.65Q 632,107 634,252 681,762 861,268 951,2213 The Company manufactures and sells the finest quality guitars, which it broadly defines as instruments capable of use by professional musicians. The market for quality guitars is bifurcated according to price, with premium-priced instruments, generally selling for over $1,000, at the higher end of the market and popular-priced instruments, that are nonetheless acceptable in terms of quality, generally selling for between $200 and $1,000, at the lower end of the market. At the higher end of the market, the principal competitive factors are brand name recognition, product quality and technical capabilities. The principal market for premium-priced electric and acoustic guitars consists of professional musicians, serious collectors and enthusiasts, and affluent amateurs whose choice of instrument is often influenced by the instrument choice of popular musicians. The Company enjoys a substantial portion of this market. At the lower end of the guitar market, price is the primary competitive factor. While a number of large domestic manufacturers compete in the lower end of the guitar market, many of their products are private label brands made by manufacturers outside the United States. The principal market for popularly-priced guitars consists of amateurs with beginning or intermediate level skills. While the instrument choice of these purchasers is also influenced by the choices of popular musicians, these purchasers are more price sensitive. Buyers in this price group frequently `trade-up" and are influenced by styles brand associations in the upper level price group. The Company's Epiphone brand guitars are primarily designed to appeal to value-conscious buyers in this lower end of the market. The Company believes that, in terms of unit volume, the Epiphone brand is one of the largest selling guitar brands in the world.