<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Fiscal Year Ended January 2, 1999
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 000-22765
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.)
805 Hanlon Drive
Belle Plaine, Minnesota 56011
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 873-7000
--------------
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of each class)
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Check whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
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 /_/
Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /_/
The aggregate market value of the common equity held by non-affiliates
of the registrant as of March 2, 1999 was $91,157,852, based on a closing price
of $9.03125 per share as reported on the Nasdaq National Market on such date.
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date: Common Stock, $.01 par value -
13,505,752 shares issued and outstanding as of March 2, 1999.
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THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE SAFE HARBOR PROVISIONS OF SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL
PERFORMANCE OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE ONLY PREDICTIONS OR
STATEMENTS OF INTENTION SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL EVENTS OR
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER INCLUDE THE RISKS, UNCERTAINTIES AND OTHER MATTERS SET
FORTH BELOW UNDER THE CAPTION "FORWARD-LOOKING STATEMENTS" AND THE MATTERS SET
FORTH UNDER THE CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.
PART I
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 1999
Annual Meeting of Shareholders are incorporated by reference in Part III.
ITEM 1. BUSINESS
The Company, which was incorporated in Minnesota in 1993, manufactures,
markets and sells premium heavyweight cruiser motorcycles with a brand that
evokes an authentic American motorcycling heritage and lifestyle. The Company's
motorcycle products feature current technology but also reflect the distinctive
designs, styling and names reminiscent of the motorcycles produced in the early
part of this century by Excelsior Supply Company under the brand names Excelsior
and Henderson. The Company's initial motorcycle is a heavyweight cruiser named
the Excelsior-Henderson Super X. On December 30, 1998, the Company's "Road Crew"
produced Super X motorcycle number 000001. This first Super X was then placed
next to the 1931 Super X in the Company's heritage museum at its corporate
headquarters. On January 30, 1999, the Company produced and shipped its first
revenue Super X.
In 1993, Co-Founders Dan, Dave and Jennie Hanlon developed a business
plan to pursue a market opportunity they believed existed in the heavyweight
motorcycle market. They believed that purchasers of heavyweight motorcycles
wanted an authentic American alternative to the existing motorcycles in the
market. After researching the market, they believed that the combination of
Excelsior Supply's status as one of the original Big Three motorcycle
manufacturers, available brand name and rich heritage would serve as an
excellent marketing brand and as a design inspiration for the heavyweight
motorcycles they planned to introduce. The Company was founded on the strategy
to establish itself within the motorcycle industry by marketing a brand that is
based on the authentic American motorcycling heritage of Excelsior Supply and
Henderson and to offer products and accessories that represent distinct
proprietary alternatives to the existing products and accessories existing in
the market. To achieve such strategy, the Company has been developing its
products, engaging in marketing activities, developing its dealer network,
equipping its manufacturing facility, securing its trademarks, hiring its
management team and its engineering, manufacturing and other personnel, and
raising capital. The Company is currently transitioning from the development
stage to an operating company.
THE EXCELSIOR-HENDERSON HERITAGE
It has been estimated that in the early part of this century there were
over 200 American motorcycle manufacturing companies. Until 1931, the "Big
Three" motorcycle manufacturers were Excelsior Supply, Harley-Davidson and
Indian. Excelsior Supply ceased operations in 1931 during the Great Depression
and Indian ceased operations in 1953. Harley-Davidson has been the only
significant manufacturer of American heavyweight cruiser and touring motorcycles
since 1953.
Founded as a bicycle supply company in Chicago in 1876, Excelsior
Supply was owned by bicycle producer Ignatz Schwinn from 1911 until it ceased
production. The Company secured Excelsior Supply's available brand names
beginning in 1993. 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 and continued to manufacture a
Henderson DeLuxe Four, which featured an inline four cylinder engine.
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The motorcycles manufactured by Excelsior Supply and Henderson were a
significant force on the racetrack and on the road. These motorcycles set many
performance records, including the first motorcycle to circle the world and the
first to break the 100 m.p.h. speed barrier. 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.
In 1929, Excelsior Supply restyled its Super X and Henderson DeLuxe
Four motorcycles into its "Streamline" product line. Several motorcycle
historians have cited these "Streamline" models as among the originators of
the classic American heavyweight motorcycle style. For the 1929 to 1931 Super
X Streamline models, this classic style included a large displacement
"X-twin" engine, a teardrop 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.
PRODUCTS
The Company currently produces one premium heavyweight cruiser
motorcycle, the Super X. The Company completed the development and testing of
the Super X for initial production and produced the first Commemorative Super
X from its production line in December 1998. The first Super X was placed in
the Company's heritage museum. The Company shipped its first revenue Super X
in January 1999 and will continue to ramp up production of the Super X. The
Company intends to expand its product line in the future by developing
additional models of motorcycles with classic American heavyweight styling.
In addition, the Company will sell a variety of accessory parts through its
dealers for customization of its motorcycles. The Company will also sell
individual replacement parts for its motorcycles. Finally, the Company sells
a wide variety of apparel such as hats, shirts and jackets to build brand
image and support the lifestyle of American motorcycling.
The Super X is a new proprietary motorcycle featuring modern
engineering and performance and a design inspired by the classic American
heavyweight styling features of the original Excelsior Supply Super X. The
Super X includes a proprietary large displacement "X-Twin" engine that
produces a distinctive sound; a sleekly styled, teardrop shaped fuel tank;
full valanced fenders; a curved front frame that follows the contour of the
front fender; a low slung seat; 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 also incorporates a proprietary transmission, an
electronic fuel injection system and computer controlled-engine management
system. For the 1999 model year, the Super X has a limited
twelve-month/unlimited mileage warranty.
The 1999 model year Super X has the following specifications:
<TABLE>
<S> <C>
Wheelbase 62.9 Inches
Length 92.5 Inches
Dry Weight 647 lbs.
Seat Height 26.5 Inches
Bore X Stroke 3.66 X 4.02 Inches
Engine Size 85 Cubic Inches (1386cc)
Engine Design 50DEG."X-Twin"
Engine Cooling Air and Oil
Fuel System Port Sequential, Closed Loop Fuel Injection
Valves 4 Valves Per Cylinder, Dual Overhead Cams Per Cylinder
Frame Double Wishbone Frame, Full Travel Suspension and Leading Link Front End
Transmission 5 Speed, Constant Mesh
</TABLE>
INDUSTRY AND MARKET
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The heavyweight motorcycle category consists of motorcycles with an
engine displacement of 651cc or greater. Within the heavyweight category,
there are four types of motorcycles: (i) STANDARD, which emphasize simplicity
and cost; (ii) PERFORMANCE, which emphasize handling and speed; (iii)
TOURING, which emphasize comfort and amenities for long-distance travel; and
(iv) CRUISER, which feature the distinctive styling of classic American
motorcycles built during the early years of the motorcycling industry and are
designed to facilitate customization by individual owners. Touring and
cruiser motorcycles are the only types of heavyweight motorcycles that the
Company plans to design and market. According to statistics in
Harley-Davidson's public reports, in 1998, touring and cruiser models
represented approximately 79% of retail unit sales in the U.S. heavyweight
market. Heavyweight motorcycles, in turn, represented approximately half of
retail motorcycle unit sales in the overall United States market in 1998.
U.S. registrations of new heavyweight motorcycles increased in 1998 by
approximately 19% (to 227,000 units) over 1997 registrations.
As recreational products, the Company's motorcycles and related
products are in a growing consumer market. According to U.S. Government
reports, from 1992 through 1995 spending on recreational products grew at
over five percent per year and from 1994 through 1997 grew at three times the
rate of overall consumer spending. Based on industry information, the Company
believes that the typical customer for heavyweight American touring and
cruiser motorcycles is a male between the ages of 35 and 65, with a household
income of approximately $65,000. These customers are generally experienced
motorcycle riders who purchase motorcycles for recreational purposes rather
than for transportation. According to estimates of the U.S. Census Bureau,
the number of Americans that will fall into the targeted age bracket is
projected to increase by approximately 9.2% from 1999 to 2005 and by
approximately 13.1% from 1999 to 2010. The 35 to 65 year old age group also
leads all age groups in annual spending per consumer on recreational products
and generally has greater disposable income than other age groups.
The Company believes that customers in its target market are seeking
motorcycles and related products with a brand image associated with an
authentic classic American motorcycling heritage and lifestyle. The Company
also believes that such customers purchase motorcycles based on a number of
other factors including styling, quality, reliability and product features.
MARKETING
Since inception, the Company's marketing goal has been to
re-establish the legacy of the Excelsior and Henderson brands in the
motorcycling community and build demand for the Company's brand of motorcycle
products. The Company's marketing strategy is to establish its brand through
reintroduction of the heritage of the Excelsior and Henderson brands and to
create opportunities for the public to experience such heritage.
To introduce the production intent Super X to the motorcycling
public and further establish the Company's brand, the Company implemented a
marketing campaign for the August 1998 Sturgis Rally and Races in Sturgis,
South Dakota, which included a parade of the production intent Super X
motorcycles down Main Street. The Company also implemented a marketing
campaign at the 1998 Daytona Beach Bike Week.
In 1999, the Company opened Daytona Bike Week with its third Annual
Excelsior-Henderson Motorcycle Parade. In addition, for the first time bikers
were able to take a demonstration ride on a 1999 Super X at Daytona Bike
Week, with approximately 1,000 bikers participating in such demonstration
rides. The Company also plans to conduct demonstration rides of the Super X
during 1999 at the Sturgis Rally and Races, the Laughlin River Run in
Laughlin, Nevada, the Laconia Motorcycle Rally and Race Week in Laconia, New
Hampshire, Biktoberfest in Daytona Beach, Florida, the Company's 1999 Annual
Shareholders Meeting and Biker Barbecue at the Company's headquarters in
Belle Plaine, Minnesota, and at other events. The Company intends to increase
its other marketing efforts during 1999, including holding dealer promotional
events (including demonstration rides), attending additional rallies,
consumer events and trade shows and advertising in trade and consumer
publications.
To create a strong brand identity for its motorcycles and related
products and to establish the authenticity of the Company's brand, the
Company is fostering among consumers and dealers a culture and lifestyle that
are reminiscent of the classic American motorcycling heritage. Such heritage
refers to the "soul" of the traditional American motorcycling experience,
fostered by motorcycle events, motorcyclists and media, which associates
riding motorcycles with individuality and freedom. Owner customization of
motorcycles is also an important part of this
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heritage, and the Company has designed the Super X, and intends to design
future motorcycles, to facilitate individual customization by owners and to
make custom parts and accessories available to owners. In addition, the
Company intends to sponsor and promote a motorcycle owners' group, rallies
and a magazine for owners and enthusiasts. The Company also sells a wide
variety of apparel products with its logos such as hats, shirts and jackets
and intends to license certain of its trademarks on a broad range of consumer
items to increase public exposure and familiarization with its brand and
products.
DISTRIBUTION
The Company distributes its products through a nationwide network of
independent dealers. In 1998, the Company completed selecting its initial
dealer network and as of March 19, 1999, the Company had 86 dealers. The
Company expects to add dealers as its production increases during 1999 and
beyond. The Company's initial dealer network formation culminated with the
Company's first Excelsior-Henderson Authorized Dealer Brand Meetings held
during January and February 1999. Over 80 of the Company's dealers attended
the meetings at the Company's headquarters.
The Company has selected dealers who the Company believes have an
established reputation for excellence, professional appearance, profitable
operations, a sales floor sufficient to display the Company's motorcycles and
related products, the ability to maintain adequate inventories of
motorcycles, parts, supplies and other merchandise, a knowledgeable sales
staff, the ability to provide full-service maintenance and who can add value
by promoting lifestyle motorcycle products and events (E.G., customized
after-market parts, motorcycle apparel and accessories, customer appreciation
and promotional events, rallies, etc.). The Company will provide support for
its dealers and customers by maintaining adequate quantities of repair parts
and accessories, training service technicians and providing warranty coverage.
MANUFACTURING
In 1998, the Company completed the equipping of its manufacturing
facility for initial production, obtained the tooling necessary for initial
production, commenced hiring its first production assembly employees, and
began establishing its production components and parts supply flow. The
Company also tested its manufacturing facility, commenced the operation of
its integrated manufacturing and accounting software system, and produced the
first production Super X. The Company began the ramp up of production of the
Super X in January 1999. The manufacturing operations consist of three main
manufacturing processes: welding, painting and assembly.
WELDING. The welding area consists of robotic welding cells and ancillary
equipment, which manufactures the frame, swing cage, and rigid front fork
assembly. The resulting accuracy and consistency from using robotics ease the
task of assembling motorcycles in volume. Components completed in the welding
area are fed directly into the paint area.
PAINTING. The paint area has been built to the highest industry standards.
The Company believes that a high quality finish is extremely important in
marketing its motorcycles, and, therefore, performs all facets of the paint
finish work in-house. The paint area has a comprehensive range of processes
to ensure the corrosion resistance and surface durability required for the
major cosmetic components of the Company's motorcycles. From the paint area,
components are fed directly into the assembly area.
ASSEMBLY. The assembly area is equipped with a moving assembly track. In this
area, the engine and transmission unit are assembled and tested. After the
powertrain has been successfully tested, it is transferred to the chassis
section. The whole motorcycle is then assembled as the powertrain is built
into the chassis. Once assembled, the motorcycle is subjected to a final test
and is then packed and shipped.
The Company assembles its motorcycles using proprietary and
non-proprietary components. The Company is obtaining the components primarily
from original equipment suppliers. The Company strives to engage
original equipment suppliers who have established records of producing
reliable products for the motorcycle industry in a timely manner and will
constantly review such vendors to ensure strict quality control.
The Company's facility has been designed to have a
production capacity of up to 20,000 motorcycles per year before on-site
expansion is necessary. The facility has been designed to provide an optimum
production environment for the Company's team members (the "Road Crew")
through the use of natural lighting and climate-controlled heating and air
conditioning. The Company believes that such an environment will help
optimize employee productivity.
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COMPETITION
In the U.S. heavyweight motorcycle market, Harley-Davidson, Honda,
Suzuki, Kawasaki and Yamaha have the largest market share. Other
manufacturers of heavyweight motorcycles include BMW, Ducati, Moto Guzzi, and
Triumph. 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. According
to its public reports, in 1998, Harley-Davidson reported an approximate 49%
market share of U.S. and a 25% market share of worldwide (including U.S.) new
heavyweight motorcycle registrations, representing approximately $1.6 billion
in worldwide (including U.S.) motorcycle revenue. Trade publications and
dealers have reported that there are substantial waiting lists at the dealers
for certain models of Harley-Davidson motorcycles. In response to demand for
its products, Harley-Davidson has tripled its production capabilities over
the past decade and forecasts doubling its 1995 production capacity by the
year 2003. Several of the major foreign manufacturers compete against
Harley-Davidson in the domestic market by selling motorcycles with a
"nostalgic" American design. Due to recent growth in the market for
heavyweight motorcycles, the Company expects that other manufacturers will
attempt to enter the market. In addition, a number of other companies build
and sell motorcycles from non-proprietary parts, commonly referred to as "kit
bikes" or "clones".
The U.S. and worldwide heavyweight motorcycle markets are highly
competitive and all of the Company's existing major competitors have
resources that are substantially greater than those of the Company, have
larger overall sales volumes and are 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 in connection
with the manufacture and sale of motorcycles and related structural parts. In
addition, the Company believes that it has the right to use certain of these
marks on ancillary merchandise and apparel. The Company believes that it has
obtained common law rights through the use of these marks on its motorcycles
and ancillary merchandise and apparel that are independent of the United
States Patent and Trademark Office ("USPTO") registration process. In
addition, the Company has obtained registrations or notices of allowance for
a number of these marks ("Excelsior", "Henderson", "Super X" and "X-Twin")
for use on motorcycles and has applications pending approval in the USPTO on
other marks.
The Company also believes that it has the exclusive right to use
certain of its trademarks in certain foreign countries in connection with the
manufacture and sale of motorcycles and related structural parts. In some
instances, these rights may be dependent on pending applications to register
the marks in a foreign country. A failure to obtain such registrations could
impair the Company's rights to use a mark in a particular country.
The Company currently owns one design patent and has filed
additional utility and design patents in connection with the Super X
motorcycle. At appropriate points in the design and development process, the
Company may file additional patent applications with the USPTO to cover
certain features or aspects of its products.
The Company intends to diligently police its trademark, copyright
and patent rights throughout the world. There are no claims of infringement
against the Company and the Company is not and has not been involved in any
court proceedings regarding its intellectual property rights. From time to
time, the Company has been involved in INTER PARTES opposition proceedings in
the USPTO to protect its trademark rights. All such proceedings have been
resolved to the Company's satisfaction, and there are no material proceedings
pending.
GOVERNMENT REGULATION
Commercial sales of the Company's motorcycles depend upon compliance
with certain government regulations and the Company is designing its
motorcycles to comply with such regulations. The Company's motorcycles are
subject to the emissions and noise standards of the U.S. Environmental
Protection Agency ("EPA") and the more stringent emissions standards of the
State of California Air Resources Board ("CARB"). In early 1999, the Company
received approval from the EPA and CARB to sell the Super X motorcycle. The
Company's motorcycles
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also are subject to the National Traffic and Motor Vehicle Safety Act and the
rules promulgated thereunder by the National Highway Traffic Safety
Administration. Furthermore, the European Union and other foreign
governmental entities have regulations to which the Company's motorcycles
will be subject. Finally, 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 believes that its
facilities comply with all such regulations and standards. The potential
delays and costs that could result from obtaining such additional regulatory
approvals and complying with, or failing to comply with, such regulations
could adversely affect operating results.
EMPLOYEES
As of March 19, 1999, the Company had 180 full-time employees, of whom
124 work in engineering and manufacturing. The Company is not subject to any
collective bargaining agreement. The Company anticipates adding supervisory,
engineering and manufacturing, marketing and administrative staff as the Company
continues to transition from the development stage to an operating company.
ITEM 2. PROPERTIES
The Company leases a 160,000 square foot manufacturing and
administrative facility in Belle Plaine, Minnesota.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders by the
Company during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market
under the symbol BIGX. The following table sets forth, for the fiscal
quarters indicated, a summary of the high and low closing prices of the
Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
Year Ended January 2, 1999
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First Quarter............................... $6.00 $5.188
Second Quarter.............................. $8.375 $5.50
Third Quarter............................... $9.75 $6.375
Fourth Quarter.............................. $9.25 $6.25
Year Ended January 3, 1998
- --------------------------
Third Quarter (from 7/24/97)................ $9.00 $5.625
Fourth Quarter.............................. $7.75 $4.50
</TABLE>
As of March 1, 1999, the Company had 1,305 shareholders of record and
approximately 16,000 beneficial holders of its Common Stock.
The Company has never declared or paid any dividends on its Common
Stock. The Company currently intends to retain any earnings for use in its
business and therefore does not anticipate paying any dividends in the
foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1996
(Fiscal 1996), January 3, 1998 (Fiscal 1997) and January 2, 1999 (Fiscal 1998)
and cumulative for the period from inception (December 22, 1993) to January 2,
1999, and the balance sheet data as of January 3, 1998 and January 2, 1999 are
derived from and are qualified by reference to, and should be read in
conjunction with the more detailed Financial Statements of the Company and the
Notes thereto, which have been audited by Arthur Andersen LLP, independent
public accountants, whose report is included elsewhere in this Annual Report on
Form 10-K, and the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," which follows this section. The
statement of operations data for the years ended December 31, 1994 and 1995 and
the balance sheet data as of December 31, 1994, 1995 and 1996 are derived from
audited financial statements not included in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
CUMULATIVE FOR
THE PERIOD
FROM
INCEPTION
YEAR ENDED DECEMBER 31, YEAR ENDED YEAR ENDED (DECEMBER 22,
------------------------------------------- JANUARY 3, JANUARY 2, 1993) TO
1994 1995 1996 1998 1999 JANUARY 2, 1999
----------- ----------- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Preoperating Expenses:
Research and development ...... $ 110,082 $ 702,345 $ 1,271,276 $ 2,648,964 $ 14,907,976 $ 19,640,643
Marketing ..................... 32,133 106,974 694,239 1,673,680 3,797,185 6,304,211
General and administrative .... 241,630 460,793 716,154 2,180,848 4,559,639 8,160,239
----------- ----------- ----------- ----------- ------------- -------------
Total preoperating expenses.. 383,845 1,270,112 2,681,669 6,503,492 23,264,800 34,105,093
Interest Income .................. - 43,522 174,226 810,058 1,108,997 2,136,803
Interest Expense ................. (5,346) (7,301) (4,088) (179,297) (1,753,502) (1,949,534)
----------- ----------- ----------- ----------- ------------- -------------
Net Loss ......................... $ (389,191) $(1,233,891) $(2,511,531) $(5,872,731) $(23,909,305) $(33,917,824)
----------- ----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ----------- ------------- -------------
Basic and diluted net
loss per share(1) ............. $ (.11) $ (.25) $ (.43) $ (.65) $ (1.83) $ (4.66)
----------- ----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ----------- ------------- -------------
Basic and diluted weighted
average shares outstanding(1).. 3,529,417 4,989,058 5,859,977 9,073,839 13,048,708 7,281,142
----------- ----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ----------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION> DECEMBER 31,
------------------------------------------- JANUARY 3, JANUARY 2,
1994 1995 1996 1998 1999
-------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............. $188,025 $1,550,914 $ 9,038,639 $21,104,052 $(3,117,625)
Total assets........................... 373,926 1,882,588 10,023,400 48,185,467 47,988,132
Current maturities of long-term debt... 25,015 24,351 70,086 675,372 919,533
Long-term debt......................... - - - 13,738,615 20,569,409
Total stockholders' equity............. 254,123 1,728,858 9,631,327 31,188,216 17,196,934
</TABLE>
- -------------------------------------------------------------------------------
(1) See Note 2 to Financial Statements for determination of weighted average
shares outstanding.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company manufactures, markets and sells premium heavyweight cruiser
motorcycles. The Company is currently transitioning from the development stage
to an operating company and its operations are subject to all of the risks
inherent in the establishment of a new business enterprise. Primarily as a
result of the operating expenses described below in "Results of Operations," the
Company's deficit accumulated during the development stage was $33.9 million at
January 2, 1999. Historic spending levels are not indicative of anticipated
future spending levels, as the Company enters the period of transition from
development stage to an operating company. During such transition, the Company
believes that its expenses will increase and that it will incur significant
additional losses before cash generated from sales will fund the Company's
operations.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
to $14.9 million in Fiscal 1998 from $2.6 million in Fiscal 1997. The increase
was primarily due to staffing increases, increased product design and
development costs, developing and testing of prototype and production intent
motorcycles, and the costs incurred to establish the Company's manufacturing
capabilities. Included within research and development expenses is a provision
of $2.0 million to write down inventory on hand and to reserve for inventory
purchase commitments in excess of the estimated net realizable value as of
January 2, 1999.
MARKETING EXPENSES. Marketing expenses increased to $3.8 million in Fiscal 1998
from $1.7 million in Fiscal 1997. The increase was primarily due to staffing
increases, increased advertising and promotion costs, increased participation at
various marketing events and dealer network development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $4.6 million in Fiscal 1998 from $2.2 million in Fiscal 1997. The
increase was primarily due to staffing increases and increases in general
operating expenses due to Company growth.
INTEREST INCOME. Interest income increased to $1.1 million in Fiscal 1998 from
$810,000 in Fiscal 1997. The increase results from increased average levels of
cash, cash equivalents and short-term investments held by the Company resulting
from the net proceeds of the Company's initial public offering of its common
stock, net proceeds of the Series B Convertible Preferred Stock offering, and
the cash received from the FINOVA Capital Corporation ("FINOVA") and Minnesota
Agricultural and Economic Development Board loans. See "Liquidity and Capital
Resources."
INTEREST EXPENSE. Interest expense increased to $1.8 million in Fiscal 1998
from $180,000 in Fiscal 1997 due to increased average levels of debt
outstanding. See "Liquidity and Capital Resources."
FISCAL 1997 COMPARED TO FISCAL 1996
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
to $2.6 million in Fiscal 1997 from $1.3 million in Fiscal 1996. The increase
was primarily due to staffing increases and increased product design and
development costs, as well as expenses for developing prototypes.
MARKETING EXPENSES. Marketing expenses increased to $1.7 million in Fiscal 1997
from $690,000 in Fiscal 1996. The increase was primarily due to staffing
increases, increased advertising and promotion costs, and increased dealer
network development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.2 million in Fiscal 1997 from $720,000 in Fiscal 1996. The
increase was primarily due to staffing increases and increases in other general
operating expenses.
9
<PAGE>
INTEREST INCOME. Interest income increased to $810,000 in Fiscal 1997 from
$170,000 in Fiscal 1996. 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 Company's initial public
offering of its common stock in Fiscal 1997 and the proceeds of the sale of
Series A Convertible Preferred Stock (which has converted into common stock in
Fiscal 1997) during Fiscal 1996.
NET OPERATING LOSS CARRYFORWARDS
As of January 2, 1999, the Company had net operating loss carryforwards
of approximately $18.8 million for federal income tax purposes that are
available to offset future taxable income through the year 2013. 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 a 1996 change in ownership resulting from sales
of the Company's stock, will limit annual utilization of these net operating
loss carryforwards. The portion of the net operating loss carryforwards subject
to this limitation is approximately $2.6 million. The calculated annual
limitation is approximately $600,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments of
$4.7 million at January 2, 1999, as compared to $24.2 million at January 3,
1998. The decrease is due primarily to cash paid for research and development
costs (including pre-production manufacturing and completion of the design,
engineering and testing of the Super X); sales and marketing costs (including
increased marketing activity prior to the commercial introduction of the Super X
and dealer network development); capital expenditures (including completing and
equipping the manufacturing and administrative facility for initial production,
acquiring tooling and motorcycle components and supplies); and general and
administrative costs. Such decrease was offset by the net proceeds received from
the funds drawn from the Minnesota Agriculture and Economic Development Board
escrow account, the Series B Convertible Preferred Stock offering, the funds
drawn from the FINOVA escrow account and the funds drawn from the Dakota Bank
loan (see below).
The Company anticipates that it will incur significant losses from
operations during Fiscal 1999 due to the transition from the development
stage to an operating company. As of March 19, 1999, the Company's currently
available resources included cash and cash equivalents, available restricted
cash (which includes the proceeds to be drawn from the Minnesota Agriculture
and Economic Development Board and the proceeds to be drawn from the FINOVA
Bond) and remaining proceeds to be drawn from the Dakota Bank loan. The
Company believes that its existing resources and estimated cash from
operations will not be sufficient to fund its cash requirements in Fiscal
1999. Accordingly, the Company will require significant additional debt and
equity financing during Fiscal 1999. There can be no assurance that sufficient
additional debt or equity financing will be available or, if available, will be
on terms favorable to the Company or its shareholders.
In addition, the Company's debt agreements contain certain restrictive
covenants, among other requirements, relating to the Company's current ratio,
tangible net worth, debt to net worth ratio and debt service coverage ratio.
Except for the current ratio covenant, the Company was in compliance with all
covenants as of January 2, 1999. The lenders have agreed to waive the current
ratio covenant through January 1, 2000. If significant losses are incurred or
additional funding is not obtained, the Company will not comply with other
covenant ratios at various times in Fiscal 1999. Non-compliance could lead to an
event of default in the agreements, in which case the lender(s) could demand
repayment of the obligation(s).
MINNESOTA AGRICULTURE AND ECONOMIC DEVELOPMENT BOARD
In Fiscal 1997, the Company received a $7.1 million loan from the
Minnesota Agriculture and Economic Development Board for financing of certain
of the Company's equipment and tooling. The loan proceeds were placed in
escrow and may be drawn for certain equipment and tooling purchases. The loan
has a ten-year term with annual interest of 9.5% and is secured by the
equipment and tooling purchased. Subsequent to January 2, 1998, the Company
received $2.6 million out of the escrow account. At March 19, 1999,
approximately $350,000 remained available in the escrow account, leaving $1.1
million for a debt service reserve.
10
<PAGE>
FINOVA BOND
In Fiscal 1998, the Company issued a $6.1 million Taxable Industrial
Development Revenue Bond through the Economic Development Authority of the City
of Belle Plaine, Minnesota. The Bond was purchased by FINOVA. The proceeds of
the sale of the Bond, net of a $1.1 million debt service reserve, were placed
into an escrow account and may be drawn for certain past and future equipment
and tooling purchases. The Bond is repayable over a seven and one-half year
term, carries a stated interest rate of 10.4% and is secured by equipment and
tooling. FINOVA also received a warrant to purchase 196,500 shares of common
stock of the Company. The warrant may be exercised up to ten years from the date
of issuance at an exercise price of $9.00 per share. Subsequent to January 2,
1998, the Company received $2.0 million out of the escrow account. At March 19,
1999, approximately $800,000 remained available in the escrow account, leaving
$1.1 million for a debt service reserve.
ISSUANCE OF SERIES B AND SERIES C CONVERTIBLE PREFERRED STOCK
In Fiscal 1998, an institutional investor (the "Investor") purchased
10,000 shares of the Company's Series B Convertible Preferred Stock ("Series B")
for a gross purchase price of $10.0 million, from which the Company received
$9.3 million in net proceeds. Subject to certain limited restrictions, the
holder of the Series B may convert the Series B to common stock at any time.
Until September 1999, the conversion price of the Series B is fixed. After
September 1999, the conversion price will adjust based on a defined average
market price of the Company's common stock (the "Market Price"). If the Market
Price of the Company's common stock is less than $5.00 per share on the date of
conversion, then the Series B conversion price will be 105% of such Market
Price.
Subsequent to January 2, 1999, the Investor purchased 3,000 shares of
the Company's Series C Convertible Preferred Stock ("Series C") for a gross
purchase price of $3.0 million, from which the Company received $2.8 million in
net proceeds. Until September 1999, the conversion price of the Series C is
fixed. After September 1999, the conversion price will be at the Market Price.
If the Market Price of the Company's common stock is less than $5.00 per share
on the date of conversion, then the Series C conversion price will be 105% of
such Market Price.
Notwithstanding the foregoing, the holder is not permitted to hold at
any point in time an amount of common stock issued upon conversion of Series B
or Series C that is greater than 4.99% of the then outstanding shares of the
Company's common stock. In addition, if the aggregate amount of shares of common
stock of the Company issued upon conversion of the Series B and/or C Preferred
Stock exceeds 20% of the outstanding shares of common stock of the Company, the
Company would likely be required to take one of the following actions: (A)
submit such issuances of common stock in excess of 20% for the approval of the
Company's shareholders and honor the conversion of the amounts in excess of 20%;
or (B) redeem all of the outstanding shares of Series B and/or C Preferred Stock
from the holders at the face amount of the Preferred Stock ($1,000 per share).
The provision in the preceding clause (A) is required by the Marketplace Rules
of the Nasdaq Stock Market.
In addition, warrants to purchase 442,000 shares of the Company's
common stock were issued in connection with the Series B and C offerings. The
warrants have exercise prices of $8.49 and $11.28, respectively and expire five
years from the date of the respective Series B or C offering.
Subsequent to January 2, 1999, the Company has received conversion
notices from the Investor to convert 2,750 shares of the Series B into 368,097
shares of common stock of the Company. As of March 19, 1999, there were
outstanding 7,250 shares of Series B and 3,000 shares of Series C.
DAKOTA BANK LOAN
In Fiscal 1998, the Company entered into a $5.0 million multi-advance
working capital loan with Dakota Bank, with a variable interest rate based on
the prime rate plus one-half percent. The Company is required to repay interest
only until the earlier of July 1, 2000 or the time at which the loan is fully
drawn. Once fully drawn, the loan is repayable over sixty months. The loan is
collateralized by certain assets of the Company. Subsequent to January 2, 1998,
the Company received $2.6 million out of the loan proceeds. At March 19, 1999,
approximately $1.0 million of the loan proceeds remained available.
11
<PAGE>
YEAR 2000 ISSUE
The Company has assessed the impact of year 2000 on the Company's
significant internal systems and software, which include information technology
(IT) and non-IT, or embedded technology, systems. The Company believes that its
internal systems and software are year 2000 compliant. The Company's internal
year 2000 assessment is based in large part on the recent acquisition and
installation of substantially all of the Company's internal systems and
software, which began in 1997. The Company also has initiated discussions with
its significant vendors to ensure that those parties have appropriate plans to
remediate year 2000 issues. The Company is assessing the extent to which its
operations are vulnerable should those vendors fail to properly remediate their
computer systems. If certain vendors are unable to deliver product on a timely
basis, due to their own year 2000 issues, the Company's production would be
interrupted, which would materially adversely affect its results of operations.
During 1999, the Company will attempt to identify, if possible, multiple vendor
sources to address such contingency.
The Company's year 2000 initiative is being completed by a team of
internal staff with consultation from outside advisors. The team's mission is to
ensure that there is no material adverse effect on the Company's business
operations. The anticipated costs of the year 2000 initiatives are not
considered material by the Company. While the Company believes its efforts are
adequate to address its year 2000 concerns, there can be no guarantee that the
systems of other companies will be converted on a timely basis and will not have
a material adverse effect on the Company.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Annual Report on Form 10-K, including those
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.
- - THE COMPANY IS TRANSITIONING FROM THE DEVELOPMENT STAGE TO AN OPERATING
COMPANY--The Company has not had material sales to date. As of January 2,
1999, the Company had an accumulated deficit of $33.9 million. The Company
expects operating losses to increase as its product development, marketing
and sales, manufacturing and administrative functions expand during the
initial stage of motorcycle sales. There can be no assurance that the
Company will generate significant motorcycle sales or become profitable.
During the transition to an operating company, the Company must
successfully increase the production volume of the Super X, produce a
high-quality motorcycle and control production costs. Factors that may
affect the volume of production include the ability of the Company to
maintain adequate quantities of high-quality components and supplies, to
refine its manufacturing processes, to solve unanticipated manufacturing
problems, and to hire additional qualified personnel. Factors that may
affect production costs include the ability of the Company to purchase
motorcycle components and supplies at reasonable costs and to
effectively manage its inventory. The Company has tried to produce
high-quality products through the design, construction and equipping of
its manufacturing line, the design of the Super X, its choice of
vendors, testing of components and supplies received, and testing of
motorcycles in the production process; however, the Company has not yet
manufactured a significant number of motorcycles and the transition to
production could affect product quality in a manner that may not be
apparent at this time. As the Company transitions to an operating
company, there will be increasing demands on the Company's management,
operational and financial resources to manage growth.
The Company relies on original equipment suppliers to supply most of the
proprietary and non-proprietary components that are used to manufacture its
motorcycles. For most of the components, the Company relies on a sole
source of supply. Such reliance involves a number of significant risks,
including the unavailability of or interruptions in delivery of such
components, manufacturing delays caused by such unavailability or
interruptions, and fluctuations in the quality and price of such
components. Any significant adverse variation in the quantity, quality or
cost of such components manufactured by suppliers, especially single-source
suppliers, could materially
12
<PAGE>
and adversely affect the volume of production and the cost of the Company's
product, until an additional source of supply is identified.
The Company purchases certain components from foreign suppliers. In
addition to the risks of dependence on suppliers described above, the risks
of dependence on foreign suppliers include currency fluctuations affecting
the value of goods purchased, trade restrictions, changes in tariffs and
difficulty of enforcing supply arrangements.
The Company's success also depends upon market acceptance of its brand of
products. Market acceptance depends upon the ability of the Company to
establish its intended brand image, a reputation for high quality and to
differentiate its brand of products from its competitors. The Company will
operate in a highly competitive environment and compete against established
motorcycle manufacturers such as Harley-Davidson, BMW, Ducati, Honda,
Kawasaki, Moto Guzzi, Suzuki, Triumph and Yamaha. Harley-Davidson, which is
expected to be the Company's primary competitor in the U.S. market, has
stated in its public reports that it had a 49% share of the U.S. market for
new heavyweight motorcycle registrations in 1997 and that it will double
its 1995 production capacity by the year 2003. The Company also expects
that other manufacturers will attempt to enter the industry. The Company's
established competitors have greater resources than the Company. No
assurance can be given that the Company's products will be accepted or that
the Company will be able to compete effectively.
Sales of the Super X and any additional motorcycles the Company may produce
are dependent on the effectiveness of the Company's dealer network and
internal sales team. The Company may need to attract additional dealers to
sell its brand of products. In addition, the Company will be required to
support its dealers through, among other things, providing continuing
education about the Company's brand of products, supplying parts and
accessories, and training repair personnel. The Company does not have any
history in such dealer support. If the Company is unable to maintain its
dealer network, sales and distribution of the Company's products will be
adversely affected.
- - THE COMPANY ANTICIPATES SEEKING ADDITIONAL DEBT AND EQUITY FINANCING
IN 1999--There can be no assurance that additional debt or equity financing
will be available or, if available, will be on terms favorable to the
Company or its shareholders. Any additional equity financing may cause
substantial dilution to existing equity holders. In addition, if the
Company's estimates of the amount of debt and equity financing needed to
fund operations are incorrect due to unanticipated additional production
costs, increased costs of components and supplies, increased sales and
marketing costs, or other unanticipated events, then the Company would be
required to obtain additional debt or equity financing beyond its current
estimates.
In addition, if the Company is not able to obtain such financing or if the
Company incurs significant losses, the Company would not be in compliance
with covenants contained in its debt agreements. Such non-compliance could
lead to an event of default in the agreements, in which case the lender(s)
could demand repayment of the obligation(s).
- - THE COMPANY BELIEVES THAT ITS INTERNAL SYSTEMS AND SOFTWARE ARE YEAR
2000 COMPLIANT; DURING 1999, THE COMPANY WILL ATTEMPT TO IDENTIFY, IF
POSSIBLE, MULTIPLE VENDOR SOURCES TO ADDRESS YEAR 2000 CONTINGENCIES--The
Company's assessment of its internal year 2000 status may be incorrect or
incomplete. If such assessment is incorrect or incomplete, the Company's
production of its motorcycles may be interrupted. In addition, the Company
has not yet completed its assessment of the effect the year 2000 problem
may have on the Company's vendors. If certain vendors for a particular
product are unable to supply such product because of year 2000 problems,
other vendors who supply such product may not be able to meet the increased
demand for such product, which could cause an interruption in the Company's
production. Due to the complex nature of the year 2000 problem, it is even
possible that all vendors for a particular item could have year 2000
compliance problems and be unable to supply goods to the Company, which
would materially affect the Company's ability to continue production until
such product could be obtained. Any interruption in production caused by
year 2000 problems could materially adversely affect the Company's
operating results.
13
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company anticipates that it will be exposed to market risk from
changes in foreign exchange and interest rates with respect to its components
obtained from foreign sources. The Company is currently analyzing such risk and
will attempt to reduce such risk through the use of certain financial
instruments. In addition, the Company has entered into an import letter of
credit in the amount of $995,000 for the benefit of a foreign vendor.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Report of Independent Public Accountants...................................... 16
Balance Sheets as of January 3, 1998
and January 2, 1999....................................................... 17
Statements of Operations for the Years Ended December 31, 1996, January
3, 1998, and January 2, 1999 and Cumulative for the Period from
Inception (December 22, 1993)
to January 2, 1999........................................................ 18
Statements of Stockholders' Equity for the Period
from Inception (December 22, 1993) to January 2, 1999..................... 19
Statements of Cash Flows for the Years Ended December 31, 1996, January
3, 1998, and January 2, 1999 and Cumulative for the Period from
Inception (December 22, 1993)
to January 2, 1999........................................................ 21
Notes to Financial Statements................................................. 22
</TABLE>
15
<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 January 3, 1998 and January 2, 1999, and the related statements
of operations, stockholders' equity and cash flows for each of the three
years in the period ended January 2, 1999 and cumulative for the period from
inception (December 22, 1993) to January 2, 1999. 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 January 3, 1998 and January 2, 1999,
and the results of its operations and its cash flows for each of the three
years in the period ended January 2, 1999 and cumulative for the period from
inception (December 22, 1993) to January 2, 1999, 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. Management's
plans in regard to these factors are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 19, 1999
16
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Balance Sheets
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
---------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $12,484,502 $ 4,697,542
Short-term investments 11,764,689 -
Inventories - 1,865,251
Other current assets 113,497 541,371
---------------- -----------------
Total current assets 24,362,688 7,104,164
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $255,529 and $999,869 12,908,770 30,317,118
INTELLECTUAL PROPERTY, to be amortized 200,545 275,532
RESTRICTED CASH 7,275,569 8,065,727
DEPOSITS 2,670,675 -
OTHER ASSETS, net of accumulated amortization of $2,656
and $402,487 767,220 2,225,591
---------------- -----------------
$48,185,467 $47,988,132
---------------- -----------------
---------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,997,783 $ 5,540,599
Accrued liabilities 585,481 3,761,657
Current maturities of long-term debt 675,372 919,533
---------------- -----------------
Total current liabilities 3,258,636 10,221,789
LONG-TERM DEBT, less current maturities 13,738,615 20,569,409
---------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Series B Convertible Preferred Stock, par value $0.01; 10,000 shares
authorized, issued and outstanding at January 2, 1999 - 9,325,000
Common stock, par value $0.01; 25,000,000 shares authorized; 13,026,191 and
13,083,461 shares issued and outstanding 130,262 130,835
Additional paid-in capital 41,066,473 41,658,923
Deficit accumulated during the development stage (10,008,519) (33,917,824)
---------------- -----------------
Total stockholders' equity 31,188,216 17,196,934
---------------- -----------------
$48,185,467 $47,988,132
---------------- -----------------
---------------- -----------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
17
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
For the Years Ended December 31, 1996, January 3, 1998 and January 2, 1999,
and Cumulative for the Period From Inception (December 22, 1993)
to January 2, 1999
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997 Fiscal 1998 Cumulative
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
PREOPERATING EXPENSES:
Research and development $ 1,271,276 $ 2,648,964 $ 14,907,976 $ 19,640,643
Marketing 694,239 1,673,680 3,797,185 6,304,211
General and administrative 716,154 2,180,848 4,559,639 8,160,239
------------ ----------- ------------ ------------
Total preoperating expenses 2,681,669 6,503,492 23,264,800 34,105,093
INTEREST INCOME 174,226 810,058 1,108,997 2,136,803
INTEREST EXPENSE AND OTHER (4,088) (179,297) (1,753,502) (1,949,534)
------------ ----------- ------------ ------------
Net loss $(2,511,531) $(5,872,731) $(23,909,305) $(33,917,824)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
BASIC AND DILUTED NET LOSS PER SHARE $ (.43) $ (.65) $ (1.83) $ (4.66)
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 5,859,977 9,073,839 13,048,708 7,281,142
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Stock Preferred Stock
---------------------- ----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE AT INCEPTION, December 22, 1993 - $ - - $ -
Issuance of common stock, $0.01 per share - - - -
Excess of par value over issuance price - - - -
Net loss - - - -
---------- ---------- ---------- ----------
BALANCE, December 31, 1993 - - - -
Sale of common stock, $0.75 per share, net of offering
costs of $23,059 - - - -
Sale of common stock, $0.90 per share, net of offering
costs of $14,919 - - - -
Issuance of common stock in settlement of construction
payable, $0.90 per share - - - -
Issuance of common stock from conversion of promissory
note to investor, $0.60 per share, net of conversion
costs of $2,583 - - - -
Net loss - - - -
---------- ---------- ---------- ----------
BALANCE, December 31, 1994 - - - -
Sale of common stock, $1.88 per share, net of offering
costs of $363,874 - - - -
Issuance of common stock for research and development
services, $1.88 per share - - - -
Net loss - - - -
---------- ---------- ---------- ----------
BALANCE, December 31, 1995 - - - -
Sale of Series A Convertible Preferred Stock,
$3.75 per share, net of offering costs of $1,186,000 3,066,527 30,665 - -
Issuance of common stock for marketing services,
$1.88 per share - - - -
Exercise of stock options, $1.88 per share - - - -
Net loss - - - -
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
---------------------- Paid-In Development Stockholders'
Shares Amount Capital Stage Equity
---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION, December 22, 1993 - $ - $ - $ - $ -
Issuance of common stock, $0.01 per share 3,366,667 33,667 16,833 - 50,500
Excess of par value over issuance price - (28,617) (16,833) - (45,450)
Net loss - - - (1,175) (1,175)
---------- ---------- ----------- ------------ ------------
BALANCE, December 31, 1993 3,366,667 5,050 - (1,175) 3,875
Sale of common stock, $0.75 per share, net of offering
costs of $23,059 86,667 29,483 12,458 - 41,941
Sale of common stock, $0.90 per share, net of offering
costs of $14,919 594,433 5,944 514,127 - 520,071
Issuance of common stock in settlement of construction
payable, $0.90 per share 5,567 56 4,954 - 5,010
Issuance of common stock from conversion of promissory
note to investor, $0.60 per share, net of conversion
costs of $2,583 125,000 1,250 71,167 - 72,417
Net loss - - - (389,191) (389,191)
---------- ---------- ----------- ------------ ------------
BALANCE, December 31, 1994 4,178,334 41,783 602,706 (390,366) 254,123
Sale of common stock, $1.88 per share, net of offering
costs of $363,874 1,605,231 16,053 2,630,073 - 2,646,126
Issuance of common stock for research and development
services, $1.88 per share 33,333 333 62,167 - 62,500
Net loss - - - (1,233,891) (1,233,891)
---------- ---------- ----------- ------------ ------------
BALANCE, December 31, 1995 5,816,898 58,169 3,294,946 (1,624,257) 1,728,858
Sale of Series A Convertible Preferred Stock,
$3.75 per share, net of offering costs of $1,186,000 - - 10,283,335 - 10,314,000
Issuance of common stock for marketing services,
$1.88 per share 33,333 333 62,167 - 62,500
Exercise of stock options, $1.88 per share 20,000 200 37,300 - 37,500
Net loss - - - (2,511,531) (2,511,531)
---------- ---------- ----------- ------------ ------------
</TABLE>
19
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Stockholders' Equity
(Continued)
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Stock Preferred Stock
---------------------- ----------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 3,066,527 $ 30,665 - $ -
Conversion of Series A Convertible Preferred Stock
to common stock (3,066,527) (30,665) - -
Cash paid for fractional shares in reverse stock split - - - -
Sale of common stock, $7.50 per share, net of offering
costs of $2,600,000 - - - -
Exercise of stock options and warrants, $1.88 per share - - - -
Cashless exercise of stock options and warrants - - - -
Net loss - - - -
---------- ---------- ---------- ----------
BALANCE, January 3, 1998 - - - -
Sale of Series B Convertible Preferred Stock, $1,000 face
value per share, net of offering costs of $675,000 - - 10,000 9,325,000
Value assigned to common stock warrants (see Note 3) - - - -
Exercise of stock options, $1.88 to $3.75 per share - - - -
Cashless exercise of stock options and warrants - - - -
Shares issued under employee stock purchase plan - - - -
Net loss - - - -
---------- ---------- ---------- ----------
BALANCE, January 2, 1999 - $ - 10,000 $9,325,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
---------------------- Paid-In Development Stockholders'
Shares Amount Capital Stage Equity
---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 5,870,231 $ 58,702 $13,677,748 $ (4,135,788) $ 9,631,327
Conversion of Series A Convertible Preferred Stock
to common stock 3,066,527 30,665 - - -
Cash paid for fractional shares in reverse stock split - - (1,880) - (1,880)
Sale of common stock, $7.50 per share, net of offering
costs of $2,600,000 4,000,000 40,000 27,360,000 - 27,400,000
Exercise of stock options and warrants, $1.88 per share 16,800 168 31,332 - 31,500
Cashless exercise of stock options and warrants 72,633 727 (727) - -
Net loss - - - (5,872,731) (5,872,731)
---------- ---------- ----------- ------------ ------------
BALANCE, January 3, 1998 13,026,191 130,262 41,066,473 (10,008,519) 31,188,216
Sale of Series B Convertible Preferred Stock, $1,000 face
value per share, net of offering costs of $675,000 - - - - 9,325,000
Value assigned to common stock warrants (see Note 3) - - 430,000 - 430,000
Exercise of stock options, $1.88 to $3.75 per share 15,066 160 59,811 - 59,971
Cashless exercise of stock options and warrants 29,093 282 (282) - -
Shares issued under employee stock purchase plan 13,111 131 102,921 - 103,052
Net loss - - - (23,909,305) (23,909,305)
---------- ---------- ----------- ------------ ------------
BALANCE, January 2, 1999 13,083,461 $130,835 $41,658,923 $(33,917,824) $ 17,196,934
---------- ---------- ----------- ------------ ------------
---------- ---------- ----------- ------------ ------------
</TABLE>
20
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
For the Years Ended December 31, 1996, January 3, 1998 and
January 2, 1999, and Cumulative For the Period From
Inception (December 22, 1993) to January 2, 1999
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997 Fiscal 1998 Cumulative
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,511,531) $(5,872,731) $(23,909,305) $(33,917,824)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 49,495 229,323 1,146,827 1,452,400
Change in current assets and liabilities:
Inventories - - (1,865,251) (1,865,251)
Other current assets (5,524) (104,378) (427,874) (541,371)
Accounts payable 5,902 1,874,547 3,542,816 5,540,599
Accrued liabilities 186,706 386,730 3,176,176 3,761,657
------------ ------------ ------------ ------------
Net cash used in operating activities (2,274,952) (3,486,509) (18,336,611) (25,569,790)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Sales (purchases) of short-term investments, net (3,132,362) (7,719,697) 11,764,689 -
Property and equipment additions, net (417,496) (10,134,529) (15,296,563) (25,959,636)
Purchases of intellectual property (46,743) (65,161) (74,987) (275,532)
Payments made for other assets - (445,127) (1,306,972) (1,752,099)
------------ ------------ ------------ ------------
Net cash used in investing activities (3,596,601) (18,364,514) (4,913,833) (27,987,267)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from restricted cash, net - (130,569) 5,309,842 5,179,273
Payments made for other assets - (324,749) (553,886) (878,635)
Proceeds from long-term debt 75,025 2,300,000 1,884,181 4,389,276
Repayment of long-term debt (29,290) (315,378) (664,676) (1,040,063)
Proceeds from issuance of common stock,
net of offering expenses 100,000 27,429,620 163,023 30,965,748
Proceeds from issuance of convertible preferred stock,
net of offering expenses 10,314,000 - 9,325,000 19,639,000
------------ ------------ ------------ ------------
Net cash provided by financing activities 10,459,735 28,958,924 15,463,484 58,254,599
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 4,588,182 7,107,901 (7,786,960) 4,697,542
CASH AND CASH EQUIVALENTS:
Beginning of period 788,419 5,376,601 12,484,502 -
------------ ------------ ------------ ------------
End of period $ 5,376,601 $12,484,502 $ 4,697,542 $ 4,697,542
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 4,088 $ 148,631 $ 1,724,285 $ 1,888,961
Noncash transactions-
Property and equipment acquired under capital
lease obligations - 5,214,279 185,450 5,399,729
Restricted cash received from long-term debt and value
assigned to common stock warrants - 7,145,000 6,100,000 13,245,000
Conversion of note payable into common stock - - - 75,000
Issuance of common stock for services 62,500 - - 125,000
Issuance of common stock in settlement of
construction payable - - - 5,010
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
Notes to Financial Statements
January 3, 1998 and January 2, 1999
1. NATURE OF BUSINESS:
Excelsior-Henderson Motorcycle Manufacturing Company (the Company) is a
development stage company incorporated on December 22, 1993 in the state of
Minnesota for the purpose of developing, manufacturing, selling and
distributing motorcycles. Effective January 3, 1998, the Company adopted a
52/53-week fiscal year ending on the Saturday closest to December 31. Fiscal
1997 ended January 3, 1998 and Fiscal 1998 ended January 2, 1999.
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 losses since inception and will require
substantial additional equity and debt financing during the ramp up of
production and to comply with existing debt covenants. In addition, if the
Company's estimates of the amount of financing needed to ramp up production
of the Super X are incorrect due to unanticipated additional costs of
equipping the Company's manufacturing facility, unanticipated problems in the
development of the Super X for production, 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 equity or debt financing. Even if the Company is successful in
completing the above activities, 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 operate as a
going concern is contingent upon obtaining additional financing that might
not be available. 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. SIGNIFICANT ACCOUNTING POLICIES:
CASH EQUIVALENTS
Cash equivalents consist of money market instruments and commercial paper
with original maturities of three months or less and are recorded at cost,
which approximates fair value.
SHORT-TERM INVESTMENTS
Short-term investments consisted of U.S. government and corporate debt
securities which were available for sale and were carried at fair value,
which approximated cost.
22
<PAGE>
INVENTORIES
Inventories consist of raw material components recorded at the lower of cost
or market, with cost determined on a first-in, first-out basis and market
based on estimated realizable value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
----------- -----------
<S> <C> <C>
Land and improvements $ 2,172,586 $ 2,185,567
Building and improvements 8,795,212 9,217,027
Machinery and equipment 1,352,021 11,199,243
Tools and dies 165,178 1,824,608
Office equipment and fixtures 679,302 986,918
Construction in progress - 5,903,624
----------- -----------
13,164,299 31,316,987
Less- Accumulated depreciation (255,529) (999,869)
----------- -----------
$12,908,770 $30,317,118
----------- -----------
----------- -----------
</TABLE>
Property, plant and equipment are stated at cost. Additions and improvements
are capitalized, while maintenance and repairs are charged to operations as
incurred. Depreciation is calculated using the straight-line method over the
estimated useful lives as follows:
<TABLE>
<CAPTION>
Useful Life
------------
<S> <C>
Land improvements 20 years
Building and improvements 12-35 years
Machinery and equipment 5-10 years
Tools and dies 5 years
Office equipment and fixtures 5-10 years
</TABLE>
INTELLECTUAL PROPERTY
Intellectual property represents amounts incurred to prepare and file for
U.S. and international patent and trademark registrations. These amounts are
stated at cost and will be amortized over 5 to 17 years beginning January
1999 or upon future patent or trademark registrations.
RESTRICTED CASH
Restricted cash consists of cash held in trusts pending the completion of the
Company's paint and finishing facility and the acquisition of production
tooling and manufacturing equipment. Subsequent to year-end and through March
19, 1999, the Company has drawn $4.6 million of the restricted cash.
Approximately $1.3 million remains available for future draws, with the
remaining amount of $2.2 million being unavailable due to debt service
requirements.
23
<PAGE>
DEPOSITS
Deposits consisted of payments made for manufacturing and finishing equipment
not yet installed in the Company's facility.
OTHER ASSETS
Other assets primarily consist of deferred financing costs associated with
debt financings and the capitalization of software and related external
development costs. Deferred financing costs are amortized over the lives of
the related debt (ranging from six to eight years). Software and the related
external development costs are amortized over the estimated useful lives of
the software (ranging from three to five years).
ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
---------- ------------
<S> <C> <C>
Inventory commitment reserve $ - $1,452,000
Salaries and benefits 139,131 527,860
Research and development contracts 50,000 1,204,077
Other accrued liabilities 396,350 577,720
-------- ----------
$585,481 $3,761,657
-------- ----------
-------- ----------
</TABLE>
The inventory commitment reserve results from firm purchase commitments for
inventory to be received subsequent to January 2, 1999 in excess of the
estimated realizable value. The Company recorded the reserve in
Fiscal 1998 within research and development expenses in the accompanying
statement of operations.
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.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share for all periods presented is computed
using the weighted average number of common shares outstanding. Basic
weighted average shares outstanding includes only outstanding common shares.
Shares reserved for outstanding warrants, stock options or convertible
preferred stock 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
24
<PAGE>
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. Estimates are used when accounting for inventory
obsolescence and valuation; determining the useful lives for property, plant
and equipment and other assets; capitalizing software and related external
development costs; and recording the inventory commitment reserve. Ultimate
results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the Fiscal 1997 financial statements have been
reclassified to conform to the Fiscal 1998 presentation. These
reclassifications had no effect on the previously reported net loss or
stockholders' equity.
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
January 3, January 2,
1998 1999
----------- ------------
<S> <C> <C>
Series 1997 B Revenue Bonds, interest rate at 9.5%, escalating annual
principal payments through August 1, 2007 $ 6,915,000 $ 6,435,000
Building capital lease, imputed interest rate of 11.6%, escalating monthly
principal payments through September 1, 2017 4,927,763 4,842,775
Industrial Development Revenue Bond, stated interest rate at 10.4%,
interest-only payments through July 1, 1999, equal principal and interest
payments of $107,920 from August 1, 1999 through January 1, 2006 - 5,670,000
Tax Increment Financing Obligation, imputed interest rate of 7.9%, payments made
through future property taxes, remaining balance due no later than
February 1, 2012 2,300,000 2,750,000
Multiadvance $5.0 million working capital loan with a bank, variable interest
rate (8.25% at January 2, 1999), interest-only payments until the earlier of
July 1, 2000 or when the loan is fully drawn, principal and interest payments
over 60 months thereafter, collateralized by certain assets of the
Company - 1,434,181
Other 271,224 356,986
----------- ------------
14,413,987 21,488,942
Less- Current maturities (675,372) (919,533)
----------- ------------
$13,738,615 $20,569,409
----------- ------------
----------- ------------
</TABLE>
The Series 1997 B Revenue Bonds (the Bonds) are collateralized by a security
interest in the property, plant and equipment acquired with the proceeds of
the Bonds. The Company is required to make monthly sinking fund installments
in amounts sufficient to redeem on August 1 of each year the specified
principal amount, which increases from $460,000 in Fiscal 1998 to $1,040,000
in Fiscal 2007.
In Fiscal 1997, the Company entered into a 20-year capital lease for its
manufacturing facility. Rent for the life of the lease is equal to the debt
service on the lessor's debt ($5,750,000) using a 20-year amortization plus a
10% premium (escalating during the lease term to offset inflation). The
$5,750,000 includes a $750,000 deposit held in a reserve fund. Earnings on
the reserve fund will be paid to the
25
<PAGE>
Company. The reserve fund may be released to the Company at the first to
occur: lessor permission, loan maturity or the purchase of the building by
the Company. The lease includes a purchase option at the end of the fifth
year for $6,250,000 less principal payments made and application of the
$750,000 deposit.
In Fiscal 1998, the Company issued a $6.1 million Industrial Development
Revenue Bond (the Bond). The proceeds of the Bond were placed into an escrow
account and are being drawn for certain past and future equipment and tooling
purchases. The Bond is secured by such equipment and tooling. The Bond is
reported net of a $430,000 discount for the valuation of detachable stock
purchase warrants issued in connection with the transaction. The Company is
amortizing the debt discount over the life of the debt using the effective
interest rate method.
Proceeds from the City of Belle Plaine's Tax Increment Financing Obligation
(TIF) were used to acquire land and construct the Company's manufacturing
facility. The Company's future property taxes will be used to repay both the
TIF principal and interest. In the event that future property taxes are not
sufficient to make the scheduled principal and interest payments, the Company
is liable for any payment deficiency.
The Company's debt agreements contain certain restrictive covenants, among
other requirements, relating to the Company's current ratio, tangible net
worth, debt to net worth ratio and debt service coverage ratio (as defined in
the agreements). Except for the current ratio covenant, the Company was in
compliance with all agreement covenants as of January 2, 1999. The lenders
have agreed to waive the current ratio covenant through January 1, 2000. If
significant losses are incurred or additional funding is not obtained, the
Company will not comply with other covenant ratios at various times in Fiscal
1999. Noncompliance could lead to an event of default, in which case the
lender(s) could demand repayment of the obligation(s).
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1999 $ 919,533
2000 2,274,125
2001 2,679,016
2002 1,991,153
2003 2,102,796
Thereafter 11,522,319
-----------
$21,488,942
-----------
-----------
</TABLE>
4. STOCKHOLDERS' EQUITY:
AUTHORIZED SHARES
The Company's Articles of Incorporation, as amended, authorize the aggregate
issuance of 32,000,000 shares of stock. The shares are classified into two
classes consisting of 7,000,000 shares of preferred stock, $.01 par value,
and 25,000,000 shares of $.01 par value common stock.
REVERSE STOCK SPLIT
Effective May 22, 1997, the Company's board of directors approved a 2-for-3
reverse stock split of the Company's outstanding stock. All periods presented
reflect the reverse stock split.
SERIES B AND C CONVERTIBLE PREFERRED STOCK OFFERINGS
26
<PAGE>
In Fiscal 1998, an institutional investor (the Investor) purchased 10,000
shares of the Company's Series B Convertible Preferred Stock (Series B) for a
gross purchase price of $10.0 million, from which the Company received $9.3
million in net proceeds. The conversion price of the Series B is $7.47 and is
fixed for the first twelve months. Thereafter, the conversion price may vary
based upon the market price of the Company's common stock during the period
immediately preceding conversion. Under certain circumstances within the
Company's control, the Company may be required to redeem the Series B for
cash. Subsequent to year-end and through March 19, 1999, the Company received
conversion notices from the Investor and converted 2,750 shares of Series B
into 368,047 shares of common stock.
On January 20, 1999, the Investor purchased 3,000 shares of the Company's
Series C Convertible Preferred Stock (Series C) for a gross purchase price of
$3.0 million from which the Company received $2.8 million in net proceeds. The
conversion price of the Series C is $9.92 and is fixed until September 1999.
Other terms are similar to those of the Series B.
COMPANY STOCK OFFERING
During Fiscal 1997, the Company completed an initial public offering of
4,000,000 shares of common stock with net proceeds of approximately $27.4
million.
SERIES A CONVERTIBLE PREFERRED STOCK OFFERING
During Fiscal 1996, the Company completed a restricted offering to the public
of 3,066,527 shares of Series A Convertible Preferred Stock (Series A) with
net proceeds to the Company of approximately $10.3 million. The Series A was
converted into shares of common stock concurrent with the closing of the
Company's initial public offering in July 1997.
TEAM STOCK PURCHASE PLAN
In Fiscal 1998, the Company implemented an employee stock purchase plan (the
TSPP) that enables employees to contribute a percentage of their wages toward
the purchase of the Company's common stock at 85% of the lower of market
value at the beginning or the end of the semiannual purchase period. In July
1998, the shareholders authorized 300,000 shares for issuance under the TSPP.
On January 2, 1999, 13,111 shares were issued at $7.86 per share, leaving
286,889 shares for future employee purchases of stock under the TSPP.
STOCK-BASED COMPENSATION
The Company has a stock option plan (the Plan), under the terms of which it
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 on the date of the
grant. For incentive 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. Currently,
1,200,000 shares have been reserved for issuance under the Plan. Stock options
granted expire between four to ten years from the date of grant and vest at
various rates over one to ten years.
Nonqualified stock options have also been granted to outside service
providers and certain employees under the Plan. The stock options were
granted at fair market value as determined by the board of directors at the
date of the grant. Stock options granted expire between four and ten years
from the date of grant and vest over two to five years.
27
<PAGE>
Information regarding stock-based compensation is as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997 Fiscal 1998
---------------------- ----------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year 17,667 $1.49 410,934 $1.86 518,773 $3.40
Granted 413,267 1.88 311,338 4.72 744,500 7.76
Exercised (20,000) 1.88 (43,666) 1.72 (20,666) 3.33
Canceled - - (159,833) 2.41 (65,002) 6.08
--------- ---------- -----------
Outstanding,
end of year 410,934 1.86 518,773 3.40 1,177,605 6.02
--------- ---------- ------------
--------- ---------- ------------
Exercisable,
end of year 148,267 1.83 248,936 2.44 297,425 2.71
--------- ---------- ------------
Weighted average fair value
of options granted $ 1.08 $ 3.43 $ 5.52
</TABLE>
In Fiscal 1997 and 1998, respectively, 12,000 and 4,667 options were
exercised through the exchange of 3,000 and 933 shares held by the
shareholder in excess of six months. Options outstanding at January 2, 1999
have an exercise price per share ranging between $1.88 and $8.50, a weighted
exercise price of $6.02 and a weighted average remaining contractual life of
8.5 years.
The Company accounts for the options under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for the options
been determined consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," the Company's net loss
and net loss per share would have been the following pro forma amounts:
<TABLE>
<CAPTION>
Cumulative for the Period
From Inception
(December 22, 1993) to
Fiscal 1996 Fiscal 1997 Fiscal 1998 January 2, 1999
----------- ----------- ----------- --------------------------
<S> <C> <C> <C> <C>
Net loss:
As reported $2,511,531 $5,872,731 $23,909,305 $33,917,824
Pro forma 2,696,083 6,060,375 24,418,004 34,798,719
Basic and diluted net loss per share:
As reported $ .43 $ .65 $ 1.83 $ 4.66
Pro forma .46 .67 1.87 4.78
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in Fiscal 1996, 1997 and 1998,
respectively: risk-free interest rates of 5.95%, 6.47% and 6.26%; expected
lives of 7, 10 and 9 years; and expected volatility of 40%, 57% and 59%.
28
<PAGE>
WARRANTS
In Fiscal 1995, the Company issued warrants to purchase 209,540 shares of
common stock at a price of $1.88 per share exercisable through August 2,
2000. During the year ended January 3, 1998, warrants to purchase 70,706
common shares were exercised with cash and through the exchange of common
shares, with net proceeds to the Company of $16,500. During the year ended
January 2, 1999, warrants to purchase 22,263 common shares were exercised
through the exchange of common shares.
In Fiscal 1996, the Company issued warrants to purchase 262,667 shares of
Series A Convertible Preferred Stock at $4.50 per share. During Fiscal 1997,
these warrants were converted to common stock warrants exercisable at $4.50
per share through September 2001. During the year ended Janury 2, 1999,
warrants to purchase 16,280 common shares were exercised through the exchange
of common shares.
In Fiscal 1998, the Company issued to the holder of the Bond warrants to
purchase 196,500 shares of common stock at a price of $9.00 per share
exercisable through July 2008.
In Fiscal 1998 and 1999, respectively, the Company issued to the Investor and
a placement agent warrants to purchase 340,000 and 102,000 shares of common
stock at a price of $8.49 and $11.28 per share exercisable through September
2003 and January 2004.
5. INCOME TAXES:
As of January 2, 1999, the Company had net operating loss carryforwards of
approximately $18.8 million for federal income tax purposes that are
available to offset future taxable income through the year 2013. 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.
Restrictions, caused by a 1996 change in ownership resulting from sales of
the Company's stock, will limit annual utilization of these net operating
loss carryforwards. The portion of the net operating loss carryforwards
subject to this limitation is approximately $2.6 million and the annual
limitation is approximately $600,000.
6. COMMITMENTS AND CONTINGENCIES:
PROPERTY, PLANT AND EQUIPMENT
The Company has committed to capital expenditures of $3.7 million as of
January 2, 1999, primarily for production equipment and tooling.
OPERATING LEASES
The Company leases certain office equipment and furniture, vehicles and
trailers, and maintenance equipment under noncancelable operating leases.
Future minimum payments under these leases as of January 2, 1999 are as
follows:
<TABLE>
<S> <C>
1999 $ 315,000
2000 276,000
2001 204,000
2002 176,000
2003 143,000
Thereafter 135,000
----------
$1,249,000
----------
----------
</TABLE>
29
<PAGE>
Under the terms of these operating leases, the Company is also responsible
for certain operating expenses. Total lease expense was $33,000, $99,000,
$252,000 and $415,000 for Fiscal 1996, 1997 and 1998, and cumulative for the
period from inception (December 22, 1993) to January 2, 1999, respectively.
LIFE INSURANCE
The Company is the owner and beneficiary of four term life insurance policies
covering the lives of its founders, majority shareholders
and certain other executive officers.
7. LETTER OF CREDIT:
As of January 2, 1999, the Company had outstanding an irrevocable import
letter of credit of $995,000, which expires on March 31, 1999. This letter of
credit collateralizes the Company's obligation to a third party for the
purchase of inventory. The contract amount of this letter of credit
approximates fair value.
30
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders under the captions "Election of
Directors", "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information included in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders under the captions "Election of
Directors--Director Compensation", "Summary Compensation Table", "Option
Grants in Last Fiscal Year", "Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values" and "Employment Contracts; Termination of
Employment and Change-In-Control Arrangements" is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders under the caption "Security Ownership of
Principal Shareholders and Management" is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included in the Company's definitive proxy statement for the
1999 Annual Meeting of Shareholders under the caption "Certain Relationships
and Related Transactions" is incorporated by reference.
31
<PAGE>
ITEM 14. FINANCIAL STATEMENT SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
See Index to Financial Statements on page 15.
(2) FINANCIAL STATEMENT SCHEDULE
Report of Independent Public Accountants on Schedule
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
have therefore been omitted.
(3) The following exhibits are filed as part of this Annual Report on
Form 10-K for the fiscal year ended January 3, 1998:
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Company, as Amended.(1)
3.3 By-Laws of the Company.(2)
4.1 Securities Purchase Agreement dated as of September 3, 1998, by and
among Excelsior-Henderson Motorcycle Manufacturing Company and the
Buyers listed therein.(6)
4.2 Registration Rights Agreement dated as of September 3, 1998, by and
between Excelsior-Henderson Motorcycle Manufacturing Company and the
Buyers listed therein.(6)
4.3 Amended Statement of Designation of Rights, Preferences and Limitations
of Series B Convertible Preferred Stock as filed with the Secretary of
State of the State of Minnesota on September 3, 1998.(6)
4.4 Form of Common Stock Purchase Warrant Certificate dated September 3, 1998.(6)
4.5 Statement of Designation of Rights, Preferences and Limitations of
Series C Convertible Preferred Stock as filed with the Secretary of
State of the State of Minnesota on January 20, 1999.
4.6 Promissory Note, dated December 1, 1997, from the Company to Minnesota
Agricultural and Economic Development Board
4.7 Specimen Taxable Industrial Development Revenue Bond (Excelsior-Henderson
Project) Series 1998
10.1 Loan Agreement, dated as of November 1, 1997, by and between Minnesota
Agricultural and Economic Development Board and the Company
10.2 Loan Agreement, dated as of July 1, 1998, by and between Economic
Development Authority of the City of Belle Plaine, Minnesota and the Company
10.3 Assignment of Loan Agreement, dated as of July 1, 1998, by and
between Economic Development Authority of the City of Belle Plaine,
Minnesota, Finova Public Finance, Inc. and the Company
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.(3)
10.5 Assignment, Assumption and Amendment of Development Contract by and
among the City of Belle Plaine, Minnesota, Belle Plaine Economic
Authority, Belle Plaine, Minnesota, the Company, and Ryan Belle Plaine,
LLC dated April 21, 1997.(4)
10.6 Lease Agreement between Ryan Belle Plaine, LLC and the Company dated
April 21, 1997.(4)
10.7 Construction Agreement by and between Ryan Belle Plaine, LLC and the
Company dated April 21, 1997.(4)
10.8 Guaranty by Ryan Companies US, Inc. in favor of the Company dated
April 21, 1997.(4)
10.9 Amended and Restated 1995 Stock Option Plan.(4)
10.10 Loan Agreement, dated as of December 22, 1998, by and between the
Company and Dakota Bank
10.11 Form of Employee Agreement.(5)
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
</TABLE>
32
<PAGE>
<TABLE>
<C> <S>
27 Financial Data Schedule for the year ended January 2, 1999.
</TABLE>
- ----------
(1) Incorporated by reference to the like numbered Exhibit to the Company's
Registration Statement on Form S-1 filed with the Commission on May 23,
1997 (Registration No. 333-27789).
(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).
(3) Incorporated by reference to the like numbered Exhibit to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996 (File No.
000-22765).
(4) Incorporated by reference to the like numbered Exhibit to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997 (File
No. 000-22765).
(5) Incorporated by reference to the like numbered Exhibit to Amendment No. 1
to the Company's Registration Statement on Form S-1 filed with the
Commission on June 27, 1997 (Registration No. 333-27789).
(6) Incorporated by reference to the like numbered Exhibit to the Company's
Current Report on Form 8-K filed with the Commission on September 18, 1998
(File No. 000-22765).
(b) REPORTS ON FORM 8-K
The registrant filed no reports on Form 8-K during the fourth
quarter of the fiscal year ended January 2, 1999.
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Excelsior-Henderson Motorcycle Manufacturing Company:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Excelsior-Henderson Motorcycle Manufacturing Company
included in this Form 10-K, and have issued our report thereon dated March 19,
1999. Our report on the financial statements includes an explanatory paragraph
with respect to a going concern as discussed in Note 1 to the financial
statements. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in Item 14(a)(2) is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 19, 1999
34
<PAGE>
SCHEDULE II
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JANUARY 2, 1999
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged to Costs End of
of Period and Expenses Deductions(1) Period
------------- ---------------------- ---------------- -------------
<S> <C> <C> <C> <C>
Accrued Liabilities:
Inventory Commitment
Reserve...................... $ -- $ 1,452,000 $ -- $ 1,452,000
</TABLE>
(1) Charges to the reserve are for the purpose for which the reserve was
created.
35
<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 on
April 2, 1999.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By Daniel L. Hanlon
--------------------------------------
Daniel L. Hanlon, Co-Founder
By David P. Hanlon
--------------------------------------
David P. Hanlon, Co-Founder
By Jennie L. Hanlon
--------------------------------------
Jennie L. Hanlon, Co-Founder
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 indicated on April 2, 1999.
Daniel L. Hanlon
- ----------------------------------------------
Daniel L. Hanlon, Director, Co-Founder,
Co-Chairman of the Board of Directors and
Co-Chief Executive Officer
(Principal Executive Officer)
David P. Hanlon
- ----------------------------------------------
David P. Hanlon, Director, Co-Founder,
Co-Chairman of the Board of Directors and
Co-Chief Executive Officer
(Principal Executive Officer)
Thomas M. Rootness
- ----------------------------------------------
Thomas M. Rootness, Senior Vice President of
Finance and Administration and Chief Financial
Officer (Principal Financial and Accounting
Officer)
John B. Donahue* Director
Wayne M. Fortun* Director
David R. Pomije* Director
- ----------
* Daniel L. Hanlon, by signing his name hereto, does hereby sign this
document on behalf of each of the above named Directors of the registrant
pursuant to powers of attorney duly executed by such persons.
Daniel L. Hanlon
------------------------------------------
Daniel L. Hanlon, Attorney-in-Fact
36
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<C> <S> <C>
3.1 Restated Articles of Incorporation of Company............................. Incorporated by Reference
3.3 By-Laws of the Company.................................................... Incorporated by Reference
4.1 Securities Purchase Agreement dated as of September 3, 1998, by and
among Excelsior-Henderson Motorcycle Manufacturing Company and
the Buyers listed therein................................................. Incorporated by Reference
4.2 Registration Rights Agreement dated as of September 3, 1998, by and
between Excelsior-Henderson Motorcycle Manufacturing
Company and the Buyers listed therein..................................... Incorporated by Reference
4.3 Amended Statement of Designation of Rights, Preferences and
Limitations of Series B Convertible Preferred Stock as filed with
the Secretary of State of the State of Minnesota on September 3, 1998..... Incorporated by Reference
4.4 Form of Common Stock Purchase Warrant Certificate dated
September 3, 1998......................................................... Incorporated by Reference
4.5 Statement of Designation of Rights, Preferences and Limitations of
Series C Convertible Preferred Stock as filed with the Secretary of
State of the State of Minnesota on January 20, 1999....................... Filed Electronically
4.6 Promissory Note, dated December 1, 1997, from the Company
to Minnesota Agricultural and Economic Development Board.................. Filed Electronically
4.7 Specimen Taxable Industrial Development Revenue Bond
(Excelsior-Henderson Project) Series 1998................................. Filed Electronically
10.1 Loan Agreement, dated as of November 1, 1997, by and
between Minnesota Agricultural and Economic Development Board
and the Company........................................................... Filed Electronically
10.2 Loan Agreement, dated as of July 1, 1998, by and between Economic
Development Authority of the City of Belle Plaine, Minnesota
and the Company........................................................... Filed Electronically
10.3 Assignment of Loan Agreement, dated as of July 1, 1998, by
and between Economic Development Authority of the City of
Belle Plaine, Minnesota, Finova Public Finance, Inc. and the Company...... 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...................................................................... Incorporated by Reference
10.5 Assignment, Assumption and Amendment of Development Contract by
and among the City of Belle Plaine, Minnesota, Belle Plaine Economic
Authority, Belle Plaine, Minnesota, the Company, and Ryan Belle
Plaine, LLC dated April 21, 1997.......................................... Incorporated by Reference
10.6 Lease Agreement between Ryan Belle Plaine, LLC and the Company
dated April 21, 1997...................................................... Incorporated by Reference
10.7 Construction Agreement by and between Ryan Belle Plaine, LLC
and the Company dated April 21, 1997...................................... Incorporated by Reference
10.8 Guaranty by Ryan Companies US, Inc. in favor of the Company
dated April 21, 1997...................................................... Incorporated by Reference
10.9 Amended and Restated 1995 Stock Option Plan............................... Incorporated by Reference
10.10 Loan Agreement, dated as of December 22, 1998, by and
between the Company and Dakota Bank....................................... Filed Electronically
10.11 Form of Employee Agreement................................................ Incorporated by Reference
23 Consent of Arthur Andersen LLP............................................ Filed Electronically
24 Powers of Attorney........................................................ Filed Electronically
27 Financial Data Schedule for the year ended January 2, 1999................ Filed Electronically
</TABLE>
<PAGE>
EXHIBIT 4.5
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
STATEMENT OF DESIGNATION
OF
RIGHTS, PREFERENCES AND LIMITATIONS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
The rights, preferences and limitations of the Series C Convertible
Preferred Stock are as follows. All references to Articles and Sections
herein are solely to Articles and Sections within this Amended Statement of
Rights, Preferences and Limitations (this "Certificate of Designation").
I. DESIGNATION AND AMOUNT
Of the 7,000,000 shares of preferred stock that EXCELSIOR-HENDERSON
MOTORCYCLE MANUFACTURING COMPANY (the "Company") is authorized to issue under
its Articles of Incorporation, 3,000 shares shall be designated as shares of
Series C Convertible Preferred Stock of the Company (the "Series C Preferred
Stock" or "Series C Preferred Shares"), par value $0.01 per share, with a
face amount per share of $1,000 (the "Face Amount"). The relative rights and
preferences of the Series C Preferred Shares are as set forth in this
Certificate of Designation.
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
"Anniversary Date" means September 3, 1999.
"Business Day" means any day that the principal exchange on which the
Common Stock is traded is open for business.
"Closing Bid Price" means, for any security as of any date, the closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the Holders then holding
a majority of the outstanding shares of Preferred Stock ("Majority Holders"),
if Bloomberg Financial Markets is not then reporting closing bid prices of
such security (collectively, "Bloomberg"), or if the foregoing does not
apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported
<PAGE>
for such security by Bloomberg, the average of the bid prices of any market
makers for such security that are listed in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for
such security on such date on any of the foregoing bases, the Closing Bid
Price of such security on such date shall be the fair market value as
mutually determined by the Company and the Majority Holders, or, if they are
unable to agree on such value, it shall be determined by an investment
banking firm selected by the Company and reasonably acceptable to the
Majority Holders.
"Closing Date" means the date on which the Series C Preferred Shares are
initially issued.
"Closing Price" means $9.0208 (the average Closing Bid Price for the
three (3) consecutive Business Days ending one Business Day prior to the
filing of the Certificate of Designation).
"Common Stock" means the common stock, $0.01 par value, of the Company.
"Conversion Price", subject to the adjustments provided for in Article X
hereof, means (1) on and prior to the Anniversary Date, $9.9229
[110% of the Closing Price], and (2) beginning on the day following the
Anniversary Date, the lesser of (i) $9.9229 [110% of the Closing Price] and
(ii) the Market Price at the time of conversion. Notwithstanding the
foregoing, after the Anniversary Date, if the Market Price is less than $5.00
per Share of Common Stock, the Conversion Price shall equal 105% of the
Market Price.
"Effective Date" means October 9, 1998.
"Holders" means the initial Holders of the Series C Preferred Stock and
their permitted transferees.
"majority of the outstanding shares of Series C Preferred Stock" means
greater than 66.6% of the outstanding shares of Preferred Stock.
"Market Price" means the lowest volume weighted average price of the
Common Stock during any period of five (5) consecutive Business Days during
the twenty (20) consecutive Business Day period ending on the day prior to
the Conversion Date.
"Maximum Share Amount" shall be calculated on the Anniversary Date, and
shall mean the lesser of (a) 2,600,000 shares of Common Stock, or (b) the
quotient resulting from (i) $13,000,000 less the aggregate Face Amount of
all shares of the Series B Preferred Stock and Series C Preferred Stock,
which have converted into shares of Common Stock on or prior to the
Anniversary Date, divided by (ii) $5.00, subject to adjustments for stock
dividends, stock splits, combinations or similar events.
"Preferred Stock" means shares of the Series B Preferred Stock and the
Series C Preferred
2
<PAGE>
Stock.
"Registration Statement" means a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended.
"Series B Preferred Stock" means the shares of Series B Convertible
Preferred Stock issued pursuant to the terms of the Securities Purchase
Agreement.
"Second Closing Warrants" means certain stock purchase warrants to
acquire shares of Common Stock issued by the Company to the initial Holders
at the Second Closing (as defined in the Securities Purchase Agreement).
"Securities Purchase Agreement" means the Securities Purchase Agreement
referencing this Certificate of Designation, among the Company and the
purchasers named therein, as amended from time to time in accordance with the
terms thereof.
"Warrants" means the First Closing Warrants (as defined in Article
V.B.(ii) hereof), and the Second Closing Warrants.
III. DIVIDENDS
The Series C Preferred Stock will be entitled to dividends paid on the
Common Stock, with such dividends calculated as if the Series C Preferred
Stock had been converted to Common Stock at the then-applicable Conversion
Price on the date of declaration of such dividend.
IV. CONVERSION
A. CONVERSION AT THE OPTION OF HOLDER. Subject to Article V(B), on
and following the Closing Date, each Holder may, at any time and from time to
time, convert all or any portion of the Face Amount (plus any other amounts
payable thereon, including, without limitation, payments due under Section 2
of the Registration Rights Agreement and Conversion Default Payments, in
each case, to the extent not paid by the Company in cash (the "Additional
Amounts")) of its shares of Series C Preferred Stock into a number of fully
paid and nonassessable shares of Common Stock determined by dividing the
aggregate Face Amount of the Series C Preferred Shares being converted
(including any Additional Amounts) by the then applicable Conversion Price,
subject to adjustment as provided in Article X; provided, however, that, in
no event shall a Holder of shares of Series C Preferred Stock be entitled to
convert any such shares to the extent, but only to the extent, that (x) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series C Preferred Stock or unexercised portion of the Second
Closing Warrants or any other securities containing analogous limitations)
plus (y) the
3
<PAGE>
number of shares of Common Stock issuable upon the conversion of the shares
of Series C Preferred Stock with respect to which the determination of this
proviso is being made, would result in beneficial ownership by a Holder and
such Holder's affiliates of more than 4.99% of the outstanding shares of
Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Rules 13(d)
through (g) thereunder, except as otherwise provided in clause (x) of such
proviso.
B. MANDATORY CONVERSION. So long as, for a period of thirty (30)
Business Days prior to delivery of a Mandatory Conversion Notice (as defined
below), and continuing through the Mandatory Conversion Date (as defined
below) (i) all of the shares of Common Stock issuable upon conversion of all
outstanding shares of Series C Preferred Stock and all outstanding shares of
Series B Preferred Stock are then (x) authorized and reserved for issuance,
(y) registered for resale under the 1933 Act by the holders of the Series C
Preferred Stock and the Series B Preferred Stock (or may otherwise be resold
publicly without restriction) and (z) eligible to be traded on the Nasdaq
National Market ("Nasdaq"), the New York Stock Exchange ("NYSE"), the
American Stock Exchange ("AMEX") or Nasdaq SmallCap Market, or any successor
national securities exchange or market (collectively, a "National Exchange")
and (ii) there is not then a continuing Redemption Event and the Maximum
Share Limit has not been reached (unless the Share Limit Waiver (as defined
below) has been obtained), the Company shall be entitled, on any date that
the average of the Closing Bid Prices of the Common Stock during the ten (10)
consecutive Business Day period ending on the Business Day immediately
preceding such date of determination is equal to or greater than 200% of the
Closing Price (subject to adjustment in accordance with Article X hereof), to
deliver a written notice to the Holders requiring the Holders to convert all,
but not less than all, of the Series C Preferred Shares. Such conversion
shall be on a Business Day designated in such notice, which date (the
"Mandatory Conversion Date") shall be no earlier than twenty (20) Business
Days and no later than twenty-five (25) Business Days following the date of
such notice (such notice, a "Mandatory Conversion Notice"). Notwithstanding
anything herein to the contrary, no mandatory conversion will be required,
and the applicable Mandatory Conversion Notice shall be of no further force
and effect, if on the Business Day immediately preceding the Mandatory
Conversion Date, the Closing Bid Price of the Common Stock is not equal to at
least 175% of the Closing Price. The mechanics of such conversion shall be
in accordance with Section IV(C), except that each Holder shall be deemed to
have delivered a Notice of Conversion, with the Conversion Date being the
Mandatory Conversion Date specified in the Mandatory Conversion Notice.
C. MECHANICS OF CONVERSION. To convert the Series C Preferred Shares, a
Holder shall: (i) fax (or deliver by other means resulting in notice) to the
Company a copy of the fully executed Notice of Conversion in the form of Exhibit
H to the Securities Purchase Agreement, and (ii) surrender or cause to be
surrendered to the Company or its transfer agent (the "Transfer Agent") (or
satisfy the provisions of Article XIII(A), if applicable) the certificates
representing the Series C Preferred Stock being converted (the "Series C
Preferred Stock Certificates") and the original
4
<PAGE>
executed version of the Notice of Conversion as soon as practicable
thereafter. The date the Holder delivers to the Company the Notice of
Conversion described in clause (i) or such later date specified in the Notice
of Conversion shall be the "Conversion Date". In the case of fax or
messenger delivery, delivery shall be deemed made on the date of such fax or
messenger delivery.
D. TIMING OF CONVERSION. No later than the third Business Day
following the Conversion Date (the "Delivery Date"), provided that the
Company's Transfer Agent has received prior to such date the Series C
Preferred Stock Certificates (or the Holder has satisfied the provisions of
Article XIII(A), if applicable), the Company shall cause the Transfer Agent
to issue and deliver to the Holder (or otherwise at such Holder's direction)
that number of shares of Common Stock issuable upon conversion of the number
of Series C Preferred Shares being converted, if applicable, and a new
certificate representing the Series C Preferred Stock not converted by such
Holder. The person or persons entitled to receive shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares at the close of business on the Conversion
Date, unless the Notice of Conversion is revoked as provided in Article V(E).
If Series C Preferred Stock Certificates are not received (or the provisions
of Article XIII(A) are not satisfied) prior to 2:00 p.m. Eastern Time on the
Business Day prior to the Delivery Date, the Delivery Date shall be extended
until the Business Day (or, if received after 2:00 p.m. Eastern Time, the
second Business Day) following the date of surrender to the Company of
Series C Preferred Stock Certificates to be converted or satisfaction of the
provisions of Article XIII(A), if applicable.
E. CONTINUING RIGHTS. In addition to any other remedies which may be
available to the Holder, in the event the Company fails for any reason to
effect or to cause the Transfer Agent to effect delivery to the Holder of
certificates representing the shares of Common Stock receivable upon
conversion of the Series C Preferred Shares by the Business Day following the
Delivery Date (which certificates shall be unlegended as and when required
pursuant to the Securities Purchase Agreement, the Registration Rights
Agreement entered into in connection with the Securities Purchase Agreement
by and among the Company and the other signatories thereto (the "Registration
Rights Agreement") and this Certificate of Designation), the Holder shall,
unless the Holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Company and the Transfer Agent, regain the rights
of a Holder with respect to such unconverted shares of Series C Preferred
Stock and the Company shall immediately cause the Transfer Agent to return
the subject Series C Preferred Stock Certificates and other conversion
documents, if any, delivered by Holder, to the Holder, or, if shares of
Series C Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series C Preferred Stock have not been converted;
provided, however, that the Company shall remain liable for payment of the
amounts determined pursuant to Article VI(A) hereof for each day falling
between the Business Day following the Delivery Date and the date the
revocation notice is received by the Company, and shall also remain liable
for any damages suffered by Holder.
F. STAMP, DOCUMENTARY AND OTHER SIMILAR TAXES. The Company shall pay
all stamp,
5
<PAGE>
documentary, issuance and other similar taxes which may be imposed with
respect to the issuance and delivery of the shares of Common Stock pursuant
to conversion of the Series C Preferred Stock; provided that the Company will
not be obligated to pay stamp, transfer or other taxes resulting from the
issuance of Common Stock to any person other than the registered holder of
the Series C Preferred Stock.
G. NO FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon the conversion of Series C Preferred Stock, but the Company
shall make a cash payment equal to such fraction multiplied by the Closing
Bid Price on the Conversion Date in respect of any fractional share which
would otherwise be issuable; provided that in the event that sufficient funds
are not legally available for the payment of such cash adjustment any
fractional shares of Common Stock shall be rounded up to the next whole
number.
H. ELECTRONIC TRANSMISSION. In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion, provided
the Transfer Agent is participating in the Depository Trust Company ("DTC")
Fast Automated Securities Transfer program, upon request of a Holder, the
Company shall use its commercially reasonable efforts to cause the Transfer
Agent to electronically transmit the Common Stock issuable upon conversion to
the Holder by crediting the account of a prime broker designated by the
Holder with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system. In the case of electronic transmission of such Common Stock, the
Company or the Transfer Agent shall, if applicable, within three (3) Business
Days issue a new certificate representing the Series C Preferred Stock not
converted pursuant to any Notice of Conversion.
I. CASH CONVERSION. Following the Anniversary Date, so long as (i)
for at least thirty (30) Business Days prior to the date of any Cash
Conversion (as defined below) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of Series C Preferred Stock and all
outstanding shares of Series B Preferred Stock are then (x) authorized and
reserved for issuance, (y) registered for resale under the 1933 Act by the
holders of the Series C Preferred Stock and the Series B Preferred Stock (or
may otherwise be resold publicly without restriction) and (z) eligible to be
traded on a National Exchange and (ii) there is not then a continuing
Redemption Event, in lieu of honoring Notices of Conversion by delivery of
shares of Common Stock on the Delivery Date in accordance with Section IV(D),
the Company shall, subject to the notice requirement set forth in the last
sentence of this Section IV(I), be entitled to make a cash payment ("Cash
Conversion") in an amount equal to (a) the number of shares of Common Stock
deliverable to a Holder pursuant to the Notice of Conversion multiplied by
(b) the average Closing Bid Price of the Common Stock for the five
consecutive Business Days preceding the Conversion Date. The number of
shares of Common Stock that would have been issued absent any such Cash
Conversion will be deemed to have been issued for purposes of calculating the
Maximum Share Amount. If the Company desires to effect Cash Conversions, it
shall notify the Holder subject thereto at least five Business Days prior to
the first date during which Cash Conversions will be effected, and, unless
waived by the Company,
6
<PAGE>
during the period specified in such notice, not to exceed (with respect to
any one notice) thirty (30) days, only Cash Conversions will be permitted.
V. RESERVATION OF AUTHORIZED SHARES OF COMMON STOCK;
LIMITATION ON NUMBER OF CONVERSION SHARES
A. RESERVATION OF COMMON STOCK. Subject to the provisions of this
Article V, and subject to the Maximum Share Amount (unless the Stockholder
Approval (as defined herein) has been obtained) the Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock a sufficient number of shares of Common Stock to provide for the
conversion of all outstanding Series C Preferred Shares and the exercise of
all Second Closing Warrants (at the then-current Conversion Price and
Exercise Price, respectively) in accordance with Section 4.11 of the
Securities Purchase Agreement (the "Reserved Amount"). The Reserved Amount
shall be increased from time to time in accordance with the Company's
obligations pursuant to 4.11 of the Securities Purchase Agreement. In
addition, if the Company shall issue any securities or make any change in its
capital structure which would change the number of shares of Common Stock
into which each share of the Series C Preferred Stock shall be convertible at
the then current Conversion Price, the Company shall at the same time also
make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive
rights, for conversion of the outstanding Series C Preferred Stock.
B. LIMITATION ON NUMBER OF COMMON SHARES TO BE ISSUED.
(i) Notwithstanding anything in this Certificate of Designation
to the contrary, the Series C Preferred Stock shall not be convertible into
an aggregate number of shares in excess of the Maximum Share Amount, subject
to adjustments for stock dividends, stock splits, combinations or similar
events, and upon issuance of Common Shares in conversion of the Series C
Preferred Stock equal to the Maximum Share Amount, the Series C Preferred
Stock shall, from that time forward, cease to be convertible into Common
Stock in accordance with the terms of Article IV, unless (a) the Company, at
its sole option, shall have notified the Holders that the Company will
continue to honor conversions of Series C Preferred Stock into Common Stock,
and (b) either (1) any necessary stockholder approval required by the Nasdaq
(or such other principal exchange upon which the Common Stock is then
trading) for the issuance of shares in excess of the Maximum Share Amount has
been obtained or duly waived by such exchange, and evidence of such approval
satisfactory to the Holders has been delivered to the Holders or (2) the
Company can issue additional shares without violating National Association of
Securities Dealers, Inc. ("NASD") rules and regulations (but only to the
extent such rules or regulations would not be violated) (satisfaction of
clauses (a) or (b) of this Section V(B)(i) being referred to herein as a
"Share Limit Waiver").
(ii) Following any Stockholder Approval Trigger Date, the Company
shall solicit
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by proxy the authorization (the "Stockholder Approval") by the stockholders
of the Company of the issuance of shares of Common Stock upon (x) the
conversion of shares of Series C Preferred Stock pursuant to the terms
hereof, (y) the exercise of the Second Closing Warrants pursuant to the terms
thereof, and (z) the conversion and/or exercise of any other securities
(including, but not limited to, the shares of Series B Preferred Stock and
the Warrants (the "First Closing Warrants") issued by the Company at the
First Closing (as defined in the Securities Purchase Agreement)) which would
be integrated with the Series C Preferred Stock and Second Closing Warrants
for purposes of the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities (the "Other Securities") representing in
the aggregate in excess of twenty (20%) percent of the outstanding shares of
Common Stock on September 3, 1998 (the "20% Limit") for the purpose of
eliminating any prohibitions under the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities on the Company's
ability to issue shares of Common Stock in excess of such 20% Limit. The
Company shall thereafter use its commercially reasonable efforts to obtain
the Stockholder Approval no later than ninety (90) days following the
Stockholder Approval Trigger Date. The failure to obtain Stockholder
Approval shall not constitute a breach of the Company's obligations
hereunder. "Stockholder Approval Trigger Date" shall mean any date following
the Anniversary Date and following the date (i) on which the Holders have, in
the aggregate, converted more than 50% of the sum of the original Face Amount
of all of the Series C Preferred Stock issued on the Closing Date plus the
original face value of all of the Series B Preferred Stock issued at the
First Closing under the Securities Purchase Agreement, and (ii) on which the
sum of (a) the number of shares of Common Stock issued upon conversion of the
Series C Preferred Stock and exercise of the Second Closing Warrants on the
date of calculation, plus (b) the number of shares of Common Stock issuable
upon conversion of the then outstanding Series C Preferred Stock at the
Market Price and upon exercise of the Second Closing Warrants at the Exercise
Price on the date of calculation, plus (c) the number of shares of Common
Stock, if any, issued upon conversion and/or exercise of the Other Securities
on the date of calculation, plus (d) the number of shares of Common Stock, if
any, issuable upon conversion and/or exercise of the Other Securities at the
conversion or exercise price that would be in effect on the date of
calculation, is, in the aggregate, in excess of the 20% Limit.
C. REDEMPTION OBLIGATION FOLLOWING ISSUANCE OF MAXIMUM SHARE AMOUNT.
Within 90 days of the date that the Maximum Share Amount of Common Stock has
been issued (or has been deemed to have been issued as a result of Cash
Conversions), the Company must (a) to the extent the conditions set forth in
clause (b) of Article V(B)(i), have been satisfied, provide the Share Limit
Waiver to each Holder, and thereafter permit conversions of the Series C
Preferred Stock into shares of Common Stock in excess of the Maximum Share
Amount, or (b) redeem all of the outstanding shares of Series C Preferred
Stock, with the redemption amount for each share of Series C Preferred Stock
being equal to the Face Amount thereof. The Share Limit Waiver must be
provided within two (2) Business Days following the issuance of the Maximum
Share Amount of Common Stock unless the Company delivers to each Holder a
certificate signed by its Chief Financial Officer or a Chief Executive
Officer certifying that the Company will exercise commercially reasonable
best
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efforts to obtain sufficient financing to permit the redemption of all of the
outstanding shares of Series C Preferred Stock during the 90 day period
referenced in the preceding sentence. Unless the Share Limit Waiver is
delivered on the Business Day following the date that the Maximum Share
Amount of Common Stock has been issued, any conversions of Series C Preferred
Shares into shares of Common Stock in excess of the Maximum Share Amount
(after the Share Limit Waiver has been delivered to each Holders) shall be at
the lowest applicable Conversion Price, as chosen in the sole discretion of
each Holder, in effect from the date that the Maximum Share Amount was
reached until the date of delivery of the Share Limit Waiver to such Holder.
D. ALLOCATION OF RESERVED AMOUNT, MAXIMUM SHARE AMOUNT. The Maximum
Share Amount (including any increases thereto) shall be allocated by the
Company pro rata among the holders of Series C Preferred Stock and Series B
Preferred Stock based on the number of shares of Series C Preferred Stock and
Series B Preferred Stock issued to each holder. Each increase to the Maximum
Share Amount shall be allocated pro rata among the holders of Series C
Preferred Stock and Series B Preferred Stock based on the number of shares of
Series C Preferred Stock and Series B Preferred Stock held by each holder at
the time of the increase in the Maximum Share Amount. In the event a holder
shall sell or otherwise transfer any of such holder's shares of Series B
Preferred Stock or Series C Preferred Stock, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount. Any
portion of the Maximum Share Amount which remains allocated to any person or
entity which does not hold any Series B Preferred Stock or Series C Preferred
Stock shall be allocated to the remaining holders of shares of Series C
Preferred Stock and Series B Preferred Stock, pro rata based on the number of
shares of Series C Preferred Stock and Series B Preferred Stock then held by
such holders.
The Reserved Amount (including any increases thereto) shall be
allocated by the Company pro rata among the holders of Series C Preferred
Shares based on the number of shares of Series C Preferred Shares issued to
each holder. Each increase to the Reserved Amount shall be allocated pro
rata among the holders of Series C Preferred Shares based on the number of
shares of Series C Preferred Shares held by each holder at the time of the
increase in the Reserved Amount. In the event a holder shall sell or
otherwise transfer any of such holder's shares of Series C Preferred Shares,
each transferee shall be allocated a pro rata portion of such transferor's
Reserved Amount. Any portion of the Reserved Amount which remains allocated
to any person or entity which does not hold any Series C Preferred Shares
shall be allocated to the remaining holders of shares of Series C Preferred
Shares, pro rata based on the number of shares of Series C Preferred Shares
then held by such holders.
VI. FAILURE TO CONVERT
A. If, at any time, (x) a Notice of Conversion has been sent to the
Company and the
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Company fails for any reason to deliver, on or prior to the third Business
Day following the expiration of the Delivery Date for such conversion (said
period of time being the "Extended Delivery Period"), such number of shares
of Common Stock to which such Holder is entitled (taking into account the
limitations on conversions imposed by such Holder's allocated portion of the
Maximum Share Amount) upon such conversion, or (y) the Company provides
notice (including by way of public announcement) (the "Refusal Notice") to
any Holder at any time of its intention not to issue shares of Common Stock
upon exercise by any Holder of its conversion rights in accordance with the
terms of this Certificate of Designation (each of (x) and (y) being a
"Conversion Default"), then the Company shall pay to the affected Holder, in
the case of a Conversion Default described in clause (x) above, and to all
Holders of Series C Preferred Stock, in the case of a Conversion Default
described in clause (y) above, an amount equal to 1% of the Face Amount of
the Series C Preferred Stock held by such Holder with respect to which the
Conversion Default exists (which amount shall be deemed to be the aggregate
Face Amount of all outstanding Series C Preferred Stock in the case of a
Conversion Default described in clause (y) above) for each day thereafter
until the Cure Date. "Cure Date" means (i) with respect to a Conversion
Default described in clause (x) of its definition or if a Conversion Notice
has been submitted and the Company has issued a Refusal Notice, the date the
Company effects the conversion of the portion of the Series C Preferred Stock
submitted for conversion and (ii) if no Conversion Notices have been
submitted, with respect to a Conversion Default described in clause (y) of
its definition, the date the Company undertakes in writing to issue Common
Stock in satisfaction of all conversions of Series C Preferred Stock in
accordance with the terms of this Certificate of Designation. The Company
shall promptly provide each Holder with notice of the occurrence of a
Conversion Default with respect to any of the other Holders.
B. The payments to which a Holder shall be entitled pursuant to this
Section VI(A) are referred to herein as "Conversion Default Payments."
Conversion Default Payments shall be paid in cash. Such payment shall be
made in accordance with and be subject to the provisions of Article XIII(B).
VII. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption Events. A "Redemption Event" means any one of the
following (after expiration of any applicable cure period):
(i) The Company fails, and any such failure continues uncured
for seven (7) Business Days after the Company has been notified thereof in
writing by the Holder, to (x) remove any restrictive legend on any
certificate for any shares of Common Stock issued after the Effective Date to
the Holders upon conversion of the Series C Preferred Stock or the Series B
Preferred Stock or upon exercise of the Warrants, or (y) to transfer or cause
the Transfer Agent to transfer any certificate for shares of Common Stock
issued to a Holder upon conversion of the Series C Preferred Stock or the
Series B Preferred Stock, in each case as and when required by this
Certificate of Designation, the Warrants, the Securities Purchase Agreement
or the Registration Rights Agreement;
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or
(ii) The Company fails to fulfill its obligations pursuant to
Section 4.11 or 4.13 of the Securities Purchase Agreement (or makes any
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its
obligations shall not be rescinded in writing) for ten (10) days after the
Corporation shall have been notified thereof in writing by any holder of
Series C Preferred Stock; or
(iii) The Company fails to make any redemption payment due
pursuant to Article V(C) hereof or Article V(C) of the Amended Certificate of
Designation with respect to the Series B Preferred Stock when due; or
(iv) The Registration Statement filed by the Company pursuant to
the Registration Rights Agreement and declared effective by the SEC on the
Effective Date lapses in effect (or sales of all of the Registrable
Securities cannot be made by the Holders thereunder, whether by reason of the
Company's failure to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreement or otherwise) for more than
forty-five (45) consecutive days or an aggregate of seventy-five (75) days in
any twelve (12) month period after the Effective Date, or the Common Stock is
not listed or included for quotation on a National Exchange or that trading
is halted after the Effective Date for more than an aggregate of twenty (20)
Business Days in any twelve (12) month period.
B. REDEMPTION OF HOLDER'S SHARES. Upon the occurrence and during the
continuation of any Redemption Event, the Company shall, as to each Holder of
the then outstanding shares of Series C Preferred Stock who have given
written notice (the "Optional Redemption Notice") to the Company of such
Redemption Event, purchase each such Holder's shares of Series C Preferred
Stock for an amount per share equal to the greater of (1) 130% multiplied by
the sum of (a) the Face Amount of the shares to be redeemed, plus (b) any
other amounts payable thereon (including without limitation payments due
under Section 2 of the Registration Rights Agreement and Conversion Default
Payments) through the date of payment of the Optional Redemption Amount (as
defined herein) (the "Optional Redemption Date") and (2) the "Parity Value"
of the shares to be redeemed (the greater of such amounts being the "Optional
Redemption Amount"); provided that if such Redemption Event is pursuant to
Article VII(A)(iv), the Company may, at its sole option, in lieu of the
foregoing purchase, pay the Holder an amount equal to the Default Amount (as
defined below) multiplied by the number of shares of Series C Preferred Stock
held by such holder on the date of the Optional Redemption Notice. "Parity
Value" means the product of (a) the number of shares of Common Stock issuable
upon conversion of such shares at such time (treating the Trading Day
immediately preceding the Optional Redemption Date as the "Conversion Date"
(as hereinafter defined), unless the Redemption Event arises as a result of a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by
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<PAGE>
(b) the highest Closing Bid Price for the Common Stock on the principal
trading market for such shares from the period beginning on the date of the
first occurrence of the Redemption Event and ending on such Conversion Date.
"Default Amount" shall mean Two Hundred U.S. Dollars ($200), or such lesser
amount as would be determined in accordance with Section 2(c) of the
Registration Rights Agreement.
In the case of a Redemption Event, if the Company fails to pay the
Default Amount or the Optional Redemption Amount, as applicable, for each
share within five (5) business days of written notice that such amount is due
and payable, then (assuming there are sufficient authorized shares) in
addition to all other available remedies, each holder of Series C Preferred
Stock shall have the right at any time, so long as the Redemption Event
continues, to require the Company, upon written notice, to immediately issue
(in accordance with and subject to the terms of Article V above), in lieu of
the Default Amount or the Optional Redemption Amount, as applicable, with
respect to each outstanding share of Series C Preferred Stock held by such
holder, the number of shares of Common Stock of the Company equal to the
Default Amount or the Optional Redemption Amount, as applicable, divided by
any Conversion Price, as chosen in the sole discretion of the Holder, in
effect from the date of the Redemption Event until the date of exercise of
such rights by Holder. Payment of the Default Amount shall not affect the
Holder's ongoing rights with respect to the then outstanding shares of Series
C Preferred Stock or the rights of such holders to pursue alternate damages
in respect of the events giving rise to such payments.
C. OPTIONAL REDEMPTION BY THE COMPANY. So long as (i) for at least
thirty (30) Business Days prior to the date of any date of redemption under
this Article VII(C) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of Series C Preferred Stock and all
outstanding shares of Series B Preferred Stock are then (x) authorized and
reserved for issuance, (y) registered for resale under the 1933 Act by the
holders of the Series C Preferred Stock and Series B Preferred Stock (or may
otherwise be resold publicly without restriction) and (z) eligible to be
traded on a National Exchange and (ii) there is not then a continuing
Redemption Event or Shareholder Approval Trigger Date (unless the Share
Limit Waiver has occurred), the Company may, at its option, upon twenty (20)
Business Days' notice, redeem the Series C Preferred Stock, as follows: (x)
beginning upon the date that the Company completes a public offering of its
Common Stock of at least $20,000,000 underwritten by an investment banking
firm that holds a seat on the NYSE, and (y) on any date following the
Anniversary Date that the average Closing Bid Price of the Common Stock over
the immediately preceding ten trading day period is less than $5.00 per share
(as adjusted for any stock dividends, stock splits, combinations, or similar
events), the Company may, at its option, redeem for cash out of funds legally
available therefor, all (but not less than all) of the outstanding Series C
Preferred Shares at 120% of the Face Amount of such shares of Series C
Preferred Stock plus any other amounts payable thereon.
Nothing in this Article VII(C) shall prohibit conversions of Series
C Preferred Stock otherwise permitted pursuant to the terms of this
Certificate of Designation during the pendency of any notice of optional
redemption by the Company hereunder.
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D. MATURITY; REQUIRED REDEMPTION. Subject to the limitations
contained in Article VII(F) hereof and so long as there is not then a
continuing Redemption Event, each share of Series C Preferred Stock
outstanding on September 3, 2001 (the "Maturity Date") will be redeemed at
the Company's sole option, (a) in cash equal to the aggregate face value
thereof and any other amounts payable thereon or, (b) by delivery of a number
of shares of Common Stock issuable upon conversion of all of the Series C
Preferred Stock at the then-applicable Conversion Price, including any
adjustment under Article X; provided that (i) any necessary approval for the
issuance of additional shares has been obtained if the Maximum Share Amount
has been reached (or will be exceeded as a result of any conversion at
maturity) or the Company is able to issue shares of Common Stock without
violating applicable rules of the principal National Exchange on which the
Common Stock is then traded (but only to the extent such rules would not be
violated), and (ii) all shares of Common Stock issuable upon conversion of
all outstanding shares of Series C Preferred Stock are then (x) authorized
and reserved for issuance, (y) registered under the Securities Act for resale
by all Holders of such Series C Preferred Shares and (z) eligible to be
traded on a National Exchange. The Maturity Date shall be delayed by one (1)
Business Day each for each Business Day occurring prior thereto and prior to
the full conversion of the Series C Preferred Stock that any Redemption Event
(as defined in Article V(A)) exists, without regard to whether any cure
periods shall have run, and for each Business Day that the Registration
Statement is not effective or that the Common Stock is not then listed for
trading beyond days during which such events are permitted without penalty
pursuant to the Registration Rights Agreement. The Company will notify each
Holder at least ten Business Days prior to the Maturity Date if the Company
intends to redeem all or any portion of the Series C Preferred Stock held
such Holder in cash.
E. REDEMPTION DEFAULTS. If the Company fails to pay any Holder the
redemption consideration with respect to any share of Series C Preferred
Stock, as provided in this Article VII, within five (5) Business Days of its
receipt or delivery, as applicable, of a notice requiring such redemption
(the "Redemption Notice"), then each Holder (i) shall be entitled to interest
on the redemption consideration not paid at a per annum rate equal to the
lower of (x) the sum of prime rate published from time to time by the Wall
Street Journal plus three percent (3%) and (y) the highest interest rate
permitted by applicable law from the date of the Redemption Notice until the
date of redemption hereunder. In the event the Company is not able to redeem
all of the shares of Series C Preferred Stock subject to Redemption Notices,
the Company shall redeem shares of Series C Preferred Stock from each Holder,
pro rata, based on the total number of shares of Series C Preferred Stock
included in the Redemption Notice relative to the total number of shares of
Series C Preferred Stock in all of the Redemption Notices. In the case of a
Redemption Event, if the Company fails to pay the Optional Redemption Amount
for each share for any reason (including, without limitation, the
circumstances specified in paragraph VII(F)), within five (5) Business Days
of the applicable Redemption Notice then (assuming there are sufficient
authorized shares) in addition to all other available remedies, each Holder
of Series C Preferred Stock shall have the right at any time, so long as the
Redemption Event continues, to convert, upon written notice, in lieu of the
Optional
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Redemption Amount, each outstanding share of Series C Preferred Stock held by
such Holder, into the number of shares of Common Stock of the Company equal
to the Optional Redemption Amount, divided by the Conversion Price then in
effect, subject in all cases to each such Holder's Maximum Share Amount.
F. CAPITAL IMPAIRMENT. In the event that any Section 302A.551 of the
Minnesota Business Corporation Act ("BCA"), would be violated by the
redemption of any shares of Series C Preferred Stock that are otherwise
subject to redemption pursuant to this Article VII, the Company: (i) will
redeem the greatest number of shares of Series C Preferred Stock possible
without violation of said Article; (ii) the Company thereafter shall use its
best efforts to take all necessary steps permitted pursuant to this
Certificate of Designation and the agreements entered into in connection with
the issuance of Series C Preferred Stock pursuant hereto in order to remedy
its capital structure in order to allow further redemptions without violation
of said Article; and (iii) from time to time thereafter as promptly as
possible the Company shall redeem shares of Series C Preferred Stock at the
request of the Holders to the greatest extent possible without causing a
violation of the BCA.
VIII. RANK; PARTICIPATION
A. RANK. All shares of the Series C Preferred Stock shall rank (i)
prior to the Common Stock; (ii) prior to any class or series of capital stock
of the Company hereafter created (unless, with the consent of the Holders of
a majority of the outstanding shares of Series C Preferred Stock obtained in
accordance with Article XII hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Series C
Preferred Stock) (collectively, with the Common Stock, "Junior Securities");
(iii) pari passu with the Series B Preferred Stock and pari passu with any
class or series of capital stock of the Company hereafter created (with the
consent of the Holders of a majority of the outstanding shares of Series C
Preferred Stock obtained in accordance with Article XII hereof), specifically
ranking, by its terms, on parity with the Series C Preferred Stock (the "Pari
Passu Securities"); and (iv) junior to any class or series of capital stock
of the Company hereafter created (with the consent of the Holders of a
majority of the outstanding shares of Series C Preferred Stock obtained in
accordance with Article XII hereof) specifically ranking, by its terms,
senior to the Series C Preferred Stock (the "Senior Securities"), in each
case as to distribution of assets upon liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary.
B. PARTICIPATION. Subject to the rights of the holders (if any) of
Pari Passu Securities and Senior Securities, the Holders shall, as such
Holders, be entitled to such dividends paid and distributions made to the
holders of Common Stock to the same extent as if such Holders had converted
their shares of Series C Preferred Stock into Common Stock (without regard to
any limitations on conversion herein or elsewhere contained) and had been
issued such Common Stock on the day before the record date for said dividend
or distribution. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common
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Stock.
IX. LIQUIDATION PREFERENCE
A. LIQUIDATION OF THE COMPANY. If the Company shall commence a
voluntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law, or consent to the entry of an order
for relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property,
or make an assignment for the benefit of its creditors, or admit in writing
its inability to pay its debts generally as they become due, or if a decree
or order for relief in respect of the Company shall be entered by a court
having jurisdiction in the premises in an involuntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law resulting in the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Company
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and any such decree or order shall be unstayed
and in effect for a period of sixty (60) consecutive days and, on account of
any such event, the Company shall liquidate, dissolve or wind up, or if the
Company shall otherwise liquidate, dissolve or wind up (a "Liquidation
Event"), no distribution shall be made to the holders of any shares of
capital stock of the Company (other than Senior Securities and, together with
the Holders of Series C Preferred Stock and the Pari Passu Securities) upon
liquidation, dissolution or winding up unless prior thereto the Holders shall
have received the Liquidation Preference (as herein defined) with respect to
each Series C Preferred Share. If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the Holders and
holders of Pari Passu Securities shall be insufficient to permit the payment
to such Holders of the preferential amounts payable thereon, then the entire
assets and funds of the Company legally available for distribution to the
Series C Preferred Stock and the Pari Passu Securities shall be distributed
ratably among such shares in proportion to the ratio that the Liquidation
Preference payable on each such share bears to the aggregate Liquidation
Preference payable on all such shares.
B. CERTAIN ACTS NOT A LIQUIDATION. The purchase or redemption by the
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up
of the Company. Subject to the provisions of Section X(B), neither the
consolidation or merger of the Company with or into any other entity nor the
sale or transfer by the Company of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company.
C. DEFINITION OF LIQUIDATION PREFERENCE. The "Liquidation Preference"
with respect to a share of Series C Preferred Stock means an amount equal to
the Face Amount thereof plus any other amounts that may be due from the
Company with respect thereto pursuant to this Certificate of Designation, the
Securities Purchase Agreement or the Registration Rights Agreement. The
Liquidation Preference with respect to any Pari Passu Securities shall be as
set forth in the Certificate
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of Designation filed in respect thereof.
X. ADJUSTMENTS TO THE CONVERSION PRICE; CERTAIN PROTECTIONS
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. STOCK SPLITS, STOCK DIVIDENDS, ETC. If at any time on or after the
Closing Date, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, reclassification or other similar event,
the number of shares of Common Stock issuable upon conversion of the Series C
Preferred Shares shall be proportionately increased, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the number
of shares of Common Stock issuable upon conversion of the Series C Preferred
Shares shall be proportionately reduced. In such event, the Company shall
notify the Company's Transfer Agent of such change on or before the effective
date thereof.
B. MAJOR TRANSACTIONS. If the Company shall consolidate with or merge
into any corporation, sell all or substantially all of its assets, effectuate
a transaction or series of transactions in which 50% or more of the voting
power of the Company is disposed of or reclassify its outstanding shares of
Common Stock (other than by way of subdivision or reduction of such shares)
(each a "Major Transaction"), then each Holder shall thereafter be entitled
to receive consideration, in exchange for each share of Series C Preferred
Stock held by it, equal to the greater of, as determined in the sole
discretion of the Holders of at least 50.1% of the outstanding shares of
Series C Preferred Stock: (i) the number of shares of stock or securities or
property of the Company, or of the entity resulting from such consolidation
or merger (the "Major Transaction Consideration"), to which a Holder of the
number of shares of Common Stock delivered upon conversion of such shares of
Series C Preferred Stock would have been entitled upon such Major Transaction
(without regard to any limitations on conversion herein contained) and had
such Common Stock been issued and outstanding and had such Holder been the
holder of record of such Common Stock at the time of such Major Transaction,
and the Company shall make lawful provision therefore as a part of such
consolidation, merger or reclassification; and (ii) the Optional Redemption
Amount, in cash. Subject to the provisions of this Article X, but in any
event not later than five (5) Business Days prior to the consummation of the
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice ("Notice of Major
Transaction") to each Holder, which Notice of Major Transaction shall be
deemed to have been delivered one (1) Business Day after the Company's
sending such notice by telecopy (provided that the Company sends a confirming
copy of such notice on the same day by overnight courier). Such Notice of
Major Transaction shall indicate the amount and type of the Major Transaction
Consideration which such Holder would receive under clause (i) of this
Article X(B). If the Major Transaction Consideration does not consist
entirely of United States dollars, the value of such other property shall be
determined by a reputable accounting firm selected by the Company that is
reasonably acceptable the Holders of a majority of the outstanding. The
Holder shall, within two (2) Business Days following
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receipt of the Notice of Major Transactions, notify the Company of the type
of consideration it elects to receive under this Article X(B).
C. ADJUSTMENT DUE TO DISTRIBUTION. If at any time after the Closing
Date, the Company shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Company's stockholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off))
(a "Distribution"), then the minimum Conversion Price per share shall be
reduced by the value of such Distribution per share. If the Distribution
does not consist entirely of U.S. Dollars, the value of such other property
shall be determined by a reputable accounting firm selected by the Company
that is reasonably acceptable to the Holders of a majority of the outstanding
shares of Series C Preferred Stock.
D. PURCHASE RIGHTS. If at any time after the Closing Date, the
Company issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to
the record holders of any class of Common Stock, then the Holders of Series C
Preferred Stock will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such Holder could
have acquired if such Holder had held the number of shares of Common Stock
acquirable upon complete conversion of the Series C Preferred Stock (without
regard to any limitations on conversion or exercise herein or elsewhere
contained) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
E. ADJUSTMENT TO CONVERSION PRICE. If at any time when Series C
Preferred Stock is issued and outstanding, the number of outstanding shares
of Common Stock is increased or decreased by a stock split, stock dividend,
combination, reclassification, below-market price rights offering to all
holders of Common Stock or other similar event, which event shall have taken
place during the reference period for determination of the Conversion Price
for the Series C Preferred Stock, then the Conversion Price shall be
calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event during the calculation
period preceding the Conversion Date. In such event, the Company shall
notify the Transfer Agent of such change on or before the effective date
thereof.
F. ADJUSTMENT FOR RESTRICTED PERIODS. If the Registration Statement
filed by the Company pursuant to the Registration Rights Agreement and
declared effective by the SEC on the Effective Date lapses in effect or sales
cannot otherwise be made thereunder, whether by reason of the Company's
failure or inability to amend or supplement the prospectus included therein
("Prospectus") in accordance with the Registration Rights Agreement or
otherwise, then the 20 Business Days period ("Lookback Period") used for
determining the "Market Price" shall be extended to include the number of
Business Days preceding the date on which the Holder is first
17
<PAGE>
notified that sales may not be made under the Prospectus, which would
otherwise then be included in the Lookback Period plus all Business Days
through and including the date on which the Holder is notified that sales may
again be made under the Prospectus. If a Holder of the Series C Preferred
Stock reasonably determines that sales may not be made pursuant to the
Prospectus, it shall notify the Company in writing and, unless the Company
provides Holder with an opinion of Company's counsel to the contrary, such
determination shall be binding for purposes of this paragraph.
G. ADJUSTMENT TO CONVERSION PRICE FOR MAJOR ANNOUNCEMENTS. In the
event the Company (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Company is the surviving or continuing corporation and its capital stock
is unchanged) or sell or transfer all or substantially all of the assets of
the Company or (ii) any person, group or entity (including the Company)
publicly announces a tender offer to purchase 50% or more of the Company's
Common Stock or otherwise publicly announces an intention to replace a
majority of the Corporation's Board of Directors by waging a proxy battle or
otherwise (the date of the announcement referred to in clause (i) or (ii) is
hereinafter referred to as the "Announcement Date"), then the Conversion
Price shall, effective upon the Announcement Date and continuing through the
Adjusted Conversion Price Termination Date (as defined below), be equal to
the lower of (x) the Conversion Price which would have been applicable for an
Optional Conversion occurring on the Announcement Date and (y) the Conversion
Price that would otherwise be in effect. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be determined
as set forth in Article II. For purposes hereof, "Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed transaction,
tender offer or removal of the majority of the Board of Directors which a
public announcement as contemplated by this Article X.H. has been made, the
date upon which the Company (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or publicly
announces the termination or abandonment of the proposed transaction or
tender offer which caused this Article X.H. to become operative.
H. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section X, the Company,
at its expense, shall promptly compute such adjustment or readjustment and
prepare and furnish to each Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request at any time of any Holder, furnish to such Holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price
at the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of a share of Preferred Stock.
XI. VOTING RIGHTS
The holders of the Series C Preferred Stock have no voting power
whatsoever, except as
18
<PAGE>
otherwise provided by the ("BCA"), in this Article XI, and in Article XII
below.
Notwithstanding the above, the Company shall provide each holder of
Series C Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Company of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation
or recapitalization) any share of any class or any other securities or
property, or to receive any other right, or for the purpose of determining
shareholders who are entitled to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the Company,
or any proposed liquidation, dissolution or winding up of the Company, the
Company shall mail a notice to each holder, at least ten (10) days prior to
the record date specified therein (or thirty (30) days prior to the
consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the
amount and character of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
No Holder of the Series C Preferred Stock shall be entitled to vote on
any matter submitted to the shareholders of the Company for their vote,
waiver, release or other action, except as may be otherwise expressly
required by law.
XII. PROTECTION PROVISIONS
So long as any Series C Preferred Shares are outstanding, the Company
shall not, without first obtaining the approval of the Holders of majority of
the outstanding shares of Series C Preferred Stock: (a) alter or change the
rights, preferences or privileges of the Series C Preferred Stock; (b) alter
or change the rights, preferences or privileges of any capital stock of the
Company so as to affect adversely the Series C Preferred Stock; (c) create or
issue any Senior Securities; (d) create or issue any Pari Passu Securities;
(e) increase the authorized number of shares of Series C Preferred Stock;
(f) increase the par value of the Common Stock; or (g) do any act or thing
not authorized or contemplated by this Certificate of Designation which would
result in any taxation with respect to the Series C Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as amended, or any
comparable provision of the Internal Revenue Code as hereafter from time to
time amended, (or otherwise suffer to exist any such taxation as a result
thereof).
XIII. MISCELLANEOUS
A. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Series C
Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to the Company, or (z) in
the case
19
<PAGE>
of mutilation, upon surrender and cancellation of the Series C Preferred
Stock Certificate(s), the Company shall execute and deliver new Series C
Preferred Stock Certificate(s) of like tenor and date. However, the Company
shall not be obligated to reissue such lost, stolen, destroyed or mutilated
Series C Preferred Stock Certificate(s) if the Holder contemporaneously
requests the Company to convert such Series C Preferred Stock.
B. PAYMENT OF CASH; DEFAULTS. Whenever the Company is required to
make any cash payment to a Holder under this Certificate of Designation (as a
Conversion Default Payment, Optional Redemption Amount or otherwise), such
cash payment shall be made to the Holder by the method (by certified or
cashier's check or wire transfer of immediately available funds) elected by
such Holder. If such payment is not delivered when due such Holder shall
thereafter be entitled to interest on the unpaid amount until such amount is
paid in full to the Holder at a per annum rate equal to the lower of (x) the
sum of prime rate published from time to time by the Wall Street Journal plus
three percent (3%) and (y) the highest interest rate permitted by applicable
law.
C. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of Designation
shall be cumulative and in addition to all other remedies available under
this Certificate of Designation, at law or in equity (including a decree of
specific performance and/or other injunctive relief), no remedy contained
herein shall be deemed a waiver of compliance with the provisions giving rise
to such remedy and nothing herein shall limit a Holder's right to pursue
actual damages for any failure by the Company to comply with the terms of
this Certificate of Designation. Company covenants to each Holder that there
shall be no characterization concerning this instrument other than as
expressly provided herein; provided, however, that the Company shall be
entitled to prepare summaries of this Certificate of Designation for purposes
of complying with its disclosure obligations and in connection with bona fide
disputes as to the operations of the provisions of this Certificate of
Designation.
D. FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on the part
of a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
E. NOTICES. Any notice from a Holder to the Company hereunder shall
be given to the Company in accordance with Section 8(f) of the Securities
Purchase Agreement. Any notices from the Company to a Holder shall be given
to such Holder at such Holder's address as shown in the stock register of the
Company and otherwise in accordance with Section 8(f) of the Securities
Purchase Agreement.
20
<PAGE>
EXHIBIT 4.6
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
PROMISSORY NOTE
No. 1 $7,145,000
Excelsior-Henderson Motorcycle Manufacturing Company, a Minnesota
corporation, acknowledges itself indebted and for value received hereby promises
to pay to the order of the Minnesota Agricultural and Economic Development Board
as the statutory successor to the Minnesota Energy and Economic Development
Authority (the "Board") and its successors and assigns, the principal sum of
SEVEN MILLION ONE HUNDRED FORTY FIVE THOUSAND DOLLARS ($7,145,000) together with
interest on the unpaid principal balance of this Note until the Borrower's
obligation with respect to the payment of such sum shall be discharged at a rate
of interest identical to the stated rates of interest on the Series 1997B Bonds
referred to below (taking into account the different rates for the different
maturities and principal amounts of the Series 1997B Bonds) but payable not as
provided in the Series 1997B Bonds but as provided below and in the Loan
Agreement referred to below.
This Note is issued to evidence the obligation of Excelsior-Henderson
Motorcycle Manufacturing Company under and pursuant to, and shall be governed by
and construed in accordance with the terms and conditions of, the Loan Agreement
dated as of November 1, 1997 (the "Loan Agreement") between the Board and
Excelsior-Henderson Motorcycle Manufacturing Company, for the repayment of the
loan made by the Board to Excelsior-Henderson Motorcycle Manufacturing Company,
thereunder from the proceeds of the Board's $7,145,000 principal amount of
Minnesota Small Business Development Loan Program Taxable Revenue Bonds, Series
1997B, Lot 1 (the "Bonds") and the payment of interest thereon, including
provision for prepayment of said loan in certain cases, and for the satisfaction
of a certain right of reimbursement of the General Guaranty Fund as provided in
the Loan Agreement under certain circumstances and for the satisfaction of a
certain right of reimbursement of the Board as provided in the Loan Agreement
under certain circumstances. This Note is secured by the Security Agreement,
dated as of November 1, 1997 (the "Security Agreement") made by
Excelsior-Henderson Motorcycle Manufacturing Company to the payee on the Land
and certain other property, as provided in the Loan Agreement and granted by the
maker to the payee as provided in the Loan Agreement. The Loan Agreement
(together with this Note) and the Security Agreement have been pledged to the
Holders of the Bonds from time to time issued under the Minnesota Small Business
Development Loan Program Revenue Bond General Bond Resolution (the "General Bond
Resolution") adopted by the Board on September 26, 1984 and thereafter amended
and restated from time to time pursuant to its terms.
As provided in the Loan Agreement and subject to the provisions thereof,
payments hereon are to be made in lawful money of the United States of America
at the place and in the manner provided in the Loan Agreement, in monthly
installments of principal and interest, commencing November 1, 1997, and payable
thereafter on the first day of each month, such installments to be applied first
to the payment of interest then due on this Note, and the
<PAGE>
remaining balance thereof to reduce the unpaid principal amount of this Note,
with each installment payable as interest to include interest payable in
advance due to and including the first day of the next succeeding month from
the month in which the installment is payable and with each installment
payable as principal to be similarly paid in advance. The monthly
installments to be paid on this Note shall be an amount equal to (A) on
January 1, 1998 (i) an installment of interest (after receiving a credit for
any accrued interest on the Bonds received from the Original Purchasers (as
defined in the Loan Agreement) of the Bonds) equal to the interest due on the
Bonds on February 1, 1998; and (ii) an installment of principal equal to
one-half of the principal due on the Bonds on August 1, 1998; and (B) for the
period commencing on February 1, 1998 and on the first day of each month
thereafter (1) one-sixth of the interest installment due on the Bonds on the
next succeeding bond payment date thereof (taking into account such
in-advance payments) and (2) one-twelfth of the principal installment due on
the Bonds on the next succeeding bond payment date on which a principal
installment thereon is due (taking into account such in-advance payments),
such installments to be reduced by that sum or sums such that on or before
the bond payment date on which a principal installment is due thereon any
amounts then on deposit in the Holding Account created with respect to the
Bonds pursuant to the provisions of the General Bond Resolution plus the
monthly installment then to be paid on this Note shall equal the debt service
payment on the Bonds due on such bond payment date.
This Note may be prepaid in whole or in part in accordance with the
provisions of the Loan Agreement. In addition, upon the occurrence of a
"Determination of Taxability" (as defined in the Loan Agreement), this Note
shall be mandatorily prepaid at the price and time specified in the Loan
Agreement and the Loan Agreement shall be terminated in accordance with the
provisions of Article XI of the Loan Agreement (and in particular, Section
11.1(a) and Section 11.2(a)(i)(A) thereof).
Excelsior-Henderson Motorcycle Manufacturing Company agrees to make the
payments on this Note on the dates and in the amounts specified herein and in
the Loan Agreement and in addition agrees to make such other payments at such
times and upon such conditions as are required pursuant to the Loan Agreement.
In the "Event of Default", as defined in the Loan Agreement, the principal of
and interest on this Note may be declared immediately due and payable as
provided in the Loan Agreement. This Note may be cancelled, amended or
supplemented as provided in the Loan Agreement.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived by the makers hereof.
<PAGE>
IN WITNESS WHEREOF, Excelsior-Henderson Motorcycle Manufacturing Company
has caused this Note to be executed in its respective name and on its behalf by
the manual signature of its _______________, all as of December 1, 1997.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By
Its
------------------------------
<PAGE>
EXHIBIT 4.7
THIS BOND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") OR UNDER ANY STATE SECURITIES OR "BLUE SKY" LAWS ("BLUE SKY
LAWS"). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, OR OTHER
DISPOSITION OF THIS BOND OR ANY INTEREST THEREIN MAY BE MADE EXCEPT (a)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
ANY APPLICABLE BLUE SKY LAWS OR (b) IF THE BORROWER HAS BEEN FURNISHED WITH
AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE
REASONABLY SATISFACTORY TO THE BORROWER, TO THE EFFECT THAT NO REGISTRATION
IS REQUIRED BECAUSE OF THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS.
UNITED STATES OF AMERICA
STATE OF MINNESOTA
ECONOMIC DEVELOPMENT AUTHORITY
OF THE CITY OF BELLE PLAINE, MINNESOTA
TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BOND
(EXCELSIOR-HENDERSON PROJECT)
SERIES 1998
R-1 $6,100,000
The Economic Development Authority of the City of Belle Plaine,
Minnesota, a public body corporate and politic and political subdivision of
the State of Minnesota (the "Issuer"), for value received, hereby promises to
pay to FINOVA Public Finance, Inc., a Minnesota corporation (the "Lender"),
or its assigns (the Lender and any assigns are hereinafter referred to as the
"Holder"), at its designated principal office or such other place as the
Holder may designate in writing, but solely from the revenues derived from a
Loan Agreement, dated as of July 1, 1998 (the "Loan Agreement"), between the
Issuer and Excelsior-Henderson Motorcycle Manufacturing Company, a Minnesota
corporation (the "Borrower"), providing for a loan of the proceeds from the
Bond to the Borrower, the principal sum of Six Million One Hundred Thousand
Dollars ($6,100,000), with interest at the rate of 10.40 % per annum (the
"Interest Rate"), interest commencing to accrue on the date of issue of the
Bond, in any coin or currency, which at the time or times of payment is legal
tender for the payment of public or private debts in the United States of
America. The principal and interest on this Bond is payable in installments
due as follows:
(a) On August 20, 1998, and thereafter on the first day of each
month thereafter to and including July 1, 1999, accrued and unpaid interest
only on the outstanding principal balance of the Bond shall be due and
payable.
(b) Commencing on August 1, 1999, and on the first day of each month
thereafter, through and including January 1, 2006, equal payments of
principal of and accrued and unpaid interest on the Bond shall be due and
payable in amounts sufficient to fully amortize the principal of the Bond by
January 1, 2006, at the Interest Rate.
(c) Payment of the entire unpaid principal balance of the Bond,
together with accrued but unpaid interest thereon, and all other indebtedness
due hereunder shall be payable on January 1, 2006 (the "Final Maturity Date").
1
<PAGE>
EXHIBIT 4.7
(d) If the Borrower makes any partial prepayment permitted under
this Bond, the monthly payments due pursuant to this Bond shall be adjusted
to be equal to payments of principal of and interest on the Bond in amounts
sufficient to fully amortize the remaining principal of the Bond by January
1, 2006, at the Interest Rate.
All interest hereon shall be computed on the basis of a year of three hundred
sixty (360) days and charged for actual days principal is unpaid. If any
payment of principal or interest is not paid when due, each and every such
delinquent payment, including the entire principal balance and accrued
interest in the event of an acceleration of the Bond, shall bear interest to
the extent permitted by law at the rate of 18% per annum from its due date
until payment.
The Bond is subject to optional redemption prior to maturity, at the
election of the Borrower, in whole, at any time on or after September 1,
2000, at a redemption price equal to the principal amount of the Bond to be
redeemed, plus accrued interest to the date of redemption, plus a premium
(expressed as a percentage of the principal amount of the Bond outstanding as
of the date of redemption) determined in accordance with the following
schedule:
<TABLE>
<CAPTION>
- ---------------------------------------------- -- --------------------------------------
Redemption Date Redemption Premium
- ---------------------------------------------- -- --------------------------------------
<S> <C>
- ---------------------------------------------- -- --------------------------------------
September 1, 2000 - August 31, 2001 4.00 %
- ---------------------------------------------- -- --------------------------------------
September 1, 2001 - August 31, 2002 3.00 %
- ---------------------------------------------- -- --------------------------------------
September 1, 2002 - August 31, 2003 2.00 %
- ---------------------------------------------- -- --------------------------------------
September 1, 2003 - August 31, 2004 1.00 %
- ---------------------------------------------- -- --------------------------------------
September 1, 2004 and thereafter 0.00 %
- ---------------------------------------------- -- --------------------------------------
</TABLE>
The Bond is subject to special optional redemption prior to
maturity, in part, on or before December 31, 1999, at the election of the
Borrower from "Excess Bond Proceeds." The term "Excess Bond Proceeds" means
up to $800,000 of the proceeds derived from the sale of the Bond, but in no
case an amount greater than the amount not disbursed under Section 7(b) of
the Escrow Deposit Agreement because of the Borrower's inability to provide
acceptable collateral pursuant to the terms of such Section 7(b).
The Bond is subject to mandatory redemption, in whole but not in
part, at its principal amount plus accrued interest to the date of redemption
upon occurrence of any of the following events: (a) all or substantially all
the Building (as defined in the Loan Agreement) shall have been damaged or
destroyed to such extent that in the reasonable opinion of the Holder, the
repair and restoration of the Building or use of a replacement building is
economically not practicable or cannot be accomplished within twelve months,
or (b) there occurs the condemnation of all or substantially all the Facility
(as defined in the Loan Agreement) or the taking by eminent domain of such
use or control of the Facility as to render it unsatisfactory to the Borrower
for its intended use for a period of time longer than twelve months and the
Borrower does not commence operations in a replacement Facility satisfactory
to the Borrower within twelve months.
Notice of redemption with respect to the Bond shall be mailed
first-class, postage prepaid, not less than thirty days prior to the
redemption date, to each holder of the Bond to be redeemed. If less than all
the Bond is subject to redemption, the Borrower shall determine and designate
the principal of the Bond to be redeemed.
2
<PAGE>
EXHIBIT 4.7
This Bond is issued under and pursuant to authority granted by the
Minnesota Municipal Industrial Development Act, being Minnesota Statutes,
Section 469.152 to 469.1651, as amended (the "Act"), for the purpose of
providing funds for a project, as defined in Section 469.153, subd. 2, of the
Act, consisting of the acquisition and installation of certain equipment with
respect to the manufacturing business of the Borrower located in the City of
Belle Plaine, Minnesota (the "City"), and paying necessary expenses
incidental thereto, such funds to be loaned by the Issuer to the Borrower
pursuant to a resolution adopted by the Issuer (the "Resolution") and the
Loan Agreement, thereby assisting activities in the public interest and for
the public welfare of the City and the Issuer. This Bond is secured by, among
other instruments, an Assignment of Loan Agreement, dated as of July 1, 1998
(the "Assignment of Loan Agreement"), from the Issuer to the Lender and a
Security Agreement, dated as of July 1, 1998 (the "Security Agreement"), from
the Borrower to Lender.
This Bond and interest thereon and any penalty, premium, or other
indebtedness due hereunder are payable solely from the revenues and proceeds
derived from the Loan Agreement and the Security Agreement, and do not
constitute a debt of the City or the Issuer within the meaning of any
constitutional or statutory limitation, are not payable from or a charge upon
any funds other than the revenues and proceeds pledged to the payment
thereof, and do not give rise to a pecuniary liability of the City or the
Issuer (other than from proceeds derived from the Loan Agreement), or, to the
extent permitted by law, of any of its officers, agents, or employees, and no
Holder of this Bond shall ever have the right to compel any exercise of the
taxing power of the City or the Issuer to pay this Bond or the interest
thereon, or to enforce payment thereof against any property of the City or
the Issuer (other than proceeds derived from the Loan Agreement), and this
Bond does not constitute a charge, lien, or encumbrance, legal or equitable,
upon any property of the City or the Issuer (other than proceeds derived from
the Loan Agreement), and the agreement of the Issuer to perform or cause the
performance of the covenants and other provisions herein referred to shall be
subject at all times to the availability of revenues or other funds furnished
for such purpose in accordance with the Loan Agreement, sufficient to pay all
costs of such performance or the enforcement thereof.
On the date of issuance, the Issuer will register this Bond upon its
books. Upon such registration, this Bond shall be transferable upon the books
of the Issuer, by the Holder hereof in person or by its attorney duly
authorized in writing, upon surrender hereof together with a written
instrument of transfer satisfactory to the Issuer, duly executed by the
Holder or its duly authorized attorney; provided, however, that any
assignment, transfer, sale, or conveyance of this Bond shall be subject to
the limitations set forth in Section 7.8 of the Loan Agreement. Upon such
transfer the Issuer will note the date of registration and the name and
address of the new Holder upon the books of the Issuer and in the
registration blank appearing below. The Issuer may deem and treat the person
in whose name this Bond is last registered upon the books of the Issuer with
such registration also noted on the Bond, as the absolute owner hereof,
whether or not overdue, for the purpose of receiving payment of or on account
of the principal balance, redemption price, or interest, and for all other
purposes, and all such payments so made to the Holder or upon its order shall
be valid and effectual to satisfy and discharge the liability upon this Bond
to the extent of the sum or sums so paid, and the Issuer shall not be
affected by any notice to the contrary.
All of the agreements, conditions, covenants, provisions, and
stipulations contained in the Resolution, the Loan Agreement, the Security
Agreement, and the Assignment of Loan Agreement, or any instrument securing,
or executed in connection with the issuance of, this Bond are hereby made a
part of this Bond to the same extent and with the same force and effect as if
they were fully set forth herein. If an Event of Default occurs under the
Security Agreement, the Loan Agreement, or any such other instrument, then
the Holder of this Bond may at its right and option declare immediately due
and payable
3
<PAGE>
EXHIBIT 4.7
the principal balance of this Bond and interest accrued thereon, and, to the
extent permitted by law, a prepayment premium of 4% of the outstanding
principal amount of the Bond but only if the Event of Default has occurred
and if the Holder has declared immediately due and payable the principal
balance of this Bond and interest accrued thereon on or before August 31,
2001, and thereafter a prepayment premium equal to the applicable redemption
premium for an optional redemption, together with any costs of collection
including attorneys' fees incurred by the Holder of this Bond in collecting
or enforcing payment hereof, whether suit be brought or not, and all other
sums due hereunder or under the Loan Agreement, or any instrument securing
this Bond.
The remedies of the Holder of this Bond as provided herein, and in
the Security Agreement, the Loan Agreement, or any other instrument securing,
or executed in connection with the issuance of, this Bond, shall be
cumulative and concurrent and may be pursued singly, successively, or
together, and, at the sole discretion of the Holder of this Bond, may be
exercised as often as occasion therefor shall occur; and the failure to
exercise any such right or remedy shall in no event be construed as a waiver
or release thereof.
The Holder of this Bond shall not be deemed, by any act of omission
or commission, to have waived any of its rights or remedies hereunder unless
such waiver is in writing and signed by the Holder of this Bond, and then
only to the extent specifically set forth in the writing and if the Borrower
pays, upon the Holder's demand, $1,500 to the Holder as reimbursement for the
Holder's cost of providing such a waiver. A waiver with reference to one
event shall not be construed as continuing or as a bar to or waiver of any
right or remedy as to a subsequent event. This Bond may not be amended,
modified, or changed except only by an instrument in writing signed by the
party against whom enforcement of any such amendment, modification, or change
is sought.
If any term of this Bond, or the application thereof to any person
or circumstances, shall, to any extent, be invalid or unenforceable, the
remainder of this Bond, or the application of such term to persons or
circumstances other than those to which it is invalid or unenforceable, shall
not be affected thereby, and each term of this Bond shall be valid and
enforceable to the fullest extent permitted by law.
This Bond is made with reference to, and shall be construed as, a
Minnesota contract and governed by the laws thereof.
IT IS HEREBY CERTIFIED AND RECITED that all conditions, acts, and
things required to exist, happen, and be performed precedent to or in the
issuance of this Bond do exist, have happened, and have been performed in
regular and due form as required by law.
4
<PAGE>
EXHIBIT 4.7
IN WITNESS WHEREOF, the Issuer has caused this Bond to be duly
executed by its duly authorized officers as of _______________, 1998.
ECONOMIC DEVELOPMENT AUTHORITY
OF THE CITY OF BELLE PLAINE, MINNESOTA
By
-------------------------------------
Its
------------------------------------
By
-------------------------------------
Its
------------------------------------
5
<PAGE>
EXHIBIT 4.7
CERTIFICATE OF REGISTRATION
It is hereby certified that the undersigned has registered this Bond in the
name of the Holder, as indicated in the registration blank below, on the
books of the Issuer kept for that purpose.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Name of Registered Signature of Issuer
Holder Date of Registration Official
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
- -------------------------------------------------------------------------------
MINNESOTA AGRICULTURAL AND ECONOMIC
DEVELOPMENT BOARD
AND
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
-----------------------------
LOAN AGREEMENT
-----------------------------
DATED AS OF NOVEMBER 1, 1997
- -------------------------------------------------------------------------------
<PAGE>
Relating to: Minnesota Energy and Economic Development Authority's* Minnesota
Small Business Development Loan Program.
- -------------------
*The Minnesota Agricultural and Economic Development Board is the
statutory successor to the Minnesota Energy and Economic
Development Authority.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - DEFINITIONS
Section 1.1. Definitions 3
ARTICLE II - REPRESENTATIONS AND COVENANTS
Section 2.1. Representations and Covenants of the Board 13
Section 2.2. Representations and Covenants of the Borrower 13
Section 2.3. Additional Representations and Covenants of
the Borrower 14
Section 2.4. Covenant with Bondholders 16
Section 2.5. General Guaranty Fund Right of Reimbursement 16
Section 2.6. Board Right of Reimbursement 16
ARTICLE III - AGREEMENT TO ISSUE SINGLE LOT BONDS AND TO LOAN PROCEEDS
THEREOF; BORROWER'S CONTRIBUTION TO COSTS OF PROJECT
Section 3.1. Issuance of Single Lot Bonds; Deposit of Bond Proceeds 17
Section 3.2. Agreement to Make Loan 17
Section 3.3. Need For Borrower's Contribution to Costs of Project 17
ARTICLE IV - DEVELOPMENT OF THE PROJECT; APPLICATION OF MONEYS
IN CONSTRUCTION ACCOUNT, COST OF ISSUANCE ACCOUNT
AND CAPITALIZED INTEREST ACCOUNT
Section 4.1. Prior Acquisition of Land 19
Section 4.2. Acquisition and Installation of the Project 19
Section 4.3. Application of Moneys in Construction Account 20
Section 4.4. Certificate of Completion 22
Section 4.5. Completion by Borrower 22
Section 4.6. Remedies to be Pursued Against Contractors and
Subcontractors And their Sureties 22
Section 4.7. Application of Moneys in Cost of Issuance Account 23
ARTICLE V - REPAYMENT PROVISIONS; SECURITY CLAUSES
Section 5.1. Repayment of Loan 24
Section 5.2. Other Amounts Payable 25
Section 5.3. Obligations of Borrower Hereunder Unconditional 26
Section 5.4. Security Clauses 27
Section 5.5. Investment of Funds and Accounts; Consent to Elections 27
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<TABLE>
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ARTICLE VI - MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE
Section 6.1. Maintenance of Property by Borrower 28
Section 6.2. Installation of Additional Equipment 28
Section 6.3. Taxes, Assessments and Utility Charges 28
Section 6.4. Insurance Required 29
Section 6.5. Additional Provisions Respecting Insurance 30
Section 6.6. Application of Net Proceeds of Insurance 30
Section 6.7. Right of Board to Pay Taxes, Insurance Premiums and
Other Charges 30
ARTICLE VII - DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1. Damage or Destruction 31
Section 7.2. Condemnation 33
Section 7.3. Condemnation of Borrower-Owned Property Other Than
Security Property 35
ARTICLE VIII - SPECIAL COVENANTS
Section 8.1. Qualification in the State 36
Section 8.2. Hold Harmless Provisions 36
Section 8.3. Maintenance of Existence; Conditions Under Which
Exceptions Permitted 36
Section 8.4. Agreement to Provide Information 37
Section 8.5. Books of Record and Account; Financial Statements 37
Section 8.6. Release of Equipment 38
Section 8.7. Certificate of No Default 39
Section 8.8. Notice of Default 40
Section 8.9. Assignment and Leasing 40
Section 8.10. Right to Inspect the Project and Security Property 41
Section 8.11. Compliance With Orders, Ordinances, etc. 41
Section 8.12. Liens and Encumbrances 41
Section 8.13. Identification of Equipment 42
Section 8.14. Relocation of the Equipment 42
Section 8.15. Security Instruments Covenants 42
Section 8.16. Covenant Against Discrimination 42
Section 8.17. Employment Records 42
Section 8.18. Certain Financial Covenants 43
Section 8.19 Covenant Against Loans, Transfers, etc. 43
Section 8.20 Covenant Against Sale, Gift, Purchase or
Redemption of Stock 44
Section 8.21 Vacant Positions 44
Section 8.22 Prevailing Wages 44
Section 8.23 Covenant Against Loans, Dividends, etc. 44
Section 8.24 Covenant Against Unreasonable Compensation 44
Section 8.25 Job Creation 44
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<TABLE>
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ARTICLE IX - PLEDGE OF CERTAIN INTERESTS
Section 9.1. Pledge of Certain Interests to Bondholders 45
ARTICLE X - EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Default Defined 46
Section 10.2. Remedies on Default 47
Section 10.3. Remedies Cumulative 48
Section 10.4. Agreement to Pay Attorneys' Fees and Expenses 49
Section 10.5. No Additional Waiver Implied by One Waiver 49
ARTICLE XI - EARLY TERMINATION OF AGREEMENT; PREPAYMENT OF LOAN
Section 11.1. Early Termination of Agreement 50
Section 11.2. Conditions to Early Termination of Agreement 50
Section 11.3. Discharge of Lien 51
Section 11.4. Prepayment of Loan in Part 51
Section 11.5. Refunding Consent 51
ARTICLE XII - MISCELLANEOUS
Section 12.1. Notices 53
Section 12.2. Binding Effect 53
Section 12.3. Severability 53
Section 12.4. Amendments, Changes and Modifications 54
Section 12.5. Data Privacy Disclosure 54
Section 12.6. Execution of Counterparts 54
Section 12.7. Applicable Law 54
Section 12.8. Recording and Filing 55
Section 12.9. Survival of Obligations 55
Section 12.10. Table of Contents and Section Headings Not Controlling 55
Section 12.11. Limited Liability 55
Schedule I - Promissory Note I-1
Exhibit A - Legal Description of Land A-1
Exhibit B - Description of Equipment B-1
Exhibit C - Draw Request C-1
Exhibit D - Opinion of Counsel D-1
Exhibit E - Consent to Assignment E-1
</TABLE>
<PAGE>
THIS LOAN AGREEMENT, dated as of November 1, 1997 (the "Agreement"), is by
and between the Minnesota Agricultural and Economic Development Board (as
statutory successor to the Minnesota Energy and Economic Development Authority),
constituted as an authority to act on behalf of the State of Minnesota and
created and existing by virtue of the laws of the State (together with any legal
successor thereto, herein referred to as the "Board"), and Excelsior-Henderson
Motorcycle Manufacturing Company, a Minnesota corporation, which is engaged in
the business of owning and operating a motorcycle manufacturing facility in the
State of Minnesota (as defined herein in more detail, the "Borrower").
W I T N E S S E T H :
WHEREAS, the Board (as the legal successor of the Minnesota Small Business
Finance Agency) was created by the Laws of 1980, Chapter 547, as amended and
supplemented and MINNESOTA STATUTES, 1986 Chapter 116M and presently set forth
in MINNESOTA STATUTES, Chapter 41A (the "Act"), to act on behalf of the State of
Minnesota (the "State") within the scope of powers granted to it in the Act to
implement loan programs and to provide financial assistance under the economic
development fund created under MINNESOTA STATUTES 1986, Section 116M.06 of the
Act (the "Economic Development Fund") by which the Board, alone or in
cooperation with cities, towns, counties and private or public lenders, may
provide adequate funds or incentives to financing such as guarantees or
insurance with respect thereto on sufficiently favorable terms to assist and
encourage the establishment, maintenance and growth of businesses and eligible
small businesses and employment opportunities in the State and to reduce to a
manageable level the cost of the control of pollution and disposal of waste
resulting from the operation of businesses and eligible small businesses; and
WHEREAS, to provide financial assistance to businesses and eligible small
businesses to encourage their establishment, maintenance and growth and to
reduce the cost of the control of pollution and disposal of waste resulting from
the operation of businesses and eligible small businesses, the Board has
established its Minnesota Small Business Development Loan Program (the
"Program"); and
WHEREAS, in accordance with the Program, the Board on September 26, 1984
adopted its Minnesota Small Business Development Loan Program Revenue Bonds
General Bond Resolution, as supplemented and amended (the "General Bond
Resolution"), pursuant to which General Bond Resolution (and lot resolutions to
be adopted from time to time by the Board as supplemented resolutions thereto),
the Board intends to issue revenue bonds (the "Bonds"), and to loan the proceeds
thereof to "businesses" or "eligible small businesses" within the meaning of the
Act to finance capital facilities, as described within MINNESOTA STATUTES 1986,
Section 116M.03, Subd. 11 or Subd. 19 of the Act and "pollution control
facilities" as described within MINNESOTA STATUTES 1986, Section 116M.03, Subd.
14 of the Act, for use by them in connection with their business operations
(such "businesses" and "eligible small businesses" collectively referred to
herein as "Businesses"); and
WHEREAS, such Bonds, as provided in the General Bond Resolution, shall be
special
<PAGE>
obligations of the Board, the principal or redemption price, if any, of
and interest on which are payable solely from and secured solely by the
revenues, funds and other property or assets of the Board described in the
General Bond Resolution (and the lot resolutions) and pledged therefor; and
WHEREAS, it is the further purpose of the Board with respect to its Program
to provide additional financial assistance to the Businesses participating
therein by creating an account within the Economic Development Fund to be known
as the "General Guaranty Fund", transferring certain moneys from the Economic
Development Fund and from other sources to the General Guaranty Fund and
pledging and allocating the moneys on deposit in the General Guaranty Fund to
guarantee the payment of debt service payments and certain mandatory prepayments
payable on or with respect to the Bonds; and
WHEREAS, pursuant to a resolution adopted by the Board on September 26,
1984 (the "General Guaranty Fund Resolution"), the Board created and established
the General Guaranty Fund as an account within and of the Economic Development
Fund and pursuant to a General Guaranty Fund Pledge and Escrow Agreement, dated
as of September 26, 1984 (the "General Guaranty Fund Pledge and Escrow
Agreement") by and between the Board and First National Bank of Minneapolis, as
escrow holder (together with U.S. Bank National Association and its successors,
the "Escrow Holder") the Board provided for the holding, investment,
application, disposition of and use of moneys in the General Guaranty Fund and
various other matters related thereto with respect to the governance of the
General Guaranty Fund; and
WHEREAS, the Borrower (referred to herein, together with its permitted
successors and assigns, as the "Borrower") has applied to the Board for
assistance under the Program in connection with the financing of a project to
consist of the acquisition of equipment for a new motorcycle manufacturing
facility (the "Project") to be used primarily for the production of motorcycles
in the City of Belle Plaine, Scott County, Minnesota; and
WHEREAS, by resolution adopted by the Board on October 23, 1996 the Board
has found that the Borrower is an "eligible small business" under the Act and
that the Project qualifies for financial assistance under the Act and has
determined to provide such financial assistance by the inclusion of the Project
in the Program; and
WHEREAS, to implement this determination the Board proposes (i) to issue a
lot of bonds within a series issued under the General Bond Resolution and its
Single Lot Resolution and (ii) to loan the proceeds of the sale of the said
Bonds to the Borrower to finance a portion of the cost of the Project, upon the
terms and conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto hereby formally covenant,
agree and bind themselves as follows, and, as to the Borrower,
Excelsior-Henderson Motorcycle Manufacturing Company, agrees and binds itself,
to-wit:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. Capitalized terms used herein but not defined
herein shall have the meaning given thereto in the General Bond Resolution
unless the context or use indicates another or different meaning or intent. The
following words and terms as used in this Agreement shall have the following
meanings unless the context or use indicates another or different meaning or
intent:
"ACCOUNTANT" means a firm of independent public accountants of recognized
standing, selected by the Borrower.
"ACT" means the act of the legislature of the State enacted as Chapter 547
of the Laws of Minnesota for 1980, as amended and supplemented from time to
time, known as the "Minnesota Energy and Economic Development Authority Act" and
set forth MINNESOTA STATUTES 1986, Chapter 116M (notwithstanding the repeal
thereof and MINNESOTA STATUTES, Chapter 41A).
"AGREEMENT" means this Loan Agreement, dated as of November 1, 1997, by and
between the Board and the Borrower, as the same may be amended from time to
time.
"APPRAISED VALUE" means the value established by an independent appraiser
acceptable to the Board.
"AUTHORIZED REPRESENTATIVE" means, in the case of the Board, the Chair, the
Administrator or the Executive Director of the Board; in the case of the
Borrower, an officer; and, in the case of both, such additional persons as, at
the time, are designated to act in behalf of the Board or Borrower, as the case
may be, by written certificate furnished to the Trustee and the Board or
Borrower, as the case may be, containing the specimen signature of each such
person and signed on behalf of (i) the Board by the Chair, the Administrator or
the Executive Director of the Board, and (ii) an officer of the Borrower.
"BOARD" means the Minnesota Agricultural and Economic Development Board,
constituted as an authority to act on behalf of the State within the scope of
the powers granted to it in the Act and created by the Act, or any successor
thereto, and constituting the legal successor of the Minnesota Energy and
Economic Development Authority and the Minnesota Small Business Finance Agency.
"BOARD RESOLUTION" means the General Bond Resolution and the Single Lot
Resolution.
"BONDS" means any of the Board's Minnesota Small Business Development Loan
Program Bonds issued from time to time under the General Bond Resolution and
then outstanding.
<PAGE>
"BOND COUNSEL" means Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota,
or any attorney or firm of attorneys of recognized standing in the field of
municipal law, duly admitted to the practice of law before the highest court of
any state of the United States of America, appointed from time to time by the
Attorney General of the State with respect to the Program.
"BOND PAYMENT DATE" means each date on which interest or both a Principal
Installment and interest shall be payable on the Single Lot Bonds in accordance
with its terms.
"BOND PROCEEDS" means the amount, including accrued interest, if any,
received by the Board as the purchase price of the Single Lot Bonds, and
deposited by the Trustee in accordance with the provisions of the Board
Resolution into certain funds and accounts created thereunder.
"BOND RATE" means, as of any date of calculation and with respect to any
period, the highest rate of interest payable on any of the Single Lot Bonds
determined as of such date with respect to such period (including any
fluctuations of rate, if any).
"BOND YEAR" means, for the Single Lot Bonds, the 12-month period beginning
on August 1 of any year and ending on July 31 of the succeeding year; provided,
however, that the initial Bond Year shall begin on the date in which such Bonds
are delivered and end on the next succeeding July 31.
"BONDHOLDER" or "HOLDER" or "HOLDERS OF BONDS" or similar term, when used
with respect to a Bond or Bonds, means any person who shall be the registered
owner of any outstanding Bond registered as to both principal and interest in
accordance with the provisions of the General Bond Resolution.
"BORROWER" means (i) Excelsior-Henderson Motorcycle Manufacturing Company,
a Minnesota corporation which is engaged in the business of owning and operating
a motorcycle manufacturing company in the State of Minnesota, and its successors
and assigns and (ii) any surviving, resulting or transferee as provided in
Section 8.3 hereof.
"BUILDINGS" means all those buildings, improvements, structures or
renovations to existing buildings, improvements or structures and other related
facilities (i) affixed or attached, or to be affixed or attached, to the Land,
(ii) financed with the proceeds of the Single Lot Bonds or of any payment by any
of the Borrower pursuant to Section 3.3 or Section 4.5 hereof, and (iii) not
part of the Equipment, all as they may exist from time to time.
"BUSINESS LOAN RESERVE ACCOUNT" means the Account so designated which is
created and established by Section 4.1 of the Single Lot Resolution pursuant to
the General Bond Resolution.
"BUSINESS LOAN RESERVE ACCOUNT REQUIREMENT" means, as of any date of
calculation, with respect to the Single Lot Bonds that sum which is equal to the
maximum aggregate
<PAGE>
payments of principal and interest for any Bond Year over the period from the
date of calculation to (and including) the final maturity date of such Single
Lot Bonds.
"CAPITALIZED INTEREST ACCOUNT" means the Account so designated which is
created and established by Section 4.1 of the Single Lot Resolution, pursuant to
the General Bond Resolution.
"CAPITALIZED LEASE OBLIGATIONS" means all lease obligations which have been
or should be, in accordance with generally accepted accounting principles,
capitalized on the books of the Borrower.
"CLOSING DATE" means the date of sale and delivery of the Single Lot Bonds.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations, proposed, temporary or final, of the Department of
the Treasury promulgated under the Code from time to time.
"COMPLETION DATE" means the date of completion of the acquisition and
installation of the Project, as certified to pursuant to Section 4.4 of this
Agreement.
"CONDEMNATION" means the taking of title to, or the use of, Property under
the exercise of the power of eminent domain by any governmental entity or other
Person acting under governmental authority.
"CONTINUING DISCLOSURE AGREEMENT" means the Continuing Disclosure Agreement
between the Board and the Trustee relating to the Single Lot Bonds.
"Contractor" means any firm with whom the Borrower enters into an Equipment
supply contract with respect to the Project.
"CONSTRUCTION ACCOUNT" means the Account so designated which is created and
established by Section 4.1 of the Single Lot Resolution, pursuant to the General
Bond Resolution.
"CONSTRUCTION PERIOD" means, with respect to the Project, the period (a)
beginning on the earlier of (i) the date of commencement of acquisition or
construction of such Project, or (ii) the Closing Date with respect to the
Single Lot Bonds, and (b) ending on the Completion Date with respect to such
Project.
"COST OF ISSUANCE" means all items of expense payable or reimbursable
directly or indirectly by the Board and related to the authorization, sale and
issuance of Bonds, which items of expense shall include but not be limited to
printing costs, costs of reproducing documents, filing and recording fees,
initial fees and charges of any fiduciary appointed under the General Bond
Resolution, initial letter of credit fees, surety obligation fees or other
similar fees, municipal bond insurance premiums or the cost of providing any
other credit
<PAGE>
enhancement, legal fees and charges, professional consultants' fees, costs of
credit ratings, fees and charges for execution, transportation and
safekeeping of Bonds, underwriter discount or placement fees, costs and
expenses of refunding and other costs, charges and fees in connection with
the original issuance of Bonds.
"COST OF THE PROJECT" means all those items of cost and expenses as set
forth below:
(i) Costs of Equipment;
(ii) Reimbursement to the Borrower for any of the above enumerated
costs and expenses paid by it, whether paid from funds of the Borrower or
from the proceeds of interim construction borrowings.
"CURRENT RATIO" means, as of any date, the ratio of current assets to
current liabilities, all determined in accordance with generally accepted
accounting principles.
"DEBT SERVICE PAYMENT" means, with respect to any Bond Payment Date, (i)
the interest payable on the Single Lot Bonds on such Bond Payment Date, plus
(ii) the principal, if any, payable on the Single Lot Bonds on such Bond Payment
Date, plus (iii) the premium, if any, payable on the Single Lot Bonds on such
Bond Payment Date.
"DISBURSING AGENT" means Procurement Consulting Services, Inc.
"DISBURSING AGREEMENT" means the Disbursing Agreement dated as of November
1, 1997 between the Borrower, the Trustee and the Disbursing Agent.
"EQUIPMENT" means all machinery, equipment and other personal property
described in Exhibits B-1 through B-3 attached to this Agreement, which (a) is
used in connection with the Project on the Land, (b) is (or will be) acquired
with the proceeds of the Single Lot Bonds or of any payment by the Borrower
pursuant to Section 3.3 or Section 4.3 hereof, together with such replacements
and substitutions therefor, pursuant to Section 8.6 hereof, as may exist from
time to time in accordance with the provisions of this Agreement but excluding
additions pursuant to Section 6.2 hereof, and (c) is functionally complete and
operationally independent; provided, however, Equipment shall not include
fixtures affixed or attached to the Buildings unless approved in writing by the
Executive Director, except for items on Exhibit B-1.
"ESCROW HOLDER" means U.S. Bank National Association (formerly First Bank
National Association and First National Bank of Minneapolis) appointed as the
escrow holder under the General Guaranty Fund Pledge and Escrow Agreement, and
its successor and successors, and any other corporation or association which may
at any time be substituted in its place as Escrow Agent pursuant to the General
Guaranty Fund Pledge and Escrow Agreement.
"FUNDED INDEBTEDNESS" means, for any Person, all Indebtedness which matures
by its terms more than one year from the Closing Date or matures within one year
from such date but is unconditionally renewable or extendible, at the option of
the debtor, by its terms or by
<PAGE>
the terms of any instrument or agreement relating thereto, to a date more
than one year from such date or arises under a revolving credit or similar
agreement which obligates the lender or lenders to extend credit over a
period of more than one year from such date or, if created after the Closing
Date, matures by its terms more than one year from the date of creation.
"GENERAL BOND RESOLUTION" means the Minnesota Small Business Development
Loan Program Revenue Bonds, General Bond Resolution adopted by the Board on
September 26, 1984, as the same may be amended or supplemented from time to time
by any supplemental resolution thereunder.
"GENERAL GUARANTY FUND" means that account of the Economic Development Fund
that has been created by the Board in accordance with the Act pursuant to the
General Guaranty Fund Resolution of the Board and is governed by the provisions
of the General Guaranty Fund Pledge and Escrow Agreement.
"GENERAL GUARANTY FUND PAYMENTS" means any payments made by the Escrow
Holder to the Trustee for deposit in accordance with the provisions of the
General Bond Resolution to discharge the guaranty obligation of the General
Guaranty Fund with respect to the debt service payments on or the prepayment of
the Bonds that correspond to unpaid payments of principal and interest then due
on the loans to businesses or exempt small businesses financed by such Bonds,
whether due upon scheduled payment dates or upon acceleration prior to the
occurrence of such scheduled payment dates.
"GENERAL GUARANTY FUND PLEDGE AND ESCROW AGREEMENT" means that escrow
agreement dated as of September 26, 1984, by and between the Board and the
Escrow Holder, pursuant to which the Board has provided for the holding,
investment and application, disposition and use of the moneys transferred by the
Board into the General Guaranty Fund from the Economic Development Fund and from
other sources, and pursuant to which the Board has provided for such other
matters as may be provided for with respect to the General Guaranty Fund and the
moneys transferred thereto, all in accordance with the Act.
"GENERAL GUARANTY FUND REIMBURSEMENT AMOUNT" means, as of any date of
calculation, with respect to any Lot of Bonds, an amount equal to the aggregate
of all of the General Guaranty Fund Payments paid from the General Guaranty Fund
to discharge the guarantee obligation of the General Guaranty Fund with respect
to said Bonds less those sums that have been applied, or are then available
under the provisions of the General Bond Resolution to be applied, to reimburse
the General Guaranty Fund for the aggregate of all such General Guaranty Fund
Payments, plus, with respect to such unpaid General Guaranty Fund Payments, such
additional amounts equal to the sum of interest accruing on the amount of such
unpaid General Guaranty Fund Payments at the interest rate borne by said Bonds
for any period during which such General Guaranty Fund Payments are unpaid.
"GENERAL GUARANTY FUND RESOLUTION" means that certain Resolution No. 84-205
of the Board adopted by the Board on September 26, 1984, pursuant to which the
Board created the General Guaranty Fund as an account of the Economic
Development Fund.
<PAGE>
"HOLDING ACCOUNT" means the Account so designated which is created and
established by Section 4.1 of the Single Lot Resolution, pursuant to the General
Bond Resolution.
"INDEBTEDNESS" means, for any Person, (i) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase price
of property or services (but not including current accounts payable) (ii) all
indebtedness or other obligations of any other person for borrowed money or for
the deferred purchase price of property or services the payment or collection of
which such Person has guaranteed (except by reason of endorsement for collection
in the ordinary course of business) or in respect of which such Person is
liable, contingently or otherwise, including, without limitation, liable by way
of agreement to purchase, to provide funds for payment, to supply funds to or
otherwise to invest in such other persons, or otherwise to assure a creditor
against loss, (iii) all indebtedness or other obligations of any other person
for borrowed money or for the deferred purchase price of property or services
secured by (or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person, whether or not such Person has assumed or become liable for the payment
of such indebtedness or obligations and (iv) Capitalized Lease Obligations of
such Person.
"INDEMNIFIED PARTIES" means the Board and its members, officers, employees
and agents, the Department of Trade and Economic Development and its
Commissioner, employees and agents, the Trustee and the Disbursing Agent and
their respective employers and agents.
"INDEPENDENT COUNSEL" means an attorney or attorneys or firm or firms of
attorneys duly admitted to practice law before the highest court of any state of
the United States of America or in the District of Columbia and not an employee
of the Board, the Borrower or the Trustee.
"LAND" means the land described on Exhibit A to the Security Agreement.
"LIEN" means any interest in Property securing an obligation owed to a
Person, whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a Uniform Commercial
Code security interest, lease, consignment or bailment for security purposes.
The term "Lien" includes reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases and other similar
title exceptions and encumbrances, including but not limited to mechanics',
materialmen's, warehousemen's, carriers' and other similar encumbrances,
affecting real property. For the purposes of this Agreement, a Person shall be
deemed to be the owner of any Property which it has acquired or holds subject to
a conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
<PAGE>
"LOAN" means the loan made by the Board to the Borrower pursuant to Section
3.2 of this Agreement and as evidenced by the Note.
"LOAN TERM" means the period commencing with the Closing Date and
continuing until all the Single Lot Bonds and interest thereon have been paid in
full or provision for such payment has been made pursuant to Article XI of the
General Bond Resolution.
"LOT LOAN FIDUCIARY PAYMENTS" means, for any Bond Year (or any ratable
portion thereof), the reasonable fees and expenses of the Trustee (and
Depositaries and Paying Agents, as defined in the General Bond Resolution) for
the Bond Year in connection with duties performed by them with respect to the
Single Lot Resolution, this Agreement, the Security Agreement, the Project and
the Borrower and under the General Bond Resolution and the General Guaranty Fund
Pledge and Escrow Agreement with respect to the foregoing.
"NET PROCEEDS" means so much of the gross proceeds with respect to which
such term is used as remain after payment of all expenses, costs and taxes
(including attorneys' fees) incurred in obtaining such gross proceeds.
"NET WORTH" means, at any date, the Tangible Assets of a Person which would
be shown, in accordance with generally accepted accounting principles, on its
balance sheet, minus liabilities (other than capital stock and surplus or its
equivalent but including all reserves for contingencies and other potential
liabilities) which would be shown, in accordance with generally accepted
accounting principles, on such balance sheet.
"NOTE" means the promissory note of the Borrower dated as of the date of
the Single Lot Bonds, evidencing the Borrower's obligations pursuant to this
Agreement, substantially in the form of Appendix I hereto.
"OFFICIAL ACTION RESOLUTION" means that resolution adopted by the Board on
October 23, 1996, with respect to the Borrower and entitled "RESOLUTION GIVING
PRELIMINARY APPROVAL TO A PROJECT WITH EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY, A MINNESOTA CORPORATION AND GIVING PRELIMINARY APPROVAL,
WITH CONDITIONS, FOR THE ISSUANCE OF SMALL BUSINESS DEVELOPMENT LOAN PROGRAM
REVENUE BONDS TO FINANCE THE PROJECT AND PROVIDING FOR OTHER MATTERS RELATED
THERETO."
"OPTIONAL REDEMPTION ACCOUNT" means the Account so designated which is
created and established by Section 4.1 of the Single Lot Resolution, pursuant to
the General Bond Resolution.
"PAINT FINISHING SYSTEM" means that portion of the Equipment described in
Exhibit B-1 attached hereto.
"PERMITTED ENCUMBRANCES" means (i) this Agreement, the Board Resolution and
any security interest created thereunder and (ii) the Primary Lease.
<PAGE>
"PERSON" means an individual, partnership, corporation, trust or
unincorporated organization or a government or any agency, instrumentality,
program, account, fund, political subdivision or corporation thereof.
"PLACEMENT AGENTS" means Dougherty Summit Securities LLC and Piper Jaffray
Inc.
"PLEDGE" means the pledge by the Board of the rights and interests of the
Board in and to this Agreement, the Note, including all rights to receive
payment thereunder, such pledge by the Board being made pursuant to Section 1.04
of the General Bond Resolution and Section 6.1 of the Single Lot Resolution to
the Trustee on behalf of Bondholders for the payment of the principal or
redemption price of and interest on the Bonds in accordance with their terms.
"PRINCIPAL INSTALLMENT" means an installment of principal payable on the
Single Lot Bonds, whether as the maturity date of serial or term bond or as
sinking fund installments payable with respect to such Bonds.
"PROGRAM" means the Board's program of acquiring business loans under the
General Bond Resolution with the proceeds of Bonds, the repayment of debt
service payments and certain mandatory redemptions which are guaranteed by the
General Guaranty Fund in accordance with the provisions of the General Guaranty
Fund Pledge and Escrow Agreement, which program has been designated by the Board
as the "Minnesota Small Business Development Loan Program".
"PROGRAM EXPENSE FUND" means the Fund so designated, which is created and
established by Section 5.01 of the General Bond Resolution.
"PROJECT" means the Equipment to be used in connection with the Borrower's
manufacturing facility, and to be acquired, constructed and installed by the
Borrower with the Bond Proceeds or any payment by the Borrower pursuant to
either Sections 3.3 or 4.3 hereof, with such additions thereto and substitutions
therefor as may exist from time to time in accordance with the provisions of
this Agreement.
"PROJECT MUNICIPALITY" means the City of Belle Plaine, Scott County,
Minnesota within the corporate borders of which the Project is, or is to be,
located.
"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"RECONSTRUCTION ACCOUNT" means the Account so designated which is created
and established by Section 4.1 of the Single Lot Resolution, pursuant to the
General Bond Resolution.
"REDEMPTION PRICE" means, when used with respect to the Single Lot Bonds,
the principal amount thereof plus the applicable premium, if any, payable upon
the prior
<PAGE>
redemption thereof pursuant to the Single Lot Resolution.
"REIMBURSEMENT ACCOUNT" means the Account so designated which is created
and established by Section 4.1 of the Single Lot Resolution, pursuant to the
General Bond Resolution.
"RESTORATION" means the repair, replacement, restoration or rebuilding of
the Property or any part thereof following any taking, damage to ro destruction
of the same, as nearly as possible to its respective size, floor area, type and
character immediately prior to such taking, damage or destruction, within, in
the case of any restoration by the Borrower, such alterations as may be made at
the Borrower's election, together with any temporary repairs and property
protection pending completion of the work.
"REVENUE ACCOUNT" means the Account so designated which is created and
established by Section 4.1 of the Single Lot Resolution, pursuant to the General
Bond Resolution.
"SECURITY AGREEMENT" means the Security Agreement dated as of November 1,
1997 between the Borrower and the Board.
"SECURITY INSTRUMENTS" means (i) the Security Agreement and (ii) the
Disbursing Agreement.
"SECURITY PROPERTY" means all Property subject to the Security Instruments
and as described in Section 5.4 of this Agreement.
"SERIES 1997B BONDS" means the Bonds of the series designated by the Board
as the "SERIES 1997B BONDS" in the Single Lot Resolution of the Board and
consisting of the Single Lot Bonds plus the additional lots being issued
pursuant to separate lot resolutions.
"SINGLE LOT BONDS" means the Board's Minnesota Small Business Development
Loan Program Revenue Bonds, Series 1997B Taxable, Lot 1 in the aggregate
principal amount of $7,145,000 authorized to be issued by the Board Resolution.
"SINGLE LOT RESOLUTION" means the Single Lot Bonds resolution of the Board
authorizing the issuance of the Single Lot Bonds adopted by the Board on
November 18, 1997 pursuant to the General Bond Resolution.
"SPECIAL REDEMPTION ACCOUNT" means the Account so designated which is
created and established by Section 4.1 of the Single Lot Resolution, pursuant to
the General Bond Resolution.
"STATE" means the State of Minnesota.
"SUBORDINATED INDEBTEDNESS" means, with respect to any Person, all
Indebtedness which by its terms states that payment of principal and interest
thereof is subordinate to the
<PAGE>
payment of principal and interest of the Loan. A payment of principal or
interest on Subordinated Indebtedness is subordinate to payment of principal
and interest on the Loan if by its terms such payment shall not be made or
received by or on behalf of the holder of the Subordinated Indebtedness if
and for so long as (a) the Borrower is delinquent in the payment of
principal, premium, if any, or interest on the Loan as and when any such
payment on the Loan is due, whether by reason of regularly scheduled
payments, maturity, mandatory, special or extraordinary redemption or
acceleration, (b) an event of default has occurred and is continuing under
this Agreement.
"TANGIBLE ASSETS" means total assets except: (i) that portion of deferred
assets and prepaid expenses (other than prepaid insurance, prepaid rent and
prepaid taxes) which do not mature or, in accordance with generally accepted
accounting principles, are not amortizable within one year from the date of
calculation, and (ii) trademarks, trade names, good will, and other similar
intangibles.
"TRUSTEE" means U. S. Bank National Association (formerly known as First
Bank National Association and First National Bank of Minneapolis), appointed by
the Board as Trustee under the Board Resolution, and its successor or successors
and any other corporation or association at any time substituted in its place as
trustee pursuant to the General Bond Resolution.
<PAGE>
ARTICLE II
REPRESENTATIONS AND COVENANTS
Section 2.1. REPRESENTATIONS AND COVENANTS OF THE BOARD. The Board makes
the following representations and covenants as the basis for the undertakings on
its part herein contained:
(a) The Board is duly established and existing and is constituted as an
authority to act on behalf of the State and created and existing by virtue of
the laws of the State and has the power to enter into the transactions
contemplated by this Agreement and the Security Instruments, and to adopt the
Board Resolution, and to carry out its obligations hereunder and thereunder.
The Project is of a nature that qualifies under the Act for the financial
assistance provided by the Program. By proper official action the Board has
been duly authorized to execute and deliver or accept this Agreement and the
Security Instruments, and has duly adopted the Board Resolution.
(b) Neither the execution and delivery or acceptance of this Agreement and
the Security Instruments, or the adoption of the Board Resolution, the
consummation of the transactions contemplated hereby or thereby nor the
fulfillment of or compliance with the provisions of this Agreement, the Security
Instruments and the Board Resolution will conflict with or result in a breach of
any of the terms, conditions or provisions of the Act, or any restriction,
agreement or instrument to which the Board is a party or by which it is bound,
or will constitute a default under any of the foregoing, or will result in the
creation or imposition of any Lien upon any of the Property of the Board under
the terms of any such instrument or agreement (other than as contemplated by
this Agreement, the Security Instruments and the Board Resolution).
(c) The Board will lend to the Borrower the sum of $7,145,000 pursuant to
this Agreement to finance (i) a portion of the cost of the acquisition and
installation of the Project, (ii) a deposit into the Business Loan Reserve
Account required under the provisions of the General Bond Resolution and (iii)
certain Costs of Issuance with respect to the issuance of the Single Lot Bonds.
(d) To finance a portion of the Cost of the Project and the other costs
described in Section 2.1(c), the Board will issue its Single Lot Bonds which
will mature, bear interest, be redeemable and have the other terms and
conditions as set forth in the Board Resolution.
Section 2.2. REPRESENTATIONS AND COVENANTS OF THE BORROWER. The Borrower
makes the following representations and covenants as the basis for the
undertakings of the Borrower as herein contained:
(a) The Borrower, which is a Minnesota corporation duly created and
validly existing under the laws of the State, is not in violation of any
provision of its articles of incorporation, as amended, has the power to enter
into this Agreement, the Note and the
<PAGE>
Security Instruments and to
<PAGE>
borrow money pursuant hereto and who has duly executed and delivered this
Agreement and the Note. The Borrower constitutes an "eligible small business"
and a "business" as defined in the Act and is eligible for "special assistance"
as defined in the Act.
(b) Neither the execution and delivery of this Agreement, the Note and the
Security Instruments, the consummation of the transactions contemplated hereby
nor the fulfillment of or compliance with the provisions of this Agreement, the
Note and the Security Instruments will conflict with or result in a material
breach of any of the terms, conditions or provisions of any restriction or any
agreement or instrument to which the Borrower is a party or by which it is
bound, or will constitute an event of default under any of the foregoing, or
result in the creation or imposition of any Lien of any nature upon any of the
Property of the Borrower under the terms of any such instrument or agreement,
which conflict, breach, default or Lien would have a material adverse effect on
the Loan, Note, any Properties of the Borrower or its financial condition. No
event has occurred and no condition exists which, upon the passage of time or
the giving of notice, would constitute such an event of default under any such
agreement or instrument.
(c) There has been no material adverse change in the financial condition
of the Borrower since the last annual and interim financial statements and
reports furnished by the Borrower to the Board in the Borrower's application
dated September 26, 1996 and the information contained in said statements fairly
presents the financial condition of the Borrower as of the dates of such
financial statements and reports.
(d) The Borrower has all requisite power and authority and all necessary
authorizations, licenses and permits, without unusual restrictions or
limitations, to own and operate its Properties and to carry on its business as
now conducted, and are duly authorized to do business in each jurisdiction where
the character of its Properties or the nature of its activities makes such
qualification necessary or in which the failure to qualify will not have a
material adverse affect on the Properties, business, prospects, profits or
condition (financial or otherwise) of the Borrower or the ability of the
Borrower to perform their obligations under this Agreement.
(e) The Borrower has no contingent liabilities other than those disclosed
in the financial statements described in Section 2.2(c) hereof.
(f) No material event of default has occurred and is continuing in any
agreement as to any outstanding indebtedness of the Borrower for money borrowed
and no condition, event or act exists which, with notice or lapse of time, or
both, would constitute such an event of default under any such agreement.
(g) The Borrower is a publicly held corporation.
Section 2.3. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE BORROWER.
The Borrower makes the following representations and covenants as the basis for
the undertakings of the Borrower herein contained:
<PAGE>
(a) So long as any of the Single Lot Bonds shall be outstanding, the
Borrower will not take any action, or fail to take any action, or cause, suffer
or permit others (other than the Board or Trustee) to take or fail to take
action, which would cause the Project not to qualify under the Act for the
financial assistance provided by the Program (as such Act is in effect on the
Closing Date).
(b) To the extent financed with Bond Proceeds, the Project consists, and
will at all times consist, entirely of property owned for federal income tax
purposes by the Borrower and which is of a character subject to the allowance
for depreciation by the Borrower as provided in Section 167 of the Code.
(c) The findings and determinations made by the Board in the Official
Action Resolution concerning the Borrower and the Project are true and correct.
In particular, the financing of the acquisition of the Project will not have the
effect of a transfer of jobs from one area of the State to another.
(d) The availability of the financial assistance by the Board as provided
in this Agreement, in the Board Resolution and the General Guaranty Fund Pledge
and Escrow Agreement and by the Program has been a substantial inducement to the
Borrower to undertake the Project and to locate the Project in the State.
(e) No officer or official of the Board or the State Departments of
Finance or Trade and Economic Development has any interest (financial,
employment or other) in the Borrower or, to the knowledge of the Borrower, the
transactions contemplated by this Agreement except, if any, holdings of publicly
traded stock of the Borrower.
(f) No expense for supervision by the Borrower or any director, officer or
employee of the Borrower and no expense for work done by any such director,
officer or employee in connection with the Project is or will be included in the
Cost of the Project.
(g) The Borrower has not entered into any lease or assignment with respect
to any portion of the Project and no Person other than the Borrower has any
right to the use or possession thereof.
(h) The Project as designed will comply with all presently applicable
environmental, building, zoning and subdivision laws, ordinances, rules and
regulations.
(i) The Borrower reasonably estimates that the aggregate Cost of the
Project will be at least $10,963,750 which sum includes (i) interest on the
Single Lot Bonds to be paid out of Bond Proceeds during the Construction Period
of the Project in the approximate amount of $ -0-, (ii) amounts derived from
Bonds and required to be deposited into the Business Loan Reserve Account
($1,140,325) and (iii) amounts required to pay Costs of Issuance with respect to
the issuance of the Single Lot Bonds (presently estimated as $320,425).
(j) There is no action or proceeding pending or, to the knowledge of the
Borrower
<PAGE>
threatened, against the Borrower, before any court, administrative agency or
arbitration board that may materially and adversely affect the Properties,
business, prospects, profits or condition (financial or otherwise) of the
Borrower or the ability of the Borrower to perform their respective joint and
several obligations under this Agreement or which, if determined adversely to
the Borrower, would result in a determination that the Borrower violated
environmental laws, rules or administrative orders.
Section 2.4. COVENANT WITH BONDHOLDERS. The Board and the Borrower agree
that this Agreement is executed in part to induce the purchase by others of the
Single Lot Bonds. Accordingly, subject to the provisions of Section 2.5 and
Section 2.6 of this Agreement, all covenants and agreements on the part of the
Board and the Borrower set forth in this Agreement are hereby declared to be for
the benefit of the holders from time to time of such Single Lot Bonds.
Section 2.5. GENERAL GUARANTY FUND RIGHT OF REIMBURSEMENT. In the
event of the acceleration of the Loan hereunder, if any General Guaranty Fund
Payments are made from the General Guaranty Fund with respect to the Single
Lot Bonds, there shall arise hereunder a right of reimbursement against the
Borrower and accruing to the General Guaranty Fund equal to the sum of the
unsatisfied General Guaranty Fund Reimbursement Amount with respect to the
Single Lot Bonds. Such right of reimbursement in favor of the General
Guaranty Fund shall require payment of such sum by the Borrower to the Board
immediately upon the creation of such right and shall be secured as provided
in Section 5.4 of this Agreement and enforced and reduced as provided in
Section 10.2 of this Agreement and, in each case, as may be provided in the
General Bond Resolution; provided, however, that such right of reimbursement
shall be subordinate to the rights of the Bondholders described in Section
2.4 of this Agreement and as further provided in the General Bond Resolution.
Section 2.6. BOARD RIGHT OF REIMBURSEMENT. In the event of the
acceleration of the Loan hereunder, if the Board elects to redeem the Single Lot
Bonds in whole or in part from any moneys available to the Board for such
purpose from any source other than the General Guaranty Fund (and other than
those sources pledged to pay Bonds pursuant to Section 1.04 of the General Bond
Resolution), there shall arise hereunder a right of reimbursement against the
Borrower and accruing to the Board equal to the amount so paid by the Board with
respect to the Single Lot Bonds. Such right of reimbursement in favor of the
Board requires payment of such sum by the Borrower to the Board immediately upon
the creation of such right and shall be secured as provided in Section 5.4 of
this Agreement and enforced and reduced as provided in Section 10.2 of this
Agreement and, in each case, as provided in the General Bond Resolution;
provided, however, that such right of reimbursement shall be subordinate to the
rights of Bondholders described in Section 2.4 of this Agreement and as further
provided in the General Bond Resolution.
<PAGE>
ARTICLE III
AGREEMENT TO ISSUE SINGLE LOT BONDS AND TO LOAN
PROCEEDS THEREOF; BORROWER'S CONTRIBUTION TO COSTS OF PROJECT
Section 3.1. ISSUANCE OF SINGLE LOT BONDS; DEPOSIT OF BOND PROCEEDS. In
order to provide funds for (i) payment of the Cost of the Project, together with
other payments and incidental expenses in connection therewith, (ii) a deposit
into the Business Loan Reserve Account required under the provisions of the
General Bond Resolution, (iii) certain Costs of Issuance with respect to the
issuance of the Single Lot Bonds and (iv) capitalized interest with respect to
the Single Lot Bonds, the Board agrees that it will issue and sell the Single
Lot Bonds and cause the Bond Proceeds to be delivered to the Trustee.
Section 3.2. AGREEMENT TO MAKE LOAN. The Board agrees that, upon (i) the
sale and delivery of the Single Lot Bonds and (ii) satisfaction of the terms and
conditions set forth in this Section, it will and does hereby lend the Borrower
the sum of $7,145,000 in accordance with the provisions of this Agreement, such
loan to be evidenced by the Note. The obligation of the Board to make said loan
shall be discharged and the obligation of the Borrower hereunder and in the Note
shall arise and become effective, when the following sums, totaling $7,145,000
($7,145,000 less $-0- discount) are deposited in the following funds and
accounts established under the Board Resolution in accordance with the
provisions of the Board Resolution, or are otherwise directly applied for
certain purposes, in any case, in the following amounts:
(a) To the Business Loan Reserve Account, $1,140,325;
(b) To the Cost of Issuance Account, $1,675; and
(c) To the Construction Account, $6,003,000 being the cash balance of
the Bond Proceeds (other than amounts representing accrued interest on the
Single Lot Bonds), to pay the Cost of the Project.
Section 3.3. NEED FOR BORROWER'S CONTRIBUTION TO COSTS OF PROJECT.
(a) The Borrower hereby represents that the amount of the Loan deposited
into the Construction Account ($6,003,000) to pay for the Cost of the Project is
less than the total Cost of the Project (other than interest payable on the
Single Lot Bonds during the Construction Period of the Project) by an amount
equal to approximately $3,500,000 $ 1,675of Bond Proceeds will be applied to
pay Cost of Issuance, $-0- of Bond Proceeds will be applied to pay capitalized
interest from the Capitalized Interest Account , and $1,140,325 of Bond Proceeds
will be deposited in the Business Loan Reserve Account as provided in Section
3.2(a), 3.2(b) above. Pursuant to the loan criteria for its Program, the Board
hereby requires the Borrower to make an equity contribution of not less than
$3,500,000 to pay for the remaining deficiency in the Cost of the Project, which
does not include Costs of Issuance, such equity contribution to take the form of
evidence satisfactory to the Board of payment of not less than $3,500,000
<PAGE>
of costs of the Project from Borrower's funds derived from a source other
than the Single Lot Bonds. Prior to any disbursement from the Construction
Account, the Borrower shall provide the Trustee with evidence of payment of
not less than $3,500,000 of Costs of the Project.
(b) If the Cost of Issuance Account is insufficient to pay any claim or
cost incurred in connection with the Single Lot Bonds for any reason, the
Borrower shall deposit on demand by the Board's Executive Director an amount
sufficient to pay any remaining Costs of Issuance.
<PAGE>
ARTICLE IV
DEVELOPMENT OF THE PROJECT;
APPLICATION OF MONEYS IN CONSTRUCTION ACCOUNT;
COSTS OF ISSUANCE ACCOUNT AND CAPITALIZED INTEREST ACCOUNT
Section 4.1. PRIOR ACQUISITION OF LAND. The Borrower heretofore has
leased the Building on the Land in order to permit the acquisition and
installation of the Project thereon.
Section 4.2. ACQUISITION AND INSTALLATION OF THE PROJECT. The Borrower
agrees to acquire and install the Project or cause the Project to be acquired
and installed on the Land.
(a) The Cost of the Project shall be paid from the Construction Account in
the manner and to the extent provided in Section 4.3 hereof and the General Bond
Resolution. The Borrower shall not be entitled to any moneys in the
Construction Account, nor shall the Borrower submit a requisition, for any item
of property which constitutes collateral under another security agreement, or is
otherwise subject to any other Lien or encumbrance whatsoever.
(b) The Borrower hereby covenants and agrees to proceed with due diligence
to make, execute, acknowledge and deliver any contracts, orders, receipts,
writings and instructions with any other persons, firms or corporations and in
general do all things which may be requisite or proper, all for acquiring and
installing the Project. The Borrower agrees to acquire and to install the
Project with all reasonable dispatch, and to use reasonable efforts to cause
such acquisition and installation to be completed by November 1, 1998, or as
soon thereafter as may be practicable and, in all events by no later than
November 1, 2000; but if for any reason such acquisition and completion are not
completed by either said date, there shall be no resulting liability on the part
of the Board and no diminution in or postponement of the payments required in
Section 5.1 hereof to be paid by the Borrower.
(c) The Borrower shall assign to the Board, contingent upon Borrower's
default as set forth in Article X hereof, all of Borrower's agreements with
Contractors and shall obtain from each Contractor consent to such assignment in
the form attached hereto as Exhibit "E."
(d) The Borrower shall obtain all necessary approvals from any and all
governmental agencies requisite to the acquiring and installation of the
Project, and the Project shall be acquired and installed in compliance with all
federal, State and local laws, ordinances and regulations applicable thereto.
Upon completion of the Project, the Borrower shall obtain all required permits
and authorizations from appropriate authorities, if any be required, authorizing
the uses of the Project for the purpose contemplated hereby.
(e) THE BOARD MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE
CONDITION, TITLE, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OF THE PROJECT
OR THAT IT IS OR WILL BE SUITABLE FOR ANY OF THE BORROWER'S PURPOSES OR NEEDS.
<PAGE>
Section 4.3. APPLICATION OF MONEYS IN CONSTRUCTION ACCOUNT.
(a) Moneys in the Construction Account may be disbursed in order to pay, or
to reimburse the Borrower for the payment of, any item of Cost of the Project
permitted by the Act which, under generally accepted accounting principles,
constitutes necessary capital expenditures in connection with the Project and
subject to the limitations in Section 2.3 hereof and Section 5.02(b) of the
General Bond Resolution.
Provided, however, no moneys in the Construction Account shall be used
directly or indirectly to pay Costs of Issuance.
Notwithstanding anything contained herein to the contrary,
(i) Except as permitted in Section 4.3(a)(ii) or Section 8.12, the
Trustee shall make no advances from the Construction Account (for other
than Costs of Issuance or debt service on the Single Lot Bonds) while there
is any Lien or encumbrance upon the Project, nor will the Trustee make any
advances from the Construction Account while there is any charge, question
or claim of any kind whatsoever, whether of record or not, which, in the
opinion of counsel for Trustee, may have priority over the Board's or
Trustee's interest in the Project or in any way render the Board's or
Trustee's position insecure;
(ii) The Trustee shall make no advances from the Construction Account
with respect to particular items to be acquired as Equipment hereunder
until the Trustee (A) is satisfied that the specific requisitions for
disbursements from the Construction Account to pay for specific items of
property to be acquired as Equipment hereunder correspond in fact to
specific items of Equipment enumerated in Exhibit B; provided, however, if
the specific item of Equipment is not listed on Exhibit B hereto, (1) such
item of Equipment must be approved by the Executive Director of the Board,
which approval shall be solely at the discretion of the Executive Director
based on his determination of its value, and (2) an amendment to the Loan
Agreement and an amendment to the Security Agreement shall be executed to
include such item of Equipment, (B) has received evidence that a valid
UCC-1 covering the Equipment has been properly filed so as to perfect the
Board's security interest in the Equipment and that such security interest
has been assigned of record to the Trustee, (C) is presented with
reasonable proof satisfactory to the Trustee that all of the items to be
acquired as Equipment hereunder have been acquired, installed and accepted
and are all free and clear of all security interests, liens and
encumbrances of any kind whatsoever, the Trustee may rely on the Board's
determination that the Board is satisfied with the above provisions, (D)
has received an opinion of counsel to the Borrower acceptable to the Board
that the Equipment is free and clear of all liens except the lien of the
Security Instruments and the security interest by the Board in the
Equipment has been perfected and is valid, which opinion shall be
substantially in the form attached hereto as Exhibit D, which shall be
approved by Bond Counsel for each advance (E) has received a
<PAGE>
UCC search showing no existing interest in such items of Equipment on such
request for advance, (F) has received proof satisfactory to the Trustee
and the Board that the Borrower has satisfied the requirements in this
Section relating to their equity contribution of $3,500,000 including
meeting the requirements of (B), (C), (D) and (E) relating to their
equity contribution and (G) has received evidence satisfactory to the
Board that the Board and its successors and assigns shall own the
exclusive rights to use the Equipment and the use of the Equipment and
the products produced by the Equipment will not violate any tradename,
trademark, patents or use rights of any other Person. Nothing contained
herein shall be deemed to convey or require conveyance to the Board of
any rights in the tradename, trademark, patents or use rights of the
Borrower. No advances will be made with respect to any Equipment in
the Paint Finishing System prior to the time the Paint Finishing System
has passed its acceptance test and evidence thereof has been submitted
to the Disbursing Agent as provided in Section 4.1(f) of the Disbursing
Agreement;
(iii) The Trustee shall make no advances out of Bond Proceeds from
the Construction Account to reimburse the Borrower for any Costs of the
Project paid from the cash deposits paid or equity contribution made
pursuant to Section 3.3(a) or Section 4.3(a)(ii).
In connection with Section 4.3(a)(i), 4.3(a)(ii) and 4.3(a)(iii), above
and the preconditions established therein, the Trustee may request that counsel
to the Borrower certify to the Trustee the existence of such preconditions in
connection with making any advances from the Construction Account and the
Trustee shall be entitled to conclusively rely upon such certification. The
Trustee may rely on an opinion of counsel to the Borrower to the extent such
certification covers matters of law, including the validity and perfection of
any security interest contemplated by the Security Instruments. In addition, in
making any such payment from the Construction Account the Trustee may rely on
such requisitions and proof delivered to it and the Trustee shall be relieved of
all liability with respect to making such payments if such payments are made in
accordance with the foregoing. The Borrower hereby agrees to pay all reasonable
costs of filing or submitting such requisitions and proof delivered to the
Trustee and to its counsel.
The Trustee shall keep and maintain adequate records pertaining to the
Construction Account and all disbursements therefrom, and after the Project has
been completed and the Borrower has filed with the Board a certificate of
completion of the Project as otherwise provided, the Trustee thereafter shall
file an accounting with respect to the Construction Account and all
disbursements therefrom with the Board and with the Borrower.
(b) Upon the earlier of (i) completion of the Project as certified to
pursuant to Section 4.4 hereof; (ii) the acceleration of the Loan pursuant to
Section 10.2(a)(i) of this Agreement; or (iii) failure to satisfy the
requirements for disbursement of moneys from the Construction Account by
November 1, 2000 (or such later date as the Board, in its unilateral
discretion, may designate); any
<PAGE>
moneys remaining in the Construction Account, except for amounts to be paid
pursuant to the draw made upon completion or those retained therein for the
payment of incurred and unpaid items of the Cost of the Project, shall be
applied in accordance with Section 5.02(b) of the General Bond Resolution.
Section 4.4. CERTIFICATE OF COMPLETION. Completion of the Project shall
be evidenced by a certificate signed by an Authorized Representative of the
Borrower stating that (i) the acquisition and installation of the Project has
been completed and (ii) except for amounts to be retained in the Construction
Account as provided in Section 4.3(b) hereof, all costs and expenses of
acquiring and installing the Project have been paid or provided for and that
having attached thereto a certificate of the Borrower or such other evidence
satisfactory to the Board to the effect there exist no Liens or encumbrances
with respect to the Project.
Section 4.5. COMPLETION BY BORROWER. To the extent that the Bond
Proceeds that are deposited into the Construction Account are not sufficient to
pay in full all costs of acquiring and installing the Project, the Borrower
agrees to pay all such sums as may be necessary to so complete the Project. At
the Trustee's request, the Borrower will provide the Trustee with evidence
satisfactory to the Trustee as to whether or not the remaining moneys in the
Construction Account available to pay the Costs of the Project shall be
sufficient to pay the remaining Costs of the Project. In the event that the
Trustee shall determine at any time that the remaining moneys in the
Construction Account available for payment of the remaining Costs of the Project
shall not be sufficient to pay the costs thereof in full, the Trustee shall give
written notice thereof to the Borrower and the Borrower shall promptly pay to
the Trustee for deposit into the Construction Account moneys sufficient to pay
the Costs of the Project as may be in excess of the moneys available therefor in
the Construction Account. The Trustee may rely on the Board's determination.
No payment by the Borrower pursuant to this Section 4.5 shall entitle the
Borrower to any diminution or abatement of the other amounts payable by the
Borrower under this Agreement or the Note.
Section 4.6. REMEDIES TO BE PURSUED AGAINST CONTRACTORS AND
SUBCONTRACTORS AND THEIR SURETIES. In the event of default of any contractor or
subcontractor under any contract made by it in connection with the Project or in
the event of a breach of warranty with respect to any materials, workmanship, or
performance guaranty, the Borrower shall promptly proceed, either separately or
in conjunction with others, to exhaust the remedies of the Borrower against the
contractor or subcontractor so in default and against each surety for the
performance of such contract. The Borrower agrees to advise the Board of the
steps they intend to take in connection with any such default. The Borrower may
prosecute or defend any action or proceeding or take any other action involving
any such contractor, subcontractor or surety which the Borrower deems reasonably
necessary. The Net Proceeds of any amounts recovered pursuant to this Section
4.6, if received prior to the Completion Date, shall be delivered to the Trustee
and deposited in the Construction Account and, if received thereafter, shall be
(i) delivered to the Trustee and deposited to the extent attributable to Bond
Proceeds, to the credit of the Special Redemption Account and (ii) to the extent
attributable to the Borrower's equity required by Section 3.3 or Section 4.5
hereof, paid over to the Borrower free and clear of any provision of this
Agreement.
<PAGE>
Section 4.7. APPLICATION OF MONEYS IN COST OF ISSUANCE ACCOUNT. $318,750
will be deposited by the Borrower in the Cost of Issuance Account on the Closing
Date. Moneys in the Cost of Issuance Account shall be used to pay Costs of
Issuance on the Single Lot Bonds. If the Cost of Issuance Account is
insufficient to pay any claim or cost incurred in connection with the Single Lot
Bonds for any reason, the Borrower shall deposit on demand by the Trustee or the
Board's Executive Director an amount sufficient to pay any remaining Costs of
Issuance.
<PAGE>
ARTICLE V
REPAYMENT PROVISIONS; SECURITY CLAUSES
Section 5.1. REPAYMENT OF LOAN.
(a) Principal on the Loan shall be paid by the Borrower on the dates and
in the amounts provided in the Note. Interest on the unpaid balance of the Loan
shall be payable at the times stated in the Note at the rates provided in the
Note. All such amounts to be so paid shall be paid by the Borrower to the
Trustee on behalf of the Board. It is the intention of the parties hereto that
the Borrower shall be liable hereunder and under the Note.
(b) The Note shall provide that interest thereon shall accrue from the
date thereof and shall be payable thereon on the first day of the following
month and thereafter on the first day of each month until the principal sum
of the Loan is discharged, each such payment to include interest payable in
advance due to and including the first day of the next succeeding month. The
principal amount of the Loan shall be payable thereon at the same times and
manner as interest. Principal and interest payments on the Loan shall be
made in monthly installments through the date of final maturity of the Note,
applied first to the payment of interest then due on the unpaid principal
amount of the Loan, and the remaining balance of each such installment
applied to the payment and reduction of the unpaid principal amount of the
Loan. The monthly installments to be paid on the Loan shall be an amount
equal to (i) one-sixth of the interest installment due on the Single Lot
Bonds on the next succeeding Bond Payment Date (taking into account such
in-advance payments) and (ii) one-twelfth of the Principal Installment due on
the Single Lot Bonds on the next succeeding Bond Payment Date on which a
Principal Installment is due (taking into account such in-advance payments),
such installments to be reduced such that on or before the Bond Payment Date
on which a Principal Installment is due any amounts then on deposit in the
Holding Account plus the monthly installment then to be paid on the Loan
shall equal the Debt Service Payment on the Single Lot Bonds due on such Bond
Payment Date. Notwithstanding the foregoing, amounts in the Capitalized
Interest Account shall reduce the monthly installments set forth above.
Notwithstanding the foregoing, the number and amount of proportional payments
of the monthly installments to be paid on the Loan shall be adjusted in
accordance with the date of the Note and the dates of the initial interest
payment and initial payment of the Principal Installment due on the Single
Lot Bonds. All payments on the Note by the Borrower shall be made to the
Trustee at the address set forth in Section 12.1 of this Agreement.
At the request of the Borrower, pending disbursement or application of
amounts in the Construction Account, such amounts shall be invested so as to
make interest earnings available monthly to be applied as credits against the
required loan repayments.
(c) If on any Bond Payment Date of the Single Lot Bonds the amount then on
deposit in the Holding Account shall not be sufficient to pay the interest and
Principal Installment due on the Single Lot Bonds as of such Bond Payment Date,
the Borrower shall forthwith pay any such deficiency into the Revenue Account
for transfer into the Holding
<PAGE>
Account.
(d) The Borrower shall have the option to make payments designated as and
representing advance loan payments on the Note under and pursuant to this
Agreement (or Section 5.2 of this Agreement) to the Trustee for deposit in the
Revenue Account. Such payments shall not in any way alter or suspend any
obligations of the Borrower under the terms of this Agreement (i) except to the
extent that such payment shall be transferred by the Trustee under the
provisions of the Board Resolution to the Holding Account and shall result in a
credit against payments on the Note as provided in Section 5.1(b) of this
Agreement or the retirement of principal amounts of the Single Lot Bonds,
pursuant to these provisions, or (ii) except to the extent that such payments
shall otherwise be transferred by the Trustee in accordance with the provisions
of Section 5.06(a) of the General Bond Resolution and shall result in a credit
against payments as provided in Section 5.2 of this Agreement; and the Borrower
shall, in either case, continue to perform and be responsible for the
performance of all the terms and provisions of this Agreement.
(e) If at any time the amount held by the Trustee in the Holding Account
and the Business Loan Reserve Account shall be sufficient to pay, together with
any interest earning to be realized, at the times required the principal of,
premium, if any, and interest on the Single Lot Bonds then unpaid, the Borrower
shall not be obligated to make any further payments under the foregoing
provisions.
(f) If the Borrower should fail to make the payments of an amount required
under this Section 5.1, the amount so in default shall continue as an obligation
of the Borrower until it shall have been fully paid, and the Borrower shall pay
the same with interest thereon at the Bond Rate until paid.
(g) The Borrower agrees to make the above-mentioned payments without any
further notice, in lawful money of the United States of America which, at the
time of payment, shall be legal tender for the payment of public and private
debts.
Section 5.2. OTHER AMOUNTS PAYABLE.
(a) The Borrower shall pay to the Trustee for deposit by the Trustee in
the Revenue Account, the following amounts (in addition to those amounts
described in Section 5.1(b) of this Agreement) at the times set forth below:
(i) On August 1 and February 1 of each year during the Loan Term,
the Lot Loan Fiduciary Payments due with respect to the Bond Year then
ended; provided, however, that, to the extent that on any August 1 there
are amounts in the Revenue Account in excess of the amounts required to be
deposited therein pursuant to Section 5.1, Section 5.2(a)(i), Section
5.2(a)(ii) and Section 5.2(a)(iii) of this Agreement, the amount required
to be paid by the Borrower pursuant to this Section 5.2(a)(i) shall be
reduced by the amount of such excess;
(ii) On each Bond Payment Date, a sum sufficient to satisfy any
outstanding
<PAGE>
General Guaranty Fund Reimbursement Amount with respect to the
Single Lot Bonds as provided in Section 2.5;
(iii) On each Bond Payment Date, a sum sufficient so that amounts
then on deposit in the Business Loan Reserve Account shall not be less than
the Business Loan Reserve Account Requirement with respect to the Single
Lot Bonds.
(b) Notwithstanding anything contained in this Agreement to the contrary,
any amount payable as and for an outstanding General Guaranty Fund Reimbursement
Amount under Section 5.2(a)(ii) of this Agreement shall not be payable as and
for unpaid amounts due under Section 5.1(b) and Section 5.1(f) of this
Agreement.
(c) Notwithstanding anything contained in this Agreement to the contrary,
any amount payable pursuant to Section 5.2(a)(iii) of this Agreement shall not
be payable as and for unpaid amounts due under Section 5.1(b) and Section 5.1(f)
of this Agreement.
(d) In addition to the foregoing payments, the Borrower shall make such
reports and shall pay during the Loan Term the annual fees required to maintain
the secondary market trading of the Single Lot Bonds in the State. Such fees
shall be paid directly by the Borrower to Minnesota State Treasurer by the time
required by law each year, with the Borrower to provide evidence satisfactory to
the Board that each such payment has been made.
(e) In addition to the foregoing payments, the Borrower shall pay any fees
of the Board under the Continuing Disclosure Agreement.
Section 5.3. OBLIGATIONS OF BORROWER HEREUNDER UNCONDITIONAL. The
obligations of the Borrower to make the payments required by this Agreement and
the Note and to perform and observe any and all of the other covenants and
agreements on its part contained herein shall be general obligations of the
Borrower, shall be absolute and unconditional irrespective of any defense or any
rights of setoff, recoupment or counterclaim it may otherwise have against the
Board or the Trustee or any Holders of the Bonds. The Borrower agrees that it
will not (i) suspend, discontinue or abate any payment required by this
Agreement and the Note or (ii) fail to observe any of its other covenants or
agreements in this Agreement, the Note or any Security Instrument, (iii) seek
judicial or other relief from the obligation to make any payment required by, or
to perform any covenant in, this Agreement and the Note or (iv) except as
provided in Section 11.1 hereof, terminate this Agreement for any cause
whatsoever including, without limiting the generality of the foregoing, failure
to complete the Project, failure of the Borrower to use the Project as
contemplated in this Agreement or otherwise, any defect in the title, design,
operation, merchantability, fitness or condition of the Project or in the
suitability of the Project for the Borrower's purposes or needs, failure of
consideration, destruction of or damage to the Project, commercial frustration
of purpose, or the taking by Condemnation of title to or the use of all or any
part of the Project, any change in the tax or other laws of the United States of
America or of the State or any political subdivision of either, or any failure
of the Board to perform and observe any agreement, whether expressed or implied,
or any duty, liability or obligation arising out of or in connection with this
<PAGE>
Agreement. Nothing contained in this Section 5.3 shall be construed to release
the Board from the performance of any of the agreements on its part contained in
this Agreement.
Section 5.4. SECURITY CLAUSES. In order to secure the payment of this
Agreement, the Note and the Bonds according to their tenor and effect, and to
secure the right of reimbursement of the General Guaranty Fund provided for in
Section 2.5 of this Agreement and the right of reimbursement of the Board
provided for in Section 2.6 of this Agreement and to secure the performance by
the Borrower of all covenants expressed or implied in this Agreement, as of the
Closing Date, the Borrower shall grant and deliver a validly perfected first
security interest to the Board in the (i) Equipment pursuant to the Security
Instruments, (ii) Equipment purchased with proceeds of the Bonds and (iii)
Equipment purchased by the Borrower as the Borrower's equity contribution, all
of which Equipment is to be pledged by the Board to the Trustee for the benefit
of Bondholders pursuant to the Board Resolution as security for the Bonds and
the Single Lot Bonds. The Borrower shall cause to be delivered a legal opinion
on behalf of the Borrower as to the due authorization and execution of this
Agreement, the Security Instruments, the Note and any other Security Instrument
and as to the legality, validity and enforceability of such instruments in such
form and substance satisfactory to the Board and Bond Counsel.
Section 5.5. INVESTMENT OF FUNDS AND ACCOUNTS; CONSENT TO ELECTIONS.
(a) Notwithstanding anything contained in this Agreement to the contrary, any
moneys at any time in the Business Loan Reserve Account, the Construction
Account, Holding Account, Optional Redemption Account, Reconstruction
Account, the Reimbursement Account, the Revenue Account, the Special
Redemption Account or any other fund or account created under, or authorized
by, the General Bond Resolution or the Single Lot Resolution may be invested
and reinvested by the Board as provided in Section 5.16 of the General Bond
Resolution and any letter of instruction issued by the Board to the Trustee
thereunder, to which such investment and reinvestment, the Borrower hereby
consents. Neither the Board nor its members, officers or employees shall be
liable for any rate of interest achieved or not achieved on such investment
or for any depreciation in the value of, or for any loss arising from, any
such investment. Investment income earned from money deposited in any such
funds and accounts shall be applied by the Trustee in the manner provided for
in the Board Resolution.
(b) The Borrower hereby consents to the elections made by the Board in
Section 5.5 of the Single Lot Resolution with respect to the Series 1997B
Taxable, Lot 1 Bonds.
<PAGE>
ARTICLE VI
MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE
Section 6.1. MAINTENANCE OF PROPERTY BY BORROWER. (a) The Borrower
agrees that during the Loan Term Borrower will, at Borrower's own expense, (i)
keep the Security Property in as reasonably safe condition as its operations
shall permit; (ii) make all necessary repairs and replacements to the Security
Property (whether ordinary or extraordinary, structural or nonstructural,
foreseen or unforeseen); and (iii) operate the Security Property in a sound and
economic manner.
(b) The Borrower from time to time may, at Borrower's own expense, make
any structural additions, modifications or improvements to the Security Property
or any part thereof which it may deem desirable. All such structural additions,
modifications or improvements made by the Borrower shall become a part of the
Security Property. The Borrower agrees to deliver to the Board all documents
which may be necessary or appropriate to convey to the Board a satisfactory
security interest in such Security Property.
Section 6.2. INSTALLATION OF ADDITIONAL EQUIPMENT. Subject to the
provisions of Section 5.4 of this Agreement, the Borrower from time to time may,
at Borrower's own expense, install additional machinery, equipment or other
personal property in the Project (which may be attached or affixed to the
Security Property), and such machinery, equipment or other personal property
shall not become, or be deemed to become, a part of the Security Property. The
Borrower shall keep appropriate records of all of such machinery, equipment or
other personal property installed as Security Property sufficient to identify
the same. The Borrower from time to time may remove or permit the removal of
such machinery, equipment and other personal property from the Security Property
and may create or permit to be created any Lien on such machinery, equipment or
other personal property; provided that any such removal of such machinery,
equipment or other personal property shall not adversely affect the structural
integrity of the Security Property or impair the overall operating efficiency of
the Security Property for the purposes for which it is intended and provided
further that if any damage is occasioned to the Security Property by such
removal, the Borrower agrees to promptly repair such damage at its own expense.
Section 6.3. TAXES, ASSESSMENTS AND UTILITY CHARGES.
(a) The Borrower agrees to pay, as the same respectively become due, and
subject to Section 6.3(b)(i) all taxes and governmental charges of any kind
whatsoever which may at any time be lawfully assessed or levied against or with
respect to (1) the Security Property, (2) any replacement machinery, equipment
or other property installed or brought by the Borrower therein or thereon
(including without limitation any sale or use taxes), (3) worker's compensation
taxes with respect to the employees of the Borrower located at or assigned to
the Project, and (4) the income or revenues of the Borrower from the Project,
(ii) all utility and other charges, including "service charges", incurred or
imposed for the operation, maintenance, use, occupancy, upkeep and improvement
of the Security Property, and (iii) all
<PAGE>
assessments and charges of any kind whatsoever lawfully made by any
governmental body for public improvements; provided that, with respect to
special assessments or other governmental charges that may lawfully be paid
in installments over a period of years, the Borrower shall be obligated under
this Agreement to pay only such installments as are required to be paid
during the Loan Term.
(b) The Borrower may in good faith contest any such taxes, assessments and
other charges. In the event of any such contest, the Borrower may permit the
taxes, assessments or other charges so contested to remain unpaid during the
period of such contest and any appeal therefrom, provided that a reserve in an
amount satisfactory to the Board has been established with respect thereto with
the Trustee. If the Board or the Trustee shall notify the Borrower that by
nonpayment of any such items the security interest as to any part of the
Security Property will be materially endangered or the Security Property or any
part thereof will be subject to loss or forfeiture, however, such taxes,
assessments or charges shall be paid promptly or secured by posting a bond in
form and substance satisfactory to the Board and the Trustee.
Section 6.4. INSURANCE REQUIRED. At all times throughout the Loan Term,
including without limitation during any period of acquisition and construction
of the Project, the Borrower shall, at its own expense, maintain or cause to be
maintained insurance against such risks and for such amounts as are customarily
insured against by businesses of like size and type paying, as the same become
due and payable, all premiums in respect thereto, including, but not necessarily
limited to:
(a) Comprehensive general public liability insurance, fire and all risk
coverage insurance insuring the Equipment, boiler and machinery insurance, if
appropriate, including business interruption (including rental interruption), or
use and occupancy coverage for a period of not less than one year and such other
insurance, flood insurance, if the Land is located in a HUD-designated special
flood hazard area, as the Board may reasonably require from time to time. All
such insurance shall be obtained from such companies, in such amounts (which
shall be the amounts as required by this Agreement) and with such provisions as
the Board may deem necessary or desirable to protect its interests and shall
contain a waiver of subrogation clause, non-contributory standard mortgage
clauses and 30-day notice to the Board and the Trustee of cancellation or
material change clause. During any period of construction, repair or
restoration, such insurance shall be in builder's risk form, written on a
non-reporting completed value basis. In the event of loss in excess of $50,000,
the Borrower will give immediate notice by mail to the Board, and each insurance
company concerned is hereby authorized and directed to make payment for such
loss with respect to Security Property in excess of $50,000 directly to the
Board and the Trustee as their interests appear instead of to the Borrower and
the Board jointly, and except as may be hereinafter provided, the application of
the proceeds of any insurance award shall be governed by Article VII hereunder.
(b) Worker's compensation insurance, disability benefits insurance, and
each other form of insurance which the Borrower is required by law to provide,
covering loss resulting
<PAGE>
from injury, sickness, disability or death of employees of the Borrower who
are located at or assigned to the Project.
Section 6.5. ADDITIONAL PROVISIONS RESPECTING INSURANCE. (a) All
insurance required by Section 6.4 hereof shall be procured and maintained in
financially sound and generally recognized responsible insurance companies
selected by the Borrower and authorized to write such insurance in the State.
Such insurance may be written with deductible amounts acceptable to the Board.
All policies evidencing such insurance shall provide for (i) payment of the
losses to the Borrower, the Board and the Trustee as their respective interests
may appear, and (ii) at least thirty (30) days written notice of the proposed
cancellation thereof to the Borrower and the Trustee. The policies required by
Section 6.4(a) hereof shall contain standard mortgagee clauses requiring that
all Net Proceeds of insurance resulting from any claim in excess of $50,000 for
loss or damage covered thereby be paid to the Trustee.
(b) All such policies of insurance, or a certificate or certificates of
the insurers that such insurance is in force and effect, shall be deposited with
the Trustee on or before the Closing Date. Prior to expiration of any such
policy, the Borrower shall within thirty (30) days of such expiration furnish
the Trustee evidence that the policy has been renewed or replaced or is no
longer required by this Agreement.
Section 6.6. APPLICATION OF NET PROCEEDS OF INSURANCE. The Net Proceeds
of the insurance carried pursuant to (i) Section 6.4(a) hereof shall be applied
as provided in Section 7.1 hereof and (ii) Section 6.4(b) hereof shall be
applied toward extinguishment or satisfaction of the liability with respect to
which such insurance proceeds may be paid.
Section 6.7. RIGHT OF BOARD TO PAY TAXES, INSURANCE PREMIUMS AND OTHER
CHARGES. If the Borrower fails (i) to pay any tax prior to delinquency,
assessment or other governmental charge required to be paid by Section 6.3
hereof or (ii) to maintain any insurance required to be maintained by Section
6.4 hereof, the Board or the Trustee may pay such tax, assessment or other
governmental charge or the premium for such insurance. No such payment by the
Board or the Trustee shall affect or impair any rights of the Board under this
Agreement, the Security Instruments and the Note or of the Board or the Trustee
under the Board Resolution arising as a consequence of such failure by the
Borrower. The Borrower shall reimburse the Board or the Trustee, as the case
may be, for any amount so paid by the Board or the Trustee, as the case may be,
pursuant to this Section 6.7, together with interest thereon from the date of
payment by the Board at the Bond Rate.
<PAGE>
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1. DAMAGE OR DESTRUCTION.
(a) If the Security Property shall be damaged or destroyed (in whole or in
part) at any time during the Loan Term:
(i) The Board shall have no obligation to replace, repair, rebuild
or restore the Security Property;
(ii) There shall be no abatement or reduction in the amounts payable
by the Borrower under this Agreement (whether or not the Security Property
is replaced, repaired, rebuilt or restored); and
(iii) Except as otherwise provided in Section 7.1(b), the Borrower
shall promptly replace, repair, rebuild or restore the Security Property to
substantially the same condition and value as an operating entity as
existed prior to such damage or destruction, with such changes, alterations
and modifications as may be desired by the Borrower, provided that such
changes, alterations or modifications do not so change the nature of the
Project that it does not qualify under the Act for the financial assistance
provided by the Program.
Except as otherwise provided in Section 7.1(b), the Borrower shall apply to
the replacement, repair, rebuilding or restoration of the Project so much as may
be necessary of any Net Proceeds of insurance resulting from claims for such
losses.
If the claim for loss resulting from such damage or destruction exceeds
$50,000, all Net Proceeds of insurance shall be paid to and held by the Trustee
in the Reconstruction Account. All Net Proceeds so deposited shall be applied
as provided below.
If the Borrower determines that the Security Property shall be repaired,
replaced or restored in whole, the Board hereby authorizes and directs the
Trustee, subject to the conditions set forth herein, to make payments from the
Reconstruction Account for such purposes or to reimburse the Borrower for costs
paid by it in connection therewith to the extent subject to issuance of
insurance of the absence of mechanics or materialman Liens affecting the
Security Property (all at no cost to the Board or the Trustee).
The Trustee may not make any payments from the Reconstruction Account to
repair, restore, replace, modify or improve the Security Property pursuant to
this Section 7.1 unless the Borrower has (i) first, obtained a fixed price
contract for the repair, restoration, replacement, modification or improvement
of the Security Property, specifying a Completion Date therefore, and (ii)
caused the deposit to the Reconstruction Account an amount which, together with
the Net Proceeds and all interest to be earned thereon through the Completion
<PAGE>
Date established in clause (i) above, will be sufficient to pay all costs of
repair, restoration, modification and improvement of the Security Property.
Thereafter the Trustee, upon receipt of a certificate of an Authorized
Representative of the Borrower that payments are required for such purpose,
shall apply so much as may be necessary of the Net Proceeds of such insurance to
the payment of the costs of such replacement, repair, rebuilding or restoration,
such moneys to be applied either on completion thereof or as the work
progresses, at the option of the Board.
In the event the Borrower has elected to rebuild or restore, and amounts in
the Reconstruction Account are not sufficient to pay in full the costs of such
replacement, repair, rebuilding or restoration, the Trustee shall request the
Borrower to pay into the Reconstruction Account an amount which, together with
Net Proceeds available for such purposes, shall be sufficient to pay all such
costs, and, upon receipt of such request, the Borrower shall forthwith pay such
amount to the Trustee. In the event that the Borrower fails to pay any such
amounts into the Reconstruction Account, then the Single Lot Bonds shall be
prepaid in accordance with Section 7.1(b) of this Agreement.
All such replacements, repairs, rebuilding or restoration made pursuant to
this Section 7.1, whether or not requiring the expenditure of the Borrower's
contribution, shall automatically become a part of the Security Property as if
the same were specifically described herein.
Any balance of such Net Proceeds remaining after payment of all the costs
of such replacement, repair, rebuilding or restoration shall be deposited in the
Special Redemption Account held by the Trustee and used only to prepay the
Single Lot Bonds as provided in Section 5.11(a) of the General Bond Resolution.
(b) In the event that the Borrower shall fail or elect not to replace,
repair or restore the Security Property, or if an Event of Default under Section
10.1 hereof shall have occurred and be continuing and the Single Lot Bonds have
been accelerated, then at the direction of the Board the Net Proceeds of the
insurance shall be transferred from the Reconstruction Account to the Special
Redemption Account or otherwise paid to the Trustee for deposit into the Special
Redemption Account. To the extent that such Net Proceeds so transferred into
the Special Redemption Account are not sufficient to pay the Single Lot Bonds in
whole pursuant to Section 2.8 of the Single Lot Resolution, the Borrower shall
forthwith pay the sum of such deficiency to the Trustee for deposit into the
Special Redemption Account.
(c) The Borrower shall not be obligated to replace, repair, rebuild or
restore the Project, and all such Net Proceeds shall be paid to the Borrower for
its purposes, if the Single Lot Bonds and interest thereon have been paid in
full and all other amounts due and owing hereunder, under the Note and the
Security Instruments have been paid in full.
(d) The Borrower may adjust all claims under any policies of insurance
required by Section 6.4(a) hereof; provided, however, that no such claim with
respect to an insured event as to which the Board or the Trustee may be or is
alleged to be liable may be adjusted without
<PAGE>
the prior written consent of the Board or the Trustee, as the case may be.
Section 7.2. CONDEMNATION.
(a) If at any time during the Loan Term the whole or any part of title to,
or the use of, the Security Property shall be taken by Condemnation, the Board
shall have no obligation to restore or replace the Security Property and there
shall be no abatement or reduction in the amounts payable by the Borrower under
this Agreement (whether or not the Security Property is restored or replaced).
Except as otherwise provided in this Section 7.2(b), the Borrower shall
promptly:
(i) Restore the Security Property to substantially the same
condition and value as an operating entity as existed prior to such
Condemnation; or
(ii) Upon receipt by the Borrower of written approval of the Trustee
and the Board as to the location thereof (which approval shall not be
unreasonably withheld), acquire, by construction or otherwise, facilities
of substantially the same nature and value as an operating entity as the
Security Property (hereinafter referred to in this Section 7.2 as
"Substitute Facilities"). Such Substitute Facilities shall (A) be of such
nature so as to qualify under the Act for the financial assistance provided
by the Program and (B) be subject to no Liens prior to the Security
Instruments or the security interest created by Sections 5.4(b) and 5.4(c)
of this Agreement.
The Borrower shall cause all Net Proceeds of any award in any Condemnation
proceeding to be paid to the Trustee which shall hold such moneys in the
Reconstruction Account. All Net Proceeds so deposited shall be applied as
provided below:
If the Borrower determines that the Security Property shall be repaired,
replaced or restored in whole or substitute Equipment is to be acquired, the
Board hereby authorizes and directs the Trustee, subject to the conditions set
forth herein, to make payments from the Reconstruction Account for such purposes
or to reimburse the Borrower for costs paid by it in connection therewith by
disbursements through a title insurance company with commercially reasonable
procedures for payment of costs upon incurrence thereof subject to issuance of
insurance of the absence of mechanics or materialman liens affecting the
Security Property (all at no cost to the Board or the Trustee).
The Trustee may not make any payments from the Reconstruction Account to
repair, restore, replace, modify or improve the Security Property pursuant to
this Section 7.2 unless the Borrower has caused the deposit to the
Reconstruction Account an amount which, together with the Net Proceeds and all
interest to be earned thereon will be sufficient to pay all costs of repair,
restoration, modification and improvement of the Security Property. Thereafter,
the Trustee, upon receipt of a certificate of an Authorized Representative of
the Borrower that payments are required for such purpose, shall apply so much as
may be necessary of such Net Proceeds to the payment of the costs of the
restoration of the Security Property at the option of
<PAGE>
the Borrower, such moneys to be applied either on completion thereof or as
the restoration or acquisition progresses, at the option of the Board.
In the event amounts in the Reconstruction Account are not sufficient to
pay in full the costs of such restoration of the Security Property, the Trustee
shall request the Borrower to pay into the Reconstruction Account an amount
sufficient to pay all such costs, and, upon receipt of such request, the
Borrower shall forthwith pay such amount to the Trustee. In the event that the
Borrower fails to pay any such amounts into the Reconstruction Account, then the
Single Lot Bonds shall be prepaid in accordance with Section 7.2(b) of this
Agreement.
The Security Property, as so restored, whether or not requiring the
expenditure of the Borrower's contribution, shall automatically become part of
the Security Property as if the same were specifically described herein.
Any balance of such Net Proceeds of any Condemnation award remaining after
payment of all costs of such restoration or acquisition shall be deposited in
the Special Redemption Account held by the Trustee and used only to prepay the
Single Lot Bonds as provided in Section 5.11(a) of the General Bond Resolution.
(b) In the event that the Borrower shall fail or elect not to replace,
repair or restore the Security Property, or if an Event of Default under Section
10.1 hereof shall have occurred and be continuing and the Single Lot Bonds have
been accelerated, then at the direction of the Board the Net Proceeds of the
Condemnation Award shall be transferred from the Reconstruction Account to the
Special Redemption Account or otherwise paid to the Trustee for deposit into the
Special Redemption Account. To the extent that such Net Proceeds so transferred
into the Special Redemption Account are not sufficient to pay the Single Lot
Bonds in whole pursuant to Section 2.8 of the Single Lot Resolution, the
Borrower shall forthwith pay the sum of such deficiency to the Trustee for
deposit into the Special Redemption Account.
(c) The Borrower shall not be obligated to restore the Project, and all
such Net Proceeds shall be paid to the Borrower, if the Single Lot Bonds and
interest thereon have been paid in full and all other amounts due and owing
hereunder, under the Note and Security Instruments have been paid in full.
(d) The Board shall cooperate fully with the Borrower in the handling and
conduct of any Condemnation proceeding with respect to the Security Property.
Section 7.3. CONDEMNATION OF BORROWER-OWNED PROPERTY OTHER THAN SECURITY
PROPERTY. The Borrower shall be entitled to the proceeds of any Condemnation
award or portion thereof made for damage to or taking of any Property which, at
the time of such damage or taking, is not part of the Security Property and
which is owned by the Borrower.
<PAGE>
ARTICLE VIII
SPECIAL COVENANTS
Section 8.1. QUALIFICATION IN THE STATE. Throughout the Loan Term, the
Borrower shall continue to be duly authorized to do business in the State.
Section 8.2. HOLD HARMLESS PROVISIONS. (a) The Borrower during the Loan
Term hereby releases the Indemnified Parties from, agrees that the Indemnified
Parties shall not be liable for and agrees to indemnify and hold the Indemnified
Parties harmless from and against any and all liability arising from or expense
incurred by the Board's making the loan to the Borrower pursuant to this
Agreement, including without limiting the generality of the foregoing, all
causes of action and reasonable attorneys' fees and any other expenses incurred
in defending any suits or actions which may arise as a result thereof, provided
that any such liabilities or expenses of the Indemnified Parties are not
incurred or do not result from the gross negligence, the intentional or willful
wrongdoing of the Indemnified Parties or any of their members, agents or
employees.
(b) Notwithstanding any provision of this Agreement or the Board
Resolution to the contrary, the Borrower specifically agrees that Indemnified
Parties shall not be held liable, or in any way responsible, for any investment
of any Fund or Account or the General Guaranty Fund or other "gross proceeds"
(as defined in Section 148 of the Code) under the control or custody of the
Board, the Trustee or the Escrow Holder.
Section 8.3. MAINTENANCE OF EXISTENCE; CONDITIONS UNDER WHICH
EXCEPTIONS PERMITTED. The Borrower covenants and agrees to maintain its
corporate existence, will not dissolve or otherwise dispose of all or
substantially all of its assets, and will not consolidate with or merge into
another corporation or permit one or more corporations to consolidate with or
merge into it; provided, however, that any mortgages and security interests
in personal property entered into by the Borrower in the ordinary course of
business with respect to any of its Property shall not be deemed to
constitute a disposition of assets for purposes of this Section 8.3 and
provided further that, if no Event of Default under this Agreement shall have
occurred and is continuing, the Borrower may consolidate with or merge into
another domestic corporation organized and existing under the laws of one of
the states of the United States of America, or permit one or more such
domestic corporations to consolidate with or merge into it, or sell or
otherwise transfer to another such domestic corporation all or substantially
all of its assets as an entirety and thereafter dissolve, provided that:
(a) the surviving, resulting, or transferee corporation, as the
case may be, is incorporated under the laws of the State or qualifies to do
business in the State;
(b) the surviving, resulting or transferee corporation, as the case
may be, assumes in writing all of the obligations of and restrictions on
the Borrower hereunder and any other agreement securing the Borrower's
performance of its obligations hereunder;
<PAGE>
(c) immediately after the consummation of the transaction, and
after giving effect thereto, the surviving, resulting or transferee
corporation, as the case may be, has a Net Worth at least equal to the Net
Worth of the Borrower immediately prior to the transaction;
(d) as of the date of such consolidation, merger, sale or transfer,
the Board and Trustee shall be furnished with (i) an opinion of Independent
Counsel opining as to the compliance with Sections 8.3(a) and 8.3(b),(ii)
an opinion of an Accountant opining as to the compliance with Section
8.3(c) and (iii) a certificate, dated the effective date of such
consolidation, merger, sale of transfer, signed by the chief executive
officer and the chief financial officer of the Borrower and of the
surviving, resulting of transferee corporation, as the case may be, to the
effect that immediately after the consummation of the transaction, and
after giving effect thereto, no event of default exists under this
Agreement (as set forth in Section 10.1 hereof) and no event exists which,
with notice or lapse of time or both, would become such an Event of Default
and that the provisions of Section 8.3(c) hereof are and will be satisfied;
and
(e) In addition to the foregoing, such financial statements shall
be accompanied by a report containing all of the calculations required by
Section 8.18(a) and (b) of this Agreement to determine whether or not the
Borrower is in compliance with the requirements of Section 8.18(a) and (b)
of this Agreement, such calculations to be prepared by an Accountant from
the then-current audited financial statements of the Borrower or the
financial statements of the Borrower prepared by the Accountant, as the
case may be.
Section 8.4. AGREEMENT TO PROVIDE INFORMATION. The Borrower agrees,
whenever requested by the Trustee or the Board, to provide and certify or cause
to be provided and certified such information concerning the Borrower, its
finances, and such other topics as the Trustee or the Board from time to time
reasonably considers necessary or appropriate, including, but not limited to
such information as may be necessary to enable the Board to make any reports
required by the Act, any other law or governmental regulation or to enable the
Board to issue additional lots of Bonds under the General Bond Resolution and
publicly or privately market the same.
Section 8.5. BOOKS OF RECORD AND ACCOUNT; FINANCIAL STATEMENTS.
(a) The Borrower agrees to maintain proper accounts, records and books in
which full and correct entries shall be made, in accordance with generally
accepted accounting principles, of business and affairs of the Borrower. The
Board, the Legislative Auditor and the Trustee or their designated agents or
representatives shall have the right to inspect such accounts, records and books
upon reasonable advance notice during normal business hours.
(b) Within 120 days after the close of each fiscal year of the Borrower,
during the Loan Term, the Borrower shall furnish to the Board and the Trustee, a
consolidated balance
<PAGE>
sheet, a consolidated statement of income and retained earnings and
partnership capital account, and a consolidated statement of changes in
financial position of the Borrower, for the immediately preceding fiscal
year, all in reasonable detail including footnotes to such financial
statements, such financial statements to be audited and accompanied by the
opinion of an Accountant.
Section 8.6. RELEASE OF EQUIPMENT.
(a) The Borrower shall have the right at any time or from time to time to
sell or otherwise dispose of all or any part of the Equipment subject, however,
to all of the following terms and conditions:
(i) The Borrower shall, prior to or simultaneously, with any such
sale or other disposition of any Equipment, cause to be substituted
therefor equipment which is determined by the Board to have a value
substantially equal to the value of the item of Equipment so sold or
otherwise disposed of at the time said item of Equipment was sold or
disposed by the Borrower pursuant to the terms hereof, but which equipment
may, however, be of a different kind or type or have a different function
or purpose;
(ii) The security interest granted pursuant to the Security
Instruments shall attach to the equipment so substituted upon its
acquisition by the Borrower and its installation on and building on the
Land and prior to the sale or other disposition of the Equipment originally
subject to such security interest.
(iii) The Borrower shall execute any and all documents, instruments,
agreements or other writings (including, but not limited to, one or more
Uniform Commercial Code financing statements) and otherwise do all acts and
things which the Board shall reasonably deem necessary or advisable to
perfect or continue perfection of a security interest in the equipment so
substituted;
(iv) The Borrower shall pay any and all reasonable expenses
(including, but not limited to, any applicable filing fees) incurred by the
Board or the Trustee in connection with the perfection or continuation of
such security interest; and
(v) The Borrower shall, not less than fifteen days prior to the
consummation of any such sale or disposition, furnish the Board with a
certificate signed by the Authorized Representative of the Borrower setting
forth (1) a description of the item of Equipment which the Borrower
proposes to sell or otherwise dispose of, which description has been
previously set forth in the copy of Exhibit B hereto maintained by the
Trustee in accordance with the Single Lot Resolution, (2) a description of
the equipment to be proposed to be substituted for the item of Equipment
sold or otherwise disposed of, which description shall be sufficient for
the creation and perfection of a security interest in said equipment under
the Uniform Commercial Code of the State, (3) a statement to the effect
that the equipment proposed to be so substituted is now owned by the
Borrower and in the possession of the Borrower and is free and clear of
<PAGE>
all security interests, liens, and encumbrances of any kind whatsoever
and (4) a submission of reasonable proof satisfactory to the Board that
such equipment proposed to be substituted is now owned by the Borrower
and in possession of the Borrower and is free and clear of all
security interest, liens and encumbrances of any kind whatsoever.
The description of substituted equipment provided for in Section 8.6(a)
above shall, when furnished to the Board, constitute an amendment or supplement
to Exhibit B hereof. Items of Equipment replaced and substituted pursuant to
the terms of this Section 8.6(a) shall be deleted from Exhibit B by the Board.
The Borrower shall not substitute or replace any item of Equipment pursuant
to this Section 8.6(a) for any property which is not free and clear of all
security interests, liens and encumbrances of any kind whatsoever.
(b) The Borrower will from time to time, upon the written request of the
Board or the Trustee, file with the Board and the Trustee a list of Equipment
currently on the Land, which list shall further identify said items of equipment
substituted pursuant to Section 8.6(a) hereof and the date and reason for
substitution. The Borrower shall have sixty days in which to respond to each
such request, but shall be obligated to respond to such request no more than
twice each calendar year.
(c) Notwithstanding the provisions set forth in Section 8.6(a) of this
Agreement, the Borrower shall have the right at any time or from time to time to
sell or otherwise dispose of all or any part of the Equipment free and clear of
the security interest created by the Security Instruments, without being
obligated to substitute new equipment therefor, if:
(i) The items of Equipment so disposed from time to time have an
aggregate Appraised Value at the time of disposition of $10,000 (the
Borrower is to furnish to the Board written evidence of such Appraised
Value for each item of Equipment so disposed); or
(ii) The ratio of the outstanding principal amount of the Appraised
Value of the Security Property (excluding the items of Equipment to be so
disposed) at the time of proposed disposition shall exceed one hundred
fifty nine percent (159%) to the Loan (the Borrower is to furnish to the
Board written evidence of such Appraised Value of the Security Property);
or
(iii) The amount of the Appraised Value of the items of Equipment to
be disposed of, to the extent such Appraised Value exceeds the amount
described in clause (i), is deposited in the Special Redemption Account and
is invested and applied in the manner prescribed in Section 8.12 of this
Agreement.
Section 8.7. CERTIFICATE OF NO DEFAULT. The Borrower agrees to deliver
to the Trustee and to the Board within 120 days after the close of each fiscal
year of the Borrower, a
<PAGE>
certificate of an Authorized Representative of the Borrower (a) to the effect
that the Borrower is not aware of any condition, event or act which
constitutes an Event of Default hereunder or under the Security Instruments,
and no condition, event or act which, with notice of lapse of time, or both,
would constitute such an Event of Default, or if any such condition, event or
acts exists, specifying the same, and (b) to the effect that it is not aware
of any failure in the payment of any part of the principal of or interest on
any outstanding indebtedness of the Borrower for money borrowed and as the
same shall become due and payable, whether at the stated maturity of such
indebtedness or at a date fixed for redemption or otherwise, or the
acceleration of the maturity of any such indebtedness following a default
under the terms of any agreement or instrument relating to any such
indebtedness.
Section 8.8. NOTICE OF DEFAULT. The Borrower shall forthwith, upon the
occurrence of an Event of Default hereunder or under the Security Instruments or
upon the occurrence of a condition, event or act which, with notice or lapse of
time, or both, would constitute such an Event of Default, notify in writing the
Trustee and the Board of the occurrence of such Event of Default.
Section 8.9. ASSIGNMENT AND LEASING.
(a) This Agreement may be assigned in whole or in part and the Project may
be sold or leased as a whole or in part by the Borrower only with the prior
written consent of the Board and provided further that:
(i) No assignment (other than pursuant to Section 8.3 hereof) or
sale or lease shall relieve the Borrower from primary liability for any of
its obligations hereunder;
(ii) The assignee, transferee or lessee shall assume the obligations
of the Borrower hereunder to the extent of the interest assigned,
transferred or leased, except no such assumption shall be required if the
subject lease is a true lease for federal tax purposes;
(iii) The Borrower shall, within ten (10) days after the delivery
thereof, furnish or cause to be furnished to the Board and to the Trustee a
true and complete copy of each such assignment, instrument of transfer or
lease, as the case may be, and the instrument of assumption (where
required);
(iv) The assignment, transfer or lease shall be subject and
subordinate to the Lien of this Agreement, the Security Instruments and the
Pledge; and
(v) Neither the validity nor the enforceability of this Agreement,
the Security Instruments or any security interest created thereunder shall
be adversely affected thereby.
(b) As of the purported effective date of any assignment, transfer or
lease pursuant
<PAGE>
to Section 8.9(a), the Borrower shall furnish the Trustee with an opinion, in
form and substance satisfactory to the Board, (i) of Independent Counsel that
the assignment, transfer or lease is subject and subordinate to the Lien of
the Security Instruments, (ii) of Independent Counsel that neither the
validity nor the enforceability of this Agreement and the Note will be
adversely affected thereby and (iii) of Independent Counsel opining that the
assumption of obligations of the Borrower by any Person pursuant to Section
8.9(a)(ii) hereof will constitute a valid and legally enforceable assumption
by such Person.
(c) Any reassignment, transfer or sublease in turn of any assignment,
transfer or lease entered into pursuant to Section 8.9(a) shall comply with and
be subject to all the provisions of Sections 8.9(a) and 8.9(b). Any sublease in
turn of a lease entered into pursuant to Section 8.9(a) shall be subject and
subordinate to such original lease or sublease.
Section 8.10. RIGHT TO INSPECT THE PROJECT AND SECURITY PROPERTY. The
Board, the Trustee and the duly authorized agents of either of them shall have
the right at all reasonable times and upon reasonable advance notice, to inspect
the Project and the Security Property.
Section 8.11. COMPLIANCE WITH ORDERS, ORDINANCES, ETC.
(a) The Borrower agrees throughout the Loan Term to promptly comply with
all statutes, codes, laws, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations, directions
and requirements of all federal, state, county, municipal and other governments,
departments, commissions, boards, companies or associations insuring the
premises, courts, authorities, officials and officers, foreseen or unforeseen,
ordinary or extraordinary, which now or at any time hereafter may be applicable
to the Security Property or any part thereof, or to any use, manner of use or
condition of the Security Property or any part thereof.
(b) Notwithstanding the provisions of Section 8.11(a), the Borrower may in
good faith contest the validity or the applicability of any requirement of the
nature referred to in such subsection (a). In such event, the Borrower may fail
to comply with the requirement or requirements so contested during the period of
such contest and any appeal therefrom, unless the Board or the Trustee shall
notify the Borrower that by failure to comply with such requirement or
requirements the Lien of the Security Instruments or the security interest
created by Section 5.4(a) and 5.4(b) of this Agreement as to any part of the
Security Property may be materially endangered or the Security Property or any
part thereof may be subject to loss or forfeiture, in which event the Borrower
shall promptly take such action with respect thereto as shall be satisfactory to
the Trustee.
Section 8.12. LIENS AND ENCUMBRANCES.
(a) During the Loan Term and subject to the provisions of Section 5.4 of
this Agreement, the Borrower shall not permit or create or suffer to be
permitted or created any Lien upon the Security Property or any part thereof,
nor may the Borrower assign, sell or otherwise dispose of the Security Property
or any part thereof, without the prior written
<PAGE>
consent of the Board, which shall not be unreasonably withheld. Any such
Lien, if nonetheless created or permitted, shall be discharged by the
Borrower forthwith.
(b) Notwithstanding the provisions of Section 8.12(a), the Borrower may in
good faith contest any Lien upon the Security Property or any part thereof by
reason of any labor, services or materials rendered or supplied or claimed to be
rendered or supplied with respect to the Project or any part thereof. In such
event, the Borrower may permit the items so contested to remain undischarged and
unsatisfied during the period of such contest and any appeal therefrom, unless
the Board shall notify the Borrower that by nonpayment of any such item or items
the security interest created by Section 5.4(a) and 5.4(b) of this Agreement may
be materially endangered or the Security Property or any part thereof may be
subject to loss or forfeiture, in which event the Borrower shall promptly secure
payment of all such unpaid items by filing a bond, in form and substance and in
such amount satisfactory to the Trustee, thereby causing a Lien to be removed.
(c) Upon the request of the Board or the Trustee, the Borrower shall
provide the Board and the Trustee, within sixty (60) days of such request, with
proof satisfactory to the Trustee that all items of Security Property continue
to be free and clear of all Liens.
Section 8.13. IDENTIFICATION OF EQUIPMENT. All Equipment shall be
properly identified by the Borrower by appropriate records, including
computerized records.
Section 8.14. RELOCATION OF THE EQUIPMENT. The Borrower covenants and
agrees that during the Loan Term it will not remove the Equipment (except in
accordance with the terms of Section 8.6 hereof) from the Land to a new location
either within or outside of the State, without first obtaining the express
written consent of the Board with respect to such removal and relocation.
Section 8.15. SECURITY INSTRUMENTS COVENANTS. The Borrower covenants and
agrees to perform all of the obligations and covenants imposed upon it pursuant
to the Security Instruments and the Borrower agrees that any failure to perform
such covenants shall, after the lapse of any applicable cure periods therein
expressly provided, constitute a default for purposes of this Agreement.
Section 8.16. COVENANT AGAINST DISCRIMINATION. The Borrower covenants and
agrees that in the performance of this Agreement the Borrower will not
discriminate or permit discrimination against any person or group of persons on
the grounds of race, color, religion, national origin or sex in any manner
prohibited by the laws of the United States of America or of the State.
Section 8.17. EMPLOYMENT RECORDS. Within sixty (60) days after the close
of each calendar year, the Borrower shall furnish a written report to the Board
of the total number of employees at the Project, and shall separately indicate:
(a) the number of permanent new jobs which was estimated to be created by the
Project on the Borrower's application to the Board, with job descriptions and
annual salaries; (b) which of these permanent new jobs are currently
<PAGE>
filled; and (c) the average number of full-time, part-time or seasonal
employees at the Project within the three (3) categories of (i) professional,
managerial, technical, (ii) skilled, and (iii) semi-skilled or unskilled for
the current reporting period. In addition, such report shall contain
information with respect to employment at the Project that is specified by
the Board as being required to be contained in the employment reports
described in MINNESOTA STATUTES, Section 469.154, Subd. 7.
Section 8.18. CERTAIN FINANCIAL COVENANTS.
(a) For the fiscal year of the Borrower beginning January 1, 2000 and
thereafter, during the Loan Term and as of the date of any calculation, the
Borrower shall maintain a ratio of (i) earnings before paying interest on all
Indebtedness, taxes and making allowances for depreciation and amortization (all
in accordance with generally accepted accounting principles) plus capitalized
interest on the Bonds to (ii) regularly scheduled payments of principal and
interest on all Funded Indebtedness of the Borrower averaged for the last three
(3) full fiscal years for the Borrower of at least 1.5 to 1.0, provided,
however, no years prior to January 1, 2000 will be included in the calculation.
The outstanding principal amount of all Series 1997B Taxable, Lot 1 Bonds shall
constitute Funded Indebtedness of the Borrower for purposes of this Section.
(b) The Borrower shall have a Current Ratio of 2 to 1 for the fiscal years
prior to January 1, 2000 and thereafter 1.5 to 1.
(c) Notwithstanding anything contained herein to the contrary, the failure
by the Borrower to comply with the provisions of either Section 8.18(a) or
Section 8.18(b) of this Agreement shall not constitute an Event of Default under
this Loan Agreement, but shall result in the following requirements of the
Borrower during the continuance of such failure:
(i) The Borrower shall not, without the prior written consent of
the Board, incur any Funded Indebtedness other than Subordinated
Indebtedness and other than purchase money indebtedness for real or
personal property usable in the business of the Borrower.
(ii) The Borrower shall not, without the prior written consent of
the Board, pay any annual increases in total cash compensation (excluding
insurance, health, dental and pension benefits) to the shareholders,
directors and officers of the Borrower, or any person who is related by
blood or marriage, any of such shareholders who own 5% or more of the stock
of the Borrower, directors and officers in excess of 7% per annum.
(d) Failure to comply with the provisions of Sections 8.18(c) shall
constitute an Event of Default hereunder.
(e) The calculations required by Section 8.18 of this Loan Agreement shall
be prepared and certified by an Accountant and submitted to the Board and the
Trustee annually
<PAGE>
pursuant to Section 8.5 of this Loan Agreement.
Section 8.19 COVENANT AGAINST LOANS, TRANSFERS, ETC. The Borrower
covenants and agrees that it will not, without the prior written consent of the
Board, make any loans or transfer title to any of its assets to any officer,
member or stockholder of the Borrower unless the loan or transfer is determined
to be the same as if it were at arm's length, between unrelated parties, in an
amount or at fair market value in the aggregate in excess of $100,000 in any
single transaction with the Borrower and $250,000 in the aggregate.
Section 8.20. COVENANT AGAINST SALE, GIFT, PURCHASE OR REDEMPTION OF
STOCK. The Borrower covenants and agrees that it will not, without the prior
written consent of the Board, gift, purchase, sell or redeem any capital stock
of the Borrower or purchase any treasury stock of the Borrower, if, after giving
effect to such transaction, (a) the Borrower would not be in compliance with
Section 8.18(a) or (b) of this Loan Agreement.
Section 8.21. VACANT POSITIONS. The Borrower agrees to list any vacant
new positions with the job services of the Commissioner of Jobs and Training or
a local service units as required by MINNESOTA STATUTES Section 268.66.
Section 8.22. PREVAILING WAGES. The Board hereby notifies the Borrower
that the Loan made pursuant to the Loan Agreement constitutes "financial
assistance" from a "state agency" within the meaning of Article 10, Section 7 of
Chapter 604, MINNESOTA LAWS (1990) and, therefore, the requirements of
subdivision (2) and the penalties of subdivision (3) of such statute apply to
Borrower and the Project except as and to the extent that it is determined that
the exception set forth in subdivision (5) of such statute is applicable. The
Board makes no representation as to the applicability or meaning of such
exception and the Borrower hereby agrees to comply with such statute to the
extent and in the manner provided by law.
Section 8.23. COVENANT AGAINST DIVIDENDS, ETC. The Borrower covenants and
agrees that it will not, without the prior written consent of the Authority, pay
or declare any dividends on any class of its capital stock to any officer or
stockholder of the Borrower, in an amount or at fair market value in the
aggregate in excess of $-0- in any single fiscal year of the Borrower.
Section 8.24. COVENANT AGAINST UNREASONABLE COMPENSATION. The Borrower
covenants and agrees that it will not pay directors' and officers' salaries or
provide any form of compensation to its directors and officers in excess of that
reasonable for services rendered.
Section 8.25. JOB CREATION. The Borrower will create 125 new jobs which
pay more than $10 per hour, exclusive of all benefits and taxes, from November
1, 1996 to the date 12 months after production commences at the Borrower's
motorcycle manufacturing facility in Belle Plaine and shall create 175 new jobs
which pay more than $10 per hour, exclusive of all benefits and taxes, from
November 1, 1996 to the date 24 months after production commences at the
Borrower's motorcycle manufacturing facility in Belle Plaine.
<PAGE>
ARTICLE IX
PLEDGE OF CERTAIN INTERESTS
Section 9.1. PLEDGE OF CERTAIN INTERESTS TO BONDHOLDERS. (a) The Board
under Section 1.04 of the General Bond Resolution and under Section 6.1 of the
Single Lot Resolution has Pledged all of its rights and interest and all
provisions of this Agreement, the Security Instruments and the Note (except
pursuant to Section 8.2 hereof) as security for the payment of the principal of,
premium, if any, and interest on the Bonds and the Single Lot Bonds. Such
Pledge shall in no way impair or diminish any obligation of the Borrower under
this Agreement, the Security Instruments or the Note. The Borrower hereby
consent to such Pledge by the Board.
(b) Except as provided in this Section 9.1 and in Article X of this
Agreement and except as otherwise expressly provided in this Agreement, the
Security Instruments and the Note, the Board shall not sell, assign, transfer,
convey or otherwise dispose of its interest in or its rights under this
Agreement, the Security Instruments and the Note, without the prior written
consent of the Borrower.
<PAGE>
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1. EVENTS OF DEFAULT DEFINED.
(a) The following shall be "Events of Default" under this Agreement and
the terms "Event of Default" or "Default" shall mean, whenever they are used in
this Agreement, any one or more of the following events:
(i) The failure by the Borrower to pay or cause to be paid, when
due, the amounts specified to be paid pursuant to Section 5.1, Section
5.2(a) or Section 11.1 hereof and the Note; or
(ii) The failure by the Borrower to observe and perform any
covenant contained in Section 8.3 hereof; or
(iii) The failure by the Borrower to observe and perform any
covenant, condition or agreement hereunder on its part to be observed or
performed (except obligations referred to in Sections 10.1(a)(i),
10.1(a)(ii), 10.1(a)(iv), 10.1(a)(v) and 10.1(a)(vi) hereof) on the earlier
of (A) written notice thereof specifying such failure in the event that the
failure is not of the type or nature which the Board reasonably believes
can be remedied within thirty (30) days or (B) the thirty-first (31st) day
after written notice, specifying such failure and requesting that it be
remedied, given to the Borrower by the Board or the Trustee; or
(iv) The dissolution or liquidation of the Borrower or the filing by
the Borrower of a voluntary petition in bankruptcy, or the failure by the
Borrower within sixty (60) days to lift any execution, garnishment or
attachment of such consequence as will impair such Person's ability to
carry on its operations at the Project, or the commission by the Borrower
of any act of bankruptcy, or the adjudication of the Borrower as a
bankrupt, or the assignment of assets by the Borrower for the benefit of
its creditors, or the entry by the Borrower into an agreement of
composition with such Person's creditors, or the approval by a court of
competent jurisdiction of a petition applicable to the Borrower in any
proceeding for its reorganization instituted under the provisions of any
state or Federal bankruptcy or similar law, or appointment by final order,
judgment or decree of a court of competent jurisdiction of a receiver of
the whole or a substantial portion of the Properties of the Borrower
(unless such receiver is removed or discharged within sixty (60) days of
the date of his qualification); or
(v) The failure in the payment of any part of the principal of or
interest on any Indebtedness of the Borrower for money borrowed having an
outstanding principal amount of $100,000, when and as the same shall become
due and payable, whether at the stated maturity of such Indebtedness or at
a date fixed for redemption or otherwise, which failure results in the
acceleration of the maturity of any such indebtedness
<PAGE>
following a default under the terms of any agreement or instrument
relating to any such indebtedness; or
(vi) The occurrence and continuance of an "event of default" under
the Security Instruments; or
(vii) The failure of Borrower to comply with the requirements of
Section 4.2 or Section 5.4 hereof as and when applicable; or
(b) Notwithstanding the provisions of Section 10.1(a), if by reason of
FORCE MAJEURE either party hereto shall be unable in whole or in part to carry
out its obligations under this Agreement and if such party shall give notice and
full particulars of such FORCE MAJEURE in writing to the other party and to the
Trustee within a reasonable time after the occurrence of the event or cause
relied upon, the obligations under this Agreement of the party giving such
notice, so far as they are affected by such FORCE MAJEURE, shall be suspended
during the continuance of the inability, which shall include a reasonable time
for the removal of the effect thereof. The suspension of such obligations for
such period pursuant to this subsection (b) shall not be deemed an Event of
Default under this Section 10.1. Notwithstanding anything to the contrary in
this subsection (b), an event of FORCE MAJEURE shall not excuse, delay or in any
way diminish the obligations of the Borrower to make the payments required by
Section 5.1, Section 5.2 and Section 11.1(a) hereof, to obtain and continue in
full force and effect the insurance required by Section 6.4 hereof, to provide
the indemnity required by Section 8.2 hereof and to comply with the provisions
of Sections 2.3, 4.3, 5.2(e), 5.3, 6.3, 6.5, 6.6, 6.7, 8.1, 8.3, 8.4, 8.5, 8.6,
8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.14, 8.15, 8.16, 8.17, 8.18, 8.19, 8.20, 8.21,
8.22, 8.23, 8.24 and 8.25 hereof. The term "FORCE MAJEURE" as used herein shall
include, without limitation, acts of God, strikes, lockouts or other industrial
disturbances, acts of public enemies, orders of any kind of the government of
the United States of America or of the State or any of their departments,
agencies, governmental subdivisions, or officials, or any civil or military
authority, insurrections, riots, epidemics, landslides, lightning, earthquakes,
fire, hurricanes, storms, floods, washouts, droughts, arrests, restraint of
government and people, civil disturbances, explosions, breakage or accident to
machinery, transmission pipes or canals, partial or entire failure of utilities,
or any other cause or event not reasonably within the control of the party
claiming such inability.
Section 10.2. REMEDIES ON DEFAULT.
(a) Whenever any Event of Default shall have occurred, the Board or the
Trustee may take any one or more of the following remedial steps:
(i) Declare, by written notice to the Borrower, to be immediately
due and payable, whereupon the same shall become immediately due and
payable and so accelerated: (A) all unpaid amounts payable pursuant to
Section 5.1 hereof, and pursuant to the Note (constituting principal on the
Loan and accrued but unpaid interest thereon) and (B) all other payments
due under this Agreement and pursuant to the Note (whether or not
constituting principal on the Loan and accrued but unpaid interest
<PAGE>
thereon);
(ii) Terminate the disbursement of any moneys in the Construction
Account in accordance with Section 4.3 hereof and, upon acceleration of the
Loan pursuant to Section 10.2(a)(i) of this Agreement, transfer such moneys
to the Special Redemption Account;
(iii) Enforce the Security Instruments on, and any security interest
in, the Equipment;
(iv) As provided in the Security Instruments, take possession of the
Equipment and for that purpose the Borrower agrees that (a) the Borrower
will, when so requested by the Board or the Trustee assemble the Equipment
and make it available to the Board or the Trustee on the premises on which
it is located and (b) the Board and the Trustee, their employees, agents
and representatives shall have the right to peacefully enter upon any
premises in the possession of the Borrower wherein the Equipment or any
part thereof may be located and take possession of and remove such
Equipment without interference or hindrance from the Borrower, the
officers, agents or employees or any person associated therewith;
(v) Upon fifteen (15) calendar days' notice to the Borrower (which
the Borrower hereby agree is commercially reasonable) the Board or Trustee
may proceed to sell or otherwise dispose of the Equipment or any part
thereof by public or private sale in any commercially reasonable manner
(and without intending to limit the generality of the foregoing, the
Borrower hereby agrees that the sale of such property at a public auction
conducted by a reputable auctioneer in the manner in which such auctions
are usually conducted is commercially reasonable); and
(vi) Take any other action at law or in equity which may appear
necessary or desirable to collect the payments then due or thereafter to
become due and to enforce the obligations, agreements or covenants of the
Borrower under this Agreement, the Security Instruments and the Note.
(b) Any sums realized as a consequence of any action taken pursuant to
Section 10.2(a) shall be paid to the Trustee and shall be applied by the
Trustee, subject to the provisions of Section 7.04 of the General Bond
Resolution, in accordance with the provisions of Section 6.06(d) of the General
Bond Resolution, to which such application the Borrower hereby consents.
Section 10.3. REMEDIES CUMULATIVE. No remedy herein conferred upon or
reserved to the Board is intended to be exclusive of any other available remedy,
but each and every such remedy shall be cumulative and in addition to every
other remedy given under this Agreement or now or hereafter existing at law or
in equity. No delay or omission to exercise any right or power accruing upon
any default shall impair 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
<PAGE>
often as may be deemed expedient. In order to entitle the Board to exercise
any remedy reserved to it in this Article X, it shall not be necessary to
give any notice, other than such notice as may be herein expressly required
in this Agreement and the Note or required by law.
Section 10.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the event
the Board or the Trustee should employ attorneys or incur other expenses in
response to any request of the Borrower or for the collection of amounts payable
hereunder or the implementation or enforcement of performance or observance of
any obligations or agreements on the part of the Borrower herein contained,
including without limitation obligations and agreements under this Section, the
Borrower shall, on demand therefor, pay to the Board or the Trustee the
reasonable fees of such attorneys (determined at their usual and customary
rates) and such other expenses so incurred. Commencement of a lawsuit to
recover any amount payable under this Agreement or the Note shall be deemed a
demand for payment of all expenses incurred in the course of such lawsuit,
including without limitation attorneys' fees incurred in connection with such
lawsuit.
Section 10.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event
any agreement contained herein 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 breach hereunder including
without limitation a subsequent breach or subsequent breaches of the same
provision of this Agreement.
<PAGE>
ARTICLE XI
EARLY TERMINATION OF AGREEMENT;
PREPAYMENT OF LOAN
Section 11.1. EARLY TERMINATION OF AGREEMENT. The Borrower shall have an
option to terminate this Agreement upon filing with the Board and the Trustee a
certificate signed by an Authorized Representative of the Borrower stating the
Borrower's intention to do so on the next succeeding Bond Payment Date pursuant
to this Section and complying with the requirements of Section 3.02(b) of the
General Bond Resolution and upon further compliance with the requirements set
forth in Section 11.2 hereof.
Section 11.2. CONDITIONS TO EARLY TERMINATION OF AGREEMENT. In the event
the Borrower exercises its right or is required to terminate this Agreement in
accordance with any provision of Section 11.1 hereof, the Borrower shall comply
with the requirements set forth in the following three subsections:
(a) The following payments shall be made:
(i) TO THE TRUSTEE FOR THE ACCOUNT OF THE BOARD: at least thirty
days prior to the Bond Payment Date, an amount certified by the Trustee
which, when added to the total amount on deposit with the Trustee for the
account of the Board and the Borrower and available for such purpose, will
be sufficient (A) to pay, for deposit into the Special Redemption Account,
the amount required by Section 2.8(a) of the Single Lot Resolution as the
Redemption Price for the Single Lot Bonds in connection with the redemption
in whole of such Bonds, if such termination is pursuant to Section 11.1
hereof, or (B) to pay, for deposit into the Optional Redemption Account,
the Redemption Price of the Single Lot Bonds in connection with the
redemption in whole of such Bonds, in accordance with the terms of Section
2.7(a) of the Single Lot Resolution, together with all interest on such
Single Lot Bonds which will accrue to the date of prepayment (which shall
be the next succeeding Bond Payment Date for which the Trustee may give
notice pursuant to Section 3.03 and Section 3.04 of the General Bond
Resolution), if such termination is pursuant to Section 11.1 hereof;
(ii) TO THE BOARD: an amount certified by the Board sufficient to
pay all unpaid fees and expenses of the Board incurred under this Agreement
and the Board Resolution; and
(iii) TO THE APPROPRIATE PERSON: an amount sufficient to pay all
other fees, expenses or charges, if any, due and payable or to become due
and payable under this Agreement and the Board Resolution and not otherwise
paid or provided for.
(b) The certificate required to be filed pursuant to Section 11.1, shall
specify the date upon which the payments pursuant to Section 11.2(a) shall be
made, which date shall not be less than ninety (90) nor more than one hundred
twenty (120) days from the date such
<PAGE>
certificate is filed with the Board and the Trustee.
Section 11.3. DISCHARGE OF LIEN. If the Borrower shall pay or cause to be
paid, or there shall otherwise be paid, to the Holders of all outstanding Single
Lot Bonds or to the Trustee with respect thereto, the principal or Redemption
Price, if applicable, and interest due or to become due at the times and in the
manner stipulated therein, then the rights in the Security Property hereby
granted and all covenants, agreements and other obligations of the Borrower
hereunder to the Board and the Trustee shall thereupon cease, terminate and
become void and be discharged and satisfied. In such event, the Board and the
Trustee shall cancel and discharge the Lien of the Security Instruments and the
security interest in the Equipment created by the Security Instruments and
execute and deliver to the Borrower all such instruments as may be appropriate
to evidence such discharge and satisfaction of such liens. After payment in
full of the Single Lot Bonds and the interest thereon and the payment of all
fees, charges, expenses and other amounts required to be paid under this
Agreement, the Note and the Single Lot Resolution, all amounts on deposit with
the Trustee for the account of the Board and the Borrower under this Agreement,
the Note and the Single Lot Resolution, if any, shall be applied by the Trustee
in accordance with the provisions of Section 5.21 of the General Bond
Resolution.
Section 11.4. PREPAYMENT OF LOAN IN PART.
(a) The Borrower shall have the Option to prepay the Loan in part upon
filing with the Board and Trustee a certificate signed by an Authorized
Representative stating the Borrower's intention to do so pursuant to this
Section and complying with the requirements of Section 2.7(a) of the Single Lot
Resolution and Section 3.02(b) of the General Bond Resolution. Such certificate
shall specify the date (which shall be a Bond Payment Date) and amount of the
partial prepayment of the Loan, which date shall not be more than one hundred
twenty (120) days nor less than ninety (90) days after such notice.
(b) Upon the filing of such certificate, the Borrower shall pay to the
Trustee for the account of the Board a sum sufficient to pay, for deposit into
the Optional Redemption Account, the Redemption Price of the amount of the
Single Lot Bonds to be redeemed (from the amounts to be prepaid on the Loan as
certified in Section 11.4(b) of this Agreement) in accordance with the terms of
Section 2.7(a) of the Single Lot Resolution, together with all interest on such
Single Lot Bonds which will accrue to the date of prepayment.
Section 11.5. REFUNDING CONSENT. If after August 1, 1997 the Board
certifies to the Borrower that it wishes to refund the Single Lot Bonds in order
to permit the Board to amend the provisions of the General Bond Resolution or
the General Guaranty Fund Pledge and Escrow Agreement without the necessity of
obtaining Bondholder consent, the Borrower hereby consents to the issuance of a
Lot of refunding Bonds to refund the Single Lot Bonds at the then prevailing
rates of interest, provided, however, that Borrower will continue to make the
same payments due on the Note as established in the Single Lot Resolution as of
the Date of Issuance and under this Agreement and that any increase or decrease
in payments shall be paid to or received by the Board. In connection with any
such refunding, the Borrower hereby
<PAGE>
covenants to amend or supplement this Agreement and the Security Instruments,
to such extent, or to provide substitute documents therefor, as in the
opinion of the Board shall be necessary to effect such refunding, including
the payment of debt service on such refunding Bonds when and as due and at
the rate of interest set forth therein. The Borrower hereby consents, in
connection with such refunding, to any deposit by the Board of all or part of
the proceeds of such refunding Bonds (i) into the Special Redemption Account
to prepay in whole the Single Lot Bonds or (ii) to be held by the Trustee to
defease the Single Lot Bonds in accordance with the provisions of Section
11.02 and Section 11.03 of the General Bond Resolution.
<PAGE>
ARTICLE XII
MISCELLANEOUS
Section 12.1. NOTICES. All notices, other than interest billing notices,
certificates or other communications hereunder shall be in writing and shall be
sufficiently given and shall be deemed given when delivered and, if delivered by
mail, shall be sent by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
TO THE BOARD: Minnesota Agricultural and
Economic Development Board
500 Metro Square
121 7th Place East
Saint Paul, Minnesota 55101
ATTENTION: Financial Management Division
(Department of Trade and Economic Development)
TO THE BORROWER: Excelsior-Henderson Motorcycle Manufacturing Company
805 Hanlon Drive
Belle Plaine, MN 56011
ATTENTION: Chief Executive Officer
TO THE TRUSTEE: U. S. Bank National Association
c/o First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
ATTENTION: Corporate Trust Administration
A duplicate copy of each notice, certificate and other communication given
hereunder by either the Board or the Borrower to the other shall also be given
to the Trustee. The Board, the Borrower and the Trustee may, by notice given
hereunder, designate any further or different addresses to which subsequent
notices, certificates and other communications shall be sent.
Section 12.2. BINDING EFFECT. This Agreement shall inure to the benefit
of and shall be binding upon the Board, the Borrower and their respective
personal representatives, heirs, devisees, successors and assigns (as
applicable) and shall create no rights in any other parties except as may be
specifically set forth elsewhere in this Agreement.
Section 12.3. SEVERABILITY. In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.
Section 12.4. AMENDMENTS, CHANGES AND MODIFICATIONS. This Agreement, the
Security Instruments and the Note may not be amended, changed, modified, altered
or
<PAGE>
terminated without the concurring written consent of the Bondholders, except
as provided in Section 6.08 of the General Bond Resolution. Wherever the
consent or approval of the Board or the Trustee is required or permitted under
this Agreement, the Security Instruments or the Note, such consent or approval
shall not be unreasonably withheld (based upon the standards set forth in the
General Bond Resolution) and shall be promptly given (but this provision shall
not be deemed to require any special meetings by the Board).
Section 12.5. DATA PRIVACY DISCLOSURE. The Borrower understands that the
data which the Borrower provides pursuant to the Agreement, including, but not
limited to, information required under Section 8.3, Section 8.4, Section 8.5,
Section 8.7 and Section 8.18 will be used by the Board to:
(a) Assess Borrower's financial status;
(b) Make any reports required by the Act, any other law or
government regulation in accordance with MINNESOTA STATUTES Section 13.71;
(c) Provide such information to the public, including, but not
limited to, potential purchasers of its Bonds, Bondholders, Bond Counsel
and the Board's underwriters and placement agents, as is needed in
connection with the sale, issuance and payments of Bonds;
(d) Enforce this agreement and any mortgage or other security
instrument between the Borrower and the Board; and
(e) Operate and evaluate its Program.
The Borrower further understands that there is a possibility that the data might
constitute a public record and may be examined by anyone. The Borrower hereby
consents to the use of such data as described above and to its public
disclosure. Failure to provide the required data may constitute an Event of
Default under Section 10.1. In the event a Person other than the Trustee,
investment bankers representing the Board or any agent thereof requests the
information described in Sections 8.4, 8.5 or 8.18, the Board shall exercise its
best efforts to provide the Borrower advance notice of its intention to provide
such information to such Person.
Section 12.6. EXECUTION OF COUNTERPARTS. This Agreement may be executed
in several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.
Section 12.7. APPLICABLE LAW. This Agreement shall be governed
exclusively by the applicable laws of the State.
Section 12.8. RECORDING AND FILING. (a) The financing statements
perfecting the security interests created by the Security Instruments or by this
Agreement in all amounts payable hereunder shall be recorded or filed, as the
case may be, in such office or offices as
<PAGE>
may at the time be provided by law as the proper place for the recordation or
filing thereof. The Borrower shall be responsible for such recording and
filing and shall bear the expense associated therewith and in connection with
the continued validity and perfection thereof.
(b) The Board and the Borrower shall execute and deliver all instruments
and shall furnish all information necessary or appropriate to perfect or protect
any security interest created or contemplated by this Agreement, the Security
Instruments or the Board Resolution.
Section 12.9. SURVIVAL OF OBLIGATIONS. This Agreement, the Security
Instruments and the Note shall remain in full force and effect until the Series
1997B Bonds, together with all interest thereon, and all amounts payable under
this Agreement, the Security Instruments and the Note and the Board Resolution
shall have been paid in full. However, the obligations of the Borrower to make
the payments required by Section 5.1 and Section 5.2 hereof and Article XI
hereof, and to provide the indemnity required by Section 8.2 hereof and payment
of attorney fees required by Section 10.4 hereof, shall survive the termination
of this Agreement and the full payment of the Single Lot Bonds.
Section 12.10. TABLE OF CONTENTS AND SECTION HEADINGS NOT CONTROLLING. The
Table of Contents and the headings of the several Sections in this Agreement
have been prepared for convenience of reference only and shall not control,
affect the meaning of or be taken as an interpretation of any provision of this
Agreement.
Section 12.11. LIMITED LIABILITY. The Act prescribes and the parties
intend that by reason of making this Agreement, by reason of the issuance of the
Single Lot Bonds, by reason of the performance of any act required of the Board
by this Agreement, or by reason of the performance of any act requested of the
Board by the Borrower, no indebtedness or charge against the general credit or
taxing powers, if any, of the Board within the meaning of any constitutional or
statutory limitation shall occur.
<PAGE>
IN WITNESS WHEREOF, the Board and the Borrower have caused this Loan
Agreement to be executed in their respective names as of November 1, 1997.
MINNESOTA AGRICULTURAL AND
ECONOMIC DEVELOPMENT BOARD
By
Its Chair
ATTEST:
By
--------------------
Its Executive Director
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By
Its
----------------------------------
Signature page of the Loan Agreement dated as of November 1, 1997
between the Minnesota Agricultural and Economic Development Board and
Excelsior-Henderson Motorcycle Manufacturing Company
<PAGE>
SCHEDULE I
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
PROMISSORY NOTE
No. 1 $7,145,000
Excelsior-Henderson Motorcycle Manufacturing Company, a Minnesota
corporation, acknowledges itself indebted and for value received hereby promises
to pay to the order of the Minnesota Agricultural and Economic Development Board
as the statutory successor to the Minnesota Energy and Economic Development
Authority (the "Board") and its successors and assigns, the principal sum of
SEVEN MILLION ONE HUNDRED FORTY FIVE THOUSAND DOLLARS ($7,145,000) together with
interest on the unpaid principal balance of this Note until the Borrower's
obligation with respect to the payment of such sum shall be discharged at a rate
of interest identical to the stated rates of interest on the Series 1997B Bonds
referred to below (taking into account the different rates for the different
maturities and principal amounts of the Series 1997B Bonds) but payable not as
provided in the Series 1997B Bonds but as provided below and in the Loan
Agreement referred to below.
This Note is issued to evidence the obligation of Excelsior-Henderson
Motorcycle Manufacturing Company under and pursuant to, and shall be governed by
and construed in accordance with the terms and conditions of, the Loan Agreement
dated as of November 1, 1997 (the "Loan Agreement") between the Board and
Excelsior-Henderson Motorcycle Manufacturing Company, for the repayment of the
loan made by the Board to Excelsior-Henderson Motorcycle Manufacturing Company,
thereunder from the proceeds of the Board's $7,145,000 principal amount of
Minnesota Small Business Development Loan Program Taxable Revenue Bonds, Series
1997B, Lot 1 (the "Bonds") and the payment of interest thereon, including
provision for prepayment of said loan in certain cases, and for the satisfaction
of a certain right of reimbursement of the General Guaranty Fund as provided in
the Loan Agreement under certain circumstances and for the satisfaction of a
certain right of reimbursement of the Board as provided in the Loan Agreement
under certain circumstances. This Note is secured by the Security Instruments
(as defined in the Loan Agreement) made by Excelsior-Henderson Motorcycle
Manufacturing Company to the Board and certain other property, as provided in
the Loan Agreement and granted by the maker to the payee as provided in the Loan
Agreement. The Loan Agreement (together with this Note) and the Security
Instruments have been pledged to the Holders of the Bonds from time to time
issued under the Minnesota Small Business Development Loan Program Revenue Bond
General Bond Resolution (the "General Bond Resolution") adopted by the Board on
September 26, 1984 and thereafter amended and restated from time to time
pursuant to its terms.
As provided in the Loan Agreement and subject to the provisions thereof,
payments hereon are to be made in lawful money of the United States of America
at the place and in the manner provided in the Loan Agreement, in monthly
installments of principal and interest, commencing December 1, 1997, and payable
thereafter on the first day of each month, such
<PAGE>
installments to be applied first to the payment of interest then due on this
Note, and the remaining balance thereof to reduce the unpaid principal amount
of this Note, with each installment payable as interest to include interest
payable in advance due to and including the first day of the next succeeding
month from the month in which the installment is payable and with each
installment payable as principal to be similarly paid in advance. The
monthly installments to be paid on this Note shall be an amount equal to (A)
on January 1, 1998and (i) an installment of interest (after receiving a
credit for any accrued interest on the Bonds received from the Placement
Agents (as defined in the Loan Agreement) of the Bonds) equal to the
interest due on the Bonds on February 1, 1998; and (ii) an installment of
principal equal to one-half of the principal due on the Bonds on August 1,
1998; and (B) for the period commencing on February 1, 1998 and on the first
day of each month thereafter (1) one-sixth of the interest installment due on
the Bonds on the next succeeding bond payment date thereof (taking into
account such in-advance payments) and (2) one-twelfth of the principal
installment due on the Bonds on the next succeeding bond payment date on
which a principal installment thereon is due (taking into account such
in-advance payments), such installments to be reduced by that sum or sums
such that on or before the bond payment date on which a principal installment
is due thereon any amounts then on deposit in the Holding Account created
with respect to the Bonds pursuant to the provisions of the General Bond
Resolution plus the monthly installment then to be paid on this Note shall
equal the debt service payment on the Bonds due on such bond payment date.
This Note may be prepaid in whole or in part in accordance with the
provisions of the Loan Agreement.
Excelsior-Henderson Motorcycle Manufacturing Company agrees to make the
payments on this Note on the dates and in the amounts specified herein and in
the Loan Agreement and in addition agrees to make such other payments at such
times and upon such conditions as are required pursuant to the Loan
Agreement. In the "Event of Default", as defined in the Loan Agreement, the
principal of and interest on this Note may be declared immediately due and
payable as provided in the Loan Agreement. This Note may be cancelled,
amended or supplemented as provided in the Loan Agreement.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived by the makers hereof.
<PAGE>
IN WITNESS WHEREOF, Excelsior-Henderson Motorcycle Manufacturing Company
has caused this Note to be executed in its respective name and on its behalf by
the manual signature of its _______________, all as of December 1, 1997.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By
Its__________________________________
<PAGE>
EXHIBIT A TO
LOAN AGREEMENT
LEGAL DESCRIPTION OF LAND
Lot 1, Block 1, and Lot 3, Block 2, Excelsior-Henderson Industrial Park
Subdivision, according to the recorded plat thereof, Scott County,
Minnesota.
A-67
<PAGE>
EXHIBIT B-1 TO
LOAN AGREEMENT
<TABLE>
<CAPTION>
TOTAL
PAINT FINISHING SYSTEM COST
<S> <C>
10 Stage Surface Preparation Machine $ 603,280
R.O. Water System 117,706
Electrocoat System 524,351
5 Stage Postrinse Machine 174,761
Electrocoat Bake Oven and Cooling Tunnel 222,360
Dry-Off Oven 85,123
Powder Cure Oven & Cooldown Tunnel 274,655
Tack Booths (2) 54,028
Base Coat Booths (2) 96,893
Demask Booths (2) 62,079
Clear Coat Environmental Room 139,786
Flash Enclosures 57,171
Base Coat/Clear Coat Ovens and Cooldown 432,425
Programmable Logic Control System 73,396
Wastewater Treatment System 273,589
Power & Free Conveyor System 1,966,153
HVAC System 1,350,348
Nordson booths 548,670
Total $7,056,774
</TABLE>
B-1
<PAGE>
EXHIBIT B-2 TO
LOAN AGREEMENT
B-2
<PAGE>
EXHIBIT B-3 TO
LOAN AGREEMENT
B-3
<PAGE>
EXHIBIT C
$7,145,000
Minnesota Agricultural and Economic Development Board
Minnesota Small Business Development
Loan Program Revenue Bonds
Series 1997B Taxable, Lot 1
DISBURSEMENT REQUEST NO. ____ FOR DISBURSEMENT
OF FUNDS FROM THE CONSTRUCTION ACCOUNT
TO: U.S. Bank National Association
Corporate Trust Administration
180 East Fifth Street
St. Paul, Minnesota 55101
I, a duly authorized representative of Excelsior-Henderson Motorcycle
Manufacturing Company (the "Borrower") and the obligor under a Loan Agreement,
dated as of November 1, 1997 (the "Loan Agreement), between the Minnesota
Agricultural and Economic Development Board (the "Board") and the Borrower,
hereby certify on behalf of the Borrower pursuant to Section 4.3 thereof as
follows:
(a) I have reviewed appropriate records and documents of the Borrower
relating to the matters covered by this Request. All capitalized terms used in
this Request shall have the meaning given them in the Loan Agreement.
(b) The Borrower has provided the Trustee and the Board with proof of
satisfaction of the requirements in Section 4.3(a)(ii)(F) of the Loan Agreement
for $3,500,000 in Equipment.
(c) This certificate accompanies the Borrower's request number ______
for advances under the Loan Agreement dated as of November 1, 1997 between
Borrower and the Minnesota Agricultural and Economic Development Board (the
"Board"). Previous to this request for advance the Borrower has received
advances of $____________ of Bond Proceeds.
(d) The presently pending request for advance seeks $__________ in Bond
Proceeds.
(e) The Trustee may rely upon the foregoing certifications in approving
any advance requested by Borrower.
(f) No item hereby requested to be paid or reimbursed has been included in
any Request previously filed by the Borrower with the Trustee under Section 4.3
of the Loan
C-1
<PAGE>
Agreement.
(g) No default by the Borrower under the Loan Agreement or the Security
Instruments has occurred which has not been cured.
(h) The amount remaining in the Construction Account (together with any
anticipated investment income to be credited thereto) will, after payment of the
amount requested by this Request, be sufficient to pay the remaining costs of
the Project.
(i) All costs of issuance have been paid by the Borrower or sufficient
funds have been deposited for such costs of issuance in the Cost of Issuance
Account.
(j) Payment of the amounts requested herein will not result in a violation
by the Borrower of its representations as set forth in the Loan Agreement or the
Security Instruments.
(k) All of the items to be acquired as Equipment on Schedule A hereto have
been acquired, installed and accepted and are free and clear of all security
liens and encumbrances and a filed UCC-1 is attached hereto reflecting the
Board's security interest which has been assigned to U.S. Bank National
Association in the Equipment on Schedule A hereto and a UCC search has been done
which is attached hereto to indicate all security interests in the Borrower.
(l) Attached hereto is an opinion of counsel to the Borrower that the
Equipment on Schedule A hereto is free and clear of all liens except the lien
of the Security Instruments and the security interest of the Board in the
Equipment has been perfected and is valid.
(m) Each item for which payment or reimbursement is hereby requested (a)
has been paid or incurred or is now due and payable and (b) is or was necessary
in connection with the acquisition and installation of the Project.
(n) The Board and any successor has the right to use Equipment and the use
of the Equipment and the products produced by the Equipment will not violate any
trademark, tradename or patent of any Person.
(o) All conditions in Sections 2 and 4 of the Disbursing Agreement have
been met.
You are hereby requested to advance and disburse from the Construction
Account in the Construction Account the amounts shown on Schedules A and B and
make payment to the persons entitled to receipt thereof as shown on said
Schedules.
C-2
<PAGE>
WITNESS my hand this ___ day of ___________, 199_.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By
------------------------------------
Its
---------------------------------
Approved:
MINNESOTA AGRICULTURAL AND
ECONOMIC DEVELOPMENT BOARD
By
----------------------------------
Its Executive Director
C-3
<PAGE>
SCHEDULE A
The Borrower has incurred the following costs for Equipment:
<TABLE>
<CAPTION>
ITEM AMOUNT INCURRED CONTRACTOR OR SUPPLIER
- ---- --------------- ----------------------
<S> <C> <C>
</TABLE>
C-4
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT TO
ITEM SUPPLIER OF ITEM BE PAID
- ---- ------------------- ---------
<S> <C> <C>
</TABLE>
C-5
<PAGE>
EXHIBIT D
[Opinion of Counsel]
D-1
<PAGE>
EXHIBIT E
[Consent Form]
E-1
<PAGE>
EXHIBIT 10.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN AGREEMENT
BY
ECONOMIC DEVELOPMENT AUTHORITY
OF
THE CITY OF BELLE PLAINE, MINNESOTA
AND
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
DATED AS OF JULY 1, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
This instrument was drafted by:
KENNEDY & GRAVEN, Chartered
470 Pillsbury Center
200 South Sixth Street
Minneapolis, Minnesota 55402
<PAGE>
EXHIBIT 10.2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PARTIES...................................................................1
RECITALS..................................................................1
ARTICLE ONE
Definitions
Section 1.01. Defined Terms...........................................3
Section 1.02. Rules of Interpretation.................................5
ARTICLE TWO
Representations
Section 2.01. Representations by the Issuer...........................6
Section 2.02. Representations by the Borrower.........................7
Section 2.03. Lender May Rely on Representations......................8
Section 2.04. Other Agreements and Instruments........................9
ARTICLE THREE
The Loan
Section 3.01. Amount and Source of Loan; Repayment...................10
Section 3.02. Borrower's Obligations Unconditional...................10
Section 3.03. Borrower's Remedies....................................10
Section 3.04. Additional Payments....................................11
Section 3.05. Escrow Agreement; Loan Disbursement....................11
Section 3.06. Interest Upon Default..................................11
ARTICLE FOUR
Borrower's Covenants
Section 4.01. Covenants..............................................12
Section 4.02. Indemnity..............................................14
Section 4.03. Reports to Governmental Agencies.......................15
Section 4.04. Security Agreement.....................................15
Section 4.05. Concerning the Facility................................15
Section 4.06. Alterations and Disposal of Equipment..................15
Section 4.07. INTENTIONALLY OMITTED..................................15
Section 4.08. Use of Facility........................................15
Section 4.09. Maintenance and Possession of Equipment by Borrower....16
Section 4.10. Observance of Covenants and Terms of Resolution
and the Bond...........................................16
Section 4.11. Notice of Defaults.....................................16
Section 4.12. Borrower to Execute Further Documents..................16
i
<PAGE>
EXHIBIT 10.2
Section 4.13. Borrower to Maintain Certain Standards.................16
Section 4.14. Mergers and Consolidations.............................16
Section 4.15. Insurance..............................................16
Section 4.16. Taxes..................................................18
ARTICLE FIVE
Borrower's Options
Section 5.01. Prepayments............................................19
Section 5.02. Assignment.............................................19
ARTICLE SIX
Events of Default and Remedies
Section 6.01. Events of Default......................................20
Section 6.02. Remedies in the Event of Default.......................21
Section 6.03. Disposition of Funds...................................21
Section 6.04. Manner of Exercise.....................................21
Section 6.05. Effect of Waiver.......................................22
Section 6.06. Notice to Borrower of Event of Default.................22
ARTICLE SEVEN
General
Section 7.01. Notices................................................23
Section 7.02. Binding Effect.........................................23
Section 7.03. Severability...........................................23
Section 7.04. Amendments, Changes and Modifications..................23
Section 7.05. Execution; Counterparts................................24
Section 7.06. Concerning the Bond....................................24
Section 7.07. Limitation of Issuer's Liability.......................24
Section 7.08. Assignment by the Issuer...............................24
Section 7.09. Survival of Certain Provisions.........................25
Section 7.10 Publicity..............................................25
SIGNATURES .......................................................26
</TABLE>
ii
<PAGE>
EXHIBIT 10.2
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of July 1, 1998, is made and entered
into by EXCELSIOR-HENDERSON MORTORCYCLE MANUFACTURING COMPANY (the
"Borrower") and ECONOMIC DEVELOPMENT AUTHORITY OF THE CITY OF BELLE PLAINE,
MINNESOTA (the "Issuer").
WHEREAS, the Municipal Industrial Development Act, Minnesota
Statutes, Sections 469.152 to 469.165 (the "Act"), declares and provides that
the welfare of the State of Minnesota requires active promotion, attraction,
encouragement and development of economically sound industry and commerce
through governmental action to prevent, so far as possible, emergence of
blighted lands and areas of chronic unemployment, and it is the policy of the
State of Minnesota to facilitate and encourage action by local government
units to prevent the economic deterioration of such areas to the point where
the process can be reversed only by total redevelopment through the use of
local, state and federal funds derived from taxation with the attendant
necessity of relocating displaced persons and of duplicating public services
in other areas; and
WHEREAS, the Act further finds and declares that such governmental
action is required by technological change that has caused a shift to a
significant degree in the area of opportunity for educated youth to
processing, transporting, marketing, service and other industries, and unless
existing and related industries are retained and new industries are developed
to use the available resources in each community, a large part of the
existing investment of the community and of the State of Minnesota as a whole
in educational and public service facilities will be lost, and the movement
of talented, educated personnel of mature age to areas where their services
may be effectively used and compensated and the lessening attraction of
persons and businesses from other areas for purposes of industry, commerce
and tourism will deprive the community and the State of Minnesota of the
economic and human resources needed as a base for providing governmental
services and facilities for the remaining population; and
WHEREAS, the Act further finds and declares that such governmental
action is required by the increase in the amount and cost of governmental
services and the need for more intensive development and use of land to
provide an adequate tax base to finance these costs; and
WHEREAS, the Issuer is a "redevelopment agency," as such term is
defined in the Act, authorized by the Act to enter into a revenue agreement
with any person, firm, or public or private corporation or federal or state
governmental subdivision or agency in such manner that payments required
thereby to be made by the contracting party shall be fixed, and revised from
time to time as necessary, so as to produce income and revenue sufficient to
provide for the prompt payment of principal of and interest on all revenue
bonds issued under the Act when due, and the revenue agreement shall also
provide that the contracting party shall be required to pay all expenses of
the operation and maintenance of the "project" (as defined in the Act)
including adequate insurance thereon and insurance against all liability for
injury to persons or property arising from the operation thereof, and all
taxes and special assessments levied upon or with respect to the project and
payable during the term of the revenue agreement; and
WHEREAS, the Issuer is further authorized under the Act to issue
revenue bonds, in anticipation of the collection of revenues of a project, to
finance, in whole or in part, the cost of acquisition, construction,
reconstruction, improvement, betterment, or extension of such project; and
1
<PAGE>
EXHIBIT 10.2
WHEREAS, the Issuer proposes to finance the acquisition and
installation of certain manufacturing equipment and tooling (the
"Equipment"), installed or to be installed in the manufacturing and
distribution facility of the Borrower (the "Facility"), under the Act through
the issuance of a revenue bond of the Issuer (the "Bond") under the
Resolution, as hereinafter defined; and
WHEREAS, the Bond issued under the Resolution will be secured by a
reserve fund pursuant to an escrow deposit agreement and a security agreement
with respect to the Equipment, and by an assignment of the revenues derived
by the Issuer from the Loan Agreement, as hereinafter defined, and the Bond
and the interest on the Bond shall be payable solely from the revenue pledged
therefor and the Bond shall not constitute a debt of the Issuer within the
meaning of any constitutional or statutory limitation nor shall the Bond
constitute nor give rise to a pecuniary liability of the Issuer or a charge
against its general credit or taxing powers and shall not constitute a
charge, lien, or encumbrance, legal or equitable, upon any property of the
Issuer other than the Issuer's interest in the Loan Agreement; and
WHEREAS, the Borrower has acquired and installed portions of the
Equipment and proposes to acquire and install the remainder of the Equipment,
and the Issuer desires to finance the acquisition and installation of the
Equipment upon the terms and conditions as required by the Act and as
hereinafter in this Loan Agreement set forth; and
WHEREAS, the execution, delivery and performance of this Loan
Agreement have been duly authorized by the Issuer, and all conditions, acts
and things necessary and required by the Constitution or statutes of the
State of Minnesota or otherwise, to exist, to have happened, or to have been
performed precedent to and in the execution and delivery of this Loan
Agreement and in the issuance of the Bond, do exist, have happened and have
been performed in regular form, time and manner;
NOW THEREFORE, in consideration of the mutual promises herein
contained, the parties to this Agreement agree as follows:
2
<PAGE>
EXHIBIT 10.2
ARTICLE ONE
DEFINITIONS
Section 1.01. DEFINED TERMS. As used in this Loan Agreement, the
following terms shall have the following respective meanings:
ACT: the Municipal Industrial Development Act, Minnesota Statutes,
Sections 469.152 to 469.165, as amended.
ASSIGNMENT OF LOAN AGREEMENT: the Assignment of Loan Agreement, dated
as of July 1, 1998, executed by the Issuer, assigning certain interests of
the Issuer in this Loan Agreement to the Lender.
BOND: the revenue Bond issued in the original principal amount of
$6,100,000 pursuant to the Act by the Issuer and designated as the Economic
Development Authority of the City of Belle Plaine, Minnesota, Taxable
Industrial Development Revenue Bond (Excelsior-Henderson Project), Series
1998.
BORROWER: Excelsior-Henderson Motorcycle Manufacturing Company, a
Minnesota corporation, and its successors and assigns.
BUILDING: the buildings and all other structures and facilities owned
by the Borrower, located on the Land, and forming a part of the Facility.
CITY: the City of Belle Plaine, Minnesota, and its successors.
CLOSING DATE: the date on which the Lender purchases the Bond from the
Issuer.
COSTS: with respect to the application of the proceeds of the Bond,
shall be deemed to include reimbursement of or payment for the costs of
acquisition and installation of the Equipment approved for disbursement by
the Lender pursuant to the Escrow Deposit Agreement, and shall also include
amounts paid or incurred for other items authorized by the Act, including but
not limited to:
(a) obligations of the Borrower incurred for labor and materials
(including obligations payable to the Borrower) in connection with the
acquisition and installation of the Equipment;
(b) the cost of contract bonds and of issuance thereof of all
kinds that may be required or necessary during the course of installation of
the Equipment;
(c) all costs of architectural and engineering services, including
the costs of the Borrower for test borings, surveys, estimates, plans and
specifications and preliminary investigations therefor, and for supervising
installation, as well as for the performance of all other duties required by
or consequent upon the proper installation of the Equipment;
(d) all expenses incurred in connection with the issuance of the
Bond for the purpose of providing funds for the acquisition and installation
of the Equipment, including without limitation, legal expenses and fees, and
recording and filing fees, including any mortgage registration tax;
3
<PAGE>
EXHIBIT 10.2
(e) any sums required to reimburse the Issuer or the Borrower for
advances made by or on behalf of either of them for any of the above items or
for any other costs incurred and for work done by either of them which are
properly chargeable to the Equipment; and
(f) interest incurred by the Borrower on loans made with respect
to the acquisition and installation of the Equipment.
ENVIRONMENTAL INDEMNITY AGREEMENT: the Environmental Indemnity
Agreement, dated as of July 1, 1998, executed by the Borrower and providing
for the environmental indemnification of the Lender and the Issuer.
EQUIPMENT: those items of manufacturing machinery, equipment, tooling,
and related property, referred to in the Security Agreement, and replacements
and substitutions thereof as permitted by this Loan Agreement and the
Security Agreement, acquired and to be acquired and installed in the Building
or elsewhere on or in connection with the Land with the proceeds from the
sale of the Bond for use in the motorcycle manufacturing business of the
Borrower.
ESCROW AGENT: National City Bank, N.A., and its successor and assigns.
ESCROW DEPOSIT AGREEMENT: the Escrow Deposit Agreement, dated as of
July 1, 1998, executed by the Borrower, the Lender, and the Escrow Agent, and
providing for the escrow and disbursement of the proceeds of the Bond.
EVENT OF DEFAULT: any event defined as such in Section 6.01 of this
Loan Agreement.
FACILITY: the Land and the Building.
HOLDER: the Lender or any subsequent holder of the Bond.
ISSUER: the Economic Development Authority of the City of Belle Plaine,
Minnesota.
LAND: the real estate described in Exhibit A.
LEASE: the lease for the Land between the Borrower and Ryan Belle
Plaine, LLC dated as of April 21, 1997, as supplemented as of the date of
this Loan Agreement.
LENDER: FINOVA Public Finance, Inc., its successors and assigns.
LOAN: the loan of the proceeds of the Bond from the Issuer to the
Borrower pursuant to this Loan Agreement.
LOAN AGREEMENT: this Loan Agreement, as the same may be amended,
modified, or supplemented from time to time.
RESERVE FUND: the fund by such name established with the Escrow Agent
pursuant to the Escrow Deposit Agreement required by Section 3.05 of this
Loan Agreement.
RESOLUTION: Resolution No. 98-07 of the Issuer adopted on June 15,
1998, authorizing the issuance of the Bond, prescribing the form of the Loan
Agreement and the Security Agreement, and
4
<PAGE>
EXHIBIT 10.2
determining other matters in connection with the issuance of the Bond and the
execution and delivery of and performance under the other aforesaid documents.
SECURITY AGREEMENT: the Security Agreement, dated as of July 1, 1998,
executed by the Borrower, granting a security interest in the Equipment to
the Lender.
STATE: the State of Minnesota
WARRANT AND FEE AGREEMENT: the Warrant and Fee Agreement, dated as of
July 1, 1998, executed by the Borrower, granting the Holder rights to certain
payments and stock warrants as described therein.
Section 1.02. RULES OF INTERPRETATION. (a) This Loan Agreement shall
be interpreted in accordance with and governed by the laws of the State.
(b) Unless the context clearly requires otherwise, the singular shall
include the plural and vice versa, and the masculine shall include the
feminine and vice versa.
(c) The words "herein" and "hereof" and words of similar import,
without reference to any particular section or subdivision, refer to this
Loan Agreement as a whole rather than to any particular section or
subdivision hereof.
(d) References herein to any particular section or subdivision hereof
are to the section or subdivision of this instrument as originally executed.
(e) The headings of articles and sections herein are for convenience of
reference only and are not a part of this Loan Agreement.
5
<PAGE>
EXHIBIT 10.2
ARTICLE TWO
REPRESENTATIONS
Section 2.01. REPRESENTATIONS BY THE ISSUER. The Issuer makes the
following representations as the basis for its covenants herein:
(a) the Issuer is an economic development authority, organized and
existing under the Constitution and laws of the State (including Minnesota
Statutes, Sections 469.090-469.1081) and has power to issue the Bond under
the Act;
(b) the Equipment comprises personal properties useful in connection
with the operation of a revenue-producing enterprise as contemplated by
the Act;
(c) on the basis of information provided to the Issuer by the
Borrower, it appears, and the Issuer hereby finds, that the effect of
the acquisition and installation of the Equipment will be to encourage
the development of economically sound commerce in the City, to increase
the taxable value of property within the City, and to increase current
employment opportunities for residents of the City, all to the benefit
of the residents and taxpayers of the City, the school district, Scott
County, and the State;
(d) the financing of the Equipment, the issuance and sale of the Bond,
the execution and delivery of this Loan Agreement, the Assignment of Loan
Agreement, and the performance of all covenants and agreements of the
Issuer contained in the Bond, this Loan Agreement, the Assignment of Loan
Agreement, and all other documents that have been executed by the Issuer in
connection with this Loan Agreement and the transactions contemplated
hereby (collectively, all such documents are referred to herein as the
"Issuer Documents"), and of all other acts and things required under the
Constitution and laws of the State to make the Issuer Documents valid and
binding obligations of the Issuer in accordance with their terms are
authorized by the Act and, where necessary to be valid and binding, have
been duly authorized by a resolution of the Board of Commissioners of the
Issuer adopted at a meeting duly called and held by the affirmative vote of
not less than a majority of its members;
(e) the Issuer Documents are the legal, valid, and binding obligations
of the Issuer, enforceable against it in accordance with their respective
terms;
(f) the Facility will add to the tax base of the City, and will
accordingly be of direct benefit to the taxpayers of the Issuer;
(g) to provide funds to be loaned to finance Costs related to
acquisition and installation of the Equipment, in anticipation of the
repayment thereof, the Issuer has duly authorized the Bond in the
principal amount of not to exceed $8,500,000 to be issued upon the terms
set forth in the Resolution, under the provisions of which the Issuer has
agreed to assign its interest in this Loan Agreement and grant a security
interest therein to the Lender as security for the payment of the
principal of and interest on the Bond;
(h) pursuant to the Resolution, the Issuer has authorized and directed
the Lender to disburse the proceeds of the Bond directly to the Borrower
and such other parties as may be entitled to
6
<PAGE>
EXHIBIT 10.2
payment, upon receipt of such supporting documentation as the Lender may
deem reasonably necessary, including compliance with all conditions set
forth herein;
(i) the execution and delivery of the Issuer Documents will not
conflict with or constitute on the part of the Issuer a breach of, or a
default under, any existing law, or any existing agreement, indenture,
mortgage, lease, or other instrument to which the Issuer is subject or
is a party or by which it is bound and do not and will not constitute a
default under any of the foregoing, or result in the creation or imposition
of any lien, charge, or encumbrance of any nature upon any of the property
or assets of the Issuer contrary to the terms of any instrument or
agreement; and
(j) there are no proceedings, pending or threatened, contemplating the
liquidation or dissolution of the Issuer or threatening its existence or
powers or threatening the validity of the Issuer Documents.
Section 2.02. REPRESENTATIONS BY THE BORROWER. The Borrower makes the
following representations as the basis for its agreements and covenants
herein:
(a) the execution and delivery of this Loan Agreement, the Security
Agreement, the Escrow Deposit Agreement, the Environmental Indemnity
Agreement, and all other documents that have been executed by the Borrower in
connection with this Loan Agreement and the transactions contemplated hereby
(collectively, all such documents are referred to herein as the "Borrower
Documents"), the consummation of the transactions contemplated hereby, and
the fulfillment of the terms and conditions hereof do not and will not
conflict with or result in a breach of any of the terms or conditions of any
mortgage, indenture, loan agreement, or instrument to which the Borrower is
now a party or to which any property of the Borrower is subject, and do not
and will not constitute a default under any of the foregoing, or result in
the creation or imposition of any lien, charge, or encumbrance of any nature
upon any of the property or assets of the Borrower contrary to the terms of
any instrument or agreement;
(b) the Loan to be made by the Issuer will induce the Borrower to
undertake the acquisition and installation of the Equipment in the Facility;
(c) the proceeds of the Bond, together with any other funds to be
contributed to the payment of Costs by the Borrower, will be sufficient to
pay the costs of acquiring and installing the Equipment in the Facility for
use in the motorcycle manufacturing business of the Borrower, and the
proceeds of the Bond and the Loan will be used only for purposes authorized
by the Act;
(d) the Borrower does not rely on any warranty of the Issuer or Lender,
either express or implied, that the Equipment will be suitable to the
Borrower's needs, and recognizes that under the Act the Issuer is not
authorized to own and operate the Equipment or to expend any funds thereon
other than the revenues received by it therefrom or the proceeds of the Bond
or other funds granted to it for purposes contemplated in the Act;
(e) there is not pending, or to the best knowledge of the Borrower
threatened, any suit, action, or proceeding against or affecting the Borrower
before or by any court, arbitrator, administrative agency, or other
governmental authority which materially and adversely affects the validity,
as to the Borrower, of any of the transactions contemplated hereby, or the
ability of the Borrower to perform its obligations hereunder or contemplated
hereby, or the financial condition or status of the Borrower, or any material
contracts to which the Borrower is a party;
7
<PAGE>
EXHIBIT 10.2
(f) to the best of the Borrower's knowledge, the Facility and the
Equipment will meet, on the date hereof, all material requirements of law,
including requirements of any federal, State, Scott County, Issuer, or other
governmental authority having jurisdiction over the Borrower or the Facility
or Equipment, including, but not limited to any applicable zoning, safety, or
health regulations;
(g) neither the Borrower Documents nor any other document provided to
the Lender for its use in considering whether to and agreeing to purchase the
Bond, contains any untrue statement of a material fact, and there is no fact
presently known to the Borrower which materially adversely affects or in the
future may (so far as the Borrower can now foresee) materially adversely
affect the business, operations, affairs, or condition of the Borrower or any
of its material properties which have not been set forth in the Borrower
Documents or otherwise provided to the Lender by the Borrower;
to the best knowledge of the Borrower, no member of the Board of
Commissioners of the Issuer or any officer or employee of the Issuer has an
unlawful direct or indirect financial interest in or will personally gain an
unlawful financial benefit from the Facility or the Equipment or from the
issuance of the Bond;
(i) the Borrower is a corporation, duly organized and in good standing
under the laws of the State, is not in violation of any provisions of its
articles of incorporation or bylaws, or the laws of the State, is duly
authorized to transact business within the State, has power to enter into the
Borrower Documents, and has duly authorized the execution, delivery, and
performance of the Borrower Documents by proper action of its board;
(j) the Facilities are serviced by all utilities necessary to operate
the Equipment, including, but not limited to, electricity, sewer and water,
and heating and cooling;
(k) the Borrower shall take all action necessary to assure that there
will be no material adverse change to the Borrower's business by reason of
the advent of the year 2000, including without limitation, that all
computer-based systems, imbedded microchips, and other processing
capabilities effectively recognize and process dates after April 1, 1999. At
the Lender's request, the Borrower shall provide to the Lender assurance
reasonably acceptable to the Lender that the Borrower's computer-based
systems, imbedded microchips, and other processing capabilities are year 2000
compatible;
(l) the Borrower possesses all necessary patents, licenses, trademarks,
trademark rights, trade names, trade name rights and copyrights to conduct
its business as now conducted, without known conflict with any patent,
license, trademark, trade name or copyrights of any other person;
(m) the audited financial statements provided to the Lender in
connection with the transactions contemplated hereby have been prepared in
accordance with generally accepted accounting principles consistently applied
(or, with regard to unaudited financial statements, have been in accordance
with standard reporting and auditing practices) and substantially comply with
usual and customary fiscal reporting practices for similar publicly held
companies;
Section 2.03. LENDER MAY RELY ON REPRESENTATIONS. The Issuer and the
Borrower agree that the representations contained in this Article Two are for
the use and benefit of the Holder, and the Holder shall be entitled to rely
thereon. The Borrower agrees that the representations contained in Section
2.02 hereof are for the benefit of and may be relied upon by the Issuer.
8
<PAGE>
EXHIBIT 10.2
Section 2.04. OTHER AGREEMENTS AND INSTRUMENTS. The Borrower
acknowledges and represents that the Borrower Documents and all other
agreements and instruments securing the Bond and executed and delivered in
contemplation of the issuance and delivery of the Bond shall be valid and
legally binding on the Borrower and shall inure to the benefit of the Lender
or any subsequent Holder of the Bond.
9
<PAGE>
EXHIBIT 10.2
ARTICLE THREE
THE LOAN
Section 3.01. AMOUNT AND SOURCE OF LOAN; REPAYMENT. The Issuer agrees
to issue the Bond and sell the Bond to the Lender. The Issuer agrees to loan
to the Borrower and the Borrower agrees to borrow from the Issuer, the
proceeds of the Bond upon the terms and conditions set forth herein. The
source of such Loan shall be the Bond proceeds, which proceeds shall be
advanced by the Lender, for the account of the Issuer, to or on behalf of the
Borrower in payment of Costs, all subject to and in accordance with the
provisions of this Loan Agreement. The Borrower agrees that it will repay
the Loan of the proceeds of the Bond by making repayments to the Holder
thereof for the account of the Issuer at the times and in the amounts
necessary to pay in full the principal of, prepayment premium, if any, and
interest on the Bond when due, at maturity or upon a mandatory redemption or
acceleration of maturity under the Bond, the Assignment, or this Loan
Agreement. The Borrower may prepay the Bond, for the account of the Issuer,
in accordance with the terms of the Bond. The Borrower agrees to be bound by
all of the terms and conditions of the Bond, including without limiting the
generality of the foregoing, terms specifying the interest rate, maturity
date, the installment payment amount, and provisions for redemption and
prepayment. The provisions of the Bond are incorporated by reference herein
and made a part hereof.
All payments received from the Borrower are to be applied first to
interest then due and then to the principal balance. In any event, the
payments hereunder shall be sufficient to enable the Issuer to pay all
principal and interest due on the Bond as such principal and interest become
due, at maturity, upon redemption or otherwise. Interest shall be computed
on the basis of the actual number of days elapsed in a 360-day year.
All payments hereunder shall be made directly to the Lender at its
principal office for the account of the Issuer. All payments received by the
Lender shall be applied to the indebtedness secured by the Bond.
Section 3.02. BORROWER'S OBLIGATIONS UNCONDITIONAL. All payments
required of the Borrower hereunder shall be paid without notice or demand and
without setoff, counterclaim, abatement, deduction or defense. The Borrower
will not suspend or discontinue any payments, and will perform and observe
all of its other agreements in this Loan Agreement and, except as expressly
permitted herein, will not terminate this Loan Agreement for any cause,
including, but not limited to, any acts or circumstances that may constitute
failure of consideration, destruction or damage to the Facility, eviction by
paramount title, commercial frustration of purpose, bankruptcy or insolvency
of the Issuer or the Lender, change in the tax or other laws or
administrative rulings or actions of the United States of America or of the
State or any political subdivision thereof, or failure of the Issuer to
perform and observe any agreement, whether express or implied, or any duty,
liability or obligation arising out of or connected with this Loan Agreement.
Section 3.03. BORROWER'S REMEDIES. Nothing contained in this Article
and no Payments made by the Borrower pursuant to Section 3.02, shall be
construed to release the Issuer from the performance of any of its agreements
in this Loan Agreement or to be a waiver of any of Borrower's rights, claims
or causes of action as would otherwise exist, and if the Issuer should fail
to perform any such agreement, the Borrower may institute such action against
the Issuer as the Borrower may deem necessary so long as
10
<PAGE>
EXHIBIT 10.2
such action shall not violate the Borrower's agreements in Section 3.02;
provided that no action taken by the Borrower hereunder shall affect the
Borrower's obligations under this Loan Agreement.
Section 3.04. ADDITIONAL PAYMENTS. The Borrower agrees to pay the
following amounts to the following persons as additional payments under this
Loan Agreement:
(a) to the Holder when due, all reasonable expenses, including without
limitation legal fees, of the Holder incurred in enforcing the Borrower
Documents, and all fees and expenses payable or which may become payable by
the Borrower pursuant to said instruments; and
(b) to the Issuer and the Holder as additional payments under this Loan
Agreement, all reasonable expenses incurred by the Issuer and the Holder in
relation to the Facility and the issuance and sale of the Bond which are not
otherwise required to be paid by the Borrower under the terms of this Loan
Agreement, including the fees and expenses of bond counsel fees and attorneys
representing the Issuer and the Holder and all permit and license fees
required under regulations or codes of the Issuer;
All fees payable under this Section 3.04 of this Loan Agreement are due
without regard to the payment or defeasance of the Bond, the exercise of any
remedy under the Security Agreement, termination of this Loan Agreement, or
any other event.
Section 3.05. ESCROW DEPOSIT AGREEMENT.
(a) In order to establish the Reserve Fund and the Project Fund under
the Escrow Deposit Agreement, the proceeds of the Bond will be paid to the
Escrow Agent on the Closing Date.
(b) The proceeds of the Bond will be disbursed by the Escrow Agent to
the Borrower in accordance with the terms and conditions of the Escrow
Deposit Agreement.
(c) The Issuer consents to the transfer of the Bond proceeds to the
Escrow Agent pursuant to the terms of the Escrow Deposit Agreement and
further consents to the disbursement of the Bond proceeds pursuant to the
terms of the Escrow Deposit Agreement.
Section 3.06. INTEREST UPON DEFAULT. In the event the Borrower should
fail to make any of the payments required by Sections 3.01 or 3.04 of this
Loan Agreement, or any payment required by the Environmental Indemnity
Agreement, the item in default shall continue as an obligation of the
Borrower until the amount in default shall have been fully paid, and the
Borrower agrees to pay the same with interest thereon until paid at the
lesser of 18% or the highest rate permitted by applicable law.
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EXHIBIT 10.2
ARTICLE FOUR
BORROWER'S COVENANTS
Section 4.01. COVENANTS. The Borrower covenants, warrants, represents and
agrees:
(a) that the Loan will be used solely to pay Costs;
(b) that the Facility shall comply with all applicable ordinances,
regulations and laws of all governments having jurisdiction over the Facility
and the Facility does not and shall not violate any enforceable private
restrictions or covenants or encroach upon or interfere with easements
affecting the Land;
(c) that the Borrower has completed or will complete the acquisition
and installation of the Equipment free from all mechanics', laborers' and
materialmen's liens and in a good and workmanlike manner;
(d) that the Borrower will keep, perform, enforce and maintain in full
force and effect all of the terms, covenants, conditions and requirements of
all agreements between the Lender, or any other Holder, and the Borrower with
respect to the Equipment;
(e) that, subject to the Borrower's right under the Security Agreement,
the Borrower will not create, permit to be created or allow to exist any
liens, charges, or encumbrances on the Equipment, other than such
encumbrances as may be approved in writing by the Lender or any other Holder;
(f) that the Borrower will not assign this Loan Agreement or any
interest herein except as herein expressly set forth or as may be approved in
writing by the Holder;
(g) that there have not been any adverse material changes in the
Borrower's financial or operating condition since March 31, 1998, and that no
such changes will occur prior to the Closing Date;
(h) that the Borrower will deliver to the Holder: (i) annual audited
financial statements of the Borrower within 120 days of the end of the fiscal
year end of the Borrower; (ii) unaudited quarterly financial statements
prepared by management of the Borrower within forty-five days after the end
of each fiscal quarter of the Borrower; (iii) unaudited monthly financial
statements and compliance certificates (such compliance certificates to be in
a form mutually acceptable to Holder and Borrower) within thirty days after
the end of each fiscal month; and (iv) such other related information as is
reasonably requested by the Holder;
(i) that the Borrower will have on hand at least $1,500,000 in cash and
cash equivalents at the end of each fiscal month during fiscal year 1998;
(j) that the Borrower will maintain a current ratio (defined as the
ratio of the Borrower's current assets to its current liabilities) of no less
than 1.0:1.0 at all times, measured as of the end of each fiscal month, as
long as the Loan is outstanding and unpaid;
(k) that the Borrower's tangible net worth (defined as the Borrower's
total assets, minus its intangible assets and total liabilities, plus debt
subordinated to the Loan Agreement and the Bond) shall
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EXHIBIT 10.2
be: (i) as of the end of each fiscal month through its fiscal June, 1999, at
least $12,000,000; (ii) at the end of each fiscal month from the beginning of
its fiscal July, 1999 through the end of its fiscal December, 1999, at least
the greater of $12,000,000 or eighty percent of the Borrower's tangible net
worth as of the end of its fiscal June, 1999; (iii) at the end of each
fiscal month thereafter, at least the greater of the minimum tangible net
worth required under this Section 4.01(k) on the last day of its immediately
preceding fiscal December or eighty percent of the Borrower's actual tangible
net worth as of the immediately preceding fiscal year end.
(l) that the ratio of the Borrower's total liabilities to total
stockholders equity less any intangible assets will not exceed 3.0:1.0 at the
end of any fiscal month;
(m) that in its fiscal 1999, Borrower will maintain an annual debt
service coverage ratio of at least 1.25 (calculated by dividing the sum of
net income after tax, plus depreciation, amortization, and interest by the
sum of interest and total current maturities of long-term debt/capital
leases);
(n) that for all fiscal years subsequent to the end of its 1999 fiscal
year, Borrower will maintain an annual debt service coverage ratio of at
least 1.25 (calculated by dividing the sum of net income after tax,
depreciation, amortization, and interest (less nonfinanced capital
expenditures) by interest and total current maturities of long-term
debt/capital leases);
(o) that the Borrower shall, prior to any disbursement to the Borrower
being made pursuant to the Escrow Deposit Agreement, provide the Holder with
a production plan showing its projected monthly production of motorcycles
through 1999 (and projected annual production of motorcycles through 2002)
and certified to be its true and correct production plan, and that the
Borrower will provide the Holder, prior to the first day of the last month of
fiscal 1999 and the first day of the last month of each fiscal year
thereafter through fiscal 2004, a monthly plan, certified to be the
Borrower's true and correct projected production plan, and covering at least
the immediately next fiscal year (each such plan referred to herein as a
"Plan");
(p) that the Borrower will report to the Holder if the Borrower's
actual production of motorcycles in any fiscal month is less than eighty
percent of the production projected by the Plan for that fiscal month, with
such report made in a form reasonably satisfactory to the Holder and within
thirty days of the end of the month in which the shortfall occurs;
(q) the Borrower's actual production of motorcycles in any fiscal
quarter will not be less than eighty percent of the production projected by
the Plan for that fiscal quarter;
(r) that the Borrower will obtain regulatory approval from all state
and federal governmental bodies with regulatory authority over the commercial
production of motorcycles by no later than December 31, 1998, except that
regulatory approval from the State of California will be obtained by December
31, 1999;
(s) that the Borrower will maintain, through June 30, 2000, key man
life insurance coverage of at least $1,000,000 each on Allan Hurd and Tom
Rootness;
(t) that the Borrower will raise at least $5,000,000, gross, in
combined equity and debt subordinate to the Bond (as shown on a balance sheet
audited in accordance with generally accepted accounting principles) between
the Closing Date and December 31, 1998;
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EXHIBIT 10.2
(u) that the Borrower has maintained and will, for purposes of this
Loan Agreement, maintain fiscal months, fiscal quarters, fiscal years,
financial statements, and practices that comply with generally accepted
accounting principles consistently applied (or, with regard to unaudited
financial statements, that comply with standard reporting and auditing
practices) and substantially comply with usual and customary fiscal reporting
practices for similar publicly held companies;
(v) that the Borrower's obligations to deliver financial information to
the Holder pursuant to this Section 4.01 are contingent upon the Holder
executing and delivering to the Borrower a confidentiality agreement in
substantially the form shown at Exhibit B to this Loan Agreement;
(w) that the Borrower will not incur any long-term debt subsequent to
the date of this Loan Agreement unless no Event of Default exists under this
Loan Agreement and unless a 1.25 debt service coverage ratio will exist on
the proposed additional debt plus existing debt (calculated by dividing the
sum of net income after tax, plus depreciation, amortization, and interest
less nonfinanced capital expenditures by the sum of interest and total
current maturities of long-term debt/capital leases);
(x) that any debt owed by the Borrower to any one or more of its
shareholders is and will be subordinate to the interest and obligations
created by this Loan Agreement and the Security Agreement; and
(y) that the Borrower will notify the Holder, in writing, within two
(2) business days upon receipt of a written late payment notice from Ryan
Belle Plaine, LLC or its successors for payments due by the Borrower under
the Lease.
Section 4.02. INDEMNITY. To the fullest extent permitted by law, the
Borrower will pay, and will protect, indemnify, and save the Issuer and the
members of its Board of Commissioners, the City and the members of its City
Council, the respective officers, employees, agents, and attorneys of the
Issuer and City, and any past and present Holder, and its officers,
employees, agents, attorneys, and any "Controlling Person" of any past or
present Holder (as defined in 15 U.S.C. Section 77o) (each an "Indemnified
Party") harmless from and against all liabilities, losses, damages, costs,
expenses (including attorneys' fees), causes of action, suits, claims,
demands, and judgments of any nature arising from the Facility or this Loan
Agreement, including but not limited to: (i) any injury, death, or property
damage arising from any actions or failures to act by the Borrower or arising
out of or connected with the Facility; (ii) violation of any contract,
agreement, or restriction to which the Borrower is a party relating to the
Facility; (iii) violation of any law, ordinance, or regulation affecting the
Facility, or the ownership, occupancy, or use of the Facility, including any
licensing of the Facility; and (iv) the use of the proceeds of the Bond, the
use of the Facility, or the use of the proceeds derived from the disposition
of the Facility or any part thereof. Without limiting the generality of the
foregoing, the Borrower agrees to pay all costs of the Indemnified Parties,
including the fees of attorneys, financial advisors, and accountants, and all
other costs of the Indemnified Parties (including staff time and
out-of-pocket expenses) with respect to any audit conducted by the Internal
Revenue Service (or the Minnesota Department of Revenue) related to the Bond,
the Borrower, or the Facility, or with respect to any enforcement action
conducted by the Securities and Exchange Commission (or the Minnesota
Department of Commerce) with respect to the offer or sale of the Bond or the
offer or sale of any related separate security, or with respect to the
investment of the gross proceeds of the Bond.
Promptly after receipt by the Issuer, the City, or any other Indemnified
Party, of notice of the commencement of any action in respect of which
indemnity may be sought against the Borrower under this Section 7, such
Indemnified Party will notify the Borrower in writing of the commencement
thereof,
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<PAGE>
EXHIBIT 10.2
and, subject to the provisions hereinafter stated, the Borrower shall assume
the defense of such action (including the employment of counsel who shall be
counsel satisfactory to the Indemnified Party claiming indemnification) and
the payment of expenses. Insofar as such action shall relate to any alleged
liability in respect of which indemnity may be sought against the Borrower,
the Indemnified Party claiming indemnity shall have the right to employ
separate counsel in any such action and to participate in the defense
thereof, and the fees and expenses of such counsel shall be at the expense of
the Borrower. The Borrower shall not be liable to indemnify any Indemnified
Party for any settlement of any such action effected without its consent.
The Borrower shall be entitled to negotiate a settlement of any action, suit,
claim or demand giving rise to indemnity hereunder, and the consent of an
Indemnified Party shall not be required thereto if: (a) no liability will be
imposed upon or will result to the Indemnified Party; or (b) the Borrower
fully reimburses the Indemnified Party for any liability arising from such
settlement.
The provisions of this Section 4.02 shall survive the payment and
discharge of the Bond.
Section 4.03. REPORTS TO GOVERNMENTAL AGENCIES. The Borrower will
furnish to agencies of the State, including, but not limited to, the
Commissioner of the Minnesota Department of Trade and Economic Development
and to the Lender, the City, and the Issuer, such periodic reports or
statements as they may reasonably require throughout the term of this Loan
Agreement. The Borrower shall notify the Issuer of any request by the
Borrower for the Holder's consent to alterations to the Equipment, or to the
sale, assignment or other disposition of the Equipment, and of the Holder's
action in response to such requests.
Section 4.04. SECURITY AGREEMENT. As additional security for the
Lender, and to induce the Issuer to issue and deliver the Bond, the Borrower
agrees to execute and deliver, or cause to be executed and delivered, to the
Lender: (i) the Security Agreement; and (ii) such other agreements or
documents as may be required by the Lender.
Section 4.05. CONCERNING THE FACILITY. The Borrower agrees to pay all
expenses of the operation and maintenance of the Facility including, but
without limitation, adequate insurance thereon and insurance against all
liability for injury to persons or property arising from the operation
thereof, and all taxes and special assessments levied upon or with respect to
the Facility and payable during the term of this Loan Agreement.
Section 4.06. ALTERATIONS TO AND DISPOSAL OF EQUIPMENT. The Borrower
shall not dispose of any Equipment without the prior written consent of the
Lender and in no event shall the Borrower do any act or thing which would
unduly impair or depreciate the value of the Equipment. All work done by
the Borrower in connection with any alterations or repairs to the Equipment
shall be done promptly and in good workmanlike manner and in compliance with
the building and zoning laws of the Issuer, the City, and other governmental
subdivisions wherein the Facility and the Equipment are situated, and with
all laws, ordinances, orders, rules, regulations and requirements of all
federal, State and municipal governments and the appropriate departments,
commissions, boards and officers thereof, and shall keep any policy of
insurance covering the Building and the Equipment in full force and effect,
and the work shall be prosecuted with reasonable dispatch, unavoidable delays
excepted.
Section 4.07. OMITTED. This Section intentionally omitted.
Section 4.08. USE OF FACILITY. The Borrower will use the Facility only
in furtherance of lawful purposes and will use and operate the Equipment only
as a revenue producing enterprise, eligible to be and defined as a "project"
under the Act. The Borrower will not use or permit any person to use the
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<PAGE>
EXHIBIT 10.2
Equipment or the Building for any use or purpose in violation of the laws of
the United States, the State, or any identifiable redevelopment plan of the
Issuer or the City, and agrees to comply with all the orders, rules,
regulations and requirements of the Board of Fire Underwriters and of the
City, the Issuer, Scott County, or the State, or other governmental authority
having jurisdiction over the Facility. The Borrower shall have the right to
contest by appropriate legal proceedings, without cost or expense to the
Issuer, the validity of any law, ordinance, order, rule, regulation or
requirement of the nature herein referred to.
Section 4.09. MAINTENANCE AND POSSESSION OF EQUIPMENT BY BORROWER. The
Borrower agrees that so long as the Bond is outstanding, the Borrower will
keep the Equipment in good repair and good operating condition at its own
cost, including without limitation making such repairs and replacements as
are necessary in the judgment of the Borrower so that the Equipment will
remain a "project" under the Act.
Section 4.10. OBSERVANCE OF COVENANTS AND TERMS OF THE RESOLUTION AND
THE BOND. The Borrower will not do, in any manner, anything which will cause
or permit to occur any default under the Resolution or the Bond, but will
faithfully observe and perform, and will do all things necessary so that the
Issuer may observe and perform, all the conditions, covenants and
requirements of the Resolution and the Bond. The Issuer agrees that it will
observe and perform all obligations imposed upon it by this Loan Agreement
and the Resolution and the Bond, and will not suffer or permit any default to
occur thereunder; provided that the Issuer has no obligation to use its own
funds or funds of the State to perform or cause performance of any such
obligations.
Section 4.11. NOTICE OF DEFAULTS. The Borrower will furnish to the
Holder and the Issuer, immediately after the Borrower has obtained knowledge
of the occurrence, notice of each Event of Default or each event which with
the giving of notice or lapse of time or both would constitute an Event of
Default, which is continuing on the date of such notice, the notice of the
Borrower setting forth details of such Event of Default or event and the
action which the Borrower take with respect thereto.
Section 4.12. BORROWER TO EXECUTE FURTHER DOCUMENTS. The Borrower
agrees that it shall execute and deliver to the Issuer and the Holder such
further financing statements, acknowledgments, certificates and agreements as
shall be reasonably requested from time to time by the Issuer or the Holder
to protect the security provided for the payment of the Bond and to further
the transactions contemplated by this Loan Agreement.
Section 4.13. BORROWER TO MAINTAIN CERTAIN STANDARDS. The Borrower
agrees that it will at all times maintain its corporate existence and good
standing, and will at all times remain qualified to do business in all places
within the United States, where failure to be so qualified would have a
material adverse effect on the Borrower's business or financial condition.
Section 4.14. MERGERS AND CONSOLIDATION. The Borrower agrees that it
shall not enter into any merger, consolidation, combination, sale of all or
substantially all of its assets, or any other change in its corporate form if
doing so would result in an Event of Default under this Loan Agreement,
including without limitation the provisions of Section 5.02(d), (and the
provisions of Sections 4.01(i), 4.01(j), 4.01(l), and 4.01(m), if the
standards set forth in those Sections were applied on the day of the merger
or consolidation).
Section 4.15. INSURANCE. (a) The Borrower, at its sole cost and
expense, will maintain continuously in effect with respect to the Equipment
policies of insurance against such risks and in such
16
<PAGE>
EXHIBIT 10.2
amounts as are acceptable to the Lender. Without limiting the generality of
the foregoing provision, the Borrower shall maintain insurance of the
following character:
(i) Insurance on the Equipment now existing and on the fixtures and
personal property included in the definition of Equipment against
loss by fire, and other hazards covered by the so-called
"all-risk" form of policy with no co-insurance clause, in an
amount equal to the actual replacement cost thereof, without
deduction for physical depreciation;
(ii) If the Land that the Equipment resides on is located in a
designated official flood-hazardous area, flood insurance
insuring the buildings and improvements now existing or hereafter
erected on the Land in an amount equal to the actual replacement
of the cost thereof without deduction for physical depreciation;
(iii) Comprehensive general liability insurance including product
liability and contractual liability protecting against
claims arising from any accident or occurrence in an amount
of not less than $2,000,000 in the aggregate and per
occurrence in connection with the operations of the
Borrower;
(iv) Worker's compensation insurance with statutory coverages and
Employer's Liability at a limit of $1,000,000 per occurrence
covering all persons engaged in the construction or installation
of the Project or the operations of the Borrower;
(v) Business interruption insurance with a limit sufficient to insure
not less than a 6 month loss of income, or extra expense
insurance;
(vi) Comprehensive Automobile Liability insurance in an amount not
less than $1,000,000 per occurrence covering all titled motor
vehicles used in the operations of the Borrower's business, such
insurance to include coverage for non-owned and hired vehicles;
and
(vii) such other insurance with respect to the Collateral (as
defined in the Security Agreement) as may be required by the
Lender.
(b) The insurance described in Sections 4.15(a)(i), 4.15(a)(ii), and
4.15(a)(v) shall:
(i) include a clause naming the Lender as Loss Payee;
(ii) identify the Equipment insured; and
(iii) state the applicable amount of insurance.
(c) The insurance described in Sections 4.15(a)(v) and 4.15(a)(vi) shall
include clauses which:
(i) name the Lender as an Additional Insured; and
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EXHIBIT 10.2
(ii) provide that all insurance, except the limits of liability,
operate as if there were a separate policy covering each insured.
(d) All insurance required by this Section 4.15 shall:
(i) be provided with insurers rated "A IX" by A.M. Best Company, Inc.
(or the future equivalent thereof) or as otherwise approved by
the Lender;
(ii) provide the Lender with thirty (30) days advance written notice
of cancellation and/or material change in coverage directly from
insurers;
(iii) be primary and without the right of contribution from any
other insurance not specifically purchased by the Borrower
to be excess of, or in contribution with the insurances
required herein;
(iv) include a waiver of any subrogation rights the Borrower's
insurers may have against the Lender;
(v) provide that all insurance shall insure the interest of the
Lender regardless of any breach or violation by the Borrower or
any other party or entity of any warranties, declarations, or
conditions contained in such policies; and
(vi) be satisfactory in form, substance, limits, deductibles and
retentions to Lender.
Section 4.16. TAXES. The Borrower shall pay all taxes on the Equipment
and the Facility before such taxes become delinquent.
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EXHIBIT 10.2
ARTICLE FIVE
BORROWER'S OPTIONS
Section 5.01. PREPAYMENTS. (a) In the event of mandatory prepayment or
acceleration of the Bond in accordance with the terms of the Bond, the
Borrower agrees to prepay the Loan in such amount and on such dates as will
permit the Issuer to pay the principal, premium, if any, and accrued interest
on the Bond when due. The prepayment premium on the Loan in the event of
mandatory prepayment or acceleration shall be equal to the prepayment premium
payable on the Bond determined in accordance with the terms of the Bond.
(b) The Borrower may prepay the principal of the Loan at such times, in
such amounts, and subject to all other terms applicable to optional
prepayments of the Bond by the Issuer. The Issuer agrees to immediately
apply all optional prepayments of the Loan by the Borrower to prepayments of
the Bond. The Issuer hereby authorizes the Borrower to pay all optional
prepayments on the Loan directly to the Holder.
Section 5.02. ASSIGNMENT. (a) The Borrower will not, during the term
of the Bond, sell the Equipment or assign its rights or interests in any part
thereof, or otherwise convey, dispose of or mortgage in any manner the
Equipment or any part thereof, without: (i) providing satisfactory
replacement collateral to secure the Holder's interest in the Equipment to be
sold or assigned; (ii) obtaining the Holder's written consent (such consent
not to be unreasonably withheld); and (iii) providing notice to the Issuer.
(b) Notwithstanding the foregoing, Equipment with a combined fair
market value of no more than $25,000 may be sold in any fiscal year without
Borrower's compliance with the terms of Section 5.02(a).
(c) In the event the Borrower sells, conveys, transfers, further
mortgages or encumbers or disposes of the Equipment or any part thereof, or
any interest therein, or agrees so to do, in violation of the terms and
conditions of this Section 5.02 and if the Holder declares the amount owing
on the Bond to be due and payable in full and calls for payment of the same
in full at once, the Borrower shall immediately pay on the Loan an amount
equal to same, plus any prepayment premium due.
(d) The Borrower will not, during the term of the Bond, sell or assign
its right or interest in this Loan Agreement, or any part thereof without the
written consent of the Holder and notice to the Issuer. If such sale or
assignment of the Borrower's interest in this Loan Agreement does not purport
to and does not release the Borrower from any of its obligations under this
Loan Agreement, the Holder's consent will not be unreasonably withheld. If
such sale or assignment of the Borrower's interest in this Loan Agreement
purports to or does release the Borrower from any of its obligations under
this Loan Agreement, the Holder will have sole discretion with regard to
giving its consent.
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EXHIBIT 10.2
ARTICLE SIX
EVENTS OF DEFAULT AND REMEDIES
Section 6.01. EVENTS OF DEFAULT. Subject to the notice and cure
provisions of Section 6.06, any one or more of the following events is, upon
expiration of the applicable cure period, an Event of Default under this Loan
Agreement:
(a) if the Borrower shall fail to make any payments required under this
Loan Agreement on the date that the payment is due, provided:
(i) If the Borrower fails to make any payment required under this Loan
Agreement within five (5) days of the date that the payment is due, then,
pursuant to the terms and conditions of the Escrow Deposit Agreement, the
Escrow Agent shall: (i) make such payment on the Borrower's behalf, such
payment to be made from the "Reserve Fund" (as defined in the Escrow
Deposit Agreement); and (ii) give written notice of such payment to the
Borrower.
(ii) If the Escrow Agent makes any payment on the Borrower's behalf from
the Reserve Fund, the Borrower will pay, within 7 days of such payment to
the Escrow Agent an amount equal to such payment for the purpose of
restoring the amount of the Reserve Fund to the balance in it prior to such
payment.
(iii) If the Borrower complies with the terms of Sections 6.01(a)(i) and
6.01(a)(ii), then no Event of Default shall exist; provided, however, that
if the balance of the Reserve Fund is inadequate to make the payment on
Borrower's behalf, or if the Escrow Agent makes three (3) or more payments
from the Reserve Fund on the Borrower's behalf in any three (3) month
period, such condition or conditions shall be an Event of Default under
this Loan Agreement.
(b) if the Borrower shall fail to observe and perform (prior to any
applicable cure period) the covenants described in sections 4.01(i), (j), (k)
or (l) of this Loan Agreement for two consecutive months;
(c) period, any other covenant, condition or agreement on its part under
this Loan Agreement, the Lease, the Escrow Deposit Agreement, the Warrant and
Fee Agreement, the Environmental Indemnity Agreement, any future working
capital financing agreements, or any material contract or agreement;
(d) if any representation or warranty made by the Borrower hereunder or by
a representative of the Borrower in any document or certificate furnished the
Lender or the Issuer in connection herewith or therewith or pursuant hereto
or thereto, shall prove at any time to be incorrect or misleading in any
material respect as of the date made;
(e) if the Borrower shall file a petition in bankruptcy or for an
arrangement pursuant to any present or future federal bankruptcy act or under
any similar federal or state law, or shall be adjudicated a bankrupt or
insolvent, or shall make an assignment for the benefit of its creditors or
shall admit in writing its inability to pay its debts generally as they
become due, or if a petition or answer proposing the adjudication of the
Borrower as a bankrupt under any present or future federal bankruptcy act or
any similar federal or state law shall be filed in any court and such
petition or answer shall not be discharged or denied within sixty (60) days
after the filing thereof, or a receiver, trustee or liquidator of all or
20
<PAGE>
EXHIBIT 10.2
substantially all of the assets of the Borrower or of the Equipment shall be
appointed in any proceeding brought against the Borrower and shall not be
discharged within sixty (60) days after such appointment or if the Borrower
shall consent to or acquiesce in such appointment, or if the estate or
interest of the Borrower in the Equipment or a part thereof shall be levied
upon or attached in any proceeding and such process shall not be vacated or
discharged within sixty (60) days after such levy or attachment; or
(f) if an Event of Default shall occur under the Security Agreement or any
other instrument securing the Bond or if any representation or warranty made
by the Borrower thereunder shall prove at any time to be incorrect or
misleading in any material respect as of the date made.
Section 6.02. REMEDIES IN THE EVENT OF DEFAULT. Whenever any Event of
Default referred to in Section 6.01 shall have happened and be subsisting
(subject to the cure provisions of Section 6.06), any one or more of the
following remedial steps may be taken by the Holder directly or, upon written
consent of the Holder, by the Issuer:
(a) all sums payable under this Loan Agreement (being an amount equal
to that necessary to pay in full the Bond assuming acceleration of the Bond
under the terms thereof and to pay all other indebtedness secured by the
Security Agreement) may be declared to be immediately due and payable,
whereupon the same shall become immediately due and payable by the Borrower;
and
(b) whatever action at law or in equity or as provided in the Security
Agreement or any other instrument securing the Bond that may appear necessary
or appropriate to collect the amounts then due and thereafter to become due,
or to enforce performance and observance of any obligation, agreement or
covenant of the Borrower under this Loan Agreement may be taken.
Section 6.03. DISPOSITION OF FUNDS. Any amounts collected pursuant to
action taken under Section 6.02 shall be applied in such order as the Holder
may determine; provided that in the event that the Holder advances sums in
protecting the lien of the Security Agreement, in payment of taxes on the
Facility, in payment of premiums with respect to insurance covering the
Facility, in payment of principal and interest on prior liens against the
Facility, in order to cure any Event of Default under this Loan Agreement or
the Security Agreement or any default under the Lease (the Borrower hereby
authorizing the Holder to make any such advance on its behalf), and in
payment of expenses and attorneys' fees herein provided for and other sums
advanced by the Holder for any other purpose authorized in the Security
Agreement, the Borrower upon demand shall pay all such costs and expenses so
incurred and advances so made to the Holder together with interest at the
rate then payable on the Bond per annum (unless payment of such rate would be
contrary to law in which event such sums shall bear interest at the lesser of
18% or the highest rate permitted by applicable law).
Section 6.04. MANNER OF EXERCISE. No remedy herein conferred upon or
reserved to the Issuer 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 Loan Agreement or
now or hereafter existing at law or in equity 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 Issuer to exercise any
remedy reserved to it in this Article, it shall not be necessary to give any
notice, other than such notice as may be herein expressly required, but no
remedy shall be exercised by the Issuer without the prior written consent of
the Holder.
21
<PAGE>
EXHIBIT 10.2
Section 6.05. EFFECT OF WAIVER. In the event any agreement contained in
this Loan 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 breach hereunder. If the
Holder, at the Borrower's request, waives any breach of this Loan Agreement
on the part of the Borrower, the Borrower will pay, upon the Holder's demand,
$1,500 to the Holder as reimbursement for the Holder's cost of providing such
a waiver.
Section 6.06. NOTICE TO BORROWER OF EVENT OF DEFAULT. (a) The
Borrower, except as otherwise specifically provided in this Article Six,
shall have the right to written notice from the Issuer or the Lender of any
alleged Event of Default (except an Event of Default under Section 6.01(a) of
this Loan Agreement, for which no notice shall be necessary), and shall,
except as provided in Section 6.06(b), have a period of thirty (30) days from
receipt of said notice, unless a longer period of time is provided by the
specific terms of this Loan Agreement, the Security Agreement, or the laws of
the State of Minnesota, to cure or correct such alleged Event of Default or
otherwise respond to said notice, and no Event of Default shall occur
hereunder until the expiration of such cure period.
(b) Notwithstanding anything to the contrary in this Article VI, an
Event of Default shall occur immediately upon the occurrence of any of the
following: (i) an event under Section 6.01(a)(ii) or section 6.01(a)(iii) of
this Loan Agreement; (ii) failure to carry or maintain insurance on the
Equipment as required by section 4.15 of this Loan Agreement and by the
Security Agreement; or (iii) any event described in Section 6.01(e) of this
Loan Agreement. The cure and notice provisions of Section 6.06(a) of this
Loan Agreement do not apply to the Events of Default referred to in this
paragraph (b) or the Events of Default referred to in Section 6.01(a)(i).
(c) Notice under this Section 6.06 shall be deemed received:
(i) if sent by facsimile before 4:00 p.m. Central Time on a
business day, on that business day;
(ii) if sent by facsimile after 4:00 p.m. Central Time on a business
day, or on a nonbusiness day, on the next business day; and
(iii) if sent by mail, 3 days after mailing
22
<PAGE>
EXHIBIT 10.2
ARTICLE SEVEN
GENERAL
Section 7.01. NOTICES. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be deemed
given when mailed by certified or registered mail, postage prepaid, with
proper address as indicated below. The Issuer, the Borrower and the Holder
may, by written notice given by each to the others, designate any address or
addresses to which notices, certificates or other communications to them
shall be sent when required as contemplated by this Loan Agreement. Until
otherwise provided by the respective parties, all notices, certificates and
communications to each of them shall be addressed as follows:
To the Issuer: Economic Development Authority
of the City of Belle Plaine, Minnesota
420 East Main Street
Belle Plaine, Minnesota 56011
Attn: City Administrator
To the Borrower: Excelsior-Henderson Motorcycle Manufacturing
Company
805 Hanlon Drive
Belle Plaine, Minnesota 56011
Attn: Chief Financial Officer
with a copy to: Gale Mellum
Faegre & Benson
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
To the Lender: FINOVA Public Finance, Inc.
605 North Highway 169
Suite 250
Plymouth, Minnesota 55441
Attn: President
Section 7.02. BINDING EFFECT. This Loan Agreement shall inure to the
benefit of and shall be binding upon the Issuer and the Borrower and their
respective successors and assigns.
Section 7.03. SEVERABILITY. In the event any provision of this Loan
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
Section 7.04. AMENDMENTS, CHANGES AND MODIFICATIONS. Except as
otherwise provided in this Loan Agreement or in the Resolution, subsequent to
the initial issuance of the Bond and before the Bond are satisfied and
discharged in accordance with its terms, this Loan Agreement may not be
effectively amended, changed, modified, altered, or terminated without the
written consent of the Holder.
23
<PAGE>
EXHIBIT 10.2
Section 7.05. EXECUTION; COUNTERPARTS. This Loan Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
Section 7.06. CONCERNING THE BOND. The Borrower agrees to be bound by
all of the terms and conditions set forth in the Bond.
Section 7.07. LIMITATION OF ISSUER'S LIABILITY. It is understood and
agreed by Borrower and the Lender that no covenant of the Issuer herein shall
give rise to any liability of the Issuer, other than from revenues derived
from this Loan Agreement, or constitute a charge against the general credit
or taxing powers of the Issuer. It is further understood and agreed by the
Borrower and the Lender that the Issuer shall incur no liability other than
from proceeds derived from this Loan Agreement hereunder, and shall not be
liable for any expenses related hereto, all of which the Borrower agrees to
pay.
Section 7.08. ASSIGNMENT BY THE ISSUER; ASSIGNMENT BY THE LENDER. (a)
The Borrower recognizes that the Issuer, pursuant to the Assignment of Loan
Agreement, has granted a security interest in all of its interest in, to, and
under this Loan Agreement (including all Loan repayments hereunder but
excluding any of its rights to indemnification and payment of costs or
expenses provided in Sections 3.04, 4.02 and 7.07 hereof) to the Lender as
security for the prompt payment of the principal, premium, if any, and
interest on the Bond, and hereby consents to such grant. The Borrower has
reviewed and hereby approves and consents to the terms of the Assignment of
Loan Agreement. The Issuer and the Borrower consent to any future
assignments by the Lender of the Issuer's interest in, to, and under this
Loan Agreement to any future Holder of the Bond.
(b) The Holder may not assign, transfer, sell, or otherwise convey this
Loan Agreement, the Bond, and the Security Agreement in whole, unless any
such assignment, transfer, sale, or conveyance complies with all state and
federal laws, rules, and regulations.
(c) Notwithstanding anything to the contrary in this Loan Agreement,
the Lender will not assign, transfer, sell, or otherwise convey a partial
interest or partial right in this Loan Agreement, the Bond, the Security
Agreement, or any related partial interest or partial right unless such
assignment, transfer, sale, or conveyance:
(i) complies with all state and federal laws, rules, and regulations;
(ii) is to only one other party and no third party shall have any
partial interest or partial right in the Loan Agreement, the Bond, the
Security Agreement, unless the Borrower approves in writing and at its
sole discretion, an additional assignment, transfer, sale or
conveyance; and
(iii) contains a condition in a form reasonably satisfactory to
the Borrower, that either the Lender or its assignee, but not both,
has and will exercise authority to act on the other's behalf with
regard to the Borrower's obligations under the Borrower Documents;
provided that this Section 7.08(c)(ii) shall not apply to assignment
by the Lender or Holder to the Issuer when such assignment is
expressly permitted by this Loan Agreement.
24
<PAGE>
EXHIBIT 10.2
Section 7.09. SURVIVAL OF CERTAIN PROVISIONS. The provisions of
Section 4.02, Section 4.01(v), and the Environmental Indemnity Agreement
shall survive the payment and discharge of the Bond and any termination of
this Loan Agreement.
Section 7.10. PUBLICITY. The Lender may, upon the consent of the
Borrower (such consent to be given or withheld at the Borrower's sole
discretion) and in compliance with all state and federal laws, rules, and
regulations, publicize the Lender's purchase of the Bond and the purposes for
which it was purchased.
25
<PAGE>
EXHIBIT 10.2
IN WITNESS WHEREOF, the Issuer and the Borrower have caused this Loan
Agreement to be executed in their respective names as of the date first above
written.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By
-------------------------------------
Its
-------------------------------------
26
<PAGE>
EXHIBIT 10.2
Loan Agreement signature page of the Issuer.
ECONOMIC DEVELOPMENT AUTHORITY
OF THE CITY OF BELLE PLAINE, MINNESOTA
By
-------------------------------------
Its
-------------------------------------
By
-------------------------------------
Its
-------------------------------------
<PAGE>
EXHIBIT 10.2
EXHIBIT A
LEGAL DESCRIPTION OF LAND
Lot 1, Block 1 and Lot 3, Block Two, Excelsior-Henderson Industrial Park
Subdivision, according to the recorded plat thereof, Scott County, Minnesota.
<PAGE>
EXHIBIT 10.2
EXHIBIT B
CONFIDENTIALITY AGREEMENT GOES HERE
<PAGE>
EXHIBIT 10.3
- ------------------------------------------------------------------------------
ASSIGNMENT OF LOAN AGREEMENT
BY AND AMONG
ECONOMIC DEVELOPMENT AUTHORITY
OF THE CITY OF BELLE PLAINE, MINNESOTA,
FINOVA PUBLIC FINANCE, INC.
AND
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
DATED AS OF JULY 1, 1998
- ------------------------------------------------------------------------------
This instrument was drafted by:
KENNEDY & GRAVEN, CHARTERED
470 Pillsbury Center
200 South Sixth Street
Minneapolis, Minnesota 55402
<PAGE>
EXHIBIT 10.3
ASSIGNMENT OF LOAN AGREEMENT
THIS ASSIGNMENT OF LOAN AGREEMENT, dated as of July 1, 1998, is made and
entered into by and among Economic Development Authority of the City of Belle
Plaine, Minnesota, a public body corporate and politic and political
subdivision of the State of Minnesota (the "Issuer"), FINOVA Public Finance,
Inc. (the "Lender"), and Excelsior-Henderson Motorcycle Manufacturing
Company, a Minnesota corporation (the "Borrower").
WHEREAS, the Issuer has authorized the issuance of, and sale to the
Lender of a Taxable Industrial Development Revenue Bond (Excelsior-Henderson
Project), Series 1998 (the "Bond"), in the principal face amount of Six
Million One Hundred Thousand Dollars ($6,100,000); and
WHEREAS, the Issuer has entered into a Loan Agreement, dated as of July
1, 1998 (the "Loan Agreement"), with the Borrower whereby the Issuer will
loan the proceeds from the sale of the Bond to the Borrower upon the terms
and conditions set forth in the Loan Agreement; and
WHEREAS, the Issuer is willing to provide further security for the
prompt payment of the principal, premium, if any, and interest due on the
Bond in order to induce the Lender to purchase the Bond and to advance funds
under the Bond.
NOW, THEREFORE, in order to induce the Lender to purchase the Bond and
to secure the due and punctual payment of the Bond and all other sums due the
Lender under any document securing or executed in connection with the Bond,
the Issuer hereby agrees with the Lender and the Borrower as follows:
1. The Issuer does hereby grant to Lender a security interest in all
of the Issuer's right, title, and interest in and to the Loan Agreement
(except its rights to indemnification and the payment of costs and expenses
provided in Sections 3.04, 4.02 and 7.07 of the Loan Agreement).
2. The Issuer hereby represents and warrants to the Lender that the
Issuer is the owner of the Loan Agreement and all rights incident thereto,
free and clear of any lien, security interest, or other encumbrance other
than the security interest arising under this Assignment of Loan Agreement.
3. The Issuer hereby authorizes the Lender to exercise, whether or not
an "Event of Default" has occurred under the Loan Agreement, either in the
Issuer's name or the Lender's name, any and all rights or remedies available
to the Issuer under the Loan Agreement, including without limitation the
right to modify the terms of the Loan Agreement and the Bond without the
prior consent of the Issuer; provided that the maturity date of the Bond
shall in no event be modified to a date that is more than thirty years after
the date of issue of the Bond, and further provided that so long as the Bond
is outstanding the Lender agrees that it will not make or approve a
modification of the Loan Agreement or the Bond if as a result thereof the
property financed with the proceeds of the Bond no longer constitutes a
"project" under the Act (as defined in the Loan Agreement). The Issuer
agrees, on request of the Lender, to execute and deliver to the Lender such
other documents or instruments as shall be deemed necessary or appropriate by
the Lender at any time to confirm or perfect the security interest hereby
granted. The Issuer hereby irrevocably appoints the Lender its
attorney-in-fact to execute on behalf of the Issuer, and in its name, any and
all such assignments, financing statements, or other documents or instruments
which the Lender may deem necessary or appropriate to perfect, protect, or
enforce the security interest hereby granted.
<PAGE>
EXHIBIT 10.3
4. The Issuer will not:
(a) exercise or attempt to exercise any remedies under the Loan
Agreement (except those reserved to the Issuer under Section 1 hereof), or
terminate, modify, or accept a surrender of, or offer or agree to any
termination, modification, or surrender of the same, or by affirmative act,
consent to the creation or existence of any security interest or other lien
in the Loan Agreement to secure payment of any other indebtedness; or
(b) receive or collect or permit the receipt or collection of any
payments, receipts, rentals, profits, or other money under the Loan
Agreement, or assign, transfer, or hypothecate (other than to the Lender
hereunder) any of the same then due or to accrue in the future except for
payments received by the Issuer pursuant to Sections 3.04, 4.02, or 7.07 of
the Loan Agreement.
5. Whenever any of the parties hereto is referred to, such reference
shall be deemed to include the successors and assigns of such party; and all
the covenants, promises, and agreements in this Assignment of Loan Agreement
contained by or on behalf of the Issuer or the Lender shall bind and inure to
the benefit of the respective successors and assigns of such parties whether
so expressed or not.
6. The unenforceability or invalidity of any provision or provisions
of this Assignment of Loan Agreement shall not render any other provision or
provisions herein contained unenforceable or invalid.
7. This Assignment of Loan Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of
Minnesota. This Assignment of Loan Agreement may not be amended or modified
except in writing signed by the Issuer and the Lender.
8. This Assignment of Loan Agreement may be executed, acknowledged,
and delivered in any number of counterparts and each of such counterparts
shall constitute an original but all of which together shall constitute one
agreement.
9. The terms used in this Assignment of Loan Agreement which are
defined in the Loan Agreement shall have the meanings specified therein,
unless the context of this Assignment of Loan Agreement otherwise requires,
or unless such terms are otherwise defined herein.
10. No obligation of the Issuer hereunder shall constitute or give rise
to a pecuniary liability of the Issuer or a charge against its general credit
or taxing powers, but shall be payable solely out of the proceeds and the
revenues derived under the Loan Agreement. If, notwithstanding the
provisions of the immediately preceding sentence, the Issuer incurs any
expense or suffers any losses, claims, or damages or incurs any liabilities
directly related to the Facility or the Loan Agreement, the Borrower will
indemnify and hold harmless the Issuer from the same and will reimburse the
Issuer for any legal or other expenses incurred by the Issuer in relation
thereto, and this covenant to indemnify, hold harmless, and reimburse the
Issuer shall survive payment of the Bond.
<PAGE>
EXHIBIT 10.3
IN WITNESS WHEREOF, the Issuer, the Lender, and the Borrower have hereunto
executed this instrument as of the date first above written.
ECONOMIC DEVELOPMENT AUTHORITY
OF THE CITY OF BELLE PLAINE, MINNESOTA
By
-------------------------------------
Its
-------------------------------------
By
-------------------------------------
Its
-------------------------------------
<PAGE>
EXHIBIT 10.3
Assignment of Loan Agreement signature page.
FINOVA PUBLIC FINANCE, INC.
By
-------------------------------------
Its
-------------------------------------
<PAGE>
EXHIBIT 10.3
The undersigned agrees to the provisions of paragraph 10 of this
Assignment of Loan Agreement and agrees that its obligations to indemnify and
hold harmless and reimburse the Issuer shall survive payment of the Bond.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
By
-------------------------------------
Its
-------------------------------------
<PAGE>
EXHIBIT 10.10
LOAN AGREEMENT
THIS AGREEMENT, made as of the _____ day of _____________, 1998, by
and between EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY, a
Minnesota corporation ("Borrower") whose address is 805 Hanlon Drive, Belle
Plaine, Minnesota 56011, and DAKOTA BANK, a state banking association, with
its main banking office located at 1060 Dakota Drive, Mendota Heights,
Minnesota 55120 ("Bank").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Bank to extend a Five Million
Dollar ($5,000,000.00) multi-advance working capital loan to Borrower
("Loan") to provide: operating capital for the build up of Borrower's
inventory and accounts receivable; capital for the purchase of manufacturing
equipment; and cash for the payment of loan origination costs;
WHEREAS, the initial term of the Loan will require interest only
payments for a period not to exceed eighteen months. During such initial
period, advances will be drawn by Borrower up to a multi-advance limit of
$5,000,000.00. Once the Loan proceeds have been fully drawn or at eighteen
months, whichever is sooner, the Loan will be fully amortized over sixty
months.
WHEREAS, the Bank is willing and prepared to extend the Loan to the
Borrower, upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. GENERAL. Subject to and upon the terms, covenants and
conditions hereinafter set forth, the Bank hereby agrees to make Loan
advances to the Borrower two times monthly up to and including July 1, 2000
("Draw Expiration Date"), or until the occurrence of any Event of Default (as
hereinafter defined), whichever first occurs. The sum total of requests
shall not exceed the sum of Five Million Dollars ($5,000,000.00). The
obligation of the Bank to make Loan advances under this Section 1 to the
Borrower up to an aggregate principal amount at any one time outstanding
equal to the Loan is hereinafter referred to as the "Multi-Advance
Commitment". Commencing on the Draw Expiration Date the sum total of all
Loan advances made to Borrower shall be fully repaid by Borrower in equal
monthly installments over sixty months. Monthly payments may be recalculated
from time to time by Bank to prevent negative amortization of the remaining
Loan balance.
2. PROMISSORY NOTE. The obligation of the Borrower to repay the
Loan shall be evidenced by that certain Promissory Note ("Note") of even date
herewith executed by the Borrower. Reference is hereby made to the Note for
the terms thereof relating to maturity, repayment schedule, interest rate and
other matters governing the repayment of the Loan. Notwithstanding any
provision of the Note, however, interest shall be payable at the variable
rate
1
<PAGE>
EXHIBIT 10.10
provided for therein (Prime Rate of interest published by the Wall Street
Journal - Midwest Edition plus one-half percent) only on such portion of the
Loan proceeds as actually have been disbursed hereunder pursuant to Section 1
hereof and remain unpaid.
3. MANNER OF BORROWING UNDER LOAN. Each time the Borrower
desires to obtain a loan pursuant to the Multi-Advance Commitment, the
Borrower shall request such loan in writing (i) by the Chief Financial
Officer of the Borrower; or (ii) by any person designated as the Borrower's
agent by resolution of the Borrower's Board of Directors delivered to the
Bank. Each such request must specify the date of the requested advance and
the amount thereof and shall include evidence (in the form of a certificate
with supporting documentation reasonably acceptable to Bank) of discounted
collateral values as more specifically described herein. The sum of all
outstanding Loan advances shall be limited to the aggregate of:
A. Eighty percent (80%) of Eligible Receivables (defined as accounts
receivable of Borrower less than ninety days old, exclusive of
foreign receivables and inter-company receivables and receivables
pledged to or financed by another lender);
B. Eighty percent (80%) of Eligible Equipment (defined as the book
value on any new or used equipment including tooling equipment of
Borrower which is unencumbered by any lien creditor and which is
pledged to the Bank); and
C. Seventy percent (70%) of Eligible Inventory (defined as raw
materials, work-in-process, parts and finished goods valued at
Borrower's cost as reported in Borrower's financial statements).
4. LOAN DOCUMENTS/COLLATERAL. As a condition precedent to the
establishment of the Multi-Advance Commitment of the Bank and the agreement
of the Bank to make and disburse the Loan, Borrower and Bank acknowledge that
the following agreements and documents have been executed and/or delivered to
the Bank:
A. SECURITY AGREEMENT. A duly executed Security Agreement
("Security Agreement") pursuant to which the Bank has been
granted a valid and perfected security interest in and to the
following assets of Borrower: accounts receivable; inventories
and unencumbered fixed assets of Borrower as described on Exhibit
"A" (hereinafter the "Collateral").
B. UCC-1 FINANCING STATEMENTS. UCC-1 Financing Statements to be
filed at the Minnesota Secretary of State and, under certain
circumstances, the Scott County, Minnesota Recorder's Office.
C. GUARANTY. The Guaranty of the U. S. Department of Agriculture
under the Rural Development Business and Industry Loan Guaranty
Program, in form and content reasonably acceptable to Bank,
guarantying payment of eighty percent (80%) of the Loan when due,
of the Borrower's obligations ("Guaranty").
2
<PAGE>
EXHIBIT 10.10
D. CERTIFICATE OF GOOD STANDING. Certificate of Good Standing
issued by the Minnesota Secretary of State dated within seven
days of the date of this Agreement.
E. CORPORATE RESOLUTION. A Resolution of Borrower authorizing
certain officers of Borrower to execute the Borrower Documents.
F. OPINION OF BORROWER'S COUNSEL. A legal opinion executed by
Borrower's Attorney, in form and content acceptable to Bank
relating to Borrower's corporate existence, authority to execute
the Borrower Documents, the enforceability of the Borrower
Documents, and whether the Borrower Documents violate any
obligation of Borrower.
G. TAX LIEN AND UCC SEARCHES. Updated tax lien and UCC searches
covering Borrower.
This Agreement, the Note and the documents referenced in this Section
are sometimes hereinafter collectively referred to as the "Borrower
Documents".
5. REPRESENTATIONS. In order to induce the Bank to make Loan
advances hereunder, the Borrower hereby warrants and represents to the Bank
as follows:
A. CORPORATE EXISTENCE AND POWER. The Borrower is a corporation
duly organized and validly existing in the State of Minnesota,
and is fully qualified to do business and is in good standing in
the State of Minnesota, and has all requisite power and authority
to carry on its business as now conducted and as presently
proposed to be conducted.
B. CORPORATE AUTHORITY. The Borrower has full power and authority
to execute and deliver the Borrower Documents and to incur and
perform obligations set forth in this Agreement and in the
Borrower Documents; the execution, delivery and performance by
the Borrower of the Borrower Documents and any and all other
documents and transactions contemplated hereby or thereby, has
been duly authorized by all necessary corporate action, will not
violate any provision of law, the Articles of Incorporation or
Bylaws of the Borrower, or any obligation of Borrower to any
third party.
C. ENFORCEABILITY. The Borrower Documents each constitute the
legal, valid and binding obligations of the Borrower enforceable
in accordance with their respective terms.
D. FINANCIAL CONDITION. The audited financial statements of the
Borrower dated as of January 3, 1998, and heretofore furnished to
the Bank are complete and correct in all respects and fairly
represent the financial condition of the Borrower at the dates of
such statements and the results of its operations for the period
ended on
3
<PAGE>
EXHIBIT 10.10
said date, and have been prepared in accordance with generally
accepted accounting principles, consistently applied.
E. LITIGATION. There is no action, suit or proceeding pending or
threatened against or affecting the Borrower which, if adversely
determined, would have a material adverse effect on the condition
(financial or otherwise), business, properties or assets of the
Borrower, except as otherwise reported.
F. TAXES. The Borrower has filed all tax returns required to be
filed and either paid all taxes shown thereon to be due,
including interest and penalties, which are not being contested
in good faith and by appropriate proceedings, or provided
adequate reserves for payment thereof, and none of them have any
information or knowledge of any objections to or claims for
additional taxes in respect of federal income or excess profits
tax returns for prior years.
G. TITLES, ETC. The Borrower has good title to the Collateral free
and clear of all mortgages, liens and encumbrances, and except
such liens and encumbrances as may from time to time be consented
to in writing by the Bank (hereinafter collectively referred to
as "Permitted Interests").
6. COVENANTS OF THE BORROWER: On and after the date hereof and
until the payment in full of the Loan evidenced by the Note and the
performance of all other obligations of the Borrower hereunder, and so long
as any portion of the Multi-Advance Commitment of the Bank remains in full
force and effect, the Borrower agrees that, unless the Bank shall otherwise
consent in writing:
A. FINANCIAL STATEMENTS; OTHER INFORMATION. The Borrower shall
deliver to the Bank
(1) as soon as available and in any event within forty-five
days after the end of each fiscal quarter of the
Borrower, unaudited consolidated balance sheets of the
Borrower as of the end of such period and related
statements of operations of the Borrower for such
period and for the year to date, all in reasonable
detail and stating in comparative form the figures for
the corresponding period in the previous year;
(2) as soon as available and in any event within ninety days
of Borrower's fiscal year, Annual Audited Fiscal Year
End Financial Statements of the Borrower prepared in
accordance with generally accepted accounting
principles, consistently applied;
(3) All SEC filings/press releases relating Borrower's
business operations within seven days of filing or
release as the case may be;
4
<PAGE>
EXHIBIT 10.10
(4) Annual budget/projections of Borrower, as internally
generated, for Borrower's next fiscal year by the end
of Borrower's current fiscal year; and
(5) such other information respecting the financial
condition and results of operations of the Borrower
as the Bank may from time to time reasonably request.
B. TAXES AND CLAIMS. The Borrower shall pay and discharge all
taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any of its assets
or properties, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a
lien or charge upon the property or assets of the Borrower.
C. INSURANCE. The Borrower shall maintain insurance coverage with
responsible insurance companies licensed to do business in the
State of Minnesota in such amounts against such risks as is
requested by the Bank or as required by law, including, without
limitation, property, comprehensive general public liability,
product liability and business interruption insurance, and
worker's compensation or similar insurance. The Borrower shall
furnish, to the Bank, upon written request, full information and
written evidence as to the insurance maintained by the Borrower.
D. LITIGATION. The Borrower shall promptly give to the Bank notice
in writing of all litigation and of all proceedings by or before
any court or governmental or regulatory agency affecting the
Borrower, except litigation or proceedings which, if adversely
determined, would not materially affect the financial condition
or business of the Borrower.
E. LIENS. The Borrower will not create, incur, assume or suffer to
exist any mortgage, deed of trust, pledge, lien, security
interest, or other charge or encumbrance on any of its assets
covered by the Bank's security interest without the prior written
consent of the Bank, other then liens in existence prior to the
date of this Agreement and purchase money security interest liens
arising pursuant to Section 6K hereof.
F. SALE OF ASSETS. The Borrower will not sell, lease, assign,
transfer or otherwise dispose of all or a substantial part of its
assets to any other person or entity other than in the ordinary
course of business; PROVIDED, HOWEVER, that Borrower may sell
accounts receivable to an accounts receivable financier, in
accordance with the term of an agreement with such financier,
which such terms and conditions have been disclosed to and
approved by the Bank.
5
<PAGE>
EXHIBIT 10.10
G. ACCESS. The Borrower shall grant to the Bank and the USDA access
to the Borrower's premises at any reasonable time in order to
inspect the Collateral and the Borrower's property and business.
H. TRANSFER OF COLLATERAL. The Borrower shall not sell, dispose of,
lease, mortgage, assign, sublet or transfer any of its right,
title or interest in or the Collateral without the prior written
consent of the Bank, except that the Borrower may dispose of worn
out or obsolete equipment, may sell and replace any item of
Collateral with equipment of a like kind and grade, may sell
accounts receivables to an accounts receivable financier and the
Borrower may sell Collateral consisting of inventory in the
ordinary course of Borrower's business.
I. USE OF PROCEEDS. Sums advanced to the Borrower under the Loan
shall only be used to provide operating capital for the build up
of inventory, accounts receivable, for the purchase of
manufacturing equipment, and for costs related to obtaining this
loan.
J. MAINTENANCE OF TANGIBLE NET WORTH. Borrower shall maintain a
Tangible Net Worth equal to at least twenty percent (20%) of
Total Assets for the term of this Agreement. "Total Assets"
shall mean the sum of all assets of Borrower as reported on
Borrower's financial statements. "Tangible Net Worth" shall mean
the difference between total tangible assets and total
liabilities as reported on a financial statement prepared in
accordance with this Agreement.
K. ADDITIONAL DEBT LIMITATIONS. During the term of this Agreement,
Borrower and Borrower's subsidiaries shall not incur any
additional debt and shall not assume liabilities or obligations
of any entity or person without the written consent of the Bank.
Notwithstanding the foregoing, the Borrower may incur the
following debt:
(1) this loan;
(2) debt existing as of the date of this Loan Agreement;
(3) debt incurred by Borrower to refinance or exchange
existing debt of Borrower;
(4) debt incurred by Borrower or any subsidiary of Borrower
in connection with providing customer or dealer
financing for the purchase of Borrower's product;
(5) other debt of Borrower provided that in its fiscal year
1999 and fiscal years subsequent thereto, Borrower
maintains a debt service coverage ratio at least 1.25.
Debt service coverage ratio shall be calculated by
dividing the sum of net income after tax, plus
depreciation, amortization and
6
<PAGE>
EXHIBIT 10.10
interest expense by the sum of interest and total
current maturities of long-term debt and capital
leases; and
(6) purchase money security interest debt in an amount not
to exceed $250,000.00 per fiscal year.
L. DIVIDEND PAYMENTS TO SHAREHOLDERS. This Agreement contains no
restriction on dividend payments to shareholders of Borrower.
M. LIMITATION ON COMPENSATION OF OFFICERS. This Agreement does not
limit the compensation of officers of Borrower.
N. CURRENT RATIO. The minimum current ratio maintained at all times
shall be 1.0 to 1. Minimum current ratio shall be determined by
dividing current assets by current liabilities.
O. MAXIMUM DEBT TO NET WORTH RATIO. The maximum debt to net worth
ratio shall not exceed 4 to 1. The debt to net worth ratio is
determined by dividing total liabilities by tangible net worth.
P. SUBSEQUENT AMENDMENT RELATING TO ENVIRONMENTAL IMPACTS. This
Agreement shall be subject to subsequent amendment as required by
the USDA to establish obligations upon Borrower to avoid or
reduce adverse environmental impact resulting from the
construction of Borrower's facility or from the business
operations of Borrower.
7. EVENTS OF DEFAULT; REMEDIES. Any one or more of the following
events shall constitute an Event of Default:
A. the Borrower shall fail to pay, when due, any amounts required to
be paid by the Borrower under any of the Borrower Documents, or
any other indebtedness of the Borrower to the Bank for a period
of ten (10) days after written notice to Borrower specifying such
default and requesting that it be remedied within such time
period;
B. the Borrower shall be in default in the performance of any
covenant, condition, obligation or agreement under any other
document or instrument heretofore or hereafter executed and
delivered to the Bank and such default is not cured within the
period, if any, allowed by such documents for the cure thereof;
C. the Borrower shall fail to observe or perform any of the
covenants, conditions, obligations or agreements to be observed
or performed by it under this Agreement, the Borrower Documents
or any of the documents related hereto for a period of thirty
(30) days after written notice to Borrower, specifying such
default and requesting that it be remedied within such time
period (other than defaults
7
<PAGE>
EXHIBIT 10.10
which can be cured by a money payment) provided that such party
is proceeding with reasonable diligence to remedy the same;
D. the Borrower shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present or
future state or federal bankruptcy act or under any similar
federal or state law, or shall be adjudicated as bankrupt or
insolvent, or shall make a general assignment for the benefit of
its creditors, or shall be unable to pay its debts generally as
they become due; or if a petition or answer proposing the
adjudication of the Borrower as bankrupt or its/their
reorganization under any present or future state or federal
bankruptcy act or any similar federal or state law shall be filed
in any court and such petition or answer shall not be discharged
or denied within thirty (30) days after the filing thereof; or if
a receiver, trustee or liquidator of the Borrower or of all or
substantially all of the assets of the Borrower, Borrower be
appointed in any proceeding brought against the Borrower and
shall not be discharged within thirty (30) days of each
appointment; or if the Borrower shall consent to or acquiesce in
such appointment;
E. the Borrower shall be or become insolvent (whether in the equity
or bankruptcy sense);
F. any representation or warranty made by the Borrower or the
Guarantor in this Agreement, the Borrower Documents or the
Guaranty or the documents related hereto shall prove to be untrue
or misleading in any material respect, or any statement,
certificate or report furnished hereunder or under any of the
foregoing documents by or on behalf of any such party shall prove
to be untrue or misleading in any material respect on the date
when the facts set forth and recited therein are stated or
certified;
G. the Borrower shall liquidate, wind up, dissolve, merge, terminate
or suspend its business operations, or sell all or substantially
all of its assets, without the prior written consent of the Bank;
H. the Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due or notice of any state
or federal tax lien shall be filed or issued;
I. any property of the Borrower shall be garnished, levied upon, or
attached in any proceeding and such garnishment or attachment
shall remain undischarged for a period of thirty days during
which execution has not effectively stayed;
J. except as permitted herein, the Borrower shall sell, transfer,
assign or otherwise dispose of all or any part of or any interest
in any property subject to any security agreement securing the
Note, or agree to any of the foregoing, without the prior written
consent of the Bank; or
8
<PAGE>
EXHIBIT 10.10
K. any change in the condition of the Borrower which, in the
reasonable opinion of the Bank, materially increases its risk
with respect to the Borrower Documents or the Guaranty, or any
documents or agreements related hereto or thereto, or the Bank
otherwise in good faith deems itself insecure for any reason with
respect to the payment of the Note.
Upon the occurrence and continuation of an Event of Default, any one or more
of the following remedial steps may be taken by the Bank:
(1) Bank may, after the expiration of applicable cure
periods following written notice by Bank, declare
all or part of the principal balance of the Note
plus accrued interest thereon to be immediately due
and payable, whereupon the same shall become immediately
due and payable by the Borrower;
(2) the Bank may take whatever action at law or in equity
as may appear necessary or appropriate to collect the
amounts then due and thereafter to become due under the
Note, this Agreement and the documents related hereto;
(3) the Bank may take whatever action in law or in equity
as may appear necessary or appropriate to collect any
other amounts then due and thereafter to become due under
this Agreement and the documents related hereto and to
enforce performance and observance of any obligation,
agreement, or covenant of the Borrower thereunder; and
(4) the Bank may take whatever action in law or in equity
as may appear necessary or appropriate to enforce its
rights with respect to the collateral securing the Note.
8. NOTICES. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by mail, postage prepaid, first class, certified or
registered mail, return receipt requested, to the following address or such
other address of which a party subsequently may give notice to all the other
parties (provided, however, that notices to the Bank shall not be effective
until received by the Bank):
IF TO BANK: Dakota Bank
ATTENTION: JOHN P. SEIDEL
1060 Dakota Drive
Mendota Heights, MN 55120
IF TO THE BORROWER: Excelsior-Henderson
Motorcycle Manufacturing Company
9
<PAGE>
EXHIBIT 10.10
ATTENTION: THOMAS M. ROOTNESS,
SENIOR VICE PRESIDENT OF FINANCE
AND ADMINISTRATION
805 Hanlon Drive
Belle Plaine, MN 56011
9. MISCELLANEOUS.
A. WAIVERS, ETC. No failure on the part of the Bank to exercise,
and no delay in exercising, any right or remedy hereunder or
under applicable law or any document or agreement related hereto
shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right or remedy preclude any other
or further exercise thereof or the exercise of any other right or
remedy. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
B. EXPENSES. The Borrower shall reimburse the Bank for any and all
costs and expenses, including, without limitation, attorneys'
fees, paid or incurred by either the Bank in connection with the
preparation of the enforcement by the Bank during the term hereof
of thereafter or any of the rights or remedies of the Bank under
any of the foregoing documents, instruments or agreements of
under applicable law, whether or not suit is filed with respect
thereto.
C. AMENDMENTS, ETC. The Borrower Documents may not be amended or
modified except by written instruments signed by the Bank and the
Borrower.
D. SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Borrower and the Bank and their respective
successors and assigns; provided, however, that the Borrower may
not transfer or assign its rights to borrow hereunder without the
prior written consent of the Bank.
E. ACCOUNTING. Unless otherwise expressly provided herein, or
unless the Bank otherwise consents in writing, all accounting
terms used herein which are not expressly defined in this
Agreement shall have the meanings respectively given to them in
accordance with generally accepted accounting principles and
audited financial statements and reports furnished to the Bank
hereunder shall be prepared, and all computations and
determinations pursuant hereto shall be made, in accordance with
generally accepted accounting principles and practices, applied
on a basis not materially inconsistent with that applied in
preparing the respective financial statements referred to in
Sections 5D hereof.
F. GOVERNING LAW. Except as otherwise expressly provided therein,
the Borrower Documents, and all other agreements related hereto,
shall be construed in accordance with and governed by the laws of
the State of Minnesota.
10
<PAGE>
EXHIBIT 10.10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
DAKOTA BANK EXCELSIOR-HENDERSON
MOTORCYCLE MANUFACTURING COMPANY
By: By:
---------------------------------- -----------------------------------
David M. Carlson Thomas M. Rootness
Its Executive Vice President Its Senior Vice President of
Finance and Administration and
Chief Financial Officer
11
<PAGE>
EXHIBIT 10.10
EXHIBIT "A"
TO
LOAN AGREEMENT
COLLATERAL
(a) All accounts receivable, contract rights and rights to payment in money
or in kind for goods sold or leased or for services rendered; all
returned or repossessed goods arising from or relating to any account,
contract rights, or rights to payment; and any rights of Borrower as an
unpaid seller of goods or services, which may now exist or which are
hereafter acquired, together with all proceeds and products of the
foregoing;
(b) All inventory (goods, merchandise, and other personal property) which
are held for sale, lease or otherwise in connection with Borrower's
operations, or furnished or to be furnished under any contract of
service or are raw materials, work-in-process, supplies, or materials
used or consumed in Borrower's operations, and any right of Borrower as
an unpaid seller of goods or services; and
(c) All equipment, machinery and other fixed assets of Borrower pledged by
Borrower to Bank pursuant to the terms of the Security Agreement.
12
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 333-38505, 333-60083, 333-60085, and
333-64011.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 1, 1999
<PAGE>
EXHIBIT 24
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of Excelsior-Henderson
Motorcycle Manufacturing Company, a Minnesota corporation, does hereby make,
constitute and appoint Daniel L. Hanlon and David P. Hanlon, and either of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or
officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1934, as amended, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 1st day of April, 1999.
John B. Donahue
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of Excelsior-Henderson
Motorcycle Manufacturing Company, a Minnesota corporation, does hereby make,
constitute and appoint Daniel L. Hanlon and David P. Hanlon, and either of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or
officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1934, as amended, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 1st day of April, 1999.
Wayne M. Fortun
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of Excelsior-Henderson
Motorcycle Manufacturing Company, a Minnesota corporation, does hereby make,
constitute and appoint Daniel L. Hanlon and David P. Hanlon, and either of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or
officer of said Corporation to an Annual Report on Form 10-K or other
applicable form, and all amendments thereto, to be filed by said Corporation
with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1934, as amended, with all exhibits thereto and other
supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the
undersigned's hand this 1st day of April, 1999.
David R. Pomije
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JAN-02-1999
<CASH> 4,697,542
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,865,251
<CURRENT-ASSETS> 7,104,164
<PP&E> 30,317,118
<DEPRECIATION> 999,869
<TOTAL-ASSETS> 47,988,132
<CURRENT-LIABILITIES> 10,221,789
<BONDS> 0
0
9,325,000
<COMMON> 130,835
<OTHER-SE> 7,741,099
<TOTAL-LIABILITY-AND-EQUITY> 47,988,132
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 23,264,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,753,502
<INCOME-PRETAX> (23,909,305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,909,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,909,305)
<EPS-PRIMARY> (1.83)
<EPS-DILUTED> (1.83)
</TABLE>
