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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Fiscal Year Ended December 31, 1996
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 333-05060C
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
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(Exact name of registrant as specified in its charter)
MINNESOTA 41-1771946
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
607 West Travelers Trail
Burnsville, Minnesota 55337
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 894-9229
---------------
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer had no revenues in its most recent fiscal year.
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 20, 1997 was $20,923,438, based on the price at which
the Company's Series A Convertible Preferred Stock was sold in September 1996.
For purposes of determining this number, all officers and directors of the
registrant are considered to be affiliates of the registrant, as well as
individual stockholders holding more than 20% of the Registrant's outstanding
Common Stock. This number is provided only for the purpose of this report on
Form 10-KSB and does not represent an admission by either the registrant or any
such person as to the status of such person.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: Common Stock, $.01 par value --
8,817,500 issued and outstanding as of March 20, 1997. Series A Convertible
Preferred Stock, $.01 par value -- 4,600,000 issued and outstanding as of
March 20, 1997.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
ITEM 1. BUSINESS
Excelsior-Henderson Motorcycle Manufacturing Company (the "Company"), which
is in the development stage, is designing and intends to mass produce American
made, proprietary, premium quality, heavyweight cruiser and touring motorcycles.
The Company's motorcycles will have names and designs that are reminiscent
of classic American heavyweight motorcycles manufactured earlier in this century
by the Excelsior Supply Company ("Excelsior Supply"). The Company has developed
several generations of prototypes of its initial motorcycle, a heavyweight
cruiser named the Excelsior-Henderson Super X (the "Super X"). The Company
first publicly unveiled a running prototype of the Super X at the Sturgis
Motorcycle Rally in Sturgis, South Dakota on August 5, 1996. The Company
anticipates commencing production of the Super X in 1998.*
The Company has chosen its trademarks to recall motorcycles manufactured
earlier in this century by Excelsior Supply. Excelsior Supply was one of the
"Big Three" motorcycle manufacturers, which also included Harley-Davidson and
Indian Motocycle Company. When it ceased production in 1931, Excelsior Supply
was manufacturing a Super X motorcycle and a Henderson DeLuxe Four, both of
which had excellent reputations for quality and performance. See "The
Excelsior-Henderson Heritage."
The Company has designed the Super X, and intends to design other
motorcycles, to have a nostalgic appeal by continuing certain distinctive design
features originally used by Excelsior Supply. The Company's proprietary
motorcycles will be of premium quality, with modern engineering and technology,
and not replicas of the motorcycles made by Excelsior Supply.* See "Motorcycles
Being Developed."
To create strong brand identity for its products, the Company intends to
foster a culture and lifestyle that is reminiscent of the classic American
motorcycling heritage.* To achieve this, the Company intends to design its
motorcycles and make custom parts and accessories available to facilitate
individual owner customization.* The Company also intends to sell rider apparel
and eventually to license certain of its trademarks on a broad range of consumer
items.* In addition, the Company intends to sponsor and promote a motorcycle
owners' group and a magazine for owners and enthusiasts.* See "Marketing.
THE EXCELSIOR-HENDERSON HERITAGE
In the early part of this century, it has been estimated that there were
over 200 American motorcycle manufacturing companies. Until 1931, the "Big
Three" motorcycle manufacturers, Excelsior Supply, Harley-Davidson and Indian
Motocycle Company, were dominant with an estimated 90% market share. Excelsior
Supply ceased operations in 1931 during the Great Depression and Indian
Motocycle Company ceased operations in 1953. Harley-Davidson has been the only
significant American heavyweight cruiser and touring motorcycle manufacturer
since 1953. See "Industry and Competition."
Founded in Chicago in 1876, Excelsior Supply was owned by bicycle producer
Ignatz Schwinn from 1911 until it ceased production. Excelsior Supply produced,
among others, a Big X motorcycle and a Super X motorcycle, featuring large
"X-twin" engines. In 1917, Excelsior Supply purchased the Henderson Motorcycle
Company ("Henderson") of Detroit, Michigan and continued to manufacture a
Henderson DeLuxe Four, which featured an inline four cylinder engine.
_____________________
*The information presented in this Annual Report on Form 10-KSB under the
headings "Item 1. Business", "Item 2. Property" and "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements within the meaning of the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements are subject to risks and uncertainties, including those
discussed under "Forward-Looking Statements" below, that could cause actual
results to differ materially from those projected. Because actual results
may differ, readers are cautioned not to place undue reliance on these
forward-looking statements. Certain forward-looking statements are indicated
by an asterisk.
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The motorcycles manufactured by Excelsior Supply and Henderson were a
significant force both on the racetrack and for road use. These motorcycles set
many performance records, including the first motorcycle to circle the world
(the Henderson DeLuxe Four) and the first to break the 100 m.p.h. speed barrier
(the Big X). Also, many police departments used motorcycles manufactured by
Excelsior Supply, as did the U.S. government during World War I. Several famous
personalities of the time owned motorcycles produced by Excelsior Supply,
including aviator Charles Lindbergh and automobile manufacturer Henry Ford.
Lindbergh later donated his Big X to Ford and the motorcycle currently resides
in the Henry Ford Museum.
In 1929, Excelsior Supply restyled its Super X and Henderson DeLuxe Four
motorcycles into its "Streamline" product line. Motorcycle historians have
cited these "Streamline" models as among the originators of the classic American
heavyweight motorcycle look, now commonly associated with other domestic and
foreign motorcycle manufacturers. For the Excelsior Supply Super X, this
classic look included a large displacement "X-twin" engine, a tear drop shaped
split fuel tank, full valanced fenders, a curved front frame that followed the
contour of the front fender, a low slung seat in which the rider sat into the
bike, a leading link front suspension with fork tubes that passed through the
front fender, a tank-mounted instrument panel, balloon tires and premium single
and two-tone paint finishes.
The Company has chosen its trademarks and is designing its motorcycles to
recall the nostalgic appeal of the motorcycles manufactured by Excelsior Supply.
The Company will further this nostalgic appeal by continuing certain distinctive
design features used by Excelsior Supply.*
DEVELOPMENTS TO DATE
Since the Company's inception, it has made considerable progress in
developing and executing its business plan.
1993 - Researched Excelsior-Henderson Heritage
- Developed Business Plan
- Incorporated Company
1994 - Filed Trademark Applications
- Engaged Engine Development Company
- Completed Initial Equity Financing
- Engaged Industrial Design Firms
- Commenced Market Research
1995 - Completed Second Equity Financing
- Continued Engine Development
- Engaged Chassis Design Engineers
- Assembled First Generations of Engineering and Styling
Models and Prototypes of Super X
- Engaged Market Development Firm
1996 - Completed Primary Executive Management Team Recruitment
- Successfully Bench Tested Running Proprietary Engine
- Completed Search for Location of Manufacturing and
Administrative Facility
- Integrated Proprietary Engine into Prototype Super X
- Publicly Unveiled Four Super X Prototypes at Sturgis
Motorcycle Rally
- Completed Third Equity Financing
1997 - Public Showing and Parade of Prototypes at Daytona Beach
1997 Bike Week
In 1993, Co-Founders Dan and Dave Hanlon researched a market opportunity
they believed existed in the heavyweight motorcycle industry. After researching
the market, they determined that the trademarks of Excelsior Supply had remained
substantially unused since Excelsior Supply ceased operations. They decided
that the combination of Excelsior Supply's available trademarks and its rich
heritage would facilitate marketing, and favorably
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influence the development of, the heavyweight motorcycles they planned to
manufacture. Since that time, the Company's engineering staff, working with
independent design and engineering firms, has been developing the Super X for
mass production. Concurrent with its product development efforts, the Company
began securing its trademarks and has been using its trademarks since such time.
Also during such time, the Company began its marketing efforts through educating
the public about the Company's heritage and products.
The Company's plan is to continue to develop the Super X for mass
production in 1998.* Concurrent with such development, the Company will begin
construction of its administrative and manufacturing facility, acquire tooling
for its production line, continue developing its initial dealer network by
soliciting dealer applications and secure governmental certification for the
Super X.* The Company will step up its marketing efforts with a nationwide
publicity campaign, including participating at consumer events and trade shows
to build demand for the Super X and will continue its market research efforts
through consumer and dealer focus groups.* The Company intends to hire
additional management, professional engineering, production and marketing staff
as needed.*
MOTORCYCLES BEING DEVELOPED
The Company is developing premium quality motorcycles in the heavyweight
motorcycle category.* A "heavyweight" motorcycle is typically understood to
mean motorcycles having engine displacements of 751cc or greater.
The new Super X is inspired by many of the distinctive design features of
the original Excelsior Supply Super X, including a large displacement "X-twin"
engine, a sleekly styled, tear drop shaped fuel tank, full valanced fenders, a
curved front frame that follows the contour of the front fender, a low slung
seat in which a rider will sit into the bike, a leading link front suspension
with fork tubes that pass through the front fender, a tank-mounted instrument
panel, wide profile tires and modern, high gloss, single and two-tone paint
finishes. The Super X, however, is a new motorcycle featuring modern
engineering and performance, and is not a replica of the original Excelsior
Supply Super X. Further design, engineering and testing of the Super X are
expected before mass production is commenced in 1998.* The following projected
specifications of the Super X are subject to further testing and are therefore
subject to change:
Wheelbase 65 Inches
Length 95 Inches
Weight 675 lbs.
Seat Height 26.5 Inches
Engine Size 85 Cubic Inches (1386cc)
Engine Design 50DEG. "X-twin"
Engine Cooling Air and Oil
Fuel Distribution Electronic Fuel Injection
Valves 4 Valves Per Cylinder, Overhead Cam
Driven
Frame Double Wishbone, Full Travel
Suspension with Leading Link Front End
Transmission 5 Speed, Constant Mesh
Fuel Capacity 5 Gallons
Load Capacity 675 lbs.
After commencement of mass production of the Super X, the Company intends
to expand its product line by developing additional models of motorcycles,
including a heavyweight touring motorcycle and an entry-level cruiser, each with
classic American heavyweight styling.*
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MANUFACTURING PLAN
As the Company moves toward mass production of the Super X, anticipated to
occur in 1998, it expects to engage experienced original equipment manufacturers
to produce various components of the Super X.* The Company will constantly
review such vendors to ensure strict quality control.* The Company will then be
the final assembler of the Company's proprietary and non-proprietary
components.* The Company believes that this is a common practice in the
industry. In addition to final assembly, the Company anticipates that the
assembly and testing of the powertrain, welding of frames and final painting
will occur in the Company's manufacturing facility to control quality.* The
Company believes that these processes are critical to the success of the
Company's products.
Based on current projections, the Company believes that it will initially
need approximately 175,000 square feet for its manufacturing and administrative
facility.* The Company is in the process of designing the floor plan for its
production line and preparing specifications for the engineering of such
production line. After the Company builds and relocates to its facility,
currently anticipated to occur in Fall 1997, the Company believes it will take
an additional six to nine months of preparation before production of the Super X
commences.*
MARKET
The Company anticipates that the average customer for its proposed
motorcycle products will be a male in his forties, with a household income of
approximately $65,000, who purchases the Company's motorcycles for recreational
purposes rather than for transportation and who will be an experienced
motorcycle rider.* The Company believes that such purchasers will purchase the
Company's products based on the heritage of the Company's name, the styling of
the Company's products and the fact that the Company's products are American
made.* According to recent demographic surveys, the number of Americans that
will fall into the 45-65 age bracket, a substantial portion of the Company's
anticipated target market, is projected to increase by 30% over the next five
years.*
MARKETING
Concurrent with its product development, the Company engaged the services
of a marketing agency whose personnel are experienced in the marketing of
heavyweight motorcycles and initiated a marketing campaign to educate the public
about the Company's heritage and to build demand for the Company's products.
The Company has also developed its in-house sales and marketing team by adding
personnel who are experienced in dealer recruitment and retail marketing. The
Company has conducted both consumer and motorcycle dealer focus groups to aid in
its market research. This campaign has generated many news articles, including
articles in most of the national and international motorcycle magazines, as well
as many articles and news telecasts in the non-motorcycle media. The Company
implemented an extensive marketing campaign for the first public unveiling of a
prototype of the Super X at the Sturgis Motorcycle Rally in Sturgis, South
Dakota on August 5, 1996. The Company was an official sponsor of the 1996
Sturgis Rally, along with other companies such as Coca-Cola, BMW,
Harley-Davidson and R.J. Reynolds. The Company also held marketing events at
the Daytona Beach 1997 Bike Week by displaying prototypes of the Super X and
opening the week by holding the first Annual Excelsior-Henderson Motorcycle
Parade.
In the period leading up to the first sale of the Super X, the Company will
step up its marketing efforts and intends to implement a nationwide marketing
campaign to foster further awareness of the Company and to build demand for the
Super X.*
In addition to its marketing specific to the Super X, and to create strong
brand identity for all of its products, the Company intends to foster a culture
and lifestyle that are reminiscent of the classic American motorcycling
heritage.* The Company will do this through sales of motorcycle parts and
accessories and rider apparel, and through sponsoring and promoting a motorcycle
owners' group, rallies and a magazine for owners and enthusiasts.* In addition,
the Company was the exclusive sponsor of a two-year exhibition,
"Excelsior-Henderson, the Lost Legend," featuring the largest collection of
vintage Excelsior Supply and Henderson Motorcycles ever assembled, at the
American Motorcyclist Association Motorcycle Heritage Museum near Columbus,
Ohio.
The Company sells a wide variety of apparel products such as hats, T-shirts
and jackets with the Company's logos to increase public exposure and
familiarization with its products. The Company believes that its marketing
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efforts to date have led to the development of a substantial non-binding waiting
list of persons who have indicated an interest in buying a Super X.
DISTRIBUTION
The Company currently is developing its motorcycle dealer network from
among the more than 3,000 authorized dealers of new motorcycles in the United
States. The Company has established criteria for selecting dealers of the
Company's products and is implementing its strategy to solicit key, well
established dealers of other motorcycle product lines that fit the Company's
criteria, but has not yet entered into any agreements with dealers. Through
market research and dealer focus groups, the Company has determined the factors
that it believes are necessary to ensure a high quality, service oriented dealer
network. These factors include location near key population centers, excellent
industry reputation, professional appearance, profitable operations, a sales
floor sufficient to display the Company's products, the ability to maintain
adequate inventories of motorcycles, parts, supplies and other merchandise, a
knowledgeable sales staff and the ability to provide full-service maintenance
(including at least one Company trained, full time technician responsible for
the maintenance and repair of the Company's products). The Company intends that
its dealers will add value by emphasizing customer service, product knowledge
and the promotion of lifestyle motorcycle products and events (E.G., customized
after-market parts, motorcycle apparel and accessories, customer appreciation
and promotional events, rallies, etc.) to sell the Company's products.*
INDUSTRY AND COMPETITION
Within the motorcycle industry, there are four types of heavyweight (751cc
or greater) motorcycles: (i) Standard, which emphasizes simplicity and cost;
(ii) Performance, which emphasizes handling and speed; (iii) Touring, which
emphasizes comfort and amenities for long-distance travel; and (iv) Cruiser,
which features the distinctive styling of classic American motorcycles built
during the early years of the motorcycling industry and is designed to
facilitate individual owner customization. Touring and cruiser models comprise
approximately 75% of the U.S. heavyweight market and are the only types of
heavyweight motorcycles that the Company plans to design and market. In 1995,
U.S. registrations of heavyweight motorcycles increased by approximately 11%
over 1994 registrations, and U.S. registrations of heavyweight motorcycles
increased by 74% from 1990 through 1995.
The heavyweight motorcycle industry currently has only one established
American motorcycle manufacturer, Harley-Davidson, and eight established
foreign-owned motorcycle manufacturers: BMW, Ducati, Honda, Kawasaki,
Moto-Guzzi, Suzuki, Triumph and Yamaha. The Company's primary competitor in the
U.S. heavyweight market is expected to be Harley-Davidson, which has been the
only significant American heavyweight cruiser and touring motorcycle
manufacturer since 1953. In 1997, Polaris Industries Inc., an established
manufacturer of snowmobiles, personal watercraft and all terrain vehicles,
announced that it would begin manufacturing a cruiser motorcycle to be available
in limited quantities in Spring 1998. Over the years, the Company has been
aware of several efforts to revive the "Indian" brand motorcycle name on new
motorcycles, which efforts may or may not continue. Due to the growing market
for heavyweight motorcycles, the Company expects that other manufacturers will
attempt to enter the industry.
According to its 1995 Annual Report, in 1995, Harley-Davidson had a 55.8%
share of the U.S. heavyweight motorcycle market and had revenue of approximately
$956 million from the sale of motorcycles and related products in such market.
In 1995, Harley-Davidson estimates that it had a market share of approximately
31% of worldwide heavyweight motorcycle registrations. Trade publications and
dealers have estimated that there are waiting lists from 12 to 24 months on some
of Harley-Davidson's models, with an average waiting list as high as 18 months.
In response to such demand, Harley-Davidson has tripled its production
capabilities over the past decade and forecasts doubling its 1995 production
capacity by 2003.
The Company expects that buying decisions in the heavyweight motorcycle
market will be based on a number of factors including American heritage,
quality, styling, reliability, product features, price and warranties.* The
Company intends to design its motorcycles to be of high quality, with strong
emphasis on styling, reliability and American heritage.* The Company intends to
price its products at a slight premium to its primary competitor and
differentiate its products in the areas of engine size and design (including
four valves per cylinder, dual overhead camshafts and a computer controlled
engine management system), styling, exterior finishing and suspension.*
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The U.S. and worldwide heavyweight motorcycle markets are highly
competitive and all of the Company's existing major competitors will have
resources that are substantially greater than those of the Company, will have
larger overall sales volumes and will be more diversified than the Company.
INTELLECTUAL PROPERTY RIGHTS
The Company believes that it has the exclusive right to use the trademarks
"Excelsior-Henderson," "Super X," and "X-twin", among others, and certain
related word and design trademarks in the United States and in certain foreign
countries in connection with the manufacture or sale of motorcycles. The
Company has registrations of these marks pending approval in the United States
Patent and Trademark Office and in certain foreign countries. The Company also
believes that it has the right to use these marks on ancillary merchandise and
apparel. The Company has secured such trademarks upon the abandonment by
Excelsior Supply of such trademarks over 60 years ago, and the subsequent use of
and applications to register such trademarks by the Company.
The Company owns copyrights for its designs used as trademarks and
generates documents in the course of its operations that are protected by
copyright. The Company intends to register its copyrights in its designs and
its promotional materials and other works with the U.S. Copyright Office as such
registration becomes appropriate.*
The Company currently owns no patents, nor has it filed or been assigned
any patent applications. At an appropriate point in the design process of its
motorcycles, the Company may file patent applications with the U.S. Patent and
Trademark Office to cover certain features or aspects of its motorcycles.*
There are no claims of infringement against the Company and the Company is
not and has not been involved in any litigation regarding its intellectual
property rights. There are no outstanding threats by the Company against anyone
for violation of the Company's intellectual property rights.
GOVERNMENT REGULATIONS
Both federal and state authorities have various environmental control
requirements relating to air, water and noise pollution that will affect the
business and operations of the Company. The Company expects that its facilities
and products will comply with all environmental regulations and standards.*
The Company's motorcycles will be subject to certification by the U.S.
Environmental Protection Agency for compliance with applicable emissions and
noise standards. In addition, the Company expects that its motorcycles will
also be subject to the more stringent emissions standards of the State of
California Air Resources Board that may require the Company to modify its
motorcycles for California. The Company expects that it will obtain
certification of full compliance with all such applicable standards as needed.*
The Company's motorcycles also will be subject to the National Traffic and
Motor Vehicle Safety Act and the rules promulgated thereunder by the National
Highway Traffic Safety Administration. The Company expects that its motorcycles
will fully comply with all applicable federal motor vehicle safety standards and
regulations.*
Federal, state and local authorities have adopted various standards
relating to air, water and noise pollution that will affect the Company's
manufacturing operations. The Company intends to comply with all federal, state
and local environmental regulations as appropriate for its manufacturing
operations.*
In addition, the European Union and other foreign governmental entities
have governmental regulations to which the Company's motorcycles will be subject
and the Company expects to comply with such regulations as applicable.*
RESEARCH AND DEVELOPMENT
The Company has incurred research and development expenses of $2.1 million
through December 31, 1996. The Company is a development stage company, and
since the Company's formation in December 1993 through
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December 31, 1996, the Company has accumulated a deficit of $4.1 million in
connection with its formation and initial development operations.
INCOME TAXES
The Company has reported net operating loss carryforwards of approximately
$3.2 million as of December 31, 1996. A valuation allowance equal to the full
amount of the related deferred tax asset has been established due to the
uncertainty of realization of the deferred tax asset. See Note 5 to the Notes
to the Financial Statements.
ITEM 2. PROPERTY
The Company leases 12,895 square feet of space located at 607 West
Travelers Trail, Burnsville, Minnesota, which the Company uses for offices, a
shop area, a museum and retail display showroom and a warehouse. The lease for
this facility expires on December 31, 1997, or, at the Company's option, on
October 31, 1997 or November 30, 1997 with 90 days' written notice, and provides
for a monthly rent of $8,384 through June 30, 1997 and $9,148 through
December 31, 1997.
The Company currently is negotiating arrangements with certain governmental
entities and Ryan Companies US, Inc. ("Ryan"), an experienced project
construction company for financing and construction of its manufacturing and
administrative facility. The cost of the facility is estimated to be
approximately $10 million.* The facility is currently estimated to be 175,000
square feet and will be located in Belle Plaine, Minnesota. The Company
anticipates relocation to the facility in Fall 1997.* The Company has signed a
development agreement with the City of Belle Plaine to provide incentives for
partial funding of the construction of the facility. The development agreement
contemplates that the City of Belle Plaine will issue government obligation tax
increment financing bonds with net proceeds of approximately $2.3 million. The
Company has guaranteed the underlying real estate tax payment through a fixed
minimum market value upon which the property tax assessment will be made, and if
the real estate tax payments are insufficient to allow the City to make
principal and interest payments on the bonds, then the Company is obligated to
pay any such difference. With respect to the remaining balance of approximately
$7.7 million, it is anticipated that Ryan will arrange for mortgage-backed debt
financing in the amount of approximately $5.0 million, with the remaining
estimated $2.7 million provided by the Company.* Such amounts are subject to
further negotiation.
In addition, the Minnesota Department of Trade and Economic Development has
offered, subject to further approvals, to loan approximately $7.0 million for
equipment financing through its Small Business Development Loan Program, with
terms subject to further negotiation.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders by the registrant
during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public trading market for the Company's common or preferred
equity securities.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company, which is in the development stage, is designing and intends to
mass produce American made, proprietary, premium quality, heavyweight cruiser
and touring motorcycles.* The Company has developed several generations of
prototypes of its initial motorcycle, a heavyweight cruiser named the
Excelsior-Henderson Super X (the "Super X").
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
GENERAL. The Company is in the development stage and its operations are
subject to all of the risks inherent in the establishment of a new business
enterprise, including the absence of any material operating history. The
Company does not anticipate having motorcycle sales revenue until 1998 and then
only if significant additional financing is obtained. The Company's accumulated
deficit was $4.1 million at December 31, 1996, an increase of 156% compared to
$1.6 million at December 31, 1995, which in turn was an increase of 310%
compared to $390,000 at December 31, 1994. Net losses increased by 108% to
$2.5 million in 1996 from $1.2 million in 1995 and by 208% in 1995 from $389,000
in 1994. Historic spending levels are not indicative of anticipated future
spending levels because the Company is entering a period of increased spending
on product research and development, expanded marketing and dealer network
development expenses and increased staffing and other general operating
expenses. For these reasons, the Company believes its expenses and losses, and
accumulated deficit will increase significantly before any material product
revenues are generated.*
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by 85% to $1.3 million in 1996 from $702,000 in 1995 and by 538% in
1995 from $110,000 in 1994. The increases were primarily due to increased
product design and development costs, as well as the costs of prototype
development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 55% to $716,000 in 1996 from $461,000 in 1995 and by 90% in 1995
from $242,000 in 1994. The increases were primarily due to staffing increases
and other general operating expenses.
MARKETING EXPENSES. Marketing expenses increased by 549% to $694,000 in
1996 from $107,000 in 1995 and by 234% in 1995 from $32,000 in 1994. The
increases were primarily due to staffing increases, increased advertising and
promotion costs and, during 1996, expenses associated with the unveiling of the
prototype Super-X at the Sturgis Motorcycle Rally in Sturgis, South Dakota.
INTEREST INCOME. Interest income increased by 295% to $174,000 in 1996
from $44,000 during 1995. The Company received no interest income during 1994.
The increase generally reflects interest earned on increased average levels of
cash, cash equivalents and short-term investments held by the Company resulting
from the proceeds of the sale of the Company's Preferred Stock during 1996 (See
Note 4 of Notes to Financial Statements) and from the proceeds of the sales of
Common Stock during 1994, 1995 and 1996 (See Statements of Stockholders' Equity
in the Financial Statements). Unless the Company raises additional funds in
1997, interest income is expected to decline as a result of a decrease in
invested funds because of the use of such funds to finance the Company's
development efforts.*
INTEREST EXPENSE. Interest expense decreased by 43% to $4,000 in 1996 from
$7,000 in 1995 and increased by 40% in 1995 from $5,000 in 1994. Interest
expense is primarily related to certain notes payable to banks (See Note 3 of
Notes to Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations since inception have been funded primarily by
proceeds from sales of its capital stock. As of December 31, 1996, the Company
had cash, cash equivalents and short-term investments of $9.4 million and
working capital of $9.0 million. Cash used in operations increased by $1.1
million in 1996 to $2.3 million from $1.2 million in 1995, an increase of 92%,
and by $901,000 in 1995 from $299,000 in 1994, an increase of 301%.
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The Company completed the sale of $11.5 million of its Series A Convertible
Preferred Stock on September 17, 1996. The Company will require significant
additional financing, currently estimated to be in excess of $45 million, to
complete the activities described above and begin mass production. Such
additional financing, if raised, is currently expected to be used for
acquisition of real property for and construction of the Company's manufacturing
and administrative facility; the establishment of an assembly system, tooling
and manufacturing lines for the Super X; finishing the final development details
for the Super X; marketing; public relations; hiring and training additional
personnel; launching the production and delivery to dealers of the Super X; and
general operating expenses and working capital.* The use of the proceeds from
such future financings, and the estimated cash required for acquisition of real
property for and construction of the manufacturing facility and the
establishment of an assembly system, tooling and manufacturing lines are current
estimates only, and are subject to change at any time.
The Company anticipates raising such additional financing through a
combination of (i) additional equity financing (including private placements
and/or an initial public offering of the Company's Common Stock), (ii) long- or
short-term debt financing (including loans from banks or other financial
entities or debt instruments issued by the Company), (iii) equipment leasing
arrangements and (iv) incentives from local and state government entities
(including grants and debt financing).* Debt financing may involve restrictive
covenants that address interests different than those of the Company's
shareholders. There can be no assurance that the Company will be able to obtain
such financing if and when it is needed or that, if available, such financing
will be on terms acceptable to the Company or its shareholders.
The Company is currently negotiating arrangements with certain governmental
entities and Ryan for financing and construction of its manufacturing and
administrative facility, which is estimated to cost approximately $10 million.
The Company has signed a development agreement with the City of Belle Plaine,
Minnesota to provide incentives for partial funding of the construction of the
facility. The development agreement contemplates that the City of Belle Plaine
will issue government obligation tax increment financing bonds with net proceeds
of approximately $2.3 million. The Company has guaranteed the underlying real
estate tax payment through a fixed minimum market value upon which the property
tax assessment will be made, and if the real estate tax payments are
insufficient to allow the City to make principal and interest payments on the
bonds, then the Company is obligated to pay any such difference. With respect
to the remaining balance of approximately $7.7 million, it is anticipated that
Ryan will arrange for mortgage-backed debt financing in the amount of
approximately $5.0 million, with the remaining estimated $2.7 million provided
by the Company.* Such amounts are subject to further negotiation.
In addition, the Minnesota Department of Trade and Economic Development has
offered, subject to further approvals, to loan approximately $7.0 million for
equipment financing through its Small Business Development Loan Program, with
terms subject to further negotiation.
The Company contemplates that its available cash resources, together with
its planned additional facility, equipment and tooling financing needs
(currently estimated to be in excess of $45 million), will finance the Company's
business plan for the next 12 to 18 months.* If such additional financing is
not received, or smaller amounts are received, then the pace of development of
the Super-X will be significantly slowed, and, if the Company is unable to ever
secure such financing, the Company is ultimately expected to fail.
EMPLOYEES
As of December 31, 1996, the Company had 11 full-time employees. The
Company anticipates adding administrative, supervisory, engineering, production
and marketing staff as the Company's needs for such personnel increase due to
progress on the Company's business plan.* Such needs will depend on the pace of
development of the Super X and the construction of the Company's manufacturing
and administrative facility. The Company expects to hire an increasing number
of technical, administrative and motorcycle production workers as the Company
proceeds towards production of the Super X.* The Company is not subject to any
collective bargaining agreement.
-10-
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements made in this Annual Report on Form 10-KSB, including those
indicated by an asterisk above (some of which are summarized below), are
forward-looking statements within the meaning of the safe harbor provisions of
Section 21E of the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties, and actual results may differ. Factors that could
cause actual results to differ include those identified below.
- - COMPANY INTENDS TO COMMENCE PRODUCTION OF THE SUPER X IN 1998--
Production of the Super X, and any additional motorcycles the Company may
produce, is dependent upon the successful completion of many items of the
Company's business plan, including obtaining the additional financing
described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources", the
construction of the Company's administrative and manufacturing facility,
establishing a motorcycle production line, engaging suppliers to
manufacture components of the Company's products, hiring additional
engineering and production personnel and the ability of the Company's
engineering and production staff to successfully design and mass produce
the prototype Super X. Factors that may affect the successful completion
of such items include the inability to raise the amount of additional
financing needed, delays in the construction of, or other problems with the
Company's administrative and manufacturing facility, problems in
establishing the motorcycle production line, the inability of the Company
to locate competent suppliers or obtain adequate quantities of supplies,
the inability to hire qualified additional personnel and the inability of
the Company's engineering and production staff to design, engineer and
produce the Super X. In addition, production of the Super X will require
certain governmental certifications and approvals, which the Company may
not be able to obtain within the contemplated time period.
- - CONSTRUCTION AND EQUIPPING OF THE COMPANY'S ADMINISTRATIVE AND
MANUFACTURING FACILITY ANTICIPATED TO OCCUR BY FALL 1997--The
construction of the Company's administrative and manufacturing facility by
Fall 1997, and establishing the motorcycle production line are dependent on
the ability of the Company to complete the facility financing described
under "Property" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources"
and the ability of Ryan to complete the facility within such time frame.
Such financing is subject to further negotiation. If such financing is
delayed or not received, the construction of the facility will be similarly
delayed, or may not occur at all.
- - MARKETING OF PREMIUM QUALITY MOTORCYCLES--The marketing of the Super X
and any additional motorcycles the Company may produce as premium quality
motorcycles is dependent upon the ability of the Company's marketing and
sales personnel to convince motorcycle dealers and the public that such
motorcycles are of premium quality and are distinguishable from the
products of the Company's competitors. Such efforts may not be successful
if the Company's products are perceived by dealers or the public as being
of lesser quality or indistinguishable from products of the Company's
competitors.
- - SOLICITATION OF KEY, WELL-ESTABLISHED DEALERS--The Company's ability to
solicit the type of dealers that it anticipates will be key in selling its
products is dependent upon the ability of the Company's sales personnel to
convince such dealers that the Company's products will be a successful and
profitable line for such dealers. If the Company's products are not so
perceived, the Company may be forced to select dealers that it otherwise
would not desire, or may not be able to solicit dealers at all, which would
result in a delay in marketing of the Super X, and any additional
motorcycles the Company may produce.
- - ESTIMATED NEED OF $45 MILLION OF ADDITIONAL FINANCING; AVAILABLE CASH
RESOURCES, TOGETHER WITH PLANNED ADDITIONAL FACILITY, EQUIPMENT AND TOOLING
FINANCING NEEDS, WILL FINANCE THE COMPANY'S BUSINESS PLAN FOR THE NEXT 12
TO 18 MONTHS--The Company has estimated the amount of additional
financing it needs to begin production of the Super X based on current
projections of the Company. If such projections are incorrect due to
unanticipated additional costs of construction and equipping of the
Company's manufacturing and administrative facility, increased labor costs,
increased costs of motorcycle parts and raw materials, increased marketing
and dealer network development expenses, increased rates of consumption of
available cash resources, or other unanticipated events, then the Company
may need additional financing in excess of $45 million. There can be no
assurance that the Company will be able to obtain such additional
financing, or that, if available, such financing will be on terms
acceptable to the Company or its shareholders. Any need for such
additional financing would delay production of the Super X.
-11-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Notes thereto comencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and Executive Officers of the Company are as follows:
Name Age Position
---- --- --------
Daniel L. Hanlon 40 Director, Co-Founder, Co-Chairman of the Board of
Directors and Chief Executive Officer
David P. Hanlon 44 Director, Co-Founder, Co-Chairman of the Board of
Directors and Chief Operating Officer
Alan D. Benz 46 Vice President of Engineering
Allan C. Hurd 49 Vice President of Manufacturing and
Operations
Thomas M. Rootness 49 Vice President of Finance and Chief
Financial Officer
DANIEL L. HANLON, a founder of the Company, has been Co-Chairman of the
Board and Chief Executive Officer of the Company since May 1996 and a Director
from the Company's inception in December 1993. Mr. Hanlon was President from
December 1993 to April 1996 and was Secretary from December 1993 to August 1994.
Immediately prior to founding the Company in 1993, Mr. Hanlon worked as founder,
President and Chief Executive Officer of EverGreen Solutions Inc., a
manufacturer of degradable packaging materials, from 1990 to December 1993.
From 1985 to 1986, Mr. Hanlon served as Controller of Midwest Importers, and
from 1986 to 1990 in sales branch management positions with Knutson Mortgage
Corporation and Marquette Banks. Prior to 1985, Mr. Hanlon served in various
accounting and strategic planning positions for Eco-Labs (1979) and Honeywell
Inc. (1979 to 1984). Mr. Hanlon received his B.A. and M.B.A. degrees from the
University of St. Thomas, St. Paul, Minnesota. Mr. Hanlon has been an avid
automotive and motorcycle enthusiast for over 20 years. In addition to his
college degrees he attended a regional vocational school and received a
certificate in Automotive Repair. He was also employed for six years as a lead
production and machinery mechanic, repairing or rebuilding manufacturing and
processing equipment, including hydraulic, pneumatic and mechanically operated
equipment. He currently owns one heavyweight American motorcycle. Mr. Hanlon
is a brother of David P. Hanlon.
DAVID P. HANLON, a founder of the Company, has been Co-Chairman of the
Board and Chief Operating Officer of the Company since May 1996, Secretary since
August 1994 and a Director from the Company's inception in December 1993. For
17 years, Mr. Hanlon was employed in the commercial truck leasing industry and
most recently was the General Manager of the Michigan District for Rollins
Leasing Corporation. Prior to 1984, Mr. Hanlon worked for three years as the
District Manager of Gelco Truck Leasing in the Memphis, Tennessee district.
Prior to 1981, Mr. Hanlon was employed at United Truck Leasing both in sales and
general management in Minneapolis, Minnesota, Kansas City, Kansas and Billings,
Montana. Mr. Hanlon attended the University of St. Thomas, St. Paul, Minnesota
and studied Business Administration. Mr. Hanlon has been an avid motorcycle
builder and rider for over 23 years. He has built two custom motorcycles and
has won trophies at shows where these motorcycles were displayed. He has also
-12-
<PAGE>
been active within the industry as a motorcycle consumer and immediate past
President of a Harley-Davidson motorcycle club in Michigan, and has attended
various rallies and meetings for 23 years. He currently owns four heavyweight
American motorcycles. Mr. Hanlon is a brother of Daniel L. Hanlon.
ALAN D. BENZ has been Vice President of Engineering since January 1996.
From March 1995 to the present, Mr. Benz has been the Chief Executive Officer of
KIT Engineering Corporation ("KIT"), was President from 1986 to February 1995
and was Vice President from 1983 to 1986. From March 1995 to December 1995, Mr.
Benz was on assignment from KIT to work full-time at the Company. KIT was a
high-technology engineering company that focused on the optimization of product
design through integrating software and services for design, analysis, and
testing prior to the sale of its assets in June 1996. KIT no longer has
operations and is in the process of being liquidated. KIT was a contractor of
the Company and has provided engineering services to Harley-Davidson, General
Motors, Ford, Chrysler, John Deere, Caterpillar, Outboard Marine Corporation,
and Mercury Marine, among others. From 1972 to 1983, Mr. Benz was a Principal
Engineer for Control Data Corporation in the Government Systems Division. Mr.
Benz was responsible for technical leadership and support of mechanical design
analysis, including providing guidance to junior engineers, marketing support,
new project conceptual design, customer interface, and the integration of
computer methods for design analysis. In 1982, Mr. Benz was awarded the
Technical Excellence Award, Control Data's highest technical engineering award.
Mr. Benz received a Bachelor of Aeronautics and Engineering Mechanics degree
from the University of Minnesota in 1972. Mr. Benz currently owns one
heavyweight American motorcycle.
ALLAN C. HURD has been Vice President of Manufacturing and Operations since
May 1996. From 1987 through May 1996, Mr. Hurd has been employed by Triumph
Motorcycles, LTD, the British motorcycle manufacturer. At Triumph, Mr. Hurd was
part of the management team responsible for establishing and operating all
aspects of motorcycle production, including motorcycle design and development,
factory development and layout, manufacturing equipment specification and
acquisition and motorcycle production. From March 1991 to May 1996, Mr. Hurd
was Production Engineering Manager, from July 1989 to February 1991, he was
Design and Production Coordinating Manager and from May 1987 to July 1989, he
was Chief Production Engineer. Prior to 1987, Mr. Hurd held production
engineering and management positions with other British manufacturing companies,
including Unipart Industries, Glynwed Domestic Appliances, Wraxall Hydraulics,
Eaton Corporation and Cosworth Engineering. Mr. Hurd has several engineering
certificates granted in England and is a member of the Institute of Electrical
Engineers (Manufacturing Section) and the Institute of Management. Mr. Hurd
currently owns several European motorcycles.
THOMAS M. ROOTNESS has been Vice President of Finance and Chief Financial
Officer since March 1996. From September 1993 to March 1996, Mr. Rootness was
Chief Financial Officer, Treasurer and Executive Vice President of Luigino's
Inc., a large, multi-national manufacturer of frozen food entrees. From January
1992 to August 1993, Mr. Rootness was General/Plant Manager of the LaBounty
Manufacturing division of The Stanley Works after The Stanley Works purchased
LaBounty Manufacturing, Inc., a heavy construction equipment manufacturer. Mr.
Rootness was Chief Financial Officer of LaBounty Manufacturing from August 1990
until such purchase. From 1989 to August 1990, Mr. Rootness was President and
Chief Financial Officer of National Screenprint, Inc., a manufacturer and
distributor of imprinted sportswear. From 1988 to 1989, Mr. Rootness was the
President and Chief Executive Officer of The Barbers, Inc., a publicly held
company that franchises the "Cost Cutters" and "City Looks" hair care salons and
formulates and distributes hair care products. From 1986 to 1988, Mr. Rootness
was President and Chief Operating Officer of Dahlberg, Inc., then a publicly
held company that manufactured and distributed hearing health care products and
services, and was Chief Financial Officer and Executive Vice President of
Finance from 1980 to 1987. From 1976 to 1980, Mr. Rootness was a Senior Manager
in the Tax and Private Business Division of KPMG Peat Marwick, one of the six
largest public accounting firms in the world. Mr. Rootness is a Certified
Public Accountant and received a Bachelor of Arts in Accounting from the
University of Minnesota-Duluth in 1969. Mr. Rootness currently owns four
heavyweight American motorcycles.
-13-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned by the executive officers of the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
NAME AND OPTION AWARDS
PRINCIPAL POSITION YEAR SALARY (# OF SHARES)
------------------ ---- ------ --------------
<S> <C> <C> <C>
Daniel L. Hanlon, 1996 $75,865 0
Co-Founder, Co-Chair and CEO 1995 65,000 0
1994 55,000 0
David P. Hanlon, 1996 75,865 0
Co-Founder, Co-Chair and COO 1995 65,000 0
1994 55,000 0
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 20, 1997, the number of
shares of Common Stock beneficially owned by each person who is a beneficial
owner of more than 5% of the Common Stock (including the shares of the Company's
Series A Convertible Preferred Stock which are convertible into Common Stock)
issued and outstanding, by each officer named in the Summary Compensation Table,
by each director, and by all officers and directors as a group, and as adjusted
to reflect the sale of the shares offered hereby and the conversion of the
shares to Common Stock. All persons have sole voting and dispositive power over
such shares unless otherwise indicated.
PERCENTAGE OF
NAME AND ADDRESS NUMBER OUTSTANDING
OF BENEFICIAL OWNER: OF SHARES SHARES
- -------------------- -------------- -------------
Directors and executive officers
Daniel L. Hanlon(1) 2,748,000(2) 20.5%
David P. Hanlon(1) 2,252,000(3) 16.8%
Directors and Officers, as a group
(5 persons, including those named above)(4) 5,110,625 38.1%
Other beneficial owners:
Heartland Small Cap Contrarian Fund,
a series of Heartland Group, Inc.(5) 690,000(6) 5.1%
- -------------------
(1) 607 West Travelers Trail, Burnsville, MN 55337.
(2) Includes 46,000 shares of Common Stock held in trusts for which Mr.
Hanlon's spouse acts as custodian.
(3) Includes 2,000 shares of Common Stock owned by Mr. Hanlon's son.
(4) Includes options to purchase up to 62,500 shares of Common Stock
exercisable within 60 days of March 20, 1997.
(5) 790 N. Milwaukee Street, Milwaukee, WI 53202
(6) Shares of Series A Convertible Preferred Stock of the Company, of which
class such investor owns 15.0% of the outstanding shares.
-14-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 13. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K
(a) Page Number
in this
Financial Statements Form 10-KSB
-------------------- ------------
Report of Independent Public Accountants F-1
Balance Sheets as of December 31, 1995 and 1996 F-2
Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 and
Cumulative for the Period from Inception
(December 22, 1993) to December 31, 1996 F-3
Statements of Shareholders' Equity for the Years
Ended December 31, 1994, 1995 and 1996 and
Cumulative for the Period from Inception
(December 22, 1993) to December 31, 1996 F-4
Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 and
Cumulative for the Period from Inception
(December 22, 1993) to December 31, 1996 F-5
Notes to Financial Statements F-6
(b) The following exhibits are filed as part of this Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996:
Exhibit Description
- ------- -----------
3.1 Restated Articles of Incorporation of Company.(1)
3.2 Amended and Restated Certificate of Designation of Series A
Convertible Preferred Stock.
3.3 By-Laws of the Company.(2)
10.1 Lease Agreement between Kraus-Anderson, Incorporated and the Company
dated March 1, 1994.(1)
10.2 First Amendment to Lease between Kraus-Anderson, Incorporated and the
Company dated January 18, 1996.
10.3 Second Amendment to Lease between Kraus-Anderson, Incorporated and the
Company dated December 6, 1996.
10.4 Contract for Private Development by and among City of Belle Plaine,
Minnesota and Belle Plaine Economic Development Authority Belle
Plaine, Minnesota and the Company dated as of December 31, 1996.
27.1 Financial Data Schedule
____________________
(1) Incorporated by reference to the like numbered Exhibit to the Company's
Registration Statement on Form SB-2 filed with the Commission on June 17,
1996 (Registration No. 333-05060C).
(2) Incorporated by reference to the like numbered Exhibit to Amendment No. 1
to the Company's Registration Statement on Form SB-2 filed with the
Commission on July 23, 1996 (Registration No. 333-05060C).
-15-
<PAGE>
(c) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the fourth
quarter of the fiscal year ended December 31, 1996.
-16-
<PAGE>
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.
Date: March 25, 1997
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By Daniel L. Hanlon
-----------------------------------
Daniel L. Hanlon, 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 and in the capacities and on the dates indicated.
Date: March 25, 1997 Daniel L. Hanlon
------------------------------------------
Daniel L. Hanlon, Co-Founder,
Director, Co-Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
Date: March 25, 199 David P. Hanlon
------------------------------------------
David P. Hanlon, Co-Founder,
Director, Co-Chairman of the Board of Directors
and Secretary
Date: March 25, 1997 Thomas M. Rootness
------------------------------------------
Thomas M. Rootness, Vice President of
Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(D) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
The registrant does not intend to send any annual report regarding fiscal
year 1996 or proxy statements to its security holders at this time.
-17-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excelsior-Henderson Motorcycle Manufacturing Company:
We have audited the accompanying balance sheets of Excelsior-Henderson
Motorcycle Manufacturing Company (a Minnesota corporation in the development
stage) as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1996 and cumulative for the period from
inception (December 22, 1993) to December 31, 1996. 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 financial position of Excelsior-Henderson
Motorcycle Manufacturing Company as of December 31, 1995 and 1996, and the
related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996 and cumulative
for the period from inception (December 22, 1993) to December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise with no significant operating results to date. The factors discussed
in Note 1 to the financial statements raise a substantial doubt about the
ability of the Company to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 17, 1997
F-1
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
AS OF DECEMBER 31
1995 1996
---------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 788,419 $ 5,376,601
Short-term investments 912,630 4,044,992
Other current assets 3,595 9,119
---------- -----------
Total current assets 1,704,644 9,430,712
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $26,755 and $76,250 85,960 229,082
INTELLECTUAL PROPERTY, to be amortized 88,641 135,384
OTHER ASSETS 3,343 228,222
---------- -----------
$1,882,588 $10,023,400
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 117,334 $ 123,236
Accrued liabilities 12,045 198,751
Notes payable 24,351 70,086
---------- -----------
Total current liabilities 153,730 392,073
---------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock, 10,000,000
shares authorized, par value of $.01;
4,600,000 shares issued and outstanding at
December 31, 1996 - 46,000
Common stock, 25,000,000 shares authorized,
par value of $.01; 8,725,500 and 8,805,500
shares issued and outstanding 82,446 83,246
Additional paid-in capital 3,270,669 13,637,869
Deficit accumulated during the development stage (1,624,257) (4,135,788)
---------- -----------
Total stockholders' equity 1,728,858 9,631,327
---------- -----------
$1,882,588 $10,023,400
---------- -----------
---------- -----------
The accompanying notes are an integral part of these balance sheets.
F-2
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
For the Years Ended December 31, 1994, 1995 and 1996 and
Cumulative for the Period From Inception (December 22, 1993)
To December 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996 Cumulative
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
PREOPERATING EXPENSES:
General and administrative $ 241,630 $ 460,793 $ 716,154 $ 1,419,752
Research and development 110,082 702,345 1,271,276 2,083,703
Marketing 32,133 106,974 694,239 833,346
----------- ---------- ---------- ------------
Total preoperating expenses 383,845 1,270,112 2,681,669 4,336,801
INTEREST INCOME - 43,522 174,226 217,748
INTEREST EXPENSE (5,346) (7,301) (4,088) (16,735)
----------- ---------- ---------- ------------
Net loss $ (389,191) $(1,233,891) (2,511,531) $ (4,135,788)
----------- ----------- ---------- ------------
----------- ----------- ---------- ------------
Net loss per common share $ (.07) $ (.16) $ (.29) $ (.58)
----------- ----------- ---------- ------------
----------- ----------- ---------- ------------
Weighted average common shares
outstanding 5,294,125 7,483,588 8,789,966 7,181,348
----------- ----------- ---------- ------------
----------- ----------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Series A Convertible
Preferred Stock Common Stock
--------------------------------------------------
Shares Amount Shares Amount
------- --------- ---------- ------------
<S> <C> <C> <C> <C>
BALANCE AT INCEPTION, December 22, 1993 - $ - - $ -
Common shares issued at $.01 per share - - 5,050,000 50,500
Excess of par value over issuance price - - - (45,450)
Net loss - - - -
--------- ------- ---------- ----------
BALANCE, December 31, 1993 - - 5,050,000 5,050
Proceeds from sales of common stock,
$.50 per share, net of offering costs of $23,059 - - 130,000 41,941
Proceeds from sales of common stock,
$.60 per share, net of offering costs of $14,919 - - 891,650 8,916
Issuance of common stock in settlement of
construction payable, $.60 per share - - 8,350 84
Issuance of common stock from conversion of
promissory note to investor, $.40 per share,
net of conversion costs of $2,583 - - 187,500 1,875
Net loss - - - -
--------- ------- ---------- ----------
BALANCE, December 31, 1994 - - 6,267,500 57,866
Proceeds from sales of common stock,
$1.25 per share, net of offering costs of $363,874 - - 2,408,000 24,080
Issuance of common stock for research
and development services, $1.25 per share - - 50,000 500
Net loss - - - -
--------- ------- ---------- ----------
BALANCE, December 31, 1995 - - 8,725,500 82,446
Proceeds from sales of Series A
Convertible Preferred Stock, $2.50 per share,
net of offering costs of $1,186,000 4,600,000 46,000 - -
Issuance of common stock for marketing
services, $1.25 per share - - 50,000 500
Proceeds from exercise of stock options,
$1.25 per share - - 30,000 300
Net loss - - - -
--------- ------- ---------- ----------
BALANCE, December 31, 1996 4,600,000 $46,000 8,805,500 $ 83,246
--------- ------- ---------- ----------
--------- ------- ---------- ----------
<CAPTION>
Deficit
Accumulated
Additional During the
Paid-In Development
Capital Stage Total
---------- ------------- ------------
<S> <C> <C> <C>
BALANCE AT INCEPTION, December 22, 1993 $ - $ - $ -
Common shares issued at $.01 per share - - 50,500
Excess of par value over issuance price - - (45,450)
Net loss - (1,175) (1,175)
---------- ---------- ----------
BALANCE, December 31, 1993 - (1,175) 3,875
Proceeds from sales of common stock,
$.50 per share, net of offering costs of $23,059 - - 41,941
Proceeds from sales of common stock,
$.60 per share, net of offering costs of $14,919 511,155 - 520,071
Issuance of common stock in settlement of
construction payable, $.60 per share 4,926 - 5,010
Issuance of common stock from conversion of
promissory note to investor, $.40 per share,
net of conversion costs of $2,583 70,542 - 72,417
Net loss - (389,191) (389,191)
---------- ---------- ----------
BALANCE, December 31, 1994 586,623 (390,366) 254,123
Proceeds from sales of common stock,
$1.25 per share, net of offering costs of $363,874 2,622,046 - 2,646,126
Issuance of common stock for research
and development services, $1.25 per share 62,000 - 62,500
Net loss - (1,233,891) (1,233,891)
---------- ---------- ----------
BALANCE, December 31, 1995 3,270,669 (1,624,257) 1,728,858
Proceeds from sales of Series A
Convertible Preferred Stock, $2.50 per share,
net of offering costs of $1,186,000 10,268,000 - 10,314,000
Issuance of common stock for marketing
services, $1.25 per share 62,000 - 62,500
Proceeds from exercise of stock options,
$1.25 per share 37,200 - 37,500
Net loss - (2,511,531) (2,511,531)
---------- ---------- ----------
BALANCE, December 31, 1996 $13,637,869 $(4,135,788) $9,631,327
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
For the Years Ended December 31, 1994, 1995 and 1996 and
Cumulative for the Period From Inception
(December 22, 1993) To December 31, 1996
<TABLE>
<CAPTION>
1994 1995 1996 Cumulative
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (389,191) $ (1,233,891) $ (2,511,531) $ (4,135,788)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation 5,194 21,561 49,495 76,250
Change in current assets and liabilities:
Other current assets (4,375) 780 (5,524) (9,119)
Accounts payable 72,548 39,611 5,902 123,236
Accrued liabilities 17,065 (5,020) 186,706 198,751
----------- ----------- ----------- -----------
Net cash used in operating activities (298,759) (1,176,959) (2,274,952) (3,746,670)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of short-term investments, net - (912,630) (3,132,362) (4,044,992)
Property and equipment additions (29,788) (77,917) (192,617) (300,322)
Payments incurred for intellectual property (29,151) (55,490) (46,743) (135,384)
Change in other assets (3,343) - (224,879) (228,222)
----------- ----------- ----------- -----------
Net cash used in investing activities (62,282) (1,046,037) (3,596,601) (4,708,920)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from notes payable 100,015 30,055 75,025 205,095
Repayment of notes payable - (30,719) (29,290) (60,009)
Proceeds from issuance of Series A Convertible
Preferred Stock, net of offering expenses - - 10,314,000 10,314,000
Proceeds from issuance of common stock,
net of offering expenses 564,479 2,708,626 100,000 3,373,105
----------- ----------- ----------- -----------
Net cash provided by financing activities 664,494 2,707,962 10,459,735 13,832,191
----------- ----------- ----------- -----------
Net increase in cash and cash equivalents 303,453 484,966 4,588,182 5,376,601
CASH AND CASH EQUIVALENTS:
Beginning of period - 303,453 788,419 -
----------- ----------- ----------- -----------
End of period $ 303,453 $ 788,419 $ 5,376,601 $ 5,376,601
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,656 $ 7,301 $ 4,088 $ 16,045
Noncash transactions-
Conversion of note payable into common stock 75,000 - - 75,000
Issuance of common stock for services - 62,500 62,500 125,000
Issuance of common stock in settlement of
construction payable 5,010 - - 5,010
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
December 31, 1995 and 1996
1. BACKGROUND:
Excelsior-Henderson Motorcycle Manufacturing Company (the Company) is a
development stage company incorporated on December 22, 1993 in the state of
Minnesota, formerly known as Hanlon Manufacturing Company, for the purpose of
developing, manufacturing, selling and distributing motorcycles.
The Company is subject to all of the risks inherent in the establishment of a
new business enterprise, including the absence of any material operating
history. The Company has sustained operating losses since inception and
currently requires substantial working capital for motorcycle development,
acquisition of manufacturing facilities, development of a dealer network and
consumer awareness. Even if the Company is successful, significant revenues
might not be realized. The aforementioned factors raise substantial doubt about
the Company's ability to continue as a going concern. The Company's ability to
continue motorcycle development and operate as a going concern is contingent
upon obtaining additional financing that might not be available to it. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH EQUIVALENTS
Cash equivalents consist of money market instruments and certificates of deposit
with original maturities of three months or less. Cash equivalents are recorded
at cost, which approximates fair value.
SHORT-TERM INVESTMENTS
The Company accounts for its short-term investments in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's short-term investments, U.S. government securities, are considered to
be available-for-sale and accordingly, are carried at fair value which
approximates cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated for financial and
income tax reporting purposes using the straight-line method over three to five
years. Additions and improvements are capitalized, while maintenance and
repairs which do not improve or extend the useful lives of the respective assets
are expensed as incurred.
F-6
<PAGE>
INTELLECTUAL PROPERTY
Intellectual property represents amounts incurred to prepare and file for United
States and international trademark applications. These amounts are presented at
cost in the accompanying balance sheets and will be amortized over 5 to 17
years, beginning at the earlier of commencement of operations or receipt of
trademark protection.
OTHER ASSETS
Other assets consist primarily of deferred costs associated with the
construction of the Company's manufacturing and headquarters facility. These
amounts are presented at cost in the accompanying balance sheets, will be
capitalized as part of property and equipment and will be amortized over the
life of the facility.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred taxes are based on the estimated future tax effects of differences
between the financial statement and tax bases of assets and liabilities, given
the provisions of the enacted tax laws.
NET LOSS PER COMMON SHARE
Net loss per common share for all periods presented is computed using the
weighted average number of common shares outstanding. Shares reserved for the
conversion of Series A Convertible Preferred Stock, warrants or stock options
are not considered because the impact of the incremental shares is antidilutive.
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 expenses during the reporting period. Ultimate results
could differ from those estimates.
3. NOTE PAYABLE:
Note payable as of December 31, 1996 consists of a promissory note due to a bank
with interest at 9.9%. The note requires combined monthly payments of principal
and interest of $1,590, is collateralized by certain assets of the Company and
is due on demand no later than July 2, 2001.
4. STOCKHOLDERS' EQUITY:
AUTHORIZED SHARES
The Company's Articles of Incorporation, as amended, authorize the aggregate
issuance of 35,000,000 shares of stock. The shares are classified into two
classes consisting of 10,000,000 shares of Preferred Stock, $.01 par value, of
which 5,014,000 shares have been designated as
F-7
<PAGE>
Series A Convertible Preferred Stock and 4,986,000 undesignated shares, and
25,000,000 shares of $.01 par value common stock.
SERIES A CONVERTIBLE PREFERRED STOCK OFFERING
During 1996, the Company completed an offering (the Offering) to the public of
4,600,000 shares of Series A Convertible Preferred Stock, par value $.01 per
share, at an offering price of $2.50 per share. The Company received net
proceeds of approximately $10,314,000 from the Offering, with the proceeds to be
used for further industrial design, engineering and testing of the Company's
Super X motorcycle; manufacturing site analysis and development; motorcycle
production line design, product development and tooling costs; marketing;
general operating expenses; and working capital.
STOCK COMPENSATION PLANS
Effective December 15, 1995, the Company implemented a stock option plan (the
Plan). Under the terms of the Plan, the Company is authorized to issue
incentive stock options to employees, directors, advisors and officers. The
incentive options allow the holder to purchase shares of the Company's common
stock at fair market value (as determined by the board of directors) on the date
of the grant. For options granted to holders of more than 10% of the
outstanding common stock, the option price at the date of the grant must be at
least equal to 110% of the fair market value of the stock. One million shares
have been reserved for issuance under the Plan. The stock options expire
between a range of four and ten years from the date of grant and vest at various
rates over five years.
Nonqualified stock options have also been granted to outside service providers
under the Plan and as stand-alone agreements. The stock options have been
granted at fair market value as determined by the board of directors at the date
of the grant. The stock options expire between a range of four and ten years
from the date of grant and vest at various rates over two years.
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its fixed
stock option plans. Had compensation cost for the Company's plans been
determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's results of operations and loss per share would
reflect the pro forma amounts indicated below:
1995 1996 Cumulative
--------- ---------- ----------
Net loss:
As reported $1,233,891 $2,511,531 $4,135,788
Pro forma 1,239,992 2,767,950 4,398,308
Net loss per common share:
As reported $ .16 $ .29 $ .58
Pro forma .16 .31 .61
F-8
<PAGE>
A summary of the status of the Company's plans as of December 31, 1995 and 1996,
and changes during the years then ended is presented below:
1995 1996
------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Shares Price Shares Price
------- -------- ------- ---------
Outstanding, beginning of year - $ - 26,500 $ .99
Granted 26,500 .99 619,900 1.25
Exercised - - (30,000) 1.25
------ -------
Outstanding, end of year 26,500 .99 616,400 1.24
------ -------
------ -------
Options exercisable at year-end - - 222,400 1.22
------ -------
------ -------
Weighted average fair value of
options granted during the year 26,500 .44 619,900 .72
------ -------
------ -------
Options outstanding at December 31, 1995 and 1996 have an exercise price per
share ranging between $.60 and $1.25 and a weighted average remaining
contractual life of 6.6 and 7.7 years, respectively.
In determining the compensation cost of the options granted during 1995 and
1996, as specified by SFAS No. 123, the fair value of each option grant has been
estimated on the date of grant using the Black-Scholes option pricing model.
The weighted average assumption used in these calculations are summarized below:
1995 1996
-------- --------
Risk-free interest rate 5.78% 5.95%
Expected life of options granted 5.2 years 7.4 years
Expected volatility of options granted 40% 40%
WARRANTS
In connection with its 1995 sale of common stock, the Company issued warrants to
purchase 314,310 shares of common stock at a price of $1.25 per share
exercisable through August 2, 2000.
In connection with the Offering, the Company issued warrants to purchase 394,000
shares of Series A Convertible Preferred Stock at $3.00 per share, exercisable
through September 2001.
5. INCOME TAXES:
As of December 31, 1996, the Company had net operating loss carryforwards of
approximately $3,228,000 for federal income tax purposes that are available to
offset future taxable income through the year 2011. A valuation allowance equal
to the full amount of the related deferred tax asset has been established due to
the uncertainty of realization of the deferred tax asset. Certain
restrictions, caused by the change in ownership resulting from sales of the
Company's stock, may limit annual utilization of these net operating loss
carryforwards.
F-9
<PAGE>
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases office space and certain office equipment under noncancelable
operating leases. Future minimum payments under these leases as of December 31,
1996 are $105,000. Under the terms of these leases, the Company is also
responsible for certain operating expenses. Total lease expense was $12,000,
$19,000, $33,000 and $64,000 for the years ended December 31, 1994, 1995 and
1996 and cumulative for the period from inception to December 31, 1996,
respectively.
RESEARCH AND DEVELOPMENT CONTRACTS
The Company has entered into cancelable agreements with design and engineering
firms. Pursuant to the agreements, the Company issued 50,000 shares of common
stock to one of the firms and will issue an additional 25,000 shares or options
if the contract is completed within specifications. The contracts are expected
to be completed during 1997 with an estimated remaining cost of approximately
$228,000 as of December 31, 1996.
LIFE INSURANCE
The Company is the owner and beneficiary of four $1,000,000 term life insurance
policies covering the lives of its founders and majority stockholders.
7. EVENT SUBSEQUENT TO DECEMBER 31, 1996:
The Company currently is negotiating arrangements with certain governmental
entities and Ryan Companies US, Inc. (Ryan), a project construction company, for
financing and construction of its manufacturing and administrative facility.
The cost of the facility is estimated to be approximately $10 million. The
Company has signed a development agreement with the City of Belle Plaine to
provide incentives for partial funding of the construction of the facility. The
development agreement contemplates that the City of Belle Plaine will issue
government obligation tax increment financing bonds with net proceeds of
approximately $2.3 million. With respect to the remaining balance of
approximately $7.7 million, it is anticipated that Ryan will arrange for
mortgage-backed debt financing in the amount of approximately $5.0 million, with
the remaining estimated $2.7 million provided by the Company. There can be no
assurance that the above financing will occur or remain in the same terms as
described above. If consummated, the Company anticipates recording the
transaction as a capital lease.
F-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- -----
<S> <C> <C>
3.1 Restated Articles of Incorporation of Company.......................... Incorporated by Reference
3.2 Amended and Restated Certificate of Designation of Series A
Convertible Preferred Stock............................................ Filed Electronically
3.3 By-Laws of the Company................................................. Incorporated by Reference
10.1 Lease Agreement between Kraus-Anderson, Incorporated and the Company
dated March 1, 1994.................................................... Incorporated by Reference
10.2 First Amendment to Lease between Kraus-Anderson, Incorporated and the
Company dated January 18, 1996......................................... Incorporated by Reference
10.3 Second Amendment to Lease between Kraus-Anderson, Incorporated
and the Company dated December 6, 1996................................. Filed Electronically
10.4 Contract for Private Development by and among City of Belle Plaine,
Minnesota and Belle Plaine Economic Development Authority Belle
Plaine, Minnesota and the Company dated as of December 31, 1996........ Filed Electronically
27.1 Financial Data Schedule................................................ Filed Electronically
</TABLE>
<PAGE>
EXHIBIT 3.2
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
AMENDED
STATEMENT OF DESIGNATION
OF
RIGHTS, PREFERENCES AND LIMITATIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
(A) DESIGNATION OF SERIES OF PREFERRED STOCK
Of the 10,000,000 shares of Preferred Stock which the Corporation is
authorized to issue under its Articles of Incorporation, 5,014,000 of such
shares shall be designated as shares of Series A Convertible Preferred Stock
of the Corporation (the "Preferred Stock"), par value $.01 per share. Such
shares of Preferred Stock, together with the 25,000,000 shares of authorized
Common Stock of the Corporation (the "Common Stock"), the balance of the
undesignated shares of Preferred Stock of the Corporation and any other
common stock or preferred stock that may hereafter be authorized in or
pursuant to the Restated Articles of Incorporation of the Corporation, are
sometimes hereinafter collectively referred to as the "capital stock."
(B) VOTING PRIVILEGES.
Each holder of Preferred Stock shall have that number of votes on all
matters submitted to the stockholders that is equal to the number of shares
of Common Stock into which such holder's shares of Preferred Stock are then
convertible, as hereinafter provided. Except as otherwise required by
agreement or law, the shares of capital stock of the Corporation shall vote
as a single class on all matters submitted to the stockholders.
(C) DIVIDENDS.
In the event any dividend or distribution is declared or made with
respect to outstanding shares of Common Stock, a comparable dividend or
distribution must be simultaneously declared or made with respect to the
outstanding shares of Preferred Stock. In the event any dividend or
distribution is declared or made with respect to the Common Stock, each
holder of shares of Preferred Stock shall be paid such comparable dividend or
receive such comparable distribution on the basis of the number of shares of
Common Stock into which such holder's shares of Preferred Stock are then
convertible, as hereinafter provided.
<PAGE>
(D) LIQUIDATION PREFERENCE.
In the event of an involuntary or voluntary liquidation or dissolution of
the Corporation at any time, the holders of shares of Preferred Stock shall
be entitled to receive out of the assets of the Corporation an amount equal
to $2.50 per share (appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar changes hereafter
effected), plus dividends unpaid and accumulated or accrued thereon, if any.
In the event of either an involuntary or a voluntary liquidation or
dissolution of the Corporation payment shall be made to the holders of shares
of Preferred Stock in the amounts herein fixed before any payment shall be
made or any assets distributed to the holders of the Common Stock or any
other class of shares of the Corporation ranking junior to the Preferred
Stock with respect to payment upon dissolution or liquidation of the
Corporation. If upon any liquidation or dissolution of the Corporation the
assets available for distribution shall be insufficient to pay the holders of
all outstanding shares of Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of such shares shall share pro
rata in any such distribution.
(E) CONVERSION RIGHT.
At the option of the holders thereof, the shares of Preferred Stock shall
be convertible, at the office of the Corporation (or at such other office or
offices, if any, as the Board of Directors may designate), into fully paid
and nonassessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock, at the conversion price, determined as
hereinafter provided, in effect at the time of conversion, each share of
Preferred Stock being deemed to have a value of $2.50 for the purpose of such
conversion. The price at which each share of Common Stock shall be delivered
upon conversion (herein called the "conversion price") shall be initially
equal to $2.50 per share of Common Stock (i.e., at an initial conversion rate
of one share of Common Stock for each share of Preferred Stock); PROVIDED,
HOWEVER, that such initial conversion price shall be subject to adjustment
from time to time in certain instances as hereinafter provided. The
following provisions shall govern such right of conversion:
(1) In order to convert shares of Preferred Stock into shares of Common
Stock of the Corporation, the holder thereof shall surrender at any
office hereinabove mentioned the certificate or certificates therefor,
duly endorsed to the Corporation or in blank, and give written notice
to the Corporation at such office that such holder elects to convert
such shares. Shares of Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of the
surrender of such shares for conversion as herein provided, and the
person entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder
of such shares of Common Stock at such time. As promptly as
practicable on or after the conversion date, the Corporation shall
issue and deliver or cause to be issued and
-2-
<PAGE>
delivered at such office a certificate or certificates for the number
of shares of Common Stock issuable upon such conversion.
(2) The conversion price shall be subject to adjustment from time to time
as hereinafter provided. Upon each adjustment of the conversion price
each holder of shares of Preferred Stock shall thereafter be entitled
to receive the number of shares of Common Stock obtained by
multiplying the conversion price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to conversion
immediately prior to such adjustment and dividing the product thereof
by the conversion price resulting from such adjustment.
(3) In case the Corporation shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as
described in subparagraph (4) below) or any obligations or any shares
of stock of the Corporation which are convertible into, or
exchangeable for, Common Stock (any of such obligations or shares of
stock being hereinafter called "Convertible Securities"), or in any
rights or options to purchase Common Stock or Convertible Securities,
or (ii) declare any other dividend or make any other distribution upon
the Common Stock payable otherwise than out of earnings or earned
surplus, then thereafter each holder of shares of Preferred Stock upon
the conversion thereof will be entitled to receive the number of
shares of Common Stock into which such shares of Preferred Stock have
been converted, and, in addition and without payment therefor, each
dividend described in clause (i) above and each dividend or
distribution described in clause (ii) above which such holder would
have received by way of dividends or distributions if continuously
since such holder became the record holder of such shares of Preferred
Stock such holder (i) had been the record holder of the number of
shares of Common Stock then received, and (ii) had retained all
dividends or distributions in stock or securities (including Common
Stock or Convertible Securities, and any rights or options to purchase
any Common Stock or Convertible Securities) payable in respect of such
Common Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or indirectly from
such Common Stock. For the purposes of the foregoing a dividend or
distribution other than in cash shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or
earned surplus are charged an amount equal to the fair value of such
dividend or distribution as determined by the Board of Directors of
the Corporation.
(4) In case the Corporation shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the conversion
price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined
-3-
<PAGE>
into a smaller number of shares, the conversion price in effect
immediately prior to such combination shall be proportionately
increased.
(5) If any capital reorganization or reclassification of the capital stock
of the Corporation, or consolidation or merger of the Corporation with
another corporation, or the sale of all or substantially all of its
assets to another corporation or other entity shall be effected in
such a way that holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be
made whereby the holders of Preferred Stock shall thereafter have the
right to receive upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of the Common Stock of the
corporation immediately theretofore receivable upon the conversion of
Preferred Stock, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
of such stock immediately theretofore receivable upon the conversion
of Preferred Stock had such reorganization, reclassification,
consolidation, merger or sale not taken place, plus all dividends
unpaid and accumulated or accrued thereon to the date of such
reorganization, reclassification, consolidation, merger or sale, and
in any such case appropriate provision shall be made with respect to
the rights and interests of the holders of Preferred Stock to the end
that the provisions hereof (including without limitation provisions
for adjustments of the conversion price and of the number of shares
receivable upon the conversion of Preferred Stock) shall thereafter be
applicable, as nearly as may be in relation to any shares of stock,
securities or assets thereafter receivable upon the conversion of
Preferred Stock. The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than the corporation)
resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the registered holders of Preferred Stock, at the last
addresses of such holders appearing on the books of the Corporation,
the obligation to deliver to such holders such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
such holders may be entitled to receive.
(6) Upon any adjustment of the conversion price, then and in each case the
Corporation shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the registered holders of Preferred
Stock, at the addresses of such holders as shown on the books of the
Corporation, which notice shall state the conversion price resulting
from such adjustment and the increase or decrease, if any, in the
number of shares receivable at such price upon the conversion of
-4-
<PAGE>
Preferred Stock, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(7) If any event occurs as to which in the opinion of the Board of
Directors of the Corporation the other provisions of this
paragraph (E) are not strictly applicable or if strictly applicable
would not fairly protect the rights of the holders of Preferred Stock
in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in
the application of such provisions, in accordance with such essential
intent and principles, so as to protect such rights as aforesaid.
(8) As used in this paragraph (E) the term "Common Stock" shall mean and
include the Corporation's presently authorized Common Stock and shall
also include any capital stock of any class of the Corporation
hereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares receivable pursuant to
conversion of shares of Preferred Stock shall include shares
designated as Common Stock as of the date of issuance of such shares
of Preferred Stock, or, in case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided
for in subparagraph (5) above.
(9) No fractional shares of Common Stock shall be issued upon conversion,
but, instead of any fraction of a share which would otherwise be
issuable, the Corporation shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the market
price per share of Common Stock as of the close of business on the day
of conversion. "Market price" shall mean if the Common Stock is
traded on a securities exchange or on the Nasdaq National Market, the
closing price of the Common Stock on such exchange or the Nasdaq
National Market, or, if the Common Stock is otherwise traded in the
over-the-counter market, the closing bid price, in each case averaged
over a period of 20 consecutive business days prior to the date as of
which "market price" is being determined. If at any time the Common
Stock is not traded on an exchange or the Nasdaq National Market, or
otherwise traded in the over-the-counter market, the "market price"
shall be deemed to be the fair value thereof determined in good faith
by the Board of Directors of the Corporation as of a date which is
within 15 days of the date as of which the determination is to be
made.
-5-
<PAGE>
(F) MANDATORY CONVERSION.
The Preferred Stock shall automatically be converted into shares of Common
Stock, without any act by the Corporation or the holders of the Preferred Stock,
concurrently with the closing of the Initial Public Offering of the Corporation
(as hereinafter defined). As used herein, the term "closing" shall mean the
delivery by the Corporation to the underwriters of certificates representing the
shares of Common Stock offered to the public against delivery to the Corporation
by such underwriters of payment therefor. Each holder of a share of Preferred
Stock so converted shall be entitled to receive the full number of shares of
Common Stock into which such share of Preferred Stock held by such holder could
be converted if such holder had exercised its conversion right at the time of
closing of such public offering. Upon such conversion, each holder of a share
of Preferred Stock shall immediately surrender such share in exchange for
appropriate stock certificates representing a share or shares of Common Stock.
As used herein, "Initial Public Offering" shall mean the first public offering
by the Corporation of shares of Common Stock registered under the Securities Act
of 1933, as amended, in which (1) the aggregate public offering price of the
Common Stock sold for cash by the Corporation in the offering is at least
$10,000,000 and (2) the offering is underwritten on a firm commitment basis by
an underwriter or a group of underwriters. The term "firm commitment basis"
with respect to the underwriting of such public offering shall mean a commitment
pursuant to a written underwriting agreement under which the nature of the
underwriters' commitment is such that all securities will be purchased by such
underwriters if any securities are purchased by such underwriters.
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT
TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT, made and entered into this 6th
of December 1996, by and between Kraus-Anderson-Registration Mark-
Incorporated, a Minnesota corporation, (hereinafter referred to as
"Landlord") and Hanlon Manufacturing Company, a Minnesota corporation
(hereinafter referred to as "Tenant");
WITNESSETH THAT:
A. Landlord is leasing to Tenant and Tenant is leasing from Landlord
certain premises commonly known as 607 and 609A West Travelers Trail,
Burnsville, MN, and located in Gateway Business Park, Phase 1 (the
"Complex"), Suite 113 and 114A, as shown crosshatched in green upon Exhibit A
attached (the "Original Leased Premises"), pursuant to written lease
agreement dated March 1, 1994, and as amended by First Amendment to Lease
dated January 18, 1996 (collectively referred to as the "Lease"); and
B. WHEREAS, Landlord and Tenant desire to amend the Lease to provide
that Tenant's space will be increased by an additional eight thousand one
hundred ninety seven (8,197) square feet of space adjacent to Tenant's
current leased space, as shown crosshatched in yellow on the attached Exhibit
A (the "Additional Premises"); and
C. WHEREAS, the parties hereto now desire to extend the term of the
Lease by a period of six (6) months and to amend certain other provisions
thereof;
NOW THEREFORE, in consideration of the mutual agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby amend the
Lease and agree as follows:
1. ARTICLE 1, SECTION 2 - TERM: The term of the Lease is hereby extended for
an additional period of six (6) months, to commence on July 1, 1997 and to
expire on December 31, 1997.
2. ARTICLE 1, SECTION 1 - PREMISES:
a.) Subject to the terms and conditions hereof, Landlord hereby leases the
Additional Premises to Tenant and Tenant leases said premises from
Landlord.
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b.) Effective beginning on December 1, 1996 and extending through the
extended Lease expiration date of December 31, 1997, the term "Leased
Premises", as used in the Lease, shall mean the Original Leased Premises
PLUS the Additional Premises, together consisting of approximately 12,895
total square feet.
3. ARTICLE 3. SECTION 1 ANNUAL BASE RENT:
Beginning on December 1, 1996, the fixed annual base rent for the Original
Leased Premises and the Additional Premises shall be payable as follows:
Rental Period: Initial Annual Rent Monthly Rent
--------------- ------- ----------- ------------
12/01/96 - 06/30/97 [Initial] $100,610.88 $8,384.24
07/01/97 - 12/31/97 [Initial] $109,781.76 $9,148.48
4. ADDITIONAL RENT:
a.) Tenant's "proportionate share" as that phrase is used in Article 1,
Section 1 of the Lease, shall be increased from 9.40% of the Complex to
24.79% of the Complex, beginning on December 1, 1996 and continuing through
the balance of the remaining lease term, ending on December 31, 1997.
b.) Tenant shall be required to pay for costs for all utility services for
the Additional Premises beginning on December 1, 1996 and continuing
throughout the expiration date of December 31, 1997.
5. TENANT'S CONSTRUCTION: The Tenant shall accept the Additional Premises in
an "as is" condition and Tenant agrees to be responsible for any leasehold
improvements at the Additional Premises; All construction shall meet fire
and safety standards and all other City, State and Federal building codes;
Tenant shall be required to obtain Landlord's prior approval before
commencing any construction at the Original Premises or the Additional
Premises.
6. ARTICLE 1, SECTION 2 - TERM:
The expiration date of the term of the Lease, as set forth therein, and all
other conditions and covenants of the Lease shall apply with full force and
effect to Tenant's lease of the Additional Premises, and, for purposes of
the Lease, the term Original Leased Premises shall be construed to mean the
Original Leased Premises crosshatched in green on Exhibit A together with
the Additional Premises crosshatched in yellow on Exhibit A, said combined
premises totaling approximately 12,895 square feet of space.
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7. RIGHT TO TERMINATE:
Tenant shall have the option to terminate the Lease on October 31, 1997
with ninety (90) days written notice prior to termination thereof to
Landlord.
If tenant does not exercise the first option, Tenant shall also have the
option to terminate on November 30, 1997 with ninety (90) days written
notice prior to termination there of to Landlord and Tenant shall have no
further right to terminate the lease thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Amendment to
be executed the day and year first above written.
KRAUS-ANDERSON, INCORPORATED HANLON MANUFACTURING
COMPANY
By: By:
----------------------------- --------------------------
Burton F. Dahlberg [Illegible]
Its: PRESIDENT Its: Co Founder
-------------------------- -------------------------
Landlord Tenant
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Exhibit 10.4
Kennedy & Graven, Chartered
FOR EXECUTION
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CONTRACT
FOR
PRIVATE DEVELOPMENT
By and Among
CITY OF BELLE PLAINE, MINNESOTA
and
BELLE PLAINE ECONOMIC DEVELOPMENT AUTHORITY
BELLE PLAINE, MINNESOTA
and
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
Dated as of: December 31, 1996
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- ------------------------------------------------------------------------------
This document was drafted by:
KENNEDY & GRAVEN, Chartered
470 Pillsbury Center
Minneapolis, Minnesota 55402
Telephone: 337-9300
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TABLE OF CONTENTS
Page
----
PREAMBLE .......................................................... 1
ARTICLE I
DEFINITIONS
Section 1.1. Definitions .............................................. 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations by the Authority and City ................ 6
Section 2.2. Representations and Warranties by the Developer .......... 6
ARTICLE III
ACQUISITION AND CONVEYANCE OF PROPERTY;
PUBLIC IMPROVEMENTS; SITE IMPROVEMENTS
Section 3.1. Acquisition and Conveyance of the Property ............... 8
Section 3.2. Conditions of Acquisition and Conveyance; Purchase Price.. 9
Section 3.3. Place of Document Execution, Delivery and Recording ...... 9
Section 3.4. Title; Other Contingencies ............................... 9
Section 3.5. Public Improvements....................................... 10
Section 3.6. Site Improvement Costs.................................... 12
Section 3.7. Financing of Property Acquisition, Public
Improvements and Site Improvements ....................... 12
Section 3.8. Payment of Authority Costs ............................... 14
Section 3.9. Wage and Job Covenants ................................... 14
ARTICLE IV
CONSTRUCTION OF MINIMUM IMPROVEMENTS
Section 4.1. Construction of Minimum Improvements...................... 16
Section 4.2. Construction Plans ....................................... 16
Section 4.3. Commencement and Completion of Construction .............. 17
Section 4.4. Certificate of Completion ................................ 17
ARTICLE V
INSURANCE AND CONDEMNATION
Section 5.1 Insurance ................................................. 19
Section 5.2 Subordination ............................................. 20
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ARTICLE VI
TAX INCREMENT; TAXES; SPECIAL ASSESSMENTS
Section 6.1. Right to Collect Delinquent Taxes ........................ 21
Section 6.2. Review of Taxes .......................................... 21
Section 6.3. Assessment Agreement ..................................... 21
Section 6.4. Tax Increment Guarantee ................................. 22
ARTICLE VII
MORTGAGE FINANCING
Section 7.1. Financing ............................................... 23
Section 7.2. Authority's Option to Cure Default on Mortgage ........... 23
Section 7.3. Subordination and Modification for the Benefit of
Mortgagee ................................................ 23
ARTICLE VIII
PROHIBITIONS AGAINST ASSIGNMENT AND TRANSFER; INDEMNIFICATION
Section 8.1. Representation as to Development ......................... 25
Section 8.2. Prohibition Against Developer's Transfer of Property and
Assignment of Agreement .................................. 25
Section 8.3. Release and Indemnification Covenants .................... 26
ARTICLE IX
EVENTS OF DEFAULT
Section 9.1. Events of Default Defined ............................... 28
Section 9.2. Remedies on Default ..................................... 28
Section 9.3. Revesting Title in Authority Upon Happening of Event
Subsequent to Conveyance to Developer .................... 29
Section 9.4. Resale of Reacquired Property; Disposition of Proceeds.... 29
Section 9.5. Resale of Reacquired Property; Disposition of Proceeds.... 30
Section 9.6. No Additional Waiver Implied by One Waiver .............. 30
ARTICLE X
ADDITIONAL PROVISIONS
Section 10.1. Conflict of Interests; Authority Representatives Not
Individually Liable ..................................... 31
Section 10.2. Equal Employment Opportunity ............................ 31
Section 10.3. Restrictions on Use .................................... 31
Section 10.4. Provisions Not Merged With Deed ........................ 31
Section 10.5. Titles of Articles and Sections ........................ 31
Section 10.6. Notices and Demands .................................... 31
Section 10.7. Counterparts ........................................... 32
Section 10.8. Recording ............................................... 32
Section 10.9. Covenants Running with the Land ........................ 32
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Section 10.10 Miscellaneous ........................................... 33
ARTICLE XI
TERMINATION OF AGREEMENT
Section 11.1 Option to Terminate ...................................... 33
Section 11.2 Action to Terminate ...................................... 33
Section 11.3 Effect of Termination .................................... 33
Section 11.4. Maturity Date ........................................... 33
TESTIMONIUM .......................................................... 34
SIGNATURES .......................................................... 34
SCHEDULE A Description of Development Property
SCHEDULE B Limited Warranty Deed
SCHEDULE C Assessment Agreement
SCHEDULE D Certificate of Completion and Release of Forfeiture
SCHEDULE E Letter Agreement
SCHEDULE F Site Improvements
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CONTRACT FOR PRIVATE DEVELOPMENT
THIS AGREEMENT, mad on or as of the 31st day of December 1996, by and
between CITY OF BELLE PLAINE, MINNESOTA, a Minnesota corporation (the
"City"), and BELLE PLAINE ECONOMIC DEVELOPMENT AUTHORITY, BELLE PLAINE,
MINNESOTA, a public body corporate and politic (the "Authority"), established
pursuant to MINNESOTA STATUTES, Sections 469.090 and 469.108 (hereinafter
referred to as the "Act"), and EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING
COMPANY, a Minnesota corporation (the "Developer").
WITNESSETH:
WHEREAS, the Authority was created pursuant to the Act and was authorized
to transact business and exercise its powers by a resolution of the City
Council of the City of Belle Plaine ("City"); and
WHEREAS, the City has undertaken a program to promote economic
development and job opportunities and to promote the development and
redevelopment of land which is under utilized within the City, nd in this
connection created a development project known as the Redevelopment Project
No. 1 (hereinafter referred to as the "Project") in an area (hereinafter
referred to as the "Project Area") located in City and a Tax Increment
Financing District No. 1-2 (the "TIF District") with the Project Area, all
pursuant to MINNESOTA STATUTES, Sections 469.001 to 469,037 (the "HRA ACT")
and MINNESOTA STATUTES, Sections 469.174 to 469,179 (the "TIF Act"); and
WHEREAS, the City Council has transferred control, authority and
operation of the Project to the Authority, which currently administers the
Project exercising the powers of a housing and redevelopment authority under
the HRA Act; and
WHEREAS, pursuant to the HRA Act, the Authority is authorized to acquire
real property, or interest therein, and to undertake certain activities to
prepare such real property for development by private enterprise; and
WHEREAS, in order to achieve the objectives of the Project Plan the
Authority is prepared to acquire certain real property in the Project Area,
more particularly described in Schedule A annexed hereto and made a part
hereof (which property as so described is hereinafter referred to as the
"Development Property") and has agreed to pay certain redevelopment costs of
the Project, in order to bring about redevelopment in accordance with the
Development Plan and this Agreement; and
WHEREAS, the City and the Developer have previously entered into that
certain Letter of Intent dated as of August 21, 1996 (the "Letter of Intent")
describing certain assistance to be provided by the City and the Authority to
enable development of the Development Property; and
WHEREAS, this Agreement is intended to and does supersede the Letter of
Intent in all respects; and
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WHEREAS, the Authority believes that the redevelopment of the Project
Area pursuant to this Agreement, and fulfillment generally of this Agreement,
are in the vital and best interests of the City and the health, safety,
morals, and welfare of its residents, and in accord with the public purposes
and provisions of the applicable State and local laws and requirements under
which the Project has been undertaken and is being assisted.
NOW, THEREFORE, in consideration of the premises and the mutual
obligations of the parties hereto, each of them does hereby covenant and
agree with the other as follows:
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ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. In this Agreement, unless a different meaning
clearly appears from the context:
"ACT" means the Economic Development Authority Act, MINNESOTA STATUTES,
Sections 469.090 to 469.108, as amended.
"ADDITIONAL CITY AND COUNTY TAXES" means (1) the real property taxes
generated in any tax-payable year by extending the City's local tax rate
against the tax capacity of the Minimum Improvements (excluding land) as of
January 2 in the prior year; together with (2) the real property taxes
generated in any tax-payable year by extending the County's local tax rate
against the tax capacity of the Minimum Improvements (excluding land) as of
January 2 in the prior year.
"AGREEMENT" means this Agreement, as the same may be from time to time
modified, amended, or supplemented.
"ASSESSMENT AGREEMENT" means the agreement in the form of Schedule C
attached hereto to be entered into pursuant to Section 6.3 of this Agreement.
"AUTHORITY" means the Belle Plaine Economic Development Authority, or any
successor or assign with respect to this Agreement.
"CITY" means the City of Belle Plaine, Minnesota.
"CERTIFICATE OF COMPLETION" means the certification provided to the
Developer, or the purchaser of any part, parcel or unit of the Development
Property, pursuant to Section 4.4 of this Agreement, in substantially the
form attached as Schedule D.
"CONSTRUCTION PLAN" means the plans, specifications, drawings and related
documents on the construction work to be performed by the Developer on the
Development Property, including the Minimum Improvements and the Site
Improvements, which (a) shall be as detailed as the plans, specifications,
drawings and related documents which are submitted to the appropriate
building officials of the City, and (b) shall include at least the following
for each building: (1) site plan; (2) foundation plan; (3) basement plans;
(4) floor plan for each floor; (5) cross sections of each (length and width);
(6) elevations (all sides); (7) landscape plan; and (8) such other plans or
supplements to the foregoing plans as the Authority may reasonably request to
allow it to ascertain the nature and quality of the proposed construction
work.
"COUNTY" means the County of Scott, Minnesota.
"DEED" means the limited warranty deed in substantially the form attached
as Schedule B.
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"DEVELOPER" means Excelsior-Henderson Motorcycle Manufacturing Company,
or its permitted successors and assigns.
"DEVELOPMENT PROPERTY" means the real property described in Schedule A of
this Agreement.
"EARNEST MONEY MORTGAGE" has the meaning set forth in Section 3.1(c)
hereof.
"EARNEST MONEY NOTE" has the meaning set forth in Section 3.1(c) hereof.
"EVENT OF DEFAULT" means an action by the Developer listed in Article IX
of this Agreement, which is not cured within the time period permitted under
this Agreement.
"HOLDER" means the owner of a Mortgage.
"MATURITY DATE" means the date that is the earlier to occur of (a) the
date the Termination Payment, applicable to the date such payment is made, is
paid to the Authority, or (b) the date that all TIF Bonds have been paid in
full, redeemed or defeased.
"MINIMUM IMPROVEMENTS" means the construction on the Development Property
of a motorcycle manufacturing facility, including office space directly
related to and necessary for such facility, with a gross square footage of at
least 150,000 square feet.
"MORTGAGE" means any mortgage made by the Developer which is secured, in
whole or in part, with the Development Property and which is permitted
encumbrance pursuant to the provisions of Article VIII of this Agreement.
"PROJECT" means the Authority's Redevelopment Project No. 1.
"PROJECT AREA" means the real property located within the boundaries of
the Project.
"PUBLIC IMPROVEMENTS" has the meaning set forth in Section 3.5 hereof.
"PURCHASE MONEY MORTGAGE" has the meaning set forth in Section 3.1(b)
hereof.
"PURCHASE MONEY NOTE" has the meaning set forth in Section 3.1(b) hereof.
"REDEVELOPMENT PLAN" means the Authority's Project Plan for Redevelopment
Project No. 1 as amended October 21, 1996 and as it may be further amended.
"SELLER" has the meaning set forth in Section 3.1 hereof.
"SITE IMPROVEMENTS" or "SITE IMPROVEMENT COSTS" has the meaning set forth
in Section 3.6 hereof.
"STATE" means the State of Minnesota.
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"TAX INCREMENT" means that portion of the real property taxes which is paid
with respect to the Development Property and remitted to the Authority by Scott
County as tax increment pursuant to the Tax Increment Act.
"TAX INCREMENT ACT" or "TIF ACT" means the Tax Increment Financing Act,
MINNESOTA STATUTES, Sections 469.174 to 469.179, as amended.
"TAX INCREMENT BONDS" or "TIF BONDS" means, collectively, the Tax Exempt
TIF Bonds and the Taxable TIF Bonds issued or to be issued by the City
pursuant to Section 3.7 hereof, secured primarily by Tax Increments
attributable to the Development Property and, after termination of the TIF
District, by Additional City and County Taxes. The term TIF Bonds includes
any bonds or obligations issued to refund any TIF Bonds.
"TAX INCREMENT DISTRICT" or "TIF DISTRICT" means the Authority's Tax
Increment Financing District No. 1-2.
"TAX INCREMENT PLAN" or "TIF PLAN" means the Authority's Tax Increment
Financing Plan for Tax Increment Financing District 1-2, as amended November
18, 1996, and as it may be further amended.
"TAX OFFICIAL" means any County assessor; County auditor; County or State
board of equalization, the commissioner of revenue of the State, or any State
or federal district court, the tax court of the State, or the State Supreme
Court.
"TERMINATION PAYMENT" means the amount necessary from time to time to
defease or redeem all of the outstanding TIF Bonds assuming the same are and
have been timely paid and redeemed.
"UNAVOIDABLE DELAYS" means delays beyond the reasonable control of the
party seeking to be excused as a result thereof which are the direct result
of strikes, other labor troubles, contractor default, material shortages,
unusually severe or prolonged bad weather, act of God, fire or other casualty
to the Minimum Improvements, litigation commenced by third parties which, by
injunction or other similar judicial action, directly results in delays, or
acts of any federal, state or local governmental unit (other than the
Authority in exercising its rights under this Agreement) which result in
delays, any delays resulting from untimely completion of the Public
Improvements, and any delays resulting from other causes which are beyond the
reasonable control of Developer.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. REPRESENTATIONS BY THE AUTHORITY AND CITY. The Authority
and the City make the following representations as the basis for the
undertaking on their part herein contained:
(a) The Authority is an economic development authority duly organized
and existing under the laws of the State. Under the provisions of the Act,
the Authority has the power to enter into this Agreement and carry out its
obligations hereunder.
(b) The City is a statutory City duly organized under the laws of the
State, and a state public body under Section 469.041 of the HRA Act, and has
the power to enter into this Agreement and carry out its obligations
hereunder.
(c) The activities of the Authority and the City are undertaken for the
purpose of fostering the developing of certain real property which for a
variety of reasons is presently unutilized and under utilized and for the
purpose of preventing the emergency of blight and promoting economic
development and the creation of employment opportunities.
(d) The Minimum Improvements constitute a permitted use under any
applicable zoning laws.
(e) The Project is "redevelopment project" within the meaning of the HRA
Act and was created, adopted and approved in accordance with the terms of the
HRA Act.
(f) The Tax Increment District is an "economic development tax increment
financing district", which was created, adopted, certified and approved
pursuant to the Tax Increment Act.
(g) Subject to satisfaction of the terms and conditions of this
Agreement, the City will convey the Development Property to the Developer for
development in accordance with the terms of this Agreement.
(h) The City and the Authority will cooperate with the Developer with
respect to any litigation commenced with respect to the Redevelopment Plan,
Project, or Minimum Improvements.
(i) Nether the City nor the Authority has received notice or
communication from any local, state or federal official that the activities
of the Developer or the City or the Authority in the Project Area with
respect to the Development Property may be or will be in violation of any
environmental law or regulation. Neither the City nor the Authority is aware
of any facts the existence of which would cause either to be in violation of
any local, state or federal environmental law, regulation or review procedure.
Section 2.2. REPRESENTATIONS AND WARRANTIES BY THE DEVELOPER. The
Developer represents and warrants that:
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(a) The Developer is a corporation duly organized and in good standing
under the laws of the State of Minnesota, is not in violation of any
provisions of its articles of incorporation and by-laws or the laws of the
State, is duly authorized to transact business within the State, has power to
enter into this Agreement and has duly authorized the execution, delivery and
performance of this Agreement by proper action of its directors.
(b) In the event the Development Property is conveyed to the Developer,
then the Developer intends to construct and maintain the Minimum Improvements
in accordance with the terms of this Agreement, the Development Plan and all
local, state and federal laws and regulations (including, but not limited to,
environmental, zoning, building code and public health laws and regulations).
(c) The Developer has received no notice or communication from any
local, state or federal official that the activities of the Developer or the
Authority with respect to the Development Property may be or will be in
violation of any environmental law or regulation (other than those notices or
communications of which the Authority is aware). The Developer is aware of
no facts the existence of which would cause it to be in violation of or give
any person a valid claim under any local, state or federal environmental law,
regulation or review procedure with respect to the Development Property.
(d) The Developer will construct the Minimum Improvements in accordance
with all local, state or federal energy-conservation laws or regulations.
(e) The Developer will use all reasonable efforts to obtain, in a timely
manner, all required permits, licenses and approvals, and will use all
reasonable efforts to meet, in a timely manner, all requirements of all
applicable local, state and federal laws and regulations which must be
obtained or met before the Minimum Improvements may be lawfully constructed.
(f) Nether the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor the fulfillment of
or compliance with the terms and conditions of this Agreement is prevented,
limited by or conflicts with or results in a breach of, the terms, conditions
or provisions of any corporate restriction or any evidenced of indebtedness,
agreement or instrument of whatever nature to which the Developer is now a
party or by which it is bound, or constitutes a default under any of the
foregoing.
(g) The proposed redevelopment by the Developer hereunder would not
occur but for the tax increment financing assistance being provided by the
Authority hereunder.
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ARTICLE III
ACQUISITION AND CONVEYANCE OF PROPERTY;
PUBLIC IMPROVEMENTS; SITE IMPROVEMENTS
Section 3.1. ACQUISITION AND CONVEYANCE OF THE PROPERTY. (a) As of the
date of this Agreement, the Authority and City have entered into a purchase
agreement dated November 20, 1996 (as amended from time to time, the
"Purchase Agreement") with CLC Development, Inc. (the "Seller") providing for
acquisition of the Development Property and certain municipal improvements
associated therewith for a total purchase price of $1,030,000. In order to
assist the Developer in making development of the Minimum Improvements
economically feasible, the Authority will acquire the Development Property
pursuant to the Purchase Agreement, and convey title and possession of the
Development Property to the Developer and provide Developer certain financial
assistance in connection therewith, subject to all terms and conditions of
this Agreement applicable thereto.
(b) The Authority and the City shall fully and timely comply with the
terms and conditions of the Purchase Agreement, including without limitation,
at closing under the Purchase Agreement, the Authority will deliver to the
Seller the amount payable at closing thereunder (except as provided in
Section 3.1(c) below) together with a promissory note in the amount of
$490,000 (the "Purchase Money Note") and a mortgage in like amount (the
"Purchase Money Mortgage") with respect to the Development Property, all in
accordance with the Purchase Agreement.
(c) The parties acknowledge that the Developer provided to the Authority
the amount of $100,000, which wa applied as earnest money toward the purchase
price of the Development Property, all in accordance with the Purchase
Agreement and a letter agreement among the City, the Authority and the
Developer dated November 22, 1996 (the "Letter Agreement") a copy of which is
attached hereto as Schedule E. In accordance with the Letter Agreement, the
Authority gave the Developer a promissory note in amount of $100,000 (the
"Earnest Money Note") and a mortgage encumbering the Authority's interest in
the Development Property (the "Earnest Money Mortgage"), each dated November
22, 1996. The terms of the Letter Agreement are incorporated herein by
reference. In the event of any inconsistency between the Letter Agreement
and this Agreement, the terms of this Agreement shall control.
Notwithstanding anything to the contrary in the Letter Agreement, the
obligations of the Authority and the City under the Letter Agreement shall be
deemed satisfied upon closing on conveyance of the Development a property to
the Developer under this Agreement, or upon termination of this Agreement
under Section 11.1 hereof. Developer shall provide to the Authority with
such funds as are required to pay the closing costs (but not the portion of
purchase price payable under Section 2.2 thereof, or the funds necessary to
pay for the improvements described in Section 19 thereof) be paid by the
Authority pursuant to the Purchase Agreement. At the closing pursuant to the
Purchase Agreement, Developer and the Authority shall amend the Earnest Money
Note and the Earnest Money Mortgage to increase the principal evidenced and
secured thereby by the amount of such funds provided by Developer.
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Section 3.2. CONDITIONS OF ACQUISITION AND CONVEYANCE; PURCHASE PRICE.
(a) The Authority shall convey title to and possession of the Development
Property to the Developer by a deed substantially in the form of the Deed
attached as Schedule B to this Agreement. At the time of such acquisition by
Developer, the Authority also shall assign and deliver to Developer each of
the documents to be delivered by the Seller pursuant to Section 10.0 of the
Purchase Agreement (except the documents referenced in Section 10.1, 10.10
and 10.11 thereof), together with such other documents and affidavits as the
Developer shall reasonably request in connection therewith. The Authority's
obligation to convey the Development Property to the Developer is subject to
satisfaction of the following terms and conditions:
(1) the Developer having reviewed and approved title to the
Development Property as set forth in Section 3.4; and
(2) the conditions precedent to issuance of the Table TIF Bonds,
described in Section 3.7(b) hereof, have been satisfied; and
(3) the Developer not being in default under this Agreement beyond
any applicable cure periods.
The closing on conveyance of the Development Property from the Authority to
the Developer shall occur on the latest of (i) the date the Taxable TIF Bonds
are issued and settled; (ii) ten days after all conditions specified in this
Section 3.2(a) have been satisfied; and (iii) such other date as the
Authority and Developer agree in writing.
(b) The purchase price to be paid to the Authority by the Developer in
exchange for the conveyance of the Development Property shall be $1.00.
Section 3.3. PLACE OF DOCUMENT EXECUTION, DELIVERY AND RECORDING. (a)
Unless otherwise mutually agreed by the Authority and the Developer, the
execution and delivery of all deeds, documents and the payment of any
purchase price shall be made at the offices of the title insurer.
(b) The Deed shall be in recordable form and shall be promptly recorded
in the proper office for the recordation of deeds and other instruments
pertaining to the Development Property. At closing, the Developer shall pay:
(1) the cost of recording any instruments in connection with the
conveyance by the Authority to the Developer; and
(2) costs of title insurance commitment fees and premiums, if any,
and title company closing fees, if any.
Notwithstanding anything to the contrary in this Section, any taxes or costs
payable by the Seller under the Purchase Agreement will remain the obligation
of the Seller.
Section 3.4. TITLE; OTHER CONTINGENCIES. (a) The Developer and
Authority agree and understand that the Developer has the right to make title
objections under the Purchase Agreement. If the Authority elects to
terminate the Purchase Agreement (with the Developer's
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consent), or the Developer requests such termination, all in accordance with
the Purchase Agreement, then either the Developer or the Authority may by the
giving of written notice to the other, terminate this Agreement, upon the
receipt of which this Agreement shall be null and void and neither party
shall have any liability hereunder, except that Developer's obligations under
Section 3.8 hereof shall survive termination of this Agreement. Upon such
termination, the Authority shall promptly return to the Developer any monies
deposited with the Authority, including without limitation the amount owing
to the Developer under the Earnest Money Note. The Authority shall have no
obligations to take any action to clear defects in the title to the
Development Property. As a condition to closing on conveyance of the
Development Property to the Developer, the Developer shall be entitled to
obtain an updated title insurance commitment in a form satisfactory to the
Developer.
(b) The Authority shall take no actions to encumber title to the
Development Property, allow any labor or materials to be performed at or
supplied to the Property, enter into any contracts or agreements whatsoever
with respect to the Development Property, or allow any party whatsoever to
enter upon the Development Property without the prior written consent of
Developer between the time the Authority acquires the Development Property
and the time which the Deed is delivered to the Developer.
(c) Notwithstanding anything to the contrary herein, the Developer
agrees and understands that the Deed shall be given to the Developer only
subject to those matters approved by the Developer pursuant to the Purchase
Agreement and the Letter Agreement at the time of closing on acquisition of
the Development Property by the Authority. In addition, the Authority shall
cause to the following encumbrances to be satisfied, terminated and
discharged of record to the reasonable satisfaction of the Developer upon
deliver of the Deed to the Developer: (1) the Purchase Money Note and the
Purchase Money Mortgage, (2) the Petition for Public Improvements and Waiver
of Special Assessment Appeal as set forth in Exhibit D of the Purchase
Agreement; and (3) deferred assessments with respect to South Street
Improvements.
(d) The Developer acknowledges that the Authority makes no
representations or warranties as to the condition of the soils on the
Development Property or its fitness for construction of the Minimum
Improvements or any other purpose for which the Developer may make use of
such property. The Developer further agrees that it will indemnify, defend,
and hold harmless the Authority, the City, and their governing body members,
officers, and employees, from any claims or actions arising out of the
presence, if any, of hazardous wastes or pollutants on the Development
Property.
(e) The City agrees that, before closing in conveyance of the
Development Property to the Developer, the City will ensure proper access
from Laredo Street to Highway 169.
Section 3.5. PUBLIC IMPROVEMENTS. (a) The City, Authority and Developer
acknowledge and agree that as a result of the Developer's construction of the
Minimum Improvements, it will be necessary for the City to acquire and
construct certain street and utility improvements of a public nature. Such
public improvements are referred to in this Agreement as the "Public
Improvements" and consist of the following: (1) the acquisition of existing
Laredo Street and utilities located in the right of way therein (the "Laredo
Street Improvements"); and (2) the construction of the street and utilities
described as the "Improvements" in the Public
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Improvements Agreement dated as of even date herewith between Seller and the
City (the "Hanlon Drive Improvements").
(b) The parties agree and understand that the City will acquire the
Laredo Street Improvements upon closing on acquisition of the Development
Property from the Seller, and that the portion of the purchase price payable
to Seller at closing represents the cost of acquisition of the Laredo Street
Improvements. The City agrees that it will not specially assess any portion
of the cost of the Public Improvements against the Development Property,
except pursuant to the petition for Public Improvements and Waiver of Special
Assessment Appeal as set forth in Exhibit D to the Purchase Agreement.
(c) The City will cause construction of the Hanlon Drive Improvements in
accordance with the terms of the Public Improvements Agreement; provided,
however, the City shall not give the Commencement Notice (as defined in the
Public Improvements Agreement) without the prior written consent of
Developer. The City shall provide duplicate copies of the Plans submitted by
the Seller pursuant to the Public Improvements Agreement to the Developer for
its review and comment, shall consult with Developer with respect thereto,
and reasonably cooperate with Developer with respect to any comments or
concerns Developer may have with respect to the Plans and the Public
Improvements. The City will use its best efforts to coordinate the
construction of the Hanlon Drive Improvements with the construction of the
Minimum Improvements and the Site Improvements by the Developer, so as to
minimize disruption of the Developer's activities. Notwithstanding anything
to the contrary herein, the City shall have no obligation to commence or
cause to be commenced any work related to the Hanlon Drive Improvements until
the Taxable TIF Bonds have been issued and the Purchase Money Note has been
paid in full. The City and the Authority agree that, if the City exercises
its rights to complete the Public Improvements under Section 2.10(b) of the
Public Improvements Agreement, the Developer may, after written notice to the
City, assume the rights and obligations of the Seller under the Public
Improvements Agreement (other than those relating to the Seller's obligations
to pay costs overages under Section 2.11(b) thereof), including without
limitation the right to reimbursement by the City and the Seller for work
performed by the Developer from and after the date of such notice; provided
that in such event, the Public Improvements shall be completed within 60 days
after the date of the Developer's notice. If the Developer does not timely
complete the Public Improvements, the City retains its rights thereafter to
complete the Public Improvements under Section 2.10(b) of the Public
Improvements Agreement. Nothing in this Section is intended to inure to the
benefit of the Seller or relieve the Seller of its obligations under the
Public Improvements Agreement.
(d) The Developer acknowledges that it may be necessary, during the
construction of the Hanlon Drive Improvements, for the City or the Seller to
enter upon the Development Property for the purpose of making such
improvements. The Developer hereby grants to the City a construction license
allowing the City and its officials, employees, agents and contractors
(including without limitation the Seller and its officials, employees agents
and contractors) to enter the Development Property for the purpose of
constructing the Hanlon Drive Improvements. The City shall use all
reasonable efforts to cause the parties performing such work to coordinate
with and not unnecessarily disturb the performance of the Minimum
Improvements.
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Section 3.6. SITE IMPROVEMENT COSTS. The Authority and the City agree
that in order to make construction of the Minimum Improvements financial
feasible, it is necessary for the Authority to assist the Developer through
the financing of certain costs related to the preparation of the Development
Property. Such preparation activities are referred to in this Agreement as
the "Site Improvements" or the "Site Improvement Costs" and shall consist of
the improvements descried in Schedule F hereto. The Developer shall
construct all Site Improvements in a timely fashion necessary to permit
construction of the Minimum Improvements as described in Article IV hereof.
Plans and specifications for the Site Improvements shall be approved by the
Authority in accordance with Article IV hereof. The Authority will reimburse
the Developer for a portion of the site Improvement Costs in accordance with
the terms of the Section 3.7 hereof. At reasonable intervals during
construction of the Site Improvements, the Developer shall submit evidence of
the Site Improvements Costs to the Authority in a form reasonably
satisfactory to the Authority. Such evidence shall include, at a minimum,
paid invoices or comparable evidence of payment.
If the cost of all Site Improvements exceed the amount to be reimbursed
under Section 3.7, such excess cost shall be the responsibility of the
Developer. Neither the City nor the Authority shall have any obligation to
the Developer or to any third party with respect to any defects in the
construction of the Site Improvements.
Section 3.7. FINANCING OF PROPERTY ACQUISITION, PUBLIC IMPROVEMENTS AND
SITE IMPROVEMENTS. (a) The Authority and City will finance the cost of the
Public Improvements through issuance by the City of tax exempt TIF Bonds with
proceeds in the amount of $610,000 (the "Tax Exempt TIF Bonds") net of
capitalized interest, discount, costs of issuance and administrative costs.
The City will use its best efforts to cause the Tax Exempt TIF Bonds to be
issued and settled by December 31, 1996. The net proceeds of the Tax Exempt
TIF Bonds shall be disbursed as follows:
(1) the amount of $440,000 shall be paid to the Seller at closing on
acquisition of the Development Property by the Authority, as a portion of
the cost of acquisition of the Development Property, which portion
constitutes the cost of the Laredo Street Improvements.
(2) the amount of $170,000 shall be disbursed to pay the cost of the
Hanlon Drive Improvements in accordance with the Public Improvements
Agreement.
(b) The Authority will finance the cost of acquisition of the
Development Property (other than the portion attributable to the Laredo
Street Improvements) and the Site Improvement Cots through issuance by the
City of Taxable TIF Bonds with proceeds in the amount of $1,690,000 (the
"Taxable TIF Bonds") net of capitalized interest, discount, costs of issuance
and administrative costs. The City's obligation to issue the Taxable TIF
Bonds shall be subject to satisfaction of the following conditions:
(1) Conceptual plans for the Minimum Improvements and Construction
Plans for the initial portion thereof for which a municipal permit is to be
issued having been approved in accordance with Article IV hereof;
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(2) the Authority having approved the Developer's financing in an
amount necessary to construct the Minimum Improvements, all in accordance
with Article VII hereof, and the Developer having closed on such financing;
and
(3) there being no uncured Event of Default by the Developer under
this Agreement.
The parties agree and understand that they will use their best efforts to cause
the conditions referenced in this Section to be met, and the Taxable TIF Bonds
to be issued, by June 30, 1997; provided, however, the Authority shall not issue
the Taxable TIF Bonds until requested to do so by the Developer in writing.
(c) The Developer agrees that, upon closing on the Taxable TIF Bonds, it
will pay the amount owing to Seller under the Purchase Money Note. The net
proceeds of the Taxable TIF Bonds shall be allocated to reimburse the
Developer for costs of acquiring the Development Property in the amount of
$590,000 (including $100,000 paid by the Developer as earnest money under the
Letter Agreement and $490,000 paid by he Developer to satisfy the Purchase
Money Note), and to reimburse the Developer for its Site Improvement Costs
documented in accordance with Section 3.6 hereof, together with all other
closing costs paid by the Developer under Section 3.1(c) hereof, in the
amount of $1,100,000, for a total reimbursement of $1,690,000 (the
"Reimbursement Amount"). Such proceeds shall be disbursed at the following
times:
(i) Upon completion of construction of 25% of the Minimum
Improvements, the Authority shall disburse to the Developer 25% of the
Reimbursement Amount;
(ii) Upon completion of construction of 50% of the Minimum
Improvements, the Authority shall disburse to the Developer an additional
25% of the Reimbursement Amount;
(iii) Upon completion of construction of 75% of the Minimum
Improvements, the Authority shall disburse to the Developer an additional
25% of the Reimbursement Amount;
(iv) Upon completion of construction of 100% of the Minimum
Improvements, the Authority shall disburse to the Developer an additional
25% of the Reimbursement Amount.
Notwithstanding anything to the contrary in this paragraph, at no time will
the Authority disburse funds in an amount in excess of the Developer's
documented costs incurred in constructing the Site Improvements or in funding
acquisition of the Development Property; provided, however, that at the
request of any Holder, the Authority shall pay the Reimbursement Amount into
a construction escrow established by such Holder, subject to all the terms
and conditions of this Section 3.7(c), including without limitation the above
disbursement schedule.
(d) For the purposes of determining percentages of completion of
construction of the Minimum Improvements under this Section, the Authority
shall be furnished with a certificate
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from the Developer's project engineer or architect, certifying as to the
degree of completion of the Minimum Improvements.
(e) The City and the Authority represent and warrant that the TIF Bonds
shall have a final stated maturity of February 1, 2010, and shall mature and
be payable in such manner as shall provide approximately level debt service
thereon for the years 2000 through 2007.
(f) In the event Developer desires to expand or perform additional
improvements beyond the Minimum Improvements, the Authority shall negotiate
in good faith to assist Developer in financing such expense or additional
improvements with any excess Tax Increments then being generated or any Tax
Increments, reasonably anticipated to be generated from such expansion or
additional improvements.
Section 3.8. PAYMENT OF AUTHORITY COSTS. The parties agree and
understand that the Authority's legal and fiscal consultant costs in
connection with the Purchase Agreement, this Agreement, and other activities
in connection with development of the Minimum Improvements, will be paid from
proceeds of the TIF Bonds. In the event this Agreement is terminated under
any provision hereof before issuance of either the Tax Exempt TIF Bonds or
the Taxable TIF Bonds, the Developer shall remain obligated to reimburse the
Authority and the City for all such costs, to the extent incurred after
September 1, 1996, not previously paid from proceeds of any TIF Bonds issued
before such termination. The Developer shall remit such payment within 10
days after receipt of written demand therefor.
Section 3.9. WAGE AND JOB COVENANTS. (a) By no later than December 31,
1998 (the "Compliance Date"), the Developer shall create on the Development
Property at least 75 new full-time equivalent jobs (excluding any jobs filled
by the Developer in the State as of the ate of this Agreement) and the
weighted annual average wages for all employees in the Minimum Improvements
shall be no less than $17,500. The Developer shall submit to the Authority a
written report by the Compliance Date describing employment and wages in
sufficient detail to enable the Authority to determine compliance with this
Section. The City shall file the reports required by Minnesota Statutes,
Section 116J.991 with the Minnesota Department of Trade and Economic
Development. The Developer's obligations under this Section 3.9 shall be
fulfilled and the requirements established herein shall be satisfied upon
completion of the number of jobs that the wage level provided in (b) above,
and there shall be no requirement as to the continuation of any job or wage
level thereafter.
(b) If the Developer fails to comply with any of the terms of Section
3.9(a), the Developer shall repay to the Authority an amount equal to
$2,300,000, or such lesser amount of net proceeds of the TIF Bonds as have
been disbursed by the City or Authority in connection with land acquisition,
the Public Improvements or the Site Improvements; provided that the terms of
such repayment shall be determined by written agreement negotiated diligently
and in good faith among the Authority, the City and the Developer to be
entered into upon the Event of Default under this Section. If no written
agreement is executed within 90 days after the Event of Default under this
Section, the amount payable by the Developer under this paragraph shall be
immediately due and payable. Nothing in this Section shall be construed to
limit the Authority's or City's remedies under Article IX hereof.
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(c) The parties agree and understand that this Section is intended to
comply with Minnesota Statutes, Section 116J.991. If such statute is repealed
or amended such that the requirements set forth in this Section are not required
by statute, the provisions of this Section 3.9(b) shall be deemed terminated and
no longer in effect upon the effective date of such repeal or amendment.
Notwithstanding such termination, the Authority shall retain such other remedies
as it may have under Article IX hereof for an Event of Default under this
Section, excluding the repayment described in Section 3.9(b).
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SECTION 4.1 CONSTRUCTION OF MINIMUM IMPROVEMENTS. The Developer agrees
that it will construct the Minimum Improvements on the Development Property
substantially in accordance with the approved Construction Plans and at all
times prior to the Maturity Date will maintain, preserve and keep the Minimum
Improvements or cause the Minimum Improvements to be maintained, preserved and
kept with the appurtenances and every part and parcel thereof, in good repair
and condition.
SECTION 4.2 CONSTRUCTION PLANS. (a) The parties agree and understand
that the Minimum Improvements will be constructed under a so-called
"design-build" strategy. Before commencement of construction of each component
the Minimum Improvements for which a municipal permit is issued, the Developer
shall submit to the Authority Construction Plans for such component. The
Construction Plans shall provide for the construction of the relevant component
of the Minimum Improvements and shall be in substantial conformity with the
Redevelopment Plan, this Agreement, and all applicable State and local laws and
regulations. The Authority will approve the Construction Plans in writing if;
(i) the Construction Plans conform to the terms and conditions of this
Agreement; (ii) the Construction Plans conform to all applicable federal, state
and local laws, ordinances, rules and regulations; (iii) the Construction Plans
are adequate to provide for construction of the Minimum Improvements; and (iv)
no Event of Default has occurred. No approval by the Authority shall relieve
the Developer of the obligation to comply with the terms of this Agreement or
of the Redevelopment Plan, applicable federal, state and local laws, ordinances,
rules and regulations, or to construct the Minimum Improvements in accordance
therewith. No approval by the Authority shall constitute a waiver of an Event
of Default. If approval of the Construction Plans is requested by the Developer
in writing at the time of submission, such Construction Plans shall be deemed
approved unless rejected in writing by the Authority, in whole or in part. Such
rejections shall set forth in detail the reasons therefore, and shall be made
within 30 days after the date of their receipt by the Authority. If the
Authority rejects any Construction Plans in whole or in part, the Developer
shall submit new or corrected Construction Plans within 30 days after written
notification to the Developer of the rejection. The provisions of this Section
relating to approval, rejection and resubmission of corrected Construction Plans
shall continue to apply until the Construction Plans have been approved by the
Authority. The Authority's approval shall not be unreasonably withheld. Said
approval shall constitute a conclusive determination that the Construction Plans
(and Minimum Improvements, if constructed in accordance with said plans) comply
to the Authority's satisfaction with the provisions of this Agreement relating
thereto.
(b) If, prior to issuance of the Certificate of Completion, the Developer
desires to make any material change in the Construction Plans after their
approval by the Authority which would substantially alter the scope of the work
contemplated thereby or decrease the value of the Minimum Improvements
(including land) below $6,200,000, the Developer shall submit the proposed
change to the Authority for its approval. If the Construction Plans, as
modified by the proposed change, conform to the requirements of this section
4.2 of this Agreement with respect to such previously approved Construction
Plans, the Authority shall approve the proposed change and notify the
Developer in writing of its approval. Such change in the Construction Plans
shall,
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in any event, be deemed approved by the Authority unless rejected, in whole or
in part, by written notice by the Authority to the Developer, setting forth in
detail the reasons therefor. Such rejection shall be made within ten (10) days
after receipt of the notice of such change. The Authority's approval of any
such change in the Construction Plans will not be unreasonably withheld.
Section 4.3. COMMENCEMENT AND COMPLETION OF CONSTRUCTION. Subject to
Unavoidable Delays, the Developer shall commence construction of the Minimum
Improvements by December 31, 1997. Subject to Unavoidable Delays, the Developer
shall complete the construction of the Minimum Improvements by December 31,
1998. All work with respect to the Minimum Improvements to be constructed or
provide by the Developer on the Development Property shall be in substantial
conformity with the Construction Plans as submitted by the Developer and
approved by the Authority. The parties agree and understand that,
notwithstanding the completion date for the Minimum Improvements set forth in
this Section, the minimum market value for the Minimum Improvements and the
Development Property described in Section 6.3 hereof and the Assessment
Agreement will be effective as of January 2, 1998. Failure to complete the
Minimum Improvements by such date shall not be an Event of Default hereunder,
but such failure shall not relieve or alter the effective date of the minimum
market value set forth in the Assessment Agreement.
The Developer agrees for itself, its successors and assigns, and every
successor in interest to the Development Property, or any part thereof, that the
Developer, and such successors and assigns, shall begin and diligently prosecute
to completion the redevelopment of the Development Property through the
construction of the Minimum Improvements thereon, and that such construction
shall, subject to the terms of this Agreement, be commenced and completed within
the period specified in this Section 4.3 of this Agreement. Subsequent to
conveyance of the Development Property, or any part thereof, to the Developer,
and until construction of the Minimum Improvements has been completed, the
Developer shall make reports, in such detail and at such times as may reasonably
be requested by the Authority, as to the actual progress of the Developer with
respect to such construction.
Section 4.4. CERTIFICATE OF COMPLETION. (a) Promptly after substantial
completion of the Minimum Improvements in accordance with those provisions of
the Agreement relating solely to the obligations of the Developer to construct
the Minimum Improvements (including the dates for beginning and completion
thereof), the Authority will furnish the Developer with an appropriate
instrument so certifying; provided that if Developer shall substantially
complete the Minimum Improvements later than permitted under this Agreement, it
shall nevertheless be entitled to receive and the Authority shall issue such
certificate unless prior thereto the Authority shall have unconditionally and
finally caused title to the Development Property to be revested in the Authority
pursuant to Section 9.3 hereof. Such certification by the Authority shall be
(and it shall be so provided in the Deed and in the certification itself) a
conclusive determination of satisfaction and termination of the agreements and
covenants in the Agreement and in the Deed with respect to the obligations of
the Developer, and its successors and assigns, to construct the Minimum
Improvements and the dates for the beginning and completion thereof. Such
certification and such determination shall not constitute evidence of compliance
with or satisfaction of any obligation of the Developer to any Holder of a
Mortgage, or any insurer of a Mortgage, securing money loaned to finance the
Minimum Improvements, or any part thereof.
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(b) The certificate provided for in this Section 4.4 of this Agreement
shall be in such form as will enable to be recorded in the proper office for the
recordation of deeds and other instruments pertaining to the Development
Property. If the Authority shall refuse or fail to provide any certification in
accordance with the provisions of this Section 4.4 of this Agreement, the
Authority shall, within thirty (30) days after written request by the Developer,
provide the Developer with a written statement, indicating in adequate detail in
what respects the Developer has failed to complete the Minimum Improvements in
accordance with the provisions of the Agreement, or is otherwise in default, and
what measures or acts it will be necessary, in the opinion of the Authority, for
the Developer to take or perform in order to obtain such certification.
(c) The construction of the Minimum Improvements shall be deemed to be
completed when the Developer has received a certificate of occupancy from the
responsible inspecting authority. The City agrees to act in good faith in the
issuance of such certificate of occupancy and not to withhold or delay such
issuance thereof except only based upon Developer's failure to comply or satisfy
such conditions as are normally imposed by the City in connection with issuance
of such certificates.
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SECTION 5.1. INSURANCE. (a) The Developer will provide and maintain at
all times during the process of constructing the Minimum Improvements an All
Risk Broad Form Basis Insurance Policy and, from time to time during that
period, at the request of the Authority, furnish the Authority with proof of
payment of premiums on policies covering the following:
(i) Builder's risk insurance, written on the so-called "Builder's
Risk -- Completed Value Basis," in an amount equal to one hundred percent
(100%) of the insurable value of the Minimum Improvements at the date of
completion, and with coverage available in nonreporting form on the so-
called "all risk" form of policy. The interest of the Authority shall be
protected in accordance with a clause in form and content satisfactory to
the Authority.
(ii) Comprehensive general liability insurance (including operations,
contingent liability, operations of subcontractors, completed operations
and contractual liability insurance) together with an Owner's Contractor's
Policy with limits against bodily injury and property damage of not less
than $1,000,000 for each occurrence (to accomplish the above-required
limits, an umbrella excess liability policy may be used); and
(iii) Workers' compensation insurance, with statutory coverage.
(b) Upon completion of construction of the Minimum Improvements and
prior to the Maturity Date, the Developer shall maintain, or cause to be
maintained, at its cost and expense, and from time to time at the request of
the Authority shall furnish proof of the payment of premiums on, insurance as
follows:
(i) Insurance against loss and/or damage to the Minimum Improvements
under a policy or policies covering such risks as are ordinarily insured
against by similar businesses.
(ii) Comprehensive general public liability insurance, including
personal injury liability (with employee exclusion deleted), against
liability for injuries to persons and/or property, in the minimum amount
for each occurrence and for each year of $1,000,000, and shall be endorsed
to show the Authority as additional insured.
(iii) Such other insurance, including workers' compensation insurance
respecting all employees of the Developer, in such amount as is customarily
carried by like organizations engaged in like activities of comparable size
and liability exposure; provided that the Developer may be self-insured
with respect to all or ay part of its liability for workers' compensation.
(c) All insurance required in Article V of this Agreement shall be
taken out and maintained in responsible insurance companies selected by the
Devloper which are authorized under the laws of the State to assume the risks
covered thereby. Upon request, the Developer
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will deposit annually with the Authority policies evidencing all such insurance,
or a certificate or certificates or binders of the respective insurers stating
that such insurance is in force and effect. Unless otherwise provided in this
Article V of this Agreement each policy shall contain a provision that the
insurer shall not cancel nor modify it in such a way as to reduce the coverage
provided below the amounts required herein without giving written notice to the
Developer and the Authority at least thirty (30) days before the cancellation or
modification becomes effective. In lieu of separate policies, the Developer may
maintain a single policy, blanket or umbrella policies, or a combination
thereof, having the coverage required herein, in which event the Developer shall
deposit with the Authority a certificate or certificates of the respective
insurers as to the amount of coverage in force upon the Minimum Improvements.
(d) The Developer agrees to notify the Authority immediately in the case
of damage exceeding $100,000 in amount to, or destruction of, the Minimum
Improvements or any portion thereof resulting from fire or other casualty. In
such event the Developer will forthwith repair, reconstruct and restore the
Minimum Improvements to substantially the same or an improved condition or value
as it existed prior to the event causing such damage and, to the extent
necessary to accomplish such repair, reconstruction and restoration, the
Developer will apply the Net Proceeds of any insurance relating to such damage
received by the Developer to the payment or reimbursement of the costs thereof.
The Developer shall complete the repair, reconstruction and restoration of
the Minimum Improvements, whether or not the Net Proceeds of insurance received
by the Developer for such purposes are sufficient to pay for the same. Any Net
Proceeds remaining after completion of such repairs, construction and
restoration shall be the property of the Developer.
(e) In lieu of its obligation to reconstruct the Minimum Improvements as
set forth in this Section, the Developer shall have the option of paying to the
Authority the Termination Payment then applicable.
(f) The Developer and the Authority agree that all of the insurance
provisions set forth in this Article V shall terminate upon the termination of
this Agreement.
Section 5.2. SUBORDINATION. Notwithstanding anything to the contrary
contained in this Article V, the rights of the Authority with respect to the
receipt and application of any proceeds of insurance shall, in all respects, be
subject and subordinate to the rights of any lender under a Mortgage approved
pursuant to Article VII of this Agreement.
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ARTICLE VI
TAX INCREMENT; TAXES; SPECIAL ASSESSMENTS
Section 6.1. RIGHT TO COLLECT DELINQUENT TAXES. The Developer
acknowledges that the Authority is providing substantial aid and assistance in
furtherance of the development through issuance of the TIF Bonds. The Developer
understands that the Tax Increments pledged to payment on the TIF Bonds are
derived from real estate taxes on the Development Property, which taxes must be
promptly and timely paid. To that end, the Developer agrees for itself, its
successors and assigns, in addition to the obligation pursuant to statute to pay
real estate taxes, that it is also obligated until the Maturity Date by reason
of this Agreement to pay before delinquency all real estate taxes assessed
against the Development Property and the Minimum Improvements. The Developer
acknowledges that until the Maturity Date, this obligation creates a contractual
right on behalf of the Authority to sue the Developer or its successors and
assigns to collect delinquent real estate taxes and any penalty or interest
thereon and to pay over the same as a tax payment to the county auditor. In any
such suit, the Authority shall also be entitled to recover its costs, expenses
and reasonable attorney fees.
Section 6.1 REVIEW OF TAXES. The Developer agrees that prior to the
Maturity Date it will not cause a reduction in the real property taxes paid in
respect of the Development Property through: (A) willful destruction of the
Development Property or any part thereof; or (B) willful refusal to reconstruct
damaged or destroyed property pursuant to Section 5.1 of this Agreement, except
as provided in Section 5.1(e). The Developer also agrees that it will not,
prior to the Maturity Date, transfer, or permit the transfer of, the Development
Property to any entity whose ownership would render the Development Property
exempt from real property taxes under state law, other than the City or the
Authority, or apply for a deferral of property tax on the Development Property
pursuant to MINNESOTA STATUTES, Section 469.181, or any similar law.
Section 6.3. ASSESSMENT AGREEMENT. On or before closing on conveyance of
the Development Property to the Developer, the Developer shall, with the
Authority, execute an Assessment Agreement pursuant to MINNESOTA STATUTES,
Section 469.177, subd. 8, specifying any assessor's minimum Market Value for the
Development Property together with the Minimum Improvements. The amount of the
minimum Market Value shall be no less than $6,200,000 as of January 2, 1998,
notwithstanding any failure to complete construction of the Minimum Improvements
by that date.
The Assessment Agreement shall be substantially in the form attached hereto
as Schedule C. Nothing in the Assessment Agreement shall limit the discretion
of the assessor to assign a market value to the property in excess of such
assessor's minimum Market Value nor prohibit the Developer from seeking through
the exercise of legal or administrative remedies a reduction in such market
value for property tax purposes, provided, however, that the Developer shall not
seek a reduction of such market value below the assessor's minimum Market Value
set forth in the Assessment Agreement in any year so long as such Assessment
Agreement shall remain in effect. The Assessment Agreement shall remain in
effect until the Maturity Date; provided that if at any time before the Maturity
Date the Assessment Agreement is found to be terminated or unenforceable by any
Tax Official or court of competent jurisdiction, the minimum market value
described in this Section shall remain an obligation of the Developer (whether
or not such value
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is binding on the County assessor), it being the intent of the parties that the
obligation of the Developer to maintain, and not to seek reduction of, the
minimum market value specified in this Section is an obligation under this
Agreement as well as under the Assessment Agreement, and is enforceable by the
Authority against the Developer, its successors and assigns in accordance with
the terms of this Agreement.
Section 6.4. TAX INCREMENT GUARANTEE. Subsequent to issuance of the
Taxable TIF Bonds and continuing until the Maturity Date, (a) if the Tax
Increment available to the Authority (including all Tax Increment received by
the Authority after the date of this Agreement and not previously applied to
pay principal or interest on the TIF Bonds through February 1, 2008 is less
than the amount necessary make such principal or interest payment (after
crediting any capitalized interest available as of such date ) and (b) if the
Additional City and County Taxes Paid by the Developer in the six-month
period before any semi-annual scheduled payment of principal or interest on
the TIF Bonds from August 1, 2008 through the Maturity Date is less than the
amount necessary to make such principal or interest payment, then the
Authority shall provide notice to the Developer of such fact and the amount
of such deficiency in Tax Increment or Additional City and County Taxes, as
the case may be. Ten days after receipt of such notice of deficiency, the
Developer shall be liable for and shall pay to the Authority such deficiency.
Failure by the Authority to provide the notice of deficiency when required
by this Section shall not relieve the Developer of its obligation to make the
required payment 10 days after the Developer receives actual notice of the
deficiency from the Authority. Notwithstanding anything to the contrary
herein, on the Maturity Date the Developer shall be entitled to reimbursement
or credit against the Termination Payment, if any, of any deficiency payments
previously made by Developer hereunder, paid from and to the extent that the
aggregate Tax Increment and Additional City and County Taxes through the
Maturity Date exceed the aggregate payments of principal and interest on the
TIF Bonds through the Maturity Date.
The obligation of the Developer to make the payments described in this
Section shall be absolute and unconditional irrespective of any defense or
any rights of set off, recoupment or counterclaim it might otherwise have
against the Authority or any other government body or other person. The
Developer shall not fail to make any required payment under this Section for
any cause or circumstance whatsoever, including without limitation any change
in State property tax laws or any other law, or any other event, even if
beyond the control of the Developer. In any claim, suit or action by the
Authority or City under this Section, the Authority or City shall be entitled
to recover its costs, expenses and reasonable attorney fees.
Notwithstanding anything to the contrary herein, the parties agree and
understand that, in the event of any deficiency as described in this Section,
the Authority and the City will in good faith consider a written request from
the Developer that all or part of such deficiency be satisfied, in lieu of
seeking payment from Developer hereunder, through appropriation of other tax
increments, if any, that are (1) generated by the TIF District or other tax
increment financing district created in the Project, (2) legally available to
the Authority or the City for such purposes, and (3) not otherwise pledged or
obligated by the Authority or the City to other purposes. Any such
application of tax increments shall be conditioned on there being no uncured
Event of Default by the Developer. Nothing in this Section will be construed
to limit the Authority's or City's legislative discretion regarding such
application of tax increments.
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ARTICLE VII
MORTGAGE FINANCING
Section 7.1. FINANCING. (a) Before the City issues the Taxable TIF Bonds,
the Developer shall submit to the Authority evidence of financing reasonably
sufficient for the construction of the Minimum Improvements. Such commitments
may be submitted as short term financing, long term mortgage financing, a bridge
loan with a long term take-out financing commitment, Developer equity, or any
combination of the foregoing. Such commitment or commitments for short term or
long term mortgage financing shall be subject only to such conditions as are
normal and customary in the mortgage banking industry. Notwithstanding anything
to the contrary herein, at least $1,450,000 of the total construction Costs must
be financed by Developer equity, which shall mean any funds of the Developer not
derived from the proceeds of debt secured by an interest in the Development
Property.
(b) If the Authority finds that the financing complies with Section 7.1(a)
and is sufficiently committed and adequate in amount to provide for the
construction of the Minimum Improvements, then the Authority shall notify the
Developer in writing of its approval. Such approval shall not be unreasonably
withheld and either approval or rejection shall be given within thirty (30) days
from the date when the Authority is provided the evidence of financing. A
failure by the Authority to respond to such evidence of financing shall be
deemed to constitute an approval hereunder. If the Authority rejects the
evidence of financing as inadequate, it shall do so in writing specifying the
basis for the rejection.
Section 7.2. AUTHORITY'S OPTION TO CURE DEFAULT ON MORTGAGE. In the event
that there occurs a default under any Mortgage authorized pursuant to Article
VII of this Agreement, the Developer shall cause the Authority to receive copies
of any notice of default received by the Developer from the holder of such
Mortgage. Thereafter, the Authority shall have the right, but not the
obligation, to cure any such default on behalf of the Developer within such cure
periods as are available to the Developer under the Mortgage documents. In the
event there is an event of default under this Agreement, the Authority will
transmit to the Holder of any Mortgage a copy of any notice of default given by
the Authority pursuant to Article IX of this Agreement.
Section 7.3 SUBORDINATION AND MODIFICATION FOR THE BENEFIT OF MORTGAGEE.
In order to facilitate the Developer obtaining financing for purchase of the
Development Property and for construction according to the Construction Plans,
the Authority agrees to subordinate all of its rights under this Agreement
including, but not limited to Section 9.3 herein, to the Holder of the Mortgage,
provided the Development Property remains subject to the Assessment Agreement,
which shall be prior to and not subordinate to the Mortgage, and further
provided that the subordination of the Authority's rights under his Agreement
shall be subject to such reasonable terms and conditions as the Authority and
Holder mutually agree in writing.
Notwithstanding anything to the contrary herein, the City and the Authority
will negotiate in good faith with the Holder and the Developer regarding
modification of the terms of this Agreement, including without limitation,
subordination of the Assessment Agreement and the schedule and manner of payment
of the Reimbursement Amount under Section 3.7(c), in order to facilitate
obtaining financing as required under this Section; provided that nothing in
this
23
<PAGE>
sentence will be construed to require the City or Authority to approve any
modifications that would, in the reasoned judgment of the City or the Authority,
impair the City or Authority's security for its undertakings under this
Agreement.
24
<PAGE>
ARTICLE VIII
PROHIBITIONS AGAINST ASSIGNMENT AND TRANSFER; INDEMNIFICATION
Section 8.1 REPRESENTATION AS TO DEVELOPMENT. The Developer represents
and agrees that its purchase of the Development Property, and its other
undertakings pursuant to the Agreement, are, and will be used, for the purpose
of redevelopment of the Development Property and not for speculation in land
holding.
Section 8.2. PROHIBITION AGAINST DEVELOPER'S TRANSFER OF PROPERTY AND
ASSIGNMENT OF AGREEMENT. The Developer represents and agrees that prior to
issuance of the Certificate of Completion for the Minimum Improvements:
(a) Except only (i) by way of security for, and only for, the purpose of
obtaining financing necessary to enable the Developer or any successor in
interest to the Development Property, or any part thereof, to perform its
obligations with respect to making the Minimum Improvements under this
Agreement, and any refinancing in whole or in part of any of the foregoing, or
(ii) any assignment of Developers's rights and obligations under this Agreement
to any entity with whom Developer has entered into an agreement to perform the
Minimum Improvements on behalf of Developer has entered into an agreement to
perform the Minimum Improvements on behalf of Developer and a lease of the
completed Minimum Improvements with such entity, as landlord, and Developer, as
tenant, and any other purpose authorized by this Agreement, the Developer has
not made or created and will not make or create or suffer to be made or created
any total or partial sale, assignment, conveyance, or lease, or any trust or
power, or transfer in any other mode or form of or with respect to the Agreement
or the Development Property or any part thereof or any interest therein, or any
contract or agreement to do any of the same, without prior written approval of
the Authority, which approval shall not be unreasonably withheld or delayed,
unless the Developer remains liable and bound by this Development Agreement in
which event the Authority's approval is not required. Any such transfer shall
be subject to the provisions of this Agreement. The foregoing shall not in any
way restrict the right of the Developer to sell or transfer the Development
Property in connection with a sale of all or substantially all of the assets of
Developer.
(b) In the event the Developer, upon transfer or assignment of the
Development Property or any portion thereof (including without limitation any
assignment or lease described in Section 8.2(a)(ii) hereof) seeks to be released
from its obligations under this Development Agreement as to the portions of the
Development Property that is transferred or assigned, the Authority and City
shall be entitled to require, except as otherwise provided in the Agreement, as
conditions to any such release that:
(i) Any proposed transferee shall have the qualifications and
financial responsibility, in the reasonable judgment of the Authority and
City, necessary and adequate to fulfill the obligations undertaken in this
Agreement by the Developer as to the portion of the Development Property to
be transferred.
(ii) Any proposed transferee, by instrument in writing reasonably
satisfactory to the Authority and in form recordable among the land
records, shall, for itself and its successors and assigns, and expressly
for the benefit of the Authority and City, have
25
<PAGE>
expressly assumed all of the obligations of the Developer under this
Agreement thereafter arising as to the portion of the Development Property
to be transferred and agreed to be subject to all the conditions and
restrictions to which the Developer is subject as to such portion;
provided, however, that the fact that any transferee of, or any other
successor in interest whatsoever to, the Development Property, or any part
thereof, shall not, for whatever reason, have assumed such obligations or
so agreed, and shall not (unless and only to the extent otherwise
specifically provided in this Agreement or agreed to in writing by the
Authority and the City) deprive the Authority and or City of any rights or
remedies or controls with respect to the Development Property or any part
thereof or the construction of the Minimum Improvements; it being the
intent of the parties as expressed in this Agreement that (to the fullest
extent permitted at law and in equity and excepting only in the manner and
to the extent specifically provided otherwise in this Agreement) no
transfer of, or change with respect to, ownership in the Development
Property or any part thereof, or any interest therein, however consummated
or occurring, and whether voluntary or involuntary, shall operate, legally
or practically, to deprive or limit the Authority of or with respect to any
rights or remedies on controls provided in or resulting from this Agreement
with respect to the Minimum Improvements that the Authority would have had,
had there been no such transfer or change. In the absence of specific
written agreement by the Authority and the City to the contrary, no such
transfer or approval by the Authority and the City thereof shall be deemed
to relieve the Developer, or any other party bound in any way by this
Agreement or otherwise with respect to the construction of the Minimum
Improvements, from any of its obligations with respect thereto.
(iii) Any and all instruments and other legal documents involved
in effecting the transfer of any interest in this Agreement or the
Development Property governed by this Article VIII, shall be in a form
reasonably satisfactory to the Authority and the City.
In the event the foregoing conditions are satisfied then the Developer shall be
released from its obligation under this Agreement, as to the portion of the
Development Property that is transferred, assigned or otherwise conveyed.
After issuance of the Certificate of Completion for the Minimum
Improvements, the Developer may transfer or assign any portion of the
Development Property or the Developer's interest in this Agreement without the
consent of the City or the Authority, provided that the transferee or assignee
is bound by all the Developer's obligations hereunder. The Developer shall
submit to the Authority written evidence of any such transfer or assignment,
including the transferee or assignee's express assumption of the Developer's
obligations under this Agreement. If the Developer fails to provide such
evidence of transfer and assumption, the Developer shall remain bound by all its
obligations under this Agreement.
Section 8.3. RELEASE AND INDEMNIFICATION COVENANTS. (a) The Developer
releases from and covenants and agrees that the Authority and the City and the
governing body members, officers, agents, servants and employees thereof shall
not be liable for and agrees to indemnify and hold harmless the Authority and
the City and the governing body members, officers, agents, servants and
employees thereof against any loss or damage to property or any injury to or
death of any person occurring at or about or resulting from any defect in the
Minimum Improvements; provided that such liability arises by reason of this
Agreement or the performance by such persons of obligations arising under this
Agreement as opposed to, for example, actions which
26
<PAGE>
would be taken by such persons if the Development Property were acquired by the
Developer and developed without the benefit of this Agreement.
(b) Except for any willful misrepresentation or any willful or wanton
misconduct of the following named parties, the Developer agrees to protect and
defend the Authority and the City and the governing body members, officers,
agents, servants and employees thereof, now or forever, and further agrees to
hold the aforesaid harmless from any claim, demand, suit, action or other
proceeding whatsoever by any person or entity whatsoever arising or purportedly
arising from this Agreement, or the transactions contemplated hereby or the
acquisition, construction, installation, ownership, and operation of the Minimum
Improvements; provided that such liability under this Agreement as opposed to,
for example, actions which would be taken by such persons if the Development
Property were acquired by the Developer and developed without the benefit of
this Agreement.
(c) The Authority and the City and the governing body members, officers,
agents, servants and employees thereof shall not be liable for any damage or
injury to the persons or property of the Developer or its officers, agents,
servants or employees or any other person who may be about the Development
Property or Minimum Improvements due to any act of negligence of any person;
provided that such liability arises by reason of this Agreement or the
performance by such persons of obligations arising under this Agreement as
opposed to, for example, actions which would be taken by such persons if the
Development Property were acquired by the Developer and developed without the
benefit of this Agreement.
(d) All covenants, stipulations, promises, agreements and obligations of
the Authority contained herein shall be deemed to be the covenants,
stipulations, promises, agreement and obligations of the Authority and not of
any governing body member, officer, agent, servant or employee of the Authority
in the individual capacity thereof.
27
<PAGE>
ARTICLE IX
EVENTS OF DEFAULT
Section 9.1. EVENTS OF DEFAULT DEFINED. The following shall be "Events of
Default" under this Agreement and the term "Event of Default" shall mean,
whenever it is used in this Agreement, any one or more of the following events,
but only if the subject event has not been cured within 30 days after receipt of
written notice of such failure from the Authority or City, or if the event is by
its nature incurable within 30 days, the Developer does not, within such 30-day
period, provide assurances reasonably satisfactory to the party providing notice
of the failure will be cured and will be cured as soon as reasonably possible:
(a) failure by the Developer to observe or perform any covenant,
condition, obligation or agreement on its part to be observed or performed
hereunder;
(b) If the Developer shall
(i) file any petition in bankruptcy or for any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or
similar relief under the United States Bankruptcy Act or under any similar
federal or State law; or
(ii) make an assignment for benefit of its creditors; or
(iii) admit in writing its inability to pay its debts generally as
they become due; or
(iv) be adjudicated a bankrupt or insolvent.
Section 9.2. REMEDIES ON DEFAULT. Whenever any Event of Default referred
to in Section 9.1 of this Agreement occurs, the City or Authority may exercise
the following rights under this Section 9.2:
(a) Suspend its performance under the Agreement until it receives
assurances that the defaulting party will cure its default and continue its
performance under the Agreement.
(b) Cancel and rescind or terminate the Agreement.
(c) Take whatever action, including legal, equitable or administrative
action, which may appear necessary or desirable to collect any payments due
under this Agreement, or to enforce performance and observance of any
obligation, agreement, or covenant under this Agreement.
Notwithstanding the foregoing, in no event shall the Authority be entitled to
withhold the Certificate of Completion if the Minimum Improvements have been
substantially completed in accordance with Section 4.4 hereof, whether such
completion occurs before or after the date required therefor, except as
otherwise provided in Section 4.4(a) hereof.
28
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Section 9.3. REVESTING TITLE IN AUTHORITY UPON HAPPENING OF EVENT
SUBSEQUENT TO CONVEYANCE TO DEVELOPER. In the event that subsequent to
conveyance of the Development Property or any part thereof to the Developer and
prior to receipt by the Developer of the Certificate of Completion for the
Minimum Improvements:
(a) The Developer, subject to Unavoidable Delays, shall fail to begin
construction of the Minimum Improvements in conformity with this Agreement and
such failure to begin construction is not cured within ninety (90) days after
written notice from the Authority to the Developer to do so; or
(b) subject to Unavoidable Delays, the Developer after commencement of the
construction of the Minimum Improvements, fails to carry out its obligations
with respect to the completion of construction of the Minimum Improvements
(including the nature and he date for the completion thereof), or abandons or
substantially suspends construction work, and any such failure, abandonment, or
suspension shall not be cured, ended, or remedied within ninety (90) days after
written demand from the Authority to the Developer to do so; or
(c) the Developer fails to pay real estate taxes or assessment on the
Development Property or any part thereof within ninety (90) days after the date
when due; or
(d) there is, in violation of Section 8.2(a) of this Agreement, any
transfer of the Development Property or any part thereof, and such violation
shall not be cured within ninety (90) days after written demand by the Authority
to the Developer.
Then the Authority shall have the right tore-enter and take possession of
any Parcel of the Development Property for which no Certificate of Completion
has been give and to terminate (and revest in the Authority) the estate conveyed
by the Deed to the Developer, it being the intent of this provision, together
with other provisions of the Agreement, that he conveyance of the Development
Property to the Developer shall be made upon, and that the Deed shall contain a
condition subsequent to the effect that in the event of any default on the part
of the Developer and failure on the part of the Developer to remedy, end, or
abrogate such default within the period and in the manner stated in such
subdivisions, the Authority at its option may declare a termination in favor of
the Authority of the title, and of all the rights and interests in and to the
Development Property conveyed to the Developer, and that such title and all
rights and interest of the Developer, and any assigns or successors in interest
to and in the Development Property, shall revert to the Authority, but only if
the events stated in Section 9.3(a)-(d) have not been cured within the time
periods provided above, or if the events cannot be cured within such time
periods, the Developer does not provide assurances to the Authority that the
events will be cured and will be cured as soon as reasonably possible.
Notwithstanding anything to the contrary contained in this Section 9.3 of
this Agreement, the Authority shall have no right to reenter or retake title to
and possession of a portion of the Development Property for which a Certificate
of Completion has been issued.
Section 9.4. RESALE OF REACQUIRED PROPERTY; DISPOSITION OF PROCEEDS. Upon
the revesting in the Authority of title to and/or possession of the Development
Property or any part thereof as provided in Section 9.3, the Authority shall,
pursuant to its responsibilities under law, use its best efforts to sell the
Development Property or part thereof upon commercially reasonable terms and
29
<PAGE>
conditions, subject to any existing Mortgage, as soon and in such manner as the
Authority shall find feasible and consistent with the objectives of such law and
of the Development Plan to a qualified and responsible party or parties (as
reasonably determined by the Authority) who will assume, or if required by the
Holder pay in full, any existing Mortgage and assume the obligation of making or
completing the Minimum Improvements or such other improvements in their stead as
shall be satisfactory to the Authority and in accordance with the uses specified
for such Development Property or part thereof in the Redevelopment Plan. Upon
such resale of the Development Property, the proceeds thereof shall be applied:
(a) First to satisfy the Mortgage of record, if required, by the Holder;
(b) Second, for the Termination Payment then in effect (thereby causing
the Termination Date to occur);
(c) Third, to reimburse the Authority for all costs and expenses incurred
by the Authority, including but not limited to salaries of personnel, in
connection with the recapture, management, and resale of the Development
Property or part thereof (but less any income derived by the Authority from the
property or part thereof in connection with such management); all taxes,
assessment,s and water and sewer charges with respect to the Development
Property or part thereof (or, in the event the Development Property is exempt
from taxation or assessment or such charge during the period of ownership
thereof by the Authority, an amount, if paid, equal to such taxes, assessments,
or charges (as determined by the Authority assessing official) as would have
been payable if the Development Property were not so exempt); any payments made
or necessary to be made to discharge any encumbrances or liens existing on the
Development Property or part thereof at the time of revesting of title thereto
in the Authority or to discharge or prevent from attaching or being made any
subsequent encumbrances or liens due to obligations, defaults or acts of the
Developer, its successors or transferees; any expenditures made or obligations
incurred with respect to the making or completion of the Minimum Improvements or
any part thereof on the Development Property or part thereof; and any amounts
otherwise owning the Authority by the Developer and its successor or transferee;
and
(d) Any balance to the Developer.
Section 9.5. NO REMEDY EXCLUSIVE. No remedy herein conferred upon or
reserved to the Authority or Developer is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Agreement or now
or hereafter existing at law or in equity or by statute. No delay or omission
to exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle the Authority to exercise any remedy reserved to
it, it shall not be necessary to give notice, other than such notice as may be
required in this Article IX.
Section 9.6. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event any
agreement contained in this Agreement should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other
concurrent, previous or subsequent breach hereunder.
30
<PAGE>
ARTICLE X
ADDITIONAL PROVISIONS
Section 10.1. CONFLICT OF INTERESTS; AUTHORITY REPRESENTATIVES NOT
INDIVIDUALLY LIABLE. The City, Authority and the Developer, to the best of
their respective knowledge, represent and agree that no member, official, or
employee of the City or Authority shall have any personal interest, direct or
indirect, in the Agreement, nor shall any such member, official, or employee
participate in any decision relating to the Agreement which affects his personal
interests or the interests of any corporation, partnership, or association in
which he is, directly or indirectly, interested. No member, official, or
employee of the City or Authority shall be personally liable to the Developer,
or any successor in interests, in the event of any default or breach by the City
or Authority or for any amount which may become due to the Developer or
successor or on any obligations under the terms of the Agreement.
Section 10.2. EQUAL EMPLOYMENT OPPORTUNITY. The Developer, for itself and
its successors and assigns, agrees that during the construction of the Minimum
Improvements provided for in the Agreement it will comply with all applicable
federal, state and local equal employment and non-discrimination laws and
regulations.
Section 10.3. RESTRICTIONS ON USE. Until the Maturity Date, the Developer
agrees that the Developer, and such successors and assigns, shall devote the
Development Property to the operation of the Minimum Improvements as a
manufacturing and related office facility within the meaning of Section 469.176,
subd. 4c, clauses (1), (2) and (6) of the TIF Act, and shall not discriminate
upon the basis of race, color, creed, sex or national origin in the sale, lease,
or rental or in the use or occupancy of the Development Property or any
improvements erected or to be erected thereon, or any part thereof.
Section 10.4. PROVISIONS NOT MERGED WITH DEED. None of the provisions of
this Agreement are intended to or shall be merged by reason of any deed
transferring any interest in the Development Property and any such deed shall
not be deemed to affect or impair the provisions and covenants of this
Agreement.
Section 10.5. TITLES OF ARTICLES AND SECTIONS. Any titles of the several
parts, Articles, and Sections of the Agreement are inserted for convenience of
reference only and shall be disregarded in construing or interpreting any of its
provisions.
Section 10.6. NOTICES AND DEMANDS. Except as otherwise expressly provided
in this Agreement, a notice, demand, or other communication under the Agreement
by either party to the other shall be sufficiently given or delivered if it is
dispatched by registered or certified mail, postage prepaid, return receipt
requested, or delivered personally; and
(a) in the case of the Developer, is addressed to or delivered personally
to the Developer at 607 West Traveler's Trail, Burnsville, MN 55337; Attn. Dan
Hanlon; and
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(b) in the case of the Authority, is addressed to or delivered personally
to the Authority at City Hall, 420 East Maine Street, Belle Plaine, Minnesota
56011, Attn; Community Development Director;
or at such other address with respect to either such party as that party may,
from time to time, designate in writing and forward to the other as provided in
this Section.
Section 10.7. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall constitute one and the same instrument.
Section 10.8 RECORDING. The Authority shall record this Agreement and any
amendments thereto with the Scott County recorder. The Developer shall pay all
costs for recording.
Section 10.9. COVENANTS RUNNING WITH THE LAND. The terms and provisions
of this Agreement shall be deemed to be covenants running with the Development
Property and shall be binding upon my successors or assigns of the Developer and
any future owners or encumbrancers of the Development Property.
Section 10.10 MODIFICATIONS. This Agreement may be modified solely
through written amendments thereto executed by Developer, City and the
Authority.
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ARTICLE XI
TERMINATION OF AGREEMENT
Section 11.1. OPTION TO TERMINATE. This Agreement may be terminated by
either the City or the Authority by notice to the other parties if closing on
conveyance of the Development Property from the Authority to the Developer does
not occur by June 30, 1997. In addition, if Developer is unable to obtain debt
or equity financing necessary for construction of the Minimum Improvements after
using its best efforts to obtain such financing, Developer may terminate this
Agreement by notice to the Authority at any time before Developer shall give the
Authority the request to issue the Taxable TIF Bonds described in Section
3.7(b). Such notice shall describe in reasonable detail the Developer's efforts
to obtain financing.
Section 11.2. ACTION TO TERMINATE. Termination of this Agreement pursuant
to Section 11.1 must be accomplished by the giving of thirty (30) days written
notification of a party's intent to terminate.
Section 11.3. EFFECT OF TERMINATION. Following the termination or
expiration of this Agreement no action, claim, or demand by any party may be
based on any term or provision of this Agreement except as otherwise provided
herein. The Developer expressly agrees and understands that, following such
termination, the Authority shall have no obligations to the Developer under this
Agreement, including without limitation any reimbursement specified in Section
3.7(c) hereof. The Developer further agrees and understands that in such event
the terms of the Petition for Public Improvements and Waiver of Special
Assessment Appeal given by the Seller at closing on acquisition of the
Development Property. Notwithstanding anything to the contrary herein, the
Developer's obligations under Section 3.8 hereof shall survive termination under
this Article IX.
Section 11.4 MATURITY DATE. This Agreement and all of the terms and
conditions hereof shall automatically terminate on Maturity Date.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in their behalf by their authorized representatives on or as of
the date first above written.
CITY OF BELLE PLAINE
By /s/ Gerald J. Meyer
------------------------
Its Mayor
By /s/ David Iverson
------------------------
Its City Administrator
STATE OF MINNESOTA)
) SS.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 31st day of
December, 1996 by Gerald J. Meyer and David Iverson, the Mayor and City
Administrator of the City of Belle Plaine, on behalf of the City.
/s/ Diane Siebenaler
--------------------------
Notary Public
Diane Siebenaler
Notary Public - Minnesota
DAKOTA COUNTY
My Commission Expires Jun. 31, 2020
34
<PAGE>
BELLE PLAINE ECONOMIC
DEVELOPMENT AUTHORITY
By /s/ Karl Keup
--------------------------
Its President
By /s/ Joanne M. Foust
--------------------------
Its Executive Director
STATE OF MINNESOTA)
) SS.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 31st day of
December, 1996 by Karl Keup and Joanne Foust, the President and Executive
Director of the Belle Plaine Economic Development Authority, a public body
politic and corporate, on behalf of the Authority.
/s/ Diane Siebenaler
--------------------------
Notary Public
Diane Siebenaler
Notary Public - Minnesota
DAKOTA COUNTY
My Commission Expires Jun. 31, 2020
35
<PAGE>
EXCELSIOR - HENDERSON
MOTORCYCLE MANUFACTURING
COMPANY
By /s/ Dan Hanlon
--------------------------
Its Co-Founder/CEO
STATE OF MINNESOTA)
) SS.
COUNTY OF DAKOTA )
The foregoing instrument was acknowledged before me this 31st day of
December, 1996 by Dan Hanlon, the CEO of Excelsior-Henderson Motorcycle
Manufacturing Company, a Minnesota corporation, on behalf of the corporation.
/s/ Jennie L. Hanlon
--------------------------
Jennie L. Hanlon
NOTARY PUBLIC MINNESOTA
MY COMMISSION EXPIRES
JANUARY 31, 2000
36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,376,601
<SECURITIES> 4,044,992
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,430,712
<PP&E> 305,332
<DEPRECIATION> 76,250
<TOTAL-ASSETS> 10,023,400
<CURRENT-LIABILITIES> 392,073
<BONDS> 0
0
46,000
<COMMON> 83,246
<OTHER-SE> 9,502,081
<TOTAL-LIABILITY-AND-EQUITY> 10,023,400
<SALES> 0
<TOTAL-REVENUES> 0
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</TABLE>
