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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: FEBRUARY 15, 1999
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(DATE OF EARLIEST EVENT REPORTED)
WSI INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
MINNESOTA 0-619 41-0691607
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of Incorporation)
2605 WEST WAYZATA BOULEVARD
LONG LAKE, MINNESOTA 55356
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(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 473-1271
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Items 1, 3, 4, 6 and 8 are not included.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 15, 1999, WSI Industries, Inc. (the "Registrant") purchased
all of the issued and outstanding stock of Taurus Numeric Tool, Inc., a
Minnesota corporation based in Osseo, Minnesota ("Taurus"), from Rodney
Winter ("Winter"). Taurus and Winter have no affiliation to the Registrant or
any of its affiliates. Taurus is in the business of custom precision
contract machining. Taurus will continue to operate its assets in the same
business. Pursuant to a Stock Purchase Agreement dated February 15, 1999
between the Registrant and Winter (the "Stock Purchase Agreement"),
$1,175,807 was paid by the Registrant to Winter in the form of a Subordinated
Promissory Note subordinate to the interests of U.S. Bank National
Association ("U.S. Bank") and $5,000,000 was paid in cash derived from cash
on hand and from borrowings from U.S. Bank. An additional as yet
undetermined amount (not to exceed $1,000,000) will be payable by the
Registrant to Winter in the form of a Contingent Subordinated Promissory
Note, such amount to be based upon the operating income of Taurus during the
twelve-month period following the closing date of the transaction. The
purchase price was determined through arms-length negotiations. Upon the
closing of the Stock Purchase Agreement, Taurus entered into a three-year
lease with Winter and Reba Winter for the facility used in its business.
Taurus and Winter also entered into a Non-Compete Agreement under which
Winter will be paid $25,000 per quarter for five years. The Registrant has
guaranteed Taurus' obligations under the Lease and Non-Compete Agreement.
ITEM 5. OTHER EVENTS.
In connection with the acquisition of the capital stock of Taurus as
detailed in Item 2 of this Form 8-K, Registrant amended its credit facility
with U.S. Bank pursuant to that certain Consent and Fourth Amendment to
Amended and Restated Credit and Security Agreement dated February 15, 1999
between Registrant and U.S. Bank, as assignee of FBS Business Finance
Corporation (the "Amended Agreement"). Pursuant to the Amended Agreement,
U.S. Bank extended to the Registrant a term loan in the principal amount of
$3,200,000 and a revolving credit facility in the maximum amount of
$3,000,000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
To be provided by amendment within 60 days of the date hereof in
accordance with Item 7(a)(4) of Form 8-K.
(b) PRO FORMA FINANCIAL INFORMATION.
To be provided by amendment within 60 days of the date hereof in
accordance with Item
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7(b)(2) of Form 8-K.
(c) EXHIBITS.
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<S> <C>
2.1 Stock Purchase Agreement dated February 15, 1999 between the
Registrant and Winter.
4.1 Consent and Fourth Amendment to Amended and Restated Credit and
Security Agreement with accompanying Exhibit A dated February 15,
1999 between the Registrant and U.S. Bank.
10.1 Lease Agreement dated February 15, 1999 between Taurus and Winter
and Reba Winter.
10.2 Non-Compete Agreement dated February 15, 1999 between Taurus and
Winter.
99.1 Press release.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WSI INDUSTRIES, INC.
By /s/ Michael J. Pudil
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Michael J. Pudil
President
February 15, 1999
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated February 15, 1999, is
by and between WSI Industries, Inc., a Minnesota corporation (the "Buyer")
and Rodney Winter (the "Seller").
RECITAL
Seller owns and desires to sell, and Buyer desires to purchase, 100% of
the capital stock of Taurus Numeric Tool, Inc., a Minnesota corporation (the
"Corporation"), upon the terms and subject to the conditions set forth in
this Agreement.
It is agreed:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1. SALE OF COMMON STOCK. Seller hereby agrees to sell, convey,
transfer, assign and deliver to Buyer on the Closing Date (as defined in
Section 1.7), 10,000 shares (the "Shares") of duly and validly issued, fully
paid and non-assessable, common stock of the Corporation.
1.2. PURCHASE PRICE. Subject to the terms and conditions of this
Agreement and in reliance upon the representations, warranties and covenants
of Seller herein contained and in full consideration of such sale of the
Shares to Buyer, Buyer agrees to pay to Seller a purchase price (the
"Purchase Price") consisting of Six Million and no/100s Dollars ($6,000,000)
subject to adjustment as provided in Sections 1.3 and 1.6 of this Agreement
(the "Closing Payment") and (ii) the Additional Amount as described in
Section 1.5. The Closing Payment shall be paid as detailed in Section 1.4 of
this Agreement.
1.3. CLOSING DATE ADJUSTMENT. Seller shall prepare and deliver to
Buyer, not later than three (3) days before the Closing Date, the December
31, 1998 balance sheet of the Corporation prepared from the books and records
of the Corporation in accordance with generally accepted accounting
principles consistently applied, but with the inventory valued as provided in
Section 1.6 (the "Latest Balance Sheet"). If the sum of the book value of
the Corporation as set forth on the Latest Balance Sheet, less $191,990, is
different from the book value of the Corporation as set forth on the October
31, 1998 Balance Sheet (excluding the book value of life insurance and
vehicles) ($3,928,218) previously delivered to Buyer (the "October Balance
Sheet"), the amount of the Note (as defined in Section 1.4) to be delivered
at Closing shall be reduced or increased, as the case may be, on a dollar for
dollar basis.
1.4. CLOSING PAYMENT. The Closing Payment shall be paid as follows:
(a) $5,000,000 in cash at Closing by wire transfer of funds; and
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(b) Subordinated Promissory Note (the "Note") delivered at Closing in
the form attached hereto as Exhibit A in an amount equal to
$1,000,000 as adjusted pursuant to Sections 1.3 and 1.6 of this
Agreement. The Note shall be secured as provided in the form of
Security Agreement attached hereto as Exhibit B.
1.5. ADDITIONAL AMOUNT. Seller shall receive Two Dollars ($2.00) for every
One Dollar ($1.00) of Operating Income (as defined below) above One Million Four
Hundred Seventy-Five Thousand ($1,475,000) generated by the Corporation during
the twelve-month period following the Closing Date, up to a maximum of One
Million Dollars ($1,000,000)(the "Additional Amount"). For purposes of this
Agreement, Operating Income shall be defined as earnings (including earnings
from the sale of inventory described in Section 6.13) before interest, taxes and
acquisition costs, each as determined by the Corporation in accordance with
generally accepted accounting principles. The Additional Amount will be
evidenced by a contingent subordinated promissory note (the "Contingent Note")
in the form of Exhibit C hereto delivered at Closing. The Contingent Note shall
be secured as provided in the form of Security Agreement attached hereto as
Exhibit B. In the event that, prior to the end of the twelve-month period
following the date of this Agreement, Buyer sells, exchanges, or otherwise
disposes of substantially all of the assets of the Corporation or more than 50%
of the outstanding capital stock of the Corporation to a third party, other than
Buyer or any subsidiary of Buyer (a "Change of Control"), then the Additional
Amount shall be determined by multiplying the average monthly Operating Income
for each month following the Closing Date, but prior to the Change of Control,
by twelve (12).
1.6. POST-CLOSING ADJUSTMENT.
(a) Within 45 days after the Closing Date (as defined in Section
1.7), the Buyer shall deliver to the Seller a balance sheet of the
Corporation as of the opening of business on February 15, 1999 (the
"Closing Date Balance Sheet") prepared by the Buyer. The fees and expenses
of the audit shall be paid by Buyer. Such balance sheet shall be prepared
in accordance with generally accepted accounting principles consistently
applied, with the inventory value determined in a manner consistent with
the Latest Balance Sheet and as provided in this Section 1.6. There shall
be accrued on the Closing Date Balance Sheet an expense related to certain
equipment repairs with respect to the B-axis on the Mazak #1 and #2
machines. Such expense shall be determined by quote from Mazak. The
inventory reflected on the Closing Date Balance Sheet shall be determined
by a physical inventory taken as of the start of business on the Closing
Date and observed by the representatives of the Buyer and Seller. The
inventory will be valued at the lower of cost or market and shall consist
of material, hardware and subcontract costs at their historical invoiced
value; plus labor costs applied at a total hourly rate of $34.38 for
work-in-progress and finished goods. The only inventory set forth on the
Closing Date Balance Sheet shall be raw materials, work-in-progress and
finished goods inventory for which there are current orders from customers
or forecasted orders from Rockwell Air
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Transport, or included on Rockwell's annual purchase agreement. All other
inventory shall be excluded and "Obsolete and Slow Moving Inventory."
Obsolete and Slow Moving Inventory shall be subject to the terms of Section
6.13.
(b) If the Seller has any objections to the Closing Date Balance
Sheet, he shall deliver to the Buyer a statement describing such objections
within 15 days after Seller's receipt of the Closing Date Balance Sheet.
If no objections are received within such 15 day period, the Closing Date
Balance Sheet shall be deemed accepted by Seller. Buyer and Seller shall
use reasonable efforts to resolve any objections received during such 15
day period. In the event Buyer and Seller are unable to resolve such
objections within a 15-day period following receipt by Buyer of Seller's
objections, the Buyer and Seller shall, within ten days after such 15-day
period, select a mutually acceptable nationally recognized accounting firm
to resolve any remaining objections. The determination of such accounting
firm shall be made within 30 days of the selection of such accounting firm
and shall be conclusive and binding upon the parties hereto. The fees and
expenses of such accounting firm shall be shared equally by Buyer and
Seller.
(c) If the aggregate book value of the Corporation, as reflected on
the Closing Date Balance Sheet, as finally determined, is greater than the
aggregate book value of the Corporation as reflected on the Latest Balance
Sheet, less $191,990, the Purchase Price shall be adjusted upward by such
amount and a corresponding adjustment to the Note shall be made as of the
Closing. In the event the aggregate book value of the Corporation, as
reflected on the Closing Date Balance Sheet, as finally determined, is less
than the aggregate book value of the Corporation as reflected on the Latest
Balance Sheet, less $191,990, the Purchase Price shall be adjusted
downward by such amount and a corresponding adjustment to the Note shall be
made as of the Closing. The finalization of the Closing Date Balance Sheet
shall not affect any rights or remedies of Buyer under this Agreement. In
the event a downward adjustment is in excess of the principal amount of the
Note, such excess shall be paid by Seller to Buyer within five (5) days of
final determination of such adjustment.
1.7. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") is taking place simultaneously with the execution of
this Agreement at the offices of Lindquist & Vennum PLLP, 4200 IDS Center, 80
South 8th Street, Minneapolis, Minnesota at 9:00 a.m. on February 15, 1999. The
date and time of the Closing are herein referred to as the "Closing Date." The
Closing shall be effective as of 12:01 a.m. on February 15, 1999.
1.8. CONDITIONS TO CLOSING.
(a) The obligation of Seller to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of
the following conditions:
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(i) The representations and warranties of the Buyer shall be
true and correct on the Closing Date;
(ii) The Buyer shall have performed and complied with all
covenants and agreements required to be performed and
complied with by it under this Agreement prior to the
Closing;
(iii) No action or proceeding before any court or agency will
be pending or threatened wherein an unfavorable
judgment, decree or order could prevent the carrying
out of this Agreement or any of the transactions
contemplated hereby; and
(iv) All documents required to be delivered at Closing pursuant
to Section 4.1 of this Agreement have been delivered.
(b) The obligation of Buyer to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of
the following conditions:
(i) The representations and warranties of the Seller shall be
true and correct on the Closing Date;
(ii) The Seller shall have performed and complied with all
covenants and agreements required to be performed and
complied with by it under this Agreement prior to the
Closing;
(iii) No action or proceeding before any court or agency will
be pending or threatened wherein an unfavorable
judgment, decree or order could prevent the carrying
out of this Agreement or any of the transactions
contemplated hereby or have an adverse effect on the
Purchased Assets or the Business;
(iv) Buyer, in its sole discretion, is satisfied that no
customer of the Corporation intends to discontinue
business with or significantly reduce its business with
the Corporation following the Closing;
(v) Buyer shall have received all required consents, permits
and licenses;
(vi) Buyer shall have reached acceptable employment
arrangements with key employees of the Corporation; and
(vii) All documents required to be delivered at Closing pursuant
to Section 4.1 of this Agreement have been delivered.
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Either Buyer or Seller may waive any condition to its obligation to
consummate the transactions contemplated by this Agreement and proceed with
Closing.
1.9. TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual consent of the Buyer and the Seller;
(b) by either the Buyer, on the one hand, or the Seller, on the other
hand, if there has been a misrepresentation or breach of warranty
on the part of the other party in the representations and
warranties set forth in this Agreement, or if the conditions
precedent to the terminating party's obligations to consummate
the transactions contemplated hereby have not been satisfied on
or prior to Closing Date (other than as a result of the willful
acts or omissions of the terminating party); or
(c) by either the Buyer, on the one hand, or the Seller, on the other
hand, if the transactions contemplated hereby have not been
consummated on or before February 28, 1999; provided that neither
the Buyer nor the Seller will be entitled to terminate pursuant
to this Section 1.9(c) if the Buyer's or the Seller's willful
breach of this Agreement, respectively, has prevented the
consummation of the transactions contemplated hereby.
In the event of termination of this Agreement by either the Buyer or the
Seller as provided above, this Agreement will forthwith become void, and
there will be no liability on the part of either the Buyer or the Seller,
except for breaches of this Agreement prior to the time of such termination.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
To induce Buyer to enter into this Agreement, Seller represents and
warrants to Buyer as follows:
2.1. OWNERSHIP OF THE SHARES. Seller is the record and beneficial owner of
all of the Shares free and clear of all liens, encumbrances, purchase rights,
claims, pledges, mortgages, security interests, or other limitations or
restrictions whatsoever. Seller is not subject to, or a party to, any articles
of incorporation or bylaw provisions, shareholder control agreements, buy-sell
agreements, contracts, instruments or other restrictions of any kind or
character which directly or indirectly restrict or otherwise limit in any manner
the voting, sale or other disposition of the Shares.
2.2. AUTHORITY OF SELLER. Seller has full and unrestricted legal right,
power and authority to enter into this Agreement, and to sell, assign, transfer,
and deliver to Buyer valid, lawful and marketable title to the Shares to be
sold, assigned and transferred by Seller pursuant to
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this Agreement. Seller represents that neither the execution and delivery of
this Agreement or any other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby will conflict with or
result in any violation of, or default under, any contract, agreement or
commitment or any law applicable to Seller or the Corporation or any of its
assets or property or its business. No action, consent or approval by, or
filing by Seller or the Corporation with, any federal, state, municipal,
foreign or other court or governmental body or agency, or any other
regulatory body, is required in connection with the execution and delivery by
the Seller of this Agreement or the consummation by Seller of the
transactions contemplated hereby.
2.3. TITLE. Upon delivery to Buyer of certificates duly endorsed or
accompanied by duly executed stock powers representing all the Shares described
in Section 1.1 above, Buyer will acquire lawful, valid and marketable title to
the Shares free and clear of all liens, encumbrances, purchase rights, claims,
pledges, mortgages, security interests, or other limitations or restrictions
whatsoever.
2.4. ORGANIZATION AND QUALIFICATIONS OF THE CORPORATION. The Corporation
is a corporation lawfully existing and in good standing under the laws of
Minnesota with full power and authority to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is conducted by it.
2.5. CAPITALIZATION OF THE CORPORATION. The authorized capital stock of
the Corporation consists of 100,000 shares of common stock, of which 10,000
shares are issued and outstanding, fully paid and non-assessable. There are no
outstanding warrants, options, preemptive rights, or other rights or securities
to purchase or acquire newly issued shares of the Corporation's capital stock.
There are no stock appreciation, phantom or similar rights based on the book
value or any other attribute of any capital stock of the Corporation.
2.6. SUBSIDIARIES. The Corporation does not have any subsidiaries or own
any securities issued by any other business organization or governmental
authority. The Corporation is not a partner or joint venturer in any
partnership or joint venture.
2.7. TITLE TO PROPERTIES; CONDITION OF PROPERTIES. The Corporation owns
and has good and marketable title to all of the assets listed on the Latest
Balance Sheet (defined in Section 2.10) (other than inventory sold since the
date of the Latest Balance Sheet) or acquired since then, free and clear of any
lien or encumbrance of any kind (collectively, "Encumbrances"). All machinery
and equipment owned by the Corporation is in good repair, has been well
maintained and is in good working order, normal wear and tear excepted. All
assets necessary for the continued operation of the Corporation's business as it
is currently being conducted and as it has been conducted since January 1, 1998
are owned by the Corporation or subject to valid leasehold interests.
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2.8. REAL PROPERTY. All real property leased by the Corporation is
described in Schedule 2.8 (the "Leased Real Property") and is owned by Seller.
The Corporation owns no real property.
2.9. ENVIRONMENTAL MATTERS.
(a) Neither the Leased Real Property nor any property previously
owned or operated by the Corporation has been used by the Corporation,
or to the best knowledge of Seller, by any other party, for the
purpose of storing, disposing or treating any hazardous, toxic or
dangerous substance, waste or material ("Hazardous Materials") as
defined under or regulated by any federal, state or local laws
relating to pollution, protection of the environment or worker health
and safety (collectively, the "Environmental Laws"). There has been
no release or threatened release of Hazardous Materials on the Leased
Real Property by the Corporation or Seller or, to the best knowledge
of Seller, by any other party. Neither the Corporation nor the Seller
has received any notice of any asserted present or past failure by the
Corporation or by any other party to comply with any Environmental
Laws or any rule or regulation adopted pursuant to such laws in
connection with the Leased Real Property.
(b) The Corporation has not transported Hazardous Materials, or
arranged for the transportation of Hazardous Materials to any
disposal, treatment or storage site which is the subject of federal,
state or local enforcement actions, or, to the best knowledge of
Seller, other governmental or private investigations, or which may
lead to claims against the Corporation for clean up costs, remedial
work, or for damages.
(c) Except as provided in Schedule 2.9, there are no underground
storage tanks, as defined under federal or applicable state law,
located on the Leased Real Property, and none have been placed on the
Leased Real Property during the Corporation's operation of the Leased
Real Property or the Seller's ownership of the Leased Real Property.
(d) To the best knowledge of Seller, there are no material
expenditures required to bring the Leased Real Property in compliance
with the Environmental Laws.
2.10. FINANCIAL STATEMENTS. Seller has delivered to Buyer the
following financial statements:
(a) Unaudited balance sheets dated December 31, 1997 and 1996,
and related statements of income and retained earnings, and cash flows
for the years then ended, as reviewed by Bertram, Vallez, Kaplan &
Talbot, Ltd.; and
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(b) Unaudited October Balance Sheet and Latest Balance Sheet.
All of the financial statements referred to in this Section 2.10 have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the Corporation's past practices, except as provided in
Section 2.14, and present fairly the financial condition of the Corporation at
the dates of said statements and the results of its operations for the periods
covered. All accruals for liabilities and reserves for contingent liabilities
have been established by the Corporation as required to be established and
maintained under generally accepted accounting principles. All liabilities
related to the Corporation's phantom stock plan for all participants therein,
including Darrell Pederson and Mark Schumacher, are fully accrued on the Latest
Balance Sheet. Such liabilities include an accrual of $25,530 for Mr. Pederson
and $47,869 for Mr. Schumacher.
2.11. PAYMENT OF TAXES. The Corporation has filed all federal, state
and local income, excise or franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns and
reports required to be filed by it and has paid all taxes owing by it except
taxes for which adequate provision has been made in the Latest Balance Sheet.
The Corporation has maintained a valid S election since its inception. The
Corporation has received no notice of any impending audit by any taxing
authority. The Corporation has not received notice of any tax deficiency
proposed or assessed against it, and it has not executed any waiver of any
statute of limitations on the assessment or collection of any tax.
2.12. ABSENCE OF UNDISCLOSED LIABILITIES. The Corporation has no
liabilities of any nature, whether accrued, absolute or contingent, other than
and to the extent reflected or reserved against on the Latest Balance Sheet and
liabilities incurred in the ordinary course of business since the date of the
Latest Balance Sheet and liabilities disclosed on Schedule 2.12. To the best
knowledge of Seller, there are no facts which materially affect, or may in the
future (so far as can now be reasonably foreseen) materially affect, the
business, properties, operations or condition of the Corporation which has not
been specifically disclosed in this Agreement.
2.13. ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Corporation reflected on the Closing Date Balance Sheet will be valid and
enforceable claims, fully collectible within 90 days of their respective invoice
dates, and subject to no setoff or counterclaim in the recorded amounts, subject
only to the allowance for doubtful accounts reflected on the Closing Date
Balance Sheet.
2.14. INVENTORIES. The inventory of the Corporation reflected on the
Closing Date Balance Sheet will consist of items of a quantity consistent with
normal inventory levels of the Corporation and of a quality and condition that
is usable and saleable in the ordinary course of business for the purposes for
which intended. Such inventory is carried on the Corporation's books of account
in accordance with generally accepted accounting principles. The inventory
value reflected on the Latest Balance Sheet consists of material, hardware and
subcontract costs at their historical invoiced value; plus labor costs applied
at an hourly rate of $34.38 for work-in-
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progress and finished goods. The hourly rate was determined by dividing (i)
the total of direct and indirect costs of sale less material, subcontract and
applicable general and administrative costs by (ii) the total number of
"machine hours" as accumulated by the Corporation's DCD computer system.
Labor hours applied to inventory consisted of "burden" hours as accumulated
by the Corporation's DCD system for each specific inventory part.
2.15. CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Except as provided
on Schedule 2.15, the Corporation has conducted its business since October 31,
1998 only in the usual and ordinary course consistent with past practice and
since such date, the Corporation has not (i) sold or transferred any of its
assets, except inventory in the ordinary course of business; (ii) changed any
method of accounting or accounting practice; (iii) increased or promised to
increase the compensation payable to any employee, except in accordance with
annual wage reviews consistent with past practices; (iv) made any direct or
indirect payments, dividends, distributions, sales or transfers of assets, other
than normal compensation and the distributions reflected on the Latest Balance
Sheet, to any officer, director, shareholder or employee of the Corporation or
any of their affiliates; (v) changed its outstanding shares of capital stock or
repurchased, redeemed or acquired any outstanding shares of capital stock or
other ownership interest in securities of the Corporation; or (vi) suffered any
damage or casualty to its assets.
2.16. PATENTS, TRADE NAMES, TRADEMARKS AND COPYRIGHTS. The Corporation
owns and has the right to use, free and clear of any claims or rights of others,
all patents, trademarks, service marks, trade names, know-how, trade secrets and
customer and supplier lists which it is using.
2.17. COMMITMENTS. Except as described on Schedules 2.17 or 2.23, the
Corporation is not a party to or subject to any of the following contracts,
commitments, understandings, agreements or licenses, oral or written (the
"Commitments"):
(a) any Commitment creating any obligation of the Corporation of
$5,000 or more (other than sales and purchase commitments in the
ordinary course of business for less than $5,000 each);
(b) any Commitment providing for the purchase of all or
substantially all of the Corporation's requirements of a particular
product from a supplier, or for periodic minimum purchases of a
particular product from a supplier;
(c) any Commitment not terminable on 30-days notice without
penalty to the Corporation, other than sales and purchase commitments
entered into in the ordinary course of business;
(d) any Commitment with any employee, consultant, sales agent or
distributor;
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(e) any Commitment containing covenants limiting the Corporation's
freedom to compete in any line of business or with any person or entity;
(f) any Commitment for the purchase of any fixed asset for a
price in excess of $5,000, whether or not such purchase is in the
ordinary course of business;
(g) any license agreement (as licensor or licensee), except
software licenses used in the ordinary course of business in
compliance with their respective terms;
(h) any Commitment with any present or former officer, director
or shareholder of the Corporation or with any persons or organizations
controlled by or affiliated with any of them; or
(i) any other Commitment not described above which involves
total consideration in excess of $500 per month, other than utilities
purchased in the ordinary course of business, salaries and employee
benefits described on Schedule 2.23.
True, correct and complete copies of the Commitments have been provided to
Buyer prior to the execution of this Agreement. All Commitments are in full
force and effect and have not been amended, extended or otherwise modified.
Neither the Corporation nor, to the best knowledge of Seller, any other party is
in default under any Commitments. None of the Commitments related to funded
debt require prepayment penalties. The Corporation has all necessary software
licenses to conduct its business as currently conducted and the Corporation is
in compliance with such licenses.
2.18. LITIGATION. Except as provided in Schedule 2.18, there are no
legal, administrative, arbitration or other proceedings or governmental
investigations pending or, to the best knowledge of Seller, threatened against
the Corporation and there are no facts known to Seller which may result in such
a proceeding or investigation.
2.19. COMPLIANCE WITH LAWS. The Corporation is in compliance in all
material respects with any laws, regulations or permits which apply to the
conduct of its business or the Leased Real Property.
2.20. PERMITS. The Corporation holds all licenses, permits and
franchises which are required to permit it to conduct its business, and all such
licenses, permits and franchises are listed on Schedule 2.20.
2.21. TRANSACTIONS WITH INTERESTED PERSONS. Except for the Leased Real
Property and two pieces of equipment leased to the Corporation by JRW
Enterprises, Inc., Seller does not own
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directly or indirectly any material interest in, or serve as an officer or
director of, any customer, competitor or supplier of the Corporation, or any
organization which has a material contract or arrangement with the
Corporation.
2.22. SUPPLIERS; CUSTOMERS. There are no existing disputes with any of
the Corporation's suppliers, other than normal disputes in the ordinary course
of business. Seller has no reason to believe that any supplier will discontinue
business with the Corporation following the Closing. No customer has notified
the Corporation, and Seller has no knowledge that a customer intends to
discontinue business with or significantly reduce its business with the
Corporation or materially change the terms or price of its jobs. The
Corporation is not a party to any contract or series of contracts with any one
customer to sell products which, in the aggregate with respect to such customer,
is to be performed at a price which is less than the Corporation's full cost or
to buy products at prices other than the prevailing market prices at the time
the contracts were entered into.
2.23 EMPLOYEE BENEFIT PLANS. Schedule 2.23 sets forth a list of all
health care plan or arrangement; life insurance or other death benefit plans;
deferred compensation or other pension or retirement plan; or other fringe or
employee benefit plan or arrangement; any employment or consulting contract
or executive compensation agreement; whether written or otherwise, formal or
informal, voluntary or required by law, including, without limitation, any
"employee benefit plan" as defined in Section 3(3) ("Employee Plan") (i)
which the Corporation has any time maintained for the benefit of or relating
to present or former employees, directors, leased employees, consultants
and/or their dependents or beneficiaries; or (ii) with respect to which the
Corporation or any ERISA Affiliate has made any payments or contributions.
For purposes of this Section, "ERISA Affiliate" means all trades or
businesses (whether or not incorporated) which are, or any time during the
six years prior to the Closing Date, were members of a group of which the
Corporation is or was a member which are or were under common control within
the meaning of Code Section 414(b) or (c) or which are or were treated,
together with the Corporation, as a single corporation under Code Section
414(m) or (o). Except as specifically set forth in Schedule 2.23:
(a) Each Employee Plan has been consistently administered in
substantial compliance with its terms and provisions and with the Code,
ERISA and all other applicable laws and regulations, including, without
limitation, Code Section 4980B and ERISA Section 601, et. seq. Each
Employee Plan which is an employee pension plan as defined in Section 3(2)
of ERISA meets the applicable requirements for qualification under Section
401(a) and for exemption under Section 501(a) of the Code. All reports
required under ERISA or any other law or regulation to be filed by the
Corporation or any ERISA Affiliate have been duly filed with the relevant
governmental body, and all such reports are true and correct as of the date
given in all material respects, and all Employee Plans have timely complied
in all material respects with the disclosure of information regarding the
Employee Plans required under Title 1 of ERISA.
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(b) All contributions required to be made prior to the Closing Date
to any Employee Plan have been paid or accrued for and neither the
Corporation nor any ERISA Affiliate has any liability for any Employee Plan
that has arisen or accrued prior to the Closing which has not been provided
for through contributions, insurance or by appropriate accrual on the
Closing Date.
(c) Neither the Corporation nor any ERISA Affiliate has engaged in
any nonexempt "prohibited transaction" within the meanings of Sections 503
and 4975 of the Code or Section 406 of ERISA.
(d) Neither the Corporation nor any ERISA Affiliate has ever been (i)
a party or contributor to, or incurred withdrawal liability under Section
4201 of ERISA with respect to, any multiemployer plan (as such term is
defined in Section 3(37) of ERISA), or (ii) a party or contributor to any
plan maintained by more than one employer (as described in Section 413(c)
of the Code).
(e) There are no lawsuits or claims brought by any present or former
employee against the Corporation or any ERISA Affiliate or any of their
respective Employee Plans, other than claims for benefits in the normal
course, which have not been finally resolved, and there are no claims or
assessments pending or threatened against the Corporation or any ERISA
Affiliate or any of their respective Employee Plans.
(f) Except as otherwise expressly provided in any Employee Plan or as
otherwise required by applicable law, no condition exists that would
materially increase the expense to the employer whose employees are covered
under any of the Corporation's or any ERISA Affiliate's Employee Plans nor
does any condition exist which would prevent the amendment or termination
of any such Employee Plan.
(g) Schedule 2.23 sets forth (i) the names of all former employees of
the Corporation whose employment has terminated either voluntarily or
involuntarily during the preceding twelve-month period to which the
Corporation has any continuing obligation or liability; and (ii) the names
of all employees of the Corporation who are on a short or long term
disability, workers' compensation disability, sick leave, personal leave or
is otherwise unable to return to work prior to Closing, the expected
duration of their disability or leave, and any benefits to which such
individuals are entitled as of the Closing.
2.24 EMPLOYEE MATTERS. None of the employees of the Corporation are
represented by any union or subject to any collective bargaining agreement and,
to the best knowledge of Seller, none of such employees are engaged in any
organizational activities. The Corporation is in substantial compliance with all
applicable federal, state, and local laws relating to the employment of labor,
including the provisions thereof relating to wages, hours, occupational health
and safety, health and welfare insurance, collective bargaining, discrimination,
and the
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payment of withholding and social security taxes, and the Corporation is not
liable for any arrears of wages, or any tax or penalties, for failure to
comply with any of the foregoing. The Corporation is not in receipt of any
complaint, demand letter or charge issued by any federal, state or local
agency alleging a violation of any law, regulation or ordinance respecting
employment or employment practices, nor has the Corporation heretofore
incurred any liability under the Workers Adjustment and Retraining
Notification Act or similar state law or regulation. To the best knowledge of
Seller, non of the employees of the Corporation has suffered or is suffering
from any illness or disease caused directly or indirectly by nay employment
related condition or by contract with any Hazardous Materials within the
scope of such employee's employment with the Corporation.
2.25. BANK ACCOUNTS. Schedule 2.25 is a complete list of all bank
accounts of the Corporation, listing all authorized signatories thereto.
2.26. FULL DISCLOSURE. Seller has not omitted to disclose any material
fact necessary to make the representations and warranties of Seller contained
herein not misleading.
2.27. BROKER. Except for Enterprise Investments, Inc., no person, firm
or corporation has or shall have, as a result of any act or omission of either
the Corporation (prior to the Closing) or the Seller, or any representative or
agent of either of them, any right, interest or valid claim against Buyer or the
Corporation, for any commission, fee or other compensation as a finder or broker
in connection with the transactions contemplated by this Agreement.
2.28 YEAR 2000 COMPLIANCE. All computer software, firmware, hardware and
other similar items of automated, computerized, and/or software systems that are
used by the Corporation in the conduct of its business will not malfunction,
will not cease to function, will not generate incorrect data or results when
processing, providing and/or receiving (i) date-related data into and between
the 20th and 21st centuries; and (ii) date-related data in connection with any
valid date in the 20th and 21st centuries in such a manner as would result in a
material adverse effect on the Corporation's operations or financial condition.
No representation is made hereunder by Seller with respect to utility,
transportation and similar services provided to the Corporation on a daily or
ordinary course basis from third parties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1. ORGANIZATION AND QUALIFICATION OF BUYER. Buyer is a corporation
lawfully existing and in good standing under the laws of Minnesota with full
power and authority to own or lease its properties and to conduct its business
in the manner and in the places where such properties are owned or leased or
such business is conducted by it.
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3.2. APPROVAL. Buyer has all necessary corporate power and is duly
authorized to purchase, acquire and accept the Shares as specified in this
Agreement. Buyer has taken all action required to authorize and approve the
execution and delivery of this Agreement and the consummation by Buyer of the
transactions contemplated hereby.
3.3. PROHIBITIONS OF TRANSACTIONS. There is no pending or threatened
action, suit, proceeding or investigation before any court or governmental body,
or by any government agency, which would restrain or prevent Buyer from carrying
out the transactions contemplated by this Agreement.
3.4. LITIGATION. There is no litigation proceeding or investigation of any
claim pending, or to the best of knowledge of the Buyer, threatened against the
Buyer, its business, or against the transaction contemplated by Buyer under this
Agreement which, if adversely determined, would materially and adversely affect
the execution, delivery or performance of this Agreement on the part of the
Buyer, and there is no basis known to Buyer for any such action.
3.5. BROKER. Except for Franklin Capital Partners, no person, firm or
corporation has, or shall have, as a result of any act or omission of Buyer, any
right, interest or valid claim against the Seller or the Corporation (prior to
the Closing), for any commission, fee or other compensation as a finder or
broker in connection with the transactions contemplated by this Agreement.
3.6. NO CONFLICTS; APPROVALS. Buyer represents that neither the execution
and delivery of this Agreement or any other agreement contemplated hereby by
Buyer nor the consummation of the transactions hereby by Buyer will conflict
with or result in any violation of, or default under, any contract, agreement or
commitment or any law applicable to Buyer or any of its assets or property or
its business. No action, consent or approval by, or filing by Buyer with, any
federal, state, municipal, foreign or other court or governmental body or
agency, or any other regulatory body, is required in connection with the
execution and delivery by Buyer of this Agreement or the consummation by Buyer
of the transactions contemplated hereby, except such filings as may be necessary
under federal securities laws.
ARTICLE IV
DOCUMENTS DELIVERED AT CLOSING
4.1. DELIVERIES AT CLOSING. The following documents shall be executed
and/or delivered at the Closing:
(a) Certificates representing all the issued and outstanding
Shares duly endorsed by Seller or accompanied by duly executed stock
powers transferring such shares to Buyer.
(b) A Lease Agreement between the Corporation and Rodney Winter.
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(c) An Employment Agreement and a Non-Compete Agreement between the
Corporation and Rodney Winter.
(d) An Equipment Purchase and Non-Compete Agreement between the
Corporation, JRW Enterprises, Inc. and Justin R. Winter.
(e) The Note and the Contingent Note.
(f) Security Agreement between the Corporation and Rodney Winter.
(g) UCC-1 financing statement of the Corporation.
(h) Resignations of the officers and directors of the
Corporation.
(i) Certificate of Secretary of Buyer regarding resolutions of the
Board of Directors approving the transactions contemplated by this
Agreement.
(j) An executed Subordination Agreement and Landlord's Waiver
with Buyer's senior lender.
(k) Consent of Rockwell to assignment of contract, if required.
(l) Termination and release of all liens and encumbrances on the
assets of the Corporation.
(m) Release of Guaranty of Rodney Winter issued to Norwest Bank,
National Association.
(n) Release of Guaranty of the Corporation issued to Norwest Bank,
National Association.
ARTICLE V
INDEMNIFICATION AND RELEASE
5.1. INDEMNIFICATION OF BUYER. Seller shall defend, indemnify and hold
harmless Buyer and the Corporation from and against any and all claims, causes
of action, losses, costs, damages, deficiencies or expenses (including
reasonable attorneys' fees) (collectively "Damages") arising from or related to
(a) any and all misrepresentations or breaches of representations, warranties or
covenants of Seller set forth in this Agreement; (b) any tax payable by the
Corporation with respect to any taxable period ending on or prior to the Closing
Date, and any tax deficiencies of the Corporation, including interest and
penalties, arising from any audit by any tax authority with respect to any
period ending on or prior to the Closing Date; (c) whether or not disclosed by
Seller as of the Closing Date, any liability under any Environmental
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Law arising out of, resulting from or relating to (1) the Leased Real
Property, or the ownership or operation thereof on or prior to the Closing
Date; (2) Hazardous Materials generated, released or disposed of by Seller or
the Corporation on or prior to the Closing Date; (3) conditions which exist
at the Leased Real Property on or prior to the Closing Date or after the
Closing Date which were not caused by the Corporation on or after the Closing
Date; or (4) the existence or maintenance of any underground storage or
holding tank on the Leased Real Property, including any release of Hazardous
Materials associated therewith, on or before the Closing Date (and after the
Closing Date, provided the Corporation continues to utilize the tanks in
substantially the same manner as utilized prior the Closing); (d) except for
liabilities set forth on Schedule 5.1, liabilities of the Corporation arising
out of events occurring or facts existing prior to Closing to the extent
accruals for such liabilities reflected on the Closing Date Balance Sheet are
insufficient to cover such liabilities; or (e) any costs and expenses
associated with defending against any of the foregoing claims, liabilities,
obligations, costs, damages, losses and expenses and seeking indemnification
therefor.
5.2. INDEMNIFICATION OF SELLER. Buyer shall defend, indemnify and hold
harmless Seller from and against any and all claims, causes of action, losses,
costs, damages, deficiencies or expenses (including reasonable attorneys' fees)
(collectively "Damages") arising from or related to (a) any and all
misrepresentations or breaches of representations, warranties or covenants of
Buyer set forth in this Agreement; or (b) any costs and expenses associated with
defending against any of the foregoing claims, liabilities, obligations, costs,
damages, losses and expenses and seeking indemnification therefor. In addition,
the Corporation (after the Closing) shall defend, indemnify and hold harmless
Seller from and against any and all Damages arising from or related to (a) any
tax payable by the Corporation with respect to any taxable period beginning
after the Closing Date, and any tax deficiencies of the Corporation, including
interest and penalties, arising from any audit by any tax authority with respect
to any period beginning after the Closing Date; (b) except to the extent
indemnifiable by Seller as provided in Section 5.1 above, any liability under
any Environmental Law arising out of, resulting from or relating to (1) the
operation by the Corporation of the Leased Real Property after the Closing Date,
or (2) Hazardous Materials generated, released or disposed of by the Corporation
after the Closing Date; (c) liabilities of the Corporation reflected on the
Closing Date Balance Sheet but solely to the extent of any accruals for such
liabilities reflected on the Closing Date Balance Sheet; or (d) any costs and
expenses associated with defending against any of the foregoing claims,
liabilities, obligations, costs, damages, losses and expenses in seeking
indemnification therefor.
5.3. LIMITATIONS.
(a) Notwithstanding the provisions of Section 5.1, Buyer and the
Corporation shall not be entitled to recover Damages for which Buyer or the
Corporation is entitled to indemnification as a result of or arising out of
matters described in Section 5.1(a) until such Damages exceed $50,000, and
if such Damages exceed such amount, Buyer and the Corporation shall be
entitled to recover all such Damages; provided Damages resulting from the
breach of the representations and warranties in Section 2.3 (Title),
Section 2.9
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(Environmental), Section 2.11 (Taxes), Section 2.23 (Employee Benefits),
Section 6.2 (Expenses) or Section 6.14 (Inventory) shall not be subject to
the limitation contained in this Section 5.3(a). Notwithstanding the
provisions of Section 5.1, Seller shall have no liability under Section 5.1
with respect to any costs or expenses of any remediation unless ordered or
demanded by a court, governmental body or agency, or other third party, or
such remediation is required to be undertaken by applicable Environmental
Law or is necessary in order for the Corporation to be in compliance with
applicable Environmental Laws or would be voluntarily undertaken under
customary business practices in the industry.
(b) Notwithstanding the provisions of Section 5.1, the aggregate
Damages for which Buyer or the Corporation is entitled to indemnification
pursuant to Section 5.1(a) shall not exceed an amount equal to the Closing
Payment; provided Damages resulting from the breach of the representations
and warranties in Section 2.3 (Title) shall not be subject to the foregoing
limitation, but shall be limited to an amount equal to the Closing Payment
and all other payments to be made by Buyer or Corporation to Seller under
the other agreements referenced herein.
(c) Any proceeds from insurance paid to or on account of the Buyer as
a direct result of any fact, event or circumstance requiring indemnity
pursuant to Section 5.1 shall constitute a credit which shall be offset
against the total Damage (before the application of Section 5.3(a)).
(d) Any damage calculated for purposes of Section 5.1 shall be
calculated taking into account any offsetting federal, state, local or
foreign tax benefits which may accrue because of such Damage to Buyer.
(e) On September 15, 2000, the parties shall be released from the
agreements of indemnification contained in Sections 5.1 and 5.2 in respect
of any claims which have not been made, in writing, prior to such date;
provided, however, that (i) the Seller shall not be released from the
agreements of indemnification arising under Section 5.1(a) with respect to
breaches of representations and warranties contained in Section 2.3 (Title)
or Section 2.11 (Taxes), or breaches of covenants in this Agreement, all of
which shall continue until the applicable statute of limitations has
expired; (ii) Seller shall not be released from the agreements of
indemnification arising under Sections 5.1(b) or 5.1(d), all of which shall
continue until the applicable statute of limitations has expired, at which
time Seller shall be released from such agreements of indemnification; and
(iii) the Seller shall not be released from the agreement of
indemnification arising under Section 5.1(a) with respect to breaches of
representations and warranties contained in Section 2.29 (Environmental) or
under Section 5.1(c), each of which shall continue until February 15, 2004,
at which time Seller shall be released from such agreements of
indemnification. Notwithstanding the foregoing, all agreements of
indemnification under Sections 5.1 and 5.2 shall remain effective in
respect of claims made in writing by giving notice as
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provided in this Agreement prior to such respective dates until such claims
are finally determined and satisfied in full.
5.4. GENERAL RELEASE. On the Closing Date, Seller releases the Corporation
and its directors, officers, agents and employees and discharges them from any
and all obligations and claims which have arisen or might arise out of facts or
actions existing or taken on or prior to the Closing Date, except obligations or
claims which may be made under this Agreement, but including specifically the
Corporation's obligations under any oral or written lease for the Leased Real
Property. In the event that Buyer is entitled to any claim for indemnification
under this Agreement against the Seller, the Seller agrees that he shall not
have the right to seek indemnity or contribution with respect to any such claim
from, or have any similar right with respect to, the Corporation, Buyer or their
affiliates whether by contract, agreement, bylaw, corporate law statute, common
law or otherwise.
ARTICLE VI
MISCELLANEOUS
6.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements set forth in this Agreement or in any
writing delivered to Buyer or Seller in connection with this Agreement will
survive the Closing Date and the consummation of the transactions contemplated
hereby as provided in Section 5.3(e).
6.2. EXPENSES. Buyer and Seller will each pay all of their own legal and
other expenses incurred in the preparation of this Agreement and the performance
of the terms and conditions hereof. Seller represents that all such expenses of
the Corporation shall be paid (and not accrued) prior to the Closing. Seller
and not the Corporation shall pay any fee due Enterprise Investments, Inc.
6.3. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal laws (and not the law of conflicts) of the State of
Minnesota.
6.4. ENTIRE AGREEMENT. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and undertakings between the parties
with respect to such subject matter. No waiver and no modification or amendment
of any provision of this Agreement shall be effective unless specifically made
in writing and duly signed by the party to be bound thereby.
6.5. SEVERABILITY OF INVALID PROVISION. If any one or more covenants or
agreements provided in this Agreement should be contrary to law, then such
covenant or covenants, agreement or agreements shall be null and void and shall
in no way affect the validity of the other provisions of this Agreement.
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6.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement.
6.7. SECTION HEADINGS. Section headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any of the provisions
hereof.
6.8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and shall become effective when one or more counterparts have been
signed by each of the parties.
6.9. WAIVER. Waiver by Seller or Buyer of any breach of or failure to
comply with any provision of this Agreement by the other party shall not be
construed as, or constitute a continuing waiver of, or a waiver of any other
breach of, or failure to comply with, any other provision of this Agreement.
6.10. NON-EXCLUSIVITY. The rights, remedies, powers and privileges
provided in this Agreement are cumulative and not exclusive and shall be in
addition to any and all other rights, remedies, powers and privileges granted by
law, rule, regulation or instrument; provided, however, that such rights,
remedies, powers and privileges are subject to the limitations in Section 5.3,
except to the extent they relate to claims of fraud.
6.11. FINANCIAL STATEMENTS. Seller and Buyer acknowledge that Buyer
may need to report this transaction in a Form 8-K filing with the Securities and
Exchange Commission (the "SEC") and, in connection therewith, Buyer must file
audited financial statements of the Corporation for the past three years.
Seller agrees to the inclusion of such financial statements in the Form 8-K and
further agrees to provide all necessary assistance, including management
letters, as may reasonably be required to complete such audited financial
statements within the time required by the SEC.
6.12. 338(H)(10) ELECTION; FINAL S-CORPORATION RETURN.
(a) Buyer, at its sole discretion, may make an election for federal
and state tax purposes, and Seller hereby agrees to join Buyer in making an
election, under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended (the "338(h)(10) Election") with respect to the purchase and sale
of the Shares. Buyer shall pay, at such time as the election is made and
joined in by Seller, any taxes for which Seller or the Corporation may
become liable to any taxing authority which are attributable to the
338(h)(10) Election. Buyer and Seller agree to an allocation of the
purchase price with respect to the assets of the Corporation for all tax
purposes in accordance with a schedule to be prepared by Buyer and
delivered to Seller at the time the 338(h)(10) Election is made.
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(b) Seller will prepare the final income tax return for the
Corporation, and the related Forms K-1 through the Closing Date.
6.13. INVENTORY. With respect to inventory owned by the Corporation
which is not included as an asset on the Closing Date Balance Sheet, but which
is sold in the ordinary course of business during the four-year period following
the Closing, the Corporation shall pay Seller an amount equal to 90% of the
amount received from a customer of the Corporation with respect to the purchase
of such inventory within 30 days of Corporation's receipt of payment from its
customer. After such four-year period, the Corporation shall be free to dispose
of such inventory without payment or other obligation to Seller.
6.14. NOTICES. All notices and replies thereto required hereunder shall be
in writing, properly addressed to the other party, signed by the party giving
notice, and may be delivered by hand or sent by facsimile transaction or
certified mail, return receipt requested. Notices shall be effective upon
receipt. Notices sent by mail shall be deemed received on the date of receipt
indicated by the return verification provided by the U.S. Postal Service.
Notices sent by facsimile transaction shall be deemed received the day on which
sent and shall be conclusively presumed to have been received in the event that
the sender's copy of the facsimile transaction contains the "confirmation" of
the other party's facsimile transaction. Notice shall be given, mailed or sent
to the parties at the following addresses, or at such other address as may be
given by proper notice.
If to Buyer: WSI Industries, Inc.
2605 West Wayzata Boulevard
Long Lake, MN 55356
Attn: Michael J. Pudil
Fax: 612-476-7561
If to Seller: Rodney Winter
16040 Northeast 56th Street
Elk River, MN 55330
6.15. OTHER AGREEMENTS. Prior to the Closing Date, the Corporation
will transfer the sponsorship and then shall withdraw, effective as of the
Closing Date, from the pension plan sponsored by the Corporation (the "Profit
Sharing Plan") and except as provided below, the ERISA Affiliates will retain
responsibility for and shall indemnify and hold harmless the Corporation and
Buyer from any and all liabilities arising under the Profit Sharing Plan
occurring prior to or after the Closing Date.
(a) TRANSFER OF ASSETS AND LIABILITIES FROM PROFIT SHARING PLAN. From
and after the Closing Date, employees of the Corporation shall cease to
accrue any further benefits under the Profit Sharing Plan. As soon as
practicable after the Closing Date, the Buyer shall establish (or
designate) (the "Buyer's Plan") to provide benefits to the employees of
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the Corporation and their beneficiaries who, on the Closing Date, are
participants in the Profit Sharing Plan (the "Transferred Plan
Participants") and the sponsor of the Profit Sharing Plan and Buyer shall
agree upon and designate a transfer date ("Transfer Date"). The sponsor of
the Profit Sharing Plan shall cause the trustee of the Profit Sharing Plan
to transfer on the Transfer Date to the trusts forming a part of the
Buyer's Plan cash (or at the election of the Buyer, assets in kind) and
promissory notes representing plan loans to Transferred Plan Participants
in an amount equal to the vested and non-vested account balances of the
Transferred Plan Participants as of the Transfer Date (the "Account
Balances") and, effective as of the receipt of such assets, the Buyer's
Plan shall assume all liabilities and obligations for benefits to the
Transferred Plan Participants and their beneficiaries arising under the
Profit Sharing Plan.
(b) NO THIRD PARTY BENEFITS. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give to any person, firm
or corporation, other than the parties hereto and their respective
permitted successors and assigns, any rights or remedies under or by reason
of this Agreement.
6.16. EMINENT DOMAIN. Buyer and the Corporation agree that any funds
received by the Corporation as a result of an eminent domain action with respect
to real property owned by Seller and not involving the Leased Real Property
shall be received for the benefit of Seller and shall be assigned to him.
6.17. ENVIRONMENTAL MATTERS. Buyer and Seller have received a copy of
a Phase I Environmental Site Assessment prepared by Peer Environmental &
Engineering Resources, Inc. ("Peer") dated February 9, 1999 with respect to the
Leased Real Property (the "Phase I"). Seller agrees that it shall, at Seller's
expense, retain Peer to conduct the Phase II subsurface investigation (the
"Phase II") suggested in the Phase I to address the recognized environmental
conditions referenced in the Phase I, including, without limitation, the
potential for soil and/or groundwater contamination associated with the
underground storage tanks and septic system and the presence of acetone detected
from an on-site water well (the "Environmental Conditions"). The Phase II shall
be completed within 45 days after the Closing. Notwithstanding anything herein
to the contrary, Seller shall, at Seller's expense, undertake such remedial
actions as may be recommended by Peer or otherwise required by Environmental
Laws with respect to any matters addressed in the Phase II, and shall indemnify
and hold Buyer and the Corporation harmless with respect to all Damages arising
out of or related to such Environmental Conditions or other matters addressed in
the Phase II and any remediation of the same, including any required or
recommended ongoing monitoring costs. In addition, Seller, at Seller's expense,
shall immediately register all underground storage tanks located on the Leased
Real Property. Seller's obligations set forth in this Section 6.17 shall
survive the Closing Date indefinitely, shall not be subject to the limitations
in Section 5.3 or 6.1 and shall be in addition to Seller's obligations in
Article V.
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6.18. CASH BALANCE. Notwithstanding anything herein to the contrary,
Seller represents that the Corporation has cash on hand or in banks or
investment accounts in an amount of at least $1,575,000 as of the Closing.
Neither Seller nor any officer or employee of the Corporation has made a
withdrawal, written a check or otherwise directed that such cash be distributed
from the Corporation. Any breach of the representations in this Section 6.18
shall not be subject to the limitations set forth in Article V.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first above written.
WSI INDUSTRIES, INC.
By: /s/ Michael J. Pudil
-----------------------------------
Its: President
----------------------------------
/s/ Rodney Winter, Individually
----------------------------------
Rodney Winter, Individually
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CONSENT AND FOURTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS CONSENT AND FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AND
SECURITY AGREEMENT (the "Amendment') is dated as of February 15, 1999 and is by
and between WSI INDUSTRIES, INC., formerly known as WASHINGTON SCIENTIFIC
INDUSTRIES, INC. (the "Borrower") and U.S. BANK NATIONAL ASSOCIATION as assignee
of FBS BUSINESS FINANCE CORPORATION (the "Lender"). Terms not otherwise
expressly defined herein shall have the meanings set forth in the Credit
Agreement.
RECITALS
WHEREAS, the Borrower and the Lender are parties to an Amended and Restated
Credit and Security Agreement, dated as of March 31, 1995 as amended by that
certain First Amendment to Amended and Restated Credit and Security Agreement
dated as of April 20, 1995 and by a Waiver and Second Amendment to Amended and
Restated Credit and Security Agreement dated as of October 31, 1996, and a Third
Amendment to Amended and Restated Credit and Security Agreement dated as of
April 30, 1997 (as so amended, the "Credit Agreement") under which the Lender
has agreed to make Advances to the Borrower; and
WHEREAS, the Borrower desires to purchase all of the outstanding common
stock of Taurus Numeric Tool, Inc., a Minnesota corporation (the "Stock
Purchase") pursuant to the terms of a Stock Purchase Agreement dated as of
February 15, 1999 (the "Stock Purchase Agreement"), and has requested that
Lender consent to the Stock Purchase and increase availability under the Credit
Agreement; and
WHEREAS, the Lender has agreed to consent to the Stock Purchase on the
terms and conditions set forth herein; and
WHEREAS, the Borrower and the Lender desire to amend the Credit Agreement
as hereinafter set forth.
NOW THEREFORE, for value received, the Borrower and the Lender agree as
follows.
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS.
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1.1(a) Each reference to the "Lender" in the Credit Agreement shall
be deemed a reference to U.S. Bank National Association.
1.1(b) Supplement A to the Credit Agreement is hereby amended
to read in its entirety in the form of Supplement A attached hereto as
EXHIBIT A.
1.2. DEFINITIONS. The definition of "Eligible Account Receivable"
contained in Section 1.1 of the Credit Agreement is amended by adding
thereto, after the word "Borrower" each time it appears, the words "or
Taurus" and by adding thereto, after the word "Borrower's" each time it
appears, the words "or Taurus's". Notwithstanding any other provision of
this Amendment, the changes in the definition of Eligible Account
Receivable contained in the foregoing sentence shall be effective only
after this Amendment is otherwise effective and after completion of a
collateral audit of Taurus that is satisfactory to the Lender. The
definition of "Term Note B" is deleted from the Credit Agreement. The
definitions of "Term Notes" and "Term Note A" in Section 1.1 of the Credit
Agreement are amended to read as follows:
"TERM NOTE": Term Note A.
"TERM NOTE A": As defined in Section 2.1.2.
1.3 MORE DEFINITIONS. The following definitions are added to Section
1.1 of the Credit Agreement in appropriate alphabetical order:
"FOURTH AMENDMENT": The Consent and Fourth Amendment to this Credit
and Security Agreement dated as of February 15, 1999.
"TAURUS": Taurus Numeric Tool, Inc., a Minnesota corporation.
1.4 TERM LOAN. Section 2.1.2 of the Credit Agreement is amended in
its entirety to read as follows:
2.1.2 TERM LOAN.
(a) Subject to the terms and conditions of the Loan Documents and the
Fourth Amendment, and in reliance upon the warranties of the Borrower
set forth herein and in the other Loan Documents, the Lender agrees to
make a term loan (the "Term Loan") to the Borrower on
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the effective date of the Fourth Amendment in the principal amount of
$3,200,000. The Borrower shall execute and deliver to the Lender a
promissory note payable to the Lender in the amount of the Term Loan
("Term Note A").
(b) Unless otherwise required to be sooner paid pursuant to this
Agreement, the principal of the Term Loan shall mature and be payable
in consecutive equal monthly installments of $38,096 of principal
commencing August 31, 1999 and continuing on the last day of each
month until the Termination Date, at which time all unpaid principal
and all accrued and unpaid interest shall be due and payable. Any
principal of the Term Loan that is repaid may not be reborrowed except
as provided in SECTION 2.1.2(c). Interest on Term Note A shall be
paid in accordance with SUPPLEMENT A.
(c) So long as there are no Revolving Loans outstanding, the
Borrower may, upon one Business Day notice to the Lender, prepay the
principal of the Term Loan in whole or in part without premium except
as set forth in SUPPLEMENT A. Any partial prepayment of principal of
the Term Loan shall be in a minimum amount of the lesser of (i) the
outstanding principal balance of the Term Loan and (ii) $25,000 or an
integral multiple thereof, and shall be applied to the unpaid
installments of the Term Loan in the inverse order of their
maturities. Any principal of the Term Loan which is prepaid under
this Section 2.1.2(c) may be reborrowed so long as (x) no Event of
Default or Unmatured Event of Default has occurred and is continuing
and (y) a principal balance was outstanding under Term Note A prior to
the requested reborrowing and subject to a reduction in the
availability under Term Note A based upon its due amortization in
accordance with the provisions of this Agreement.
(d) Any payment of the Term Loan may be made with the proceeds of a
Revolving Loan only if, immediately before and after giving effect to
such payment, no Event of Default or Unmatured Event of Default then
exists or would result therefrom.
(e) On or before each Mandatory Prepayment Date the Borrower shall
pay to the Lender an aggregate amount equal to 30% of the Excess Net
Income for the applicable fiscal year, based on audited financial
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statements for such fiscal year, which payment shall be applied
against the unpaid installments of the Term Loan in the inverse order
of maturities, with all such payments made in accordance with the
provisions of Section 2.10(a). If Revolving Loan Availability on the
Mandatory Prepayment Date is $500,000 or less, the prepayment required
under this Section 2.1.2(e) shall be due and payable on the first
Business Day on which the Revolving Loan Availability next exceeds
$500,000. In no event shall the amount of the Term Loan required to
be prepaid under this Section 2.1.2(e) exceed $200,000 for any fiscal
year.
1.5 CONSTRUCTION. All references in the Credit Agreement to "this
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.
ARTICLE III- REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Amendment and to make and maintain
the Loans under the Credit Agreement as amended hereby, the Borrower hereby
warrants and represents to the Lender that it is duly authorized to execute and
deliver this Amendment, and to perform its obligations under the Agreement as
amended hereby, and that this Amendment constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
ARTICLE IV - CONDITIONS PRECEDENT
Except as otherwise provided in Section 1.2 of this Amendment, this
Amendment shall become effective as of the date first set forth above, provided,
however, that the effectiveness of this Amendment is subject to the satisfaction
of each of the following conditions precedent.
4.1 EXECUTION OF AMENDMENT AND SUPPLEMENT A. The Borrower and the Lender
shall have executed this Amendment and initialed Supplement A as amended
pursuant hereto and the Borrower has executed and delivered Term Note A.
4.2 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in Article IV of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement and except as modified by the
Schedules attached hereto. The execution by the Borrower of this
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Amendment shall be deemed a representation that the Borrower has complied
with the foregoing condition.
4.3 DEFAULTS. After giving effect to this Amendment, no Event of Default
and no Unmatured Event of Default shall have occurred and be continuing under
the Credit Agreement. The execution by the Borrower of this Amendment shall be
deemed a representation that the Borrower has complied with the foregoing
condition.
4.4 DOCUMENTS. The following shall have been delivered to the Lender,
each duly executed and dated, or certified, as of the date hereof, as the case
may be:
(a) RESOLUTIONS. Certified copies of resolutions of the Board of
Directors of the Borrower authorizing or ratifying the execution, delivery
and performance, respectively, of this Amendment and other documents (if
any) provided for in this Amendment.
(b) CONSENTS. Certified copies of all documents evidencing any
necessary corporate action, consent or governmental or regulatory approval
(if any) with respect to this Amendment.
(c) INCUMBENCY AND SIGNATURES. A certificate of the Secretary or an
Assistant Secretary of the Borrower certifying the names of the officer or
officers of the Borrower authorized to sign this Amendment and other
documents provided for in this Amendment, together with a sample of the
true signature of each such officer.
(d) GOOD STANDING CERTIFICATES. Certificates of good standing as to
the Borrower issued by the Secretary of State of the state in which the Borrower
is organized, and each other state in which the failure of the Borrower to be in
good standing would constitute an Adverse Event or have a material adverse
effect on the Lender's rights in any Collateral.
(e) GUARANTY OF TAURUS. A guaranty of Taurus of all obligations of
Borrower, in form and in substance acceptable to Lender;
(f) SECURITY AGREEMENT. A third party Security Agreement from Taurus
in form and in substance acceptable to Lender.
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(g) SUBORDINATION AGREEMENT. A Subordination Agreement (the
"Subordination Agreement") in form and substance acceptable to Lender executed
by Rodney Winter.
(h) LANDLORD'S WAIVER. A Landlord Waiver in form and substance
acceptable to Lender executed by Rodney Winter and his spouse.
(i) STOCK PURCHASE AGREEMENT. A certified copy of the Stock
Purchase Agreement and all documents executed and delivered in connection
therewith.
ARTICLE V - CONSENT
Upon receipt by the Lender of the documents required in Section 4.4 above,
effective February 15, 1999, the Lender hereby consents (a) to the purchase by
the Borrower of all of the outstanding shares of common stock of Taurus owned by
Rodney Winter. (the "Selling Shareholder"), pursuant to the terms of the Stock
Purchase Agreement, (b) to Taurus being a wholly owned subsidiary of Borrower,
and (c) to the payment of the purchase price of such shares to the Selling
Shareholder pursuant to the terms of the Subordination Agreement described in
Section 4.4(i) above. The acquisition of Taurus shall not be construed as a
violation of the provisions of Section 6.10 of the Credit Agreement, the
ownership of Taurus as a wholly owned subsidiary shall not be construed as a
violation of the provisions of Section 6.6 of the Credit Agreement, the
subordinated debt incurred by the Borrower under the Stock Purchase Agreement
shall not be construed as a violation of the provisions of Section 6.11 of the
Credit Agreement, and the execution of the Third Party Security Agreement and
the Guaranty by Taurus shall not be construed as a violation of the provisions
of Sections 6.12 and 6.13 of the Credit Agreement.
ARTICLE VI - GENERAL
6.1 EXPENSES. The Borrower agrees to reimburse the Lender upon demand for
all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by this Lender in the preparation, negotiation and execution
of this Amendment and any other document required to be furnished herewith, and
in enforcing the obligations of the Borrower hereunder, and to pay and save the
Lender harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Amendment hereunder,
which obligations of the Borrower shall survive any termination of the Credit
Agreement.
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6.2 COUNTERPARTS. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
6.3 SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
6.4 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
6.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the
Borrower and the Lender and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender. Except as hereby amended, the Credit Agreement shall
remain in full force and effect and is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first written above.
WSI INDUSTRIES, INC. (formerly known as
Washington Scientific Industries, Inc.)
By: /s/ Michael J. Pudil
--------------------------------
Title: President
-----------------------------
U.S. BANK NATIONAL ASSOCIATION, as Assignee of
FBS BUSINESS FINANCE
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CORPORATION
By: /s/ Leonard H. Ramotar
-----------------------------------------
Title: Vice President
--------------------------------------
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EXHIBIT A
SUPPLEMENT A
(AMENDED FEBRUARY 15, 1999)
TO
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
DATED AS OF MARCH 31, 1995 BETWEEN
U.S. BANK NATIONAL ASSOCIATION AS ASSIGNEE OF
FBS BUSINESS FINANCE CORPORATION (THE "LENDER")
AND
WSI INDUSTRIES, INC. FORMERLY KNOWN AS
WASHINGTON SCIENTIFIC INDUSTRIES, INC. (THE "BORROWER")
1. CREDIT AGREEMENT REFERENCE. This Supplement A, as it may be amended
or modified from time to time, is a part of the Amended and Restated Credit and
Security Agreement, dated as of March 31, 1995, between the Borrower and the
Lender (together with all amendments, modifications and supplements thereto, the
"CREDIT AGREEMENT"). Capitalized terms used herein which are defined in the
Credit Agreement shall have the meanings given such terms in the Credit
Agreement unless the context otherwise requires.
2. DEFINITIONS.
2.1 REVOLVING CREDIT AMOUNT. The term "Revolving Credit Amount"
shall mean the maximum amount of Revolving Loans which the Lender will make
available to the Borrower which amount shall not exceed THREE MILLION AND
NO/100 DOLLARS ($3,000,000); PROVIDED, HOWEVER, that the aggregate
outstanding principal balance of the Revolving Loans PLUS the Letter of
Credit Obligations shall not exceed the Revolving Credit Amount.
2.2 BORROWING BASE.
(a) DEFINITION. The term "Borrowing Base" shall mean an amount
of up to 80% of the net amount (as determined by the Lender after
deduction of such reserves and allowances as the Lender deems proper
and necessary) of the Borrower's and Taurus's Eligible Accounts
Receivable.
(b) LENDER'S RIGHTS. The Borrower agrees that nothing contained
in this Supplement A (a) shall be construed as the Lender's agreement
to resort or look to a particular type or item of Collateral or as
security for any specific Loan or advance or in any way limit the
Lender's right to resort to any or all of the Collateral or as
security for any of the Obligations, (b) shall be deemed to limit or
reduce any lien on or any security interest in or upon any portion of
the Collateral
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or other security for the Obligations or (c) shall supersede SECTION
2.10 of the Credit Agreement.
2.3 LETTER OF CREDIT SUBLIMIT. The term "Letter of Credit Sublimit"
shall mean the sum of $300,000.
2.4 TERMINATION DATE. The term "Termination Date" shall mean March
31, 2000.
2.5 ADDITIONAL DEFINITIONS. As used herein, the following terms
shall have the following respective meanings:
"ADJUSTED EURODOLLAR RATE": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, the rate (rounded upward, if
necessary, to the next one hundredth of one percent) determined by
dividing the Eurodollar Rate for such Interest Period by 1.00 minus
the Eurodollar Reserve Percentage.
"ADVANCE": Any portion of the outstanding principal balance of
the Revolving Loan or the Term Loan under the Credit Agreement as to
which the Borrower elected one of the available interest rate options
and, if applicable, an Interest Period. An Advance may be a
Eurodollar Rate Advance or a Reference Rate Advance.
"APPLICABLE REVOLVING MARGIN": With respect to:
(a) Reference Rate Advances: 0.25%.
(b) Eurodollar Rate Advances: 2.75%.
"APPLICABLE TERM MARGIN": With respect to:
(a) Reference Rate Advances: 0.50%.
(b) Eurodollar Rate Advances: 3.00%.
"BOARD": The Board of Governors of the Federal Reserve System or
any successor thereto.
"EURODOLLAR BUSINESS DAY": A Business Day which is also a day
for trading by and between Lenders in United States dollar deposits in
the interbank Eurodollar market and a day on which banks are open for
business in New York City.
"EURODOLLAR RATE": With respect to each Interest Period
applicable to a Eurodollar Rate Advance, the interest rate per annum
(rounded upward, if necessary, to the next one-sixteenth of one
percent) at which United States dollar deposits are offered to the
Lender in the interbank Eurodollar market two Eurodollar Business Days
prior to the first day of such Interest Period for delivery in
Immediately Available Funds on the
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first day of such Interest Period and in an amount approximately equal
to the Advance to which such Interest Period is to apply as determined
by the Lender and for a maturity comparable to the Interest Period;
PROVIDED, that in lieu of determining the rate in the foregoing
manner, the Lender may substitute the per annum Eurodollar interest
rate (LIBOR) for United States dollars displayed on the Reuters Screen
LIBO Page two Eurodollar Business Days prior to the first day of the
Interest Period. "Reuters Screen LIBO Page" means the display
designated as page "LIBO" on the Reuter Monitor Money Rates Screen (or
such other page as may replace the LIBO page on that service) for the
purpose of displaying London Interbank offered rates of major Lenders
for United States dollar deposits.
"EURODOLLAR RATE ADVANCE": An Advance with respect to which the
interest rate is determined by reference to the Adjusted Eurodollar
Rate.
"EURODOLLAR RESERVE PERCENTAGE": As of any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed
by the Board for determining the maximum reserve requirement
(including any basic, supplemental or emergency reserves) for a member
Lender of the Federal Reserve System, with deposits comparable in
amount to those held by the Lender, in respect of "Eurocurrency
Liabilities" as such term is defined in Regulation D of the Board. The
rate of interest applicable to any outstanding Eurodollar Rate
Advances shall be adjusted automatically on and as of the effective
date of any change in the Eurodollar Reserve Percentage.
"INTEREST PERIOD": With respect to each Eurodollar Rate Advance,
the period commencing on the date of such Advance or on the last day
of the immediately preceding Interest Period, if any, applicable to an
outstanding Advance and ending one, two or three months thereafter, as
the Borrower may elect in the applicable notice of borrowing,
continuation or conversion; PROVIDED THAT:
(1) Any Interest Period that would otherwise end on a day
which is not a Eurodollar Business Day shall be extended to the
next succeeding Eurodollar Business Day unless such Eurodollar
Business Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Eurodollar
Business Day;
(2) Any Interest Period that begins on the last Eurodollar
Business Day of a calendar month (or a day for which there is no
numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Eurodollar Business
Day of a calendar month; and
(3) Any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date.
"REFERENCE RATE": The rate of interest from time to time
publicly announced by the Lender as its "reference rate." The Lender
may lend to its customers at rates that are at, above or below the
Reference Rate. For purposes of determining any interest rate
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hereunder or under any Note or loan which is based on the Reference
Rate, such interest rate shall change as and when the Reference Rate
shall change.
"REFERENCE RATE ADVANCE": An Advance with respect to which the
interest rate is determined by reference to the Reference Rate.
"REGULATORY CHANGE": Any change after the date of the Credit
Agreement in federal, state or foreign laws or regulations or the
adoption or making after such date of any interpretations, directives
or requests applying to a class of Lenders including the Lender under
any federal, state or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
3. INTEREST; FEES.
3.1 PROCEDURE FOR ADVANCES. Any request for an Advance must be given
so as to be received by the Lender not later than 1:00 p.m. (Minneapolis
time) two Eurodollar Business Days prior to the date of the requested
Advance if the Advance is requested as a Eurodollar Rate Advance and not
later than 1:00 p.m. on the date of the requested Advance if the Advance is
requested as a Reference Rate Advance. Each request for an Advance shall
specify (i) the date of the Advance, (ii) the amount of the Advance to be
made on such date which shall be in a minimum amount of $5,000 for
Reference Rate Advances, or $500,000 for Eurodollar Rate Advances or, if
more in either case, an integral multiple thereof, (iii) whether such
Advance is to be funded as a Reference Rate Advance or a Eurodollar Rate
Advance, and (iv) in the case of a Eurodollar Rate Advance, the duration of
the initial Interest Period applicable thereto.
3.2 CONVERSIONS AND CONTINUATIONS. On the terms and subject to the
limitations hereof, the Borrower shall have the option at any time and from
time to time to convert all or any portion of the Advances into Reference
Rate Advances or Eurodollar Rate Advances, or to continue a Eurodollar Rate
Advance as such; provided, however that a Eurodollar Rate Advance may be
converted or continued only on the last day of the Interest Period
applicable thereto and no Advance may be converted or continued as a
Eurodollar Rate Advance if a Default or Event of Default has occurred and
is continuing on the proposed date of continuation or conversion. Advances
may be converted to, or continued as, Eurodollar Rate Advances only in
amounts of $500,000 or an integral multiple thereof. The Borrower shall
give the Lender written notice of any continuation or conversion of any
Advance and such notice must be given so as to be received by the Lender
not later than 3:00 p.m. (Minneapolis time) two Eurodollar Business Days
prior to requested date of conversion or continuation in the case of the
continuation of, or conversion to, a Eurodollar Rate Advance. Each such
notice shall specify (a) the amount to be continued or converted, (b) the
date for the continuation or conversion (which must be (i) the last day of
the preceding Interest Period for any continuation or conversion of
Eurodollar Rate Advances, and (ii) a Eurodollar Business Day), and (c) in
the case of conversions to or continuations as Eurodollar Rate Advances,
the Interest Period applicable thereto. Any notice given by the Borrower
under this Section shall be irrevocable. If the Borrower shall fail to
notify the Lender of the continuation of any Eurodollar Rate Advance within
the time required by this
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Section, such Advance shall, on the last day of the Interest Period
applicable thereto, automatically be converted into a Reference Rate
Advance of the same principal amount.
3.3 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST. Interest
shall accrue and be payable on the Advances as follows:
3.3 (a) Each Eurodollar Rate Advance on the Revolving Loan
shall bear interest on the unpaid principal amount thereof during the
Interest Period applicable thereto at a rate per annum equal to the
sum of (i) the Adjusted Eurodollar Rate for such Interest Period, plus
(ii) the Applicable Revolving Margin.
3.3(b) Each Reference Rate Advance on the Revolving Loan shall
bear interest on the unpaid principal amount thereof at a varying rate
per annum equal to the sum of (i) the Reference Rate, plus (ii) the
Applicable Revolving Margin.
3.3(c) Each Eurodollar Rate Advance on the Term Loan shall bear
interest on the unpaid principal amount thereof during the Interest
Period applicable thereto at a rate per annum equal to the sum of (i)
the Adjusted Eurodollar Rate for such Interest Period, plus (ii) the
Applicable Term Margin.
3.3(d) Each Reference Rate Advance on the Term Loan shall bear
interest on the unpaid principal amount thereof at a varying rate per
annum equal to the sum of (i) the Reference Rate, plus (ii) the
Applicable Term Margin.
3.3 (e) Any Advance not paid when due, whether at the date
scheduled therefor or earlier upon acceleration, shall bear interest
until paid in full at the Default Rate, which shall be (i) during the
balance of any Interest Period applicable to such Advance, at a rate
per annum equal to the sum of the rate applicable to such Advance
during such Interest Period plus 2.0%, and (ii) otherwise, at a rate
per annum equal to the sum of the rate otherwise applicable to such
Advance plus 2.0% per annum.
3.3 (f) Interest shall be payable (i) with respect to each
Eurodollar Rate Advance having an Interest Period of three months or
less, on the last day of the Interest Period applicable thereto; (ii)
with respect to any Reference Rate Advance, on the last day of each
month; (iii) with respect to all Advances, upon any permitted
prepayment (on the amount prepaid); and (v) with respect to all
Advances, on the Termination Date; provided that interest under
Section 3.3 (e) shall be payable on demand.
3.4 OPTIONAL PREPAYMENTS. The Borrower may prepay Reference Rate
Advances on the Revolving Loan, in whole or in part, at any time, without
premium or penalty. Any such prepayment must be accompanied by accrued and
unpaid interest on the amount prepaid. Each partial prepayment shall be in
a minimum amount of $10,000 or, if more, an integral multiple thereof.
Except upon an acceleration following an Event of Default or upon
termination of the Credit in whole or as otherwise required under the
Credit Agreement, the Borrower may pay Eurodollar Rate Advances only on the
last day of the Interest Period applicable thereto. Amounts paid (unless
following an acceleration or upon termination of the Credit in whole) or
prepaid on Advances under this Section 3.4 may be reborrowed upon the terms
and subject to the conditions
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and limitations of the Credit Agreement. Prepayment of the Term Loan is
also subject to the provisions of Section 3.13 below.
3.5 INTEREST RATE NOT ASCERTAINABLE, ETC. If, on or prior to the
date for determining the Adjusted Eurodollar Rate in respect of the
Interest Period for any Eurodollar Rate Advance, the Lender determines
(which determination shall be conclusive and binding, absent error) that:
(a) deposits in dollars (in the applicable amount) are not being
made available to the Lender in the relevant market for such Interest
Period, or
(b) the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to the Lender of funding or maintaining Eurodollar
Rate Advances for such Interest Period,
the Lender shall forthwith give notice to the Borrower of such
determination, whereupon the obligation of the Lender to make or continue,
or to convert any Advances to, Eurodollar Rate Advances, as the case may
be, shall be suspended until the Lender notifies the Borrower that the
circumstances giving rise to such suspension no longer exist. While any
such suspension continues, all further Advances by the Lender shall be made
as Reference Rate Advances. No such suspension shall affect the interest
rate then in effect during the applicable Interest Period for any
Eurodollar Rate Advance outstanding at the time such suspension is imposed.
3.6 INCREASED COST. If any Regulatory Change:
(a) shall subject the Lender to any tax, duty or other charge
with respect to its Eurodollar Rate Advances, its obligation to make
Eurodollar Rate Advances or shall change the basis of taxation of
payment to the Lender of the principal of or interest on Eurodollar
Rate Advances or any other amounts due under this Agreement in respect
of Eurodollar Rate Advances or its obligation to make Eurodollar Rate
Advances (except for changes in the rate of tax on the overall net
income of the Lender imposed by the jurisdiction in which the Lender's
principal office is located); or
(b) shall impose, modify or deem applicable any reserve, special
deposit, capital requirement or similar requirement (including,
without limitation, any such requirement imposed by the Board, but
excluding with respect to any Eurodollar Rate Advance any such
requirement to the extent included in calculating the applicable
Adjusted Eurodollar Rate) against assets of, deposits with or for the
account of, or credit extended by, the Lender or shall impose on the
Lender or on the interbank Eurodollar market any other condition
affecting its Eurodollar Rate Advances or its obligation to make
Eurodollar Rate Advances;
and the result of any of the foregoing is to increase the cost to the
Lender of making or maintaining any Eurodollar Rate Advance, or to reduce
the amount of any sum received or receivable by the Lender under this
Agreement or under the Note, then, within 30 days after demand by the
Lender, the Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender for such increased cost or reduction.
The Lender will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof,
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which will entitle the Lender to compensation pursuant to this Section.
A certificate of the Lender claiming compensation under this Section,
setting forth the additional amount or amounts to be paid to it hereunder
and stating in reasonable detail the basis for the charge and the method of
computation, shall be conclusive in the absence of error. In determining
such amount, the Lender may use any reasonable averaging and attribution
methods. Failure on the part of the Lender to demand compensation for any
increased costs or reduction in amounts received or receivable with respect
to any Interest Period shall not constitute a waiver of the Lender's rights
to demand compensation for any increased costs or reduction in amounts
received or receivable in any subsequent Interest Period.
3.7 ILLEGALITY. If any Regulatory Change shall make it unlawful or
impossible for the Lender to make, maintain or fund any Eurodollar Rate
Advances, the Lender shall notify the Borrower, whereupon the obligation of
the Lender to make or continue, or to convert any Advances to, Eurodollar
Rate Advances shall be suspended until the Lender notifies the Borrower
that the circumstances giving rise to such suspension no longer exist. If
the Lender determines that it may not lawfully continue to maintain any
Eurodollar Rate Advances to the end of the applicable Interest Periods, all
of the affected Advances shall be automatically converted to Reference Rate
Advances as of the date of the Lender's notice, and upon such conversion
the Borrower shall indemnify the Lender in accordance with Section 3.8.
3.8 FUNDING LOSSES; EURODOLLAR RATE ADVANCES. The Borrower shall
compensate the Lender, upon its written request, for all losses, expenses
and liabilities (including any interest paid by the Lender to lenders of
funds borrowed by it to make or carry Eurodollar Rate Advances to the
extent not recovered by the Lender in connection with the re-employment of
such funds and including loss of anticipated profits) which the Lender may
sustain: (i) if for any reason, other than a default by the Lender, a
funding of a Eurodollar Rate Advance does not occur on the date specified
therefor in the Borrower's request or notice as to such Advance under
Section 3.1 or 3.2, or (ii) if, for whatever reason (including, but not
limited to, acceleration of the maturity of Advances following an Event of
Default), any repayment of a Eurodollar Rate Advance, or a conversion
pursuant to Section 3.7, occurs on any day other than the last day of the
Interest Period applicable thereto. The Lender's request for compensation
shall set forth the basis for the amount requested and shall be final,
conclusive and binding, absent error.
3.9 DISCRETION OF LENDER AS TO MANNER OF FUNDING. The Lender shall
be entitled to fund and maintain its funding of Eurodollar Rate Advances in
any manner it may elect, it being understood, however, that for the
purposes of this Agreement all determinations hereunder (including, but not
limited to, determinations under Section 3.8, but excluding determinations
that the Lender may elect to make from the Telerate System, Inc. screen)
shall be made as if the Lender had actually funded and maintained each
Eurodollar Rate Advance during the Interest Period for such Advance through
the purchase of deposits having a maturity corresponding to the last day of
the Interest Period and bearing an interest rate equal to the Eurodollar
Rate for such Interest Period.
3.10 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over
Advances (including the Agreed Over Advance) shall bear interest at the
rate(s) determined pursuant to SECTION 2.7 or SECTION 2.8 of the Credit
Agreement, as applicable.
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3.11 COMMITMENT FEE. The Borrower shall pay to the Lender a
commitment fee for the period from the date hereof to the date the Credit
terminates in an amount equal to .50% per annum on the average daily Unused
Revolving Credit Amount.
3.12 LETTER OF CREDIT FEES. The Borrower shall pay the Lender, or any
Affiliate, a commission on the undrawn amount of each Letter of Credit and
on each L/C Draft accepted by the Lender, or such Affiliate, in an amount
equal to 2.0% per annum.
3.13 PREPAYMENT FEE. Upon prepayment in full of the Term Loan
pursuant to any third party refinancing of the same or in connection with a
sale of the Borrower or substantially all of its assets, the Borrower shall
pay to the Lender a prepayment fee in an amount equal to one percent (1%)
of the outstanding principal balance of the Term Loan; PROVIDED, that if at
the time of such prepayment the advance rate then applicable to Eligible
Accounts Receivable pursuant to SECTION 2.2(a) of this Supplement A is less
than 75%, the prepayment fee shall not be applicable.
4. ELIGIBLE ACCOUNT RECEIVABLE REQUIREMENTS.
(a) For Accounts Receivable which are due and payable in full within
30 days of the date of the invoice evidencing such Account Receivable, such
Account Receivable must not be unpaid on the date that is 60 days after the
due date. For Accounts Receivable which are due and payable in full within
60, 90 or 120 days of the date of the invoice evidencing such Account
Receivable, such Account Receivable must not be unpaid on the date that is
30 days after the due date.
(b) If invoices representing 10% or more of the unpaid net amount of
all Accounts Receivable from any one Account Debtor are unpaid more than
the number of days set forth in SECTION 4(a) above for such Accounts
Receivable, then all Accounts Receivable relating to such Account Debtor
shall cease to be Eligible Accounts Receivable.
5. ADDITIONAL COVENANTS. From the date of the Credit Agreement and
thereafter until all of the Borrower's Obligations under the Credit Agreement
are paid in full, the Borrower agrees that, unless the Lender shall otherwise
consent in writing, it will not, and will not permit any Subsidiary to, do any
of the following:
5.1 NET WORTH. Permit the Borrower's Net Worth at any time to be
less than $7,000,000.
5.2 LIABILITIES TO NET WORTH RATIO. Permit the ratio, as of the last
day of any fiscal quarter, of the Borrower's consolidated total liabilities
to the Borrower's Net Worth to exceed 4.0 to 1.0.
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5.3 CAPITAL EXPENDITURES.
(a) Make Capital Expenditures in an amount exceeding $3,000,000
on a consolidated basis in any fiscal year.
(b) Fund any Capital Expenditures with Revolving Loans in an
amount exceeding $1,000,000 in any fiscal year.
5.4 CASH FLOW COVERAGE RATIO.
(a) Permit the ratio of the Borrower's EBITDA to the sum of
(i) its consolidated interest expense (including, without limitation,
imputed interest expense on Capitalized Leases), PLUS (ii) mandatory
principal payments on Long Term Debt, PLUS (iii) income taxes actually
paid during such period, to be less than (x) 0.75 to 1.0 as of
November 24, 1996, for the four consecutive fiscal quarters ending on
that date and (y) 1.1 to 1.0 as of February 23, 1997, for the four
consecutive fiscal quarters ending on that date.
(b) Permit the ratio, as of the last day of any fiscal quarter,
of the Borrower's EBITDA for the four consecutive fiscal quarters
ending on that date to the sum of (a) its consolidated interest
expense (including, without limitation, imputed interest expense on
Capitalized Leases), PLUS (b) mandatory principal payments on Long
Term Debt, PLUS (c) cash Capital Expenditures not financed by Long
Term Debt, PLUS (d) income taxes actually paid during such period, to
be less than 1.1 to 1.0.
6. MORE COVENANTS. No later than June 30, 1999, the Borrower shall:
(a) Submit to the Lender projected financial statements of
the Borrower and the Subsidiaries for the periods ending August 31,
2000 and August 31, 2001, prepared in the same manner as the audit
report referred to in Section 5.1.1(a) of the Credit Agreement, signed
by the Borrower's chief financial officer and presenting fairly the
Borrower's best good faith projections of the financial position and
results of operations of the Borrower and the Subsidiaries for each
such accounting period; and
(b) Allow the Lender to complete a collateral audit of the
properties of the Borrower and the Subsidiaries, in form and substance
satisfactory to the Lender, at the Borrower's expense.
Borrower's Initials /s/ MJP
-----------------
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Lender's Initials /s/ LHR
-----------------
Dated as of February 15, 1999
-----------------
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LEASE
THIS LEASE is made as of February 15, 1999, by and between RODNEY WINTER
AND REBA WINTER, husband and wife ("Landlord") and TAURUS NUMERIC TOOL, INC.,
a Minnesota corporation ("Tenant").
RECITALS:
Landlord is the fee owner of (a) certain real estate located at 18151
Territorial Road, Osseo, Hennepin County, Minnesota as legally described on
Exhibit A and depicted on Exhibit B (the "Land"), (b) the approximately
twenty-eight thousand (28,000) square foot building and all improvements
located on the Land (the "Building"), and (c) the fixtures and equipment
located in the Building (the "Equipment"). The Building and Equipment are
collectively referred to in this Lease as the "Improvements". The Land,
Building and Equipment are collectively referred to in this Lease as the
"Premises".
As of the date of this Lease, 100% of the capital stock of Tenant has
been purchased from Rodney Winter by WSI, Inc., a Minnesota corporation,
pursuant to the terms and conditions of that certain Stock Purchase Agreement
dated as of the date of this Lease (the "Stock Purchase Agreement").
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. PREMISES. Landlord hereby leases the Premises to Tenant and Tenant
hereby leases the Premises from Landlord. Landlord warrants and represents
that they are the owner of the Premises, and that they have the full right
and authority to enter into this Lease, and that there are no leases or other
rights with respect to the Premises which conflict with the terms of this
Lease. Landlord hereby represents and warrants to Tenant, as follows:
1.1. CONDITION. The Premises are structurally sound and are in
good condition and repair (ordinary wear and tear excepted), and all
material mechanical, electrical, heating, air conditioning, sewer,
water and plumbing systems are in proper working order.
1.2. CONDEMNATION. No portion of the Premises is subject to any
decree or order to be sold or is being condemned or otherwise taken by
any public authority, nor has Landlord been notified of any proposed
condemnation or other taking.
1.3. UTILITIES. All utilities required for the current operation
of the improvements on the Premises are installed and operating and
Landlord has not
<PAGE>
received notice of actual or threatened reduction or limitation on
use of any utility service now supplied to the Premises.
1.4. COMPLIANCE. The zoning, deed restrictions, covenants and
applicable laws and ordinances applying to the Premises permit the
presently existing improvements and the continuation of the business
presently being conducted on the Premises.
1.5. FLOOD PLAIN/LANDFILL. To the best knowledge of Landlord, no
portion of the Premises is located in a flood plain or flood hazard
area or in a designated wetlands area and no portion of the Premises
has been used as a landfill.
1.6. ASSESSMENTS. Landlord has not received notice of actual or
threatened special assessments or reassessments of the Premises.
2. USE OF PREMISES. Tenant may use the Premises for any lawful use.
3. TERM. This Lease shall be for a term ("Term") of three (3) years
commencing on February 15, 1999 ("Commencement Date") and terminating
February 14, 2002. Tenant shall have the right, at its option, to renew the
Term of this Lease under the same terms and conditions as provided in this
Lease for three (3) consecutive periods of one (1) year each ("Renewal
Term(s)"). To exercise a renewal option, Tenant must notify Landlord in
writing of Tenant's election to so renew not later than sixty (60) days prior
to the end of the Initial Term or any previously exercised Renewal Term.
When used in this Lease, "Term" shall mean the Initial Term and any exercised
Renewal Term.
4. BASE RENT. During the Term of this Lease, Tenant shall pay
Landlord as base rent for the Premises ("Base Rent") an annual amount equal
to $106,800.00, payable in equal monthly installments of $8,900.00, payable
in advance, on the first day of each month. The parties acknowledge that the
Base Rent is equal to $3.81 per square foot as of the Commencement Date.
4.1 DAILY BASE RENT PRORATION. In the event this Lease shall
commence on a date other than the first day of a month, Base Rent for the
first month shall be prorated on a daily basis.
4.2 BASE RENT ADJUSTMENTS. If Tenant exercises its option to renew
the Term of this Lease, Base Rent for each such Renewal Term(s) shall be
adjusted to the then current fair market rent as hereinafter provided (the
"Fair Market Rent"). Upon receipt of Tenant's notice to renew, Landlord
and Tenant shall meet and use their best efforts to determine the Fair
Market Rent. If Landlord and Tenant are unable to agree upon a Fair Market
Rent within thirty (30) days of Tenant's notice to renew, then such rent
shall be determined as follows:
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A. If Landlord and Tenant are unable to agree on Fair Market
Rent within said thirty (30) day period, then within five
(5) days thereafter, Landlord and Tenant shall each
simultaneously submit to the other, in a sealed envelope,
its good faith estimate of the Fair Market Rent. If the
higher of such estimates is not more than one hundred five
percent (105%) of the lower of such estimates, then the Fair
Market Rent shall be the average of the two estimates.
B. If the Fair Market Rent is not resolved by such exchange of
estimates, then either Landlord or Tenant may, by written
notice to the other within ten (10) business days after the
exchange, require that the Fair Market Rent be determined by
an MAI appraiser as an arbitrator. Within ten (10) business
days after such notice, the parties shall select a mutually
acceptable MAI appraiser with experience in real estate
activities, including at least ten (10) years' experience in
appraising similar space in the Osseo, Minnesota area. If
the parties cannot so agree on an appraiser, then within a
second period of ten (10) business days, each shall select
an independent MAI appraiser meeting the aforementioned
criteria, and within a third period of ten (10) business
days, the two appointed appraisers shall select a third
appraiser meeting the aforementioned criteria, which third
appraiser shall determine the Fair Market Rent. If one
party shall fail to make such appointment within said second
ten (10) business day period, then the appraiser chosen by
the other party shall be the arbitrator.
C. Once the arbitrator has been selected as provided for above,
within ten (10) business days the arbitrator shall select
one of the two (2) estimates of Fair Market Rent submitted
by Landlord and Tenant, which must be the one that is closer
to Fair Market Rent as determined by the arbitrator. The
decision of the arbitrator shall be rendered in writing to
both Landlord and Tenant and shall be final and binding upon
them. If the arbitrator believes that expert advice would
materially assist him, s/he may retain one or more qualified
persons, including but not limited to, legal counsel,
brokers, architects or engineers, to provide such expert
advice. The party whose estimate is not chosen by the
arbitrator shall pay the costs of the arbitrator and of any
experts retained by the arbitrator. Any fees of any counsel
or expert engaged directly by Landlord or Tenant, however,
shall be borne by the party retaining such counsel or
expert.
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5. REAL ESTATE TAXES. Real estate taxes and installments of special
assessments payable with respect to the Premises, shall be paid by Tenant as
and when due and payable.
6. UTILITIES. Tenant shall pay for all utilities rendered or
furnished to the Premises during the Term of this Lease, which payments shall
be made directly to the provider of said utility service.
7. MAINTENANCE, REPAIRS AND REPLACEMENTS.
7.1 TENANT'S OBLIGATIONS. Tenant shall, at Tenant's sole cost and
expense, maintain on a day-to-day basis, all exterior and interior portions
of the Premises and all equipment in or on the Premises, specifically
including without limitation, walls, ceilings and floors, electrical,
plumbing, and HVAC systems, as well as maintain the parking area, which
includes snow removal and lawn maintenance.
7.2 LANDLORD'S OBLIGATIONS. Landlord shall, at Landlord's sole cost
and expense, repair and replace, as and when necessary, all exterior and
interior portions of the Premises and all equipment in or on the Premises
owned by Landlord, and shall repair and replace all structural parts of the
Premises, including without limitation, walls, footings, floors, ceilings
and roofs and electrical, plumbing, and HVAC systems, as well as repair and
replacement of the parking area and maintenance of the footings and roofs.
Landlord shall maintain, repair and replace the septic system and
underground storage or holding tanks.
8. ENVIRONMENTAL AGREEMENTS. Tenant hereby warrants and covenants
with Landlord that Tenant's use and occupancy of the Premises shall comply
with any and all local, state and federal laws, ordinances, rules,
regulations and requirements regarding the environmental condition of the
Premises, provided, however, Tenant shall not be responsible for such
compliance (and Landlord shall be responsible for such compliance) regarding
(i) the environmental condition of the Premises prior to the commencement of
the Term of this Lease; and (ii) for such matters as provided in Sections 5.1
and 6.17 of the Stock Purchase Agreement without regard to time or dollar
limitations.
9. INDEMNIFICATION. Tenant hereby agrees to pay and protect,
indemnify and hold Landlord harmless from and against any and all
liabilities, damages, costs, expenses (including attorneys' fees and
expenses), causes of action, suits, claims, demands or judgment, made or
otherwise claimed by any person or entity arising from Tenant's use or
occupancy of the Premises, except where the same result from the negligent or
intentional acts or omissions of Landlord, or their heirs, successors,
assigns, agents, contractors, or invitees. Landlord hereby agrees to pay and
protect, indemnify and hold Tenant harmless from and against any and all
liabilities, damages, costs, expenses (including attorneys' fees and
expenses), causes of action, suits, claims, demands or judgment, made or
otherwise claimed by any person or entity arising from Landlord's entry onto
the Premises, except where the same result from the negligent or
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intentional acts or omissions of Tenant, or its employees, officers,
directors, agents, contractors, or invitees.
10. ALTERATIONS. Tenant shall not make any alterations or additions to
the Premises or affix any signs to the Premises without first obtaining
Landlord's written consent, which consent shall not be unreasonably withheld
or delayed. Tenant shall not permit any laborer's, mechanic's, or
materialmen's liens to attach to the Premises by reason of any such
alterations or additions performed by or at the request of Tenant, provided,
however, Tenant shall have the right to contest any mechanic's lien or other
lien which attaches to the Premises, provided that Tenant provides Landlord
with reasonable security for the same.
11. CASUALTY INSURANCE. Tenant shall, at Tenant's sole cost and
expense, keep the Building and Improvements now or hereafter located on the
Premises insured against fire and such other hazards and risks customarily
covered by the standard form of extended coverage endorsement and the risks
of vandalism, malicious mischief and sprinkler leakage in an amount not less
then the full replacement cost of the Building and Improvements. Tenant
shall, at Tenant's sole cost and expense, insure all Tenant's personal
property in the same manner. Tenant shall provide Landlord with evidence of
such insurance on an annual basis.
12. LIABILITY INSURANCE. Tenant shall, at Tenant's sole cost and
expense, procure and maintain a Commercial General Liability Insurance
policy, which policy shall include without limitation, coverage for bodily
injury, property damage, personal injury, advertising injury, contractual
liability (applying to this Lease), independent contractors, and
products-completed operations liability, which policy shall (a) name Landlord
as an Additional Insured and (b) have a total combined liability policy limit
of at least $1,000,000.00 applying to liabilities for bodily injury, personal
injury and property damage. Tenant shall provide Landlord with evidence of
such insurance on an annual basis.
13. FIRE OR OTHER CASUALTY.
13.1 REPAIR. If the Premises are destroyed or damaged by fire, any
action of the elements or other casualty, Landlord agrees, with reasonable
dispatch after notice thereof, at its own cost and expense and with the
benefit of any insurance proceeds, to restore the Premises to substantially
the same condition as that existing as of the commencement of this Lease.
In such case, all Base Rent paid in advance shall be apportioned as of the
date of the destruction or damage, and any Base Rent, additional rent or
other charges thereafter accruing shall be equitably and proportionately
suspended and adjusted according to the nature, extent and duration of the
destruction or damage, pending completion of repairs, except that in the
event the destruction or damage is so extensive as to make it unfeasible to
conduct Tenant's business on the Premises, Base Rent, additional rent and
other charges hereunder shall be completely abated until Tenant resumes the
conduct of its business on the Premises or the repairs are completed,
whichever event first occurs.
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13.2 TERMINATION. Notwithstanding the provisions of Section 13.1 of
this Lease, in the event the Premises are completely destroyed or damaged
to an extent which requires repair or rebuilding which repair or rebuilding
cannot be completed within 180 days from the date such repair or rebuilding
is commenced, either Landlord or Tenant may terminate this Lease upon
giving written notice thereof to the other at any time within thirty (30)
days after the date of such destruction, and if the Lease be so terminated,
all Base Rent, additional rent and other charges payable hereunder shall
cease as of the date of destruction and any prepaid Base Rent shall be
refunded.
14. ACCESS BY LANDLORD. Landlord shall have reasonable access to the
Premises during business hours for the purposes of examining the same, or to
make any needed repairs, or alterations of the Premises which Landlord may
see fit to make, but the making of any inspections, repairs or alterations
shall not unreasonably interfere with the operation of Tenant's business.
15. RIGHTS TO CURE DEFAULTS. In the event either party hereto fails,
refuses or neglects to perform an obligation imposed on it pursuant to the
terms of this Lease, the other party may, after reasonable notice to the
party in default, cure such default. In the event the default is by Tenant,
the cost of curing such default shall be paid as additional rent due Landlord
hereunder, together with interest on the amount paid by Landlord at the rate
of eight percent (8%) per annum ("Default Interest"). In the event the
default is by Landlord, the cost of curing such default, together with
Default Interest shall be immediately payable to Tenant by Landlord and
failure to so pay the same shall be a further default by Landlord pursuant to
the terms of this Lease. Tenant may set off the cost of curing the default
against future installments of rent due hereunder.
16. DEFAULT IN MONETARY PAYMENT. If Tenant shall default in the
payment of Base Rent or any part thereof or in the payment of additional rent
or any part thereof or in the payment of any other monetary obligation or
indebtedness owing by Tenant hereunder to Landlord, and Tenant fails to cure
such default within ten (10) days after receipt of written notice from
Landlord of the existence of such default, Landlord shall have the right to
terminate this Lease without further notice to Tenant, as well as such other
rights and remedies provided in this Lease or as the law permits.
17. DEFAULT BY TENANT OTHER THAN NONPAYMENT OF RENT. If Tenant shall
be in default in performing any of the terms and provisions of this Lease
other than the provision relating to the payment of Base Rent, additional
rent or other charges, Landlord shall give Tenant written notice of such
default, and if Tenant shall fail to cure such default within thirty (30)
days after the date of receipt of such notice (or shall fail in that time to
commence to cure a default whose cure would require more than thirty (30)
days and diligently prosecute such cure to a reasonably prompt conclusion ),
then and in such event Landlord shall have the option of (a) curing such
default on behalf of and for the account of Tenant, in which case the sum so
expended by Landlord plus Default Interest shall be deemed to be additional
rent and on demand
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shall be paid by the Tenant on the day when rent shall next become payable,
or (b) terminating this Lease by serving written notice thereof on Tenant, as
well as such other rights and remedies as this Lease and the law permits.
18. REMEDIES OF LANDLORD. In the event Tenant defaults pursuant to
this Lease, and such default is not cured as therein provided, then and in
such event Landlord may, without further notice or demand:
18.1 ENTRY ON PREMISES. Enter into and upon said Premises or any part
thereof, in the name of Tenant, and take absolute possession of the same
fully and absolutely without such re-entry working a forfeiture of the
rents to be paid or the covenants to be performed by Tenant for the
remaining term of this Lease, and Landlord may lease or sublet the
Premises, or any part thereof, on such terms and conditions and for such
rents and for such terms as Landlord may reasonably elect, and after
crediting the rent actually collected by Landlord from such reletting on
all rentals stipulated to be paid under this Lease by Tenant from time to
time, collect from Tenant any balance remaining due from time to time on
the rent reserved under this Lease. Notwithstanding anything in this Lease
to the contrary, Landlord shall use reasonable effort to mitigate its
damages in the event of default by Tenant.
18.2 TERMINATION OF LEASE. Declare this Lease forfeited and void, and
thereafter re-enter and take full possession of the Premises as the owner
thereof, free from any right or claim of Tenant or any person or persons
claiming through or under the Tenant.
The rights, options, powers and remedies of Landlord under this Lease shall
be cumulative and in addition to any other rights given to Landlord by law.
19. CONDEMNATION. If the entire Premises shall be condemned, or sold
under threat of condemnation, then this Lease shall terminate as of the date
title shall vest in the condemnor, and any prepayment of rent by Tenant shall
be refunded on a pro rata basis, and the parties hereto shall be released
from any further obligations hereunder. If a substantial part of the
Premises or a portion thereof which impairs Tenant's use of the Premises for
the business then conducted on the Premises shall be condemned or sold under
threat of condemnation, either Landlord or Tenant may terminate this Lease
upon not less than thirty (30) days notice in writing to the other party of
its intention to do so, and upon the dates set forth in said notice, this
Lease shall terminate in the same manner and with the same effect as if the
date were fixed herein for the expiration of the Term.
19.1 REPAIR OF PREMISES. In the event that a part of the Premises is
condemned or sold under threat of condemnation and this Lease is not
terminated by Tenant or Landlord as provided in this Section 19, then
Landlord shall at Landlord's sole cost and expense, but only to the extent
of the condemnation proceeds received by Landlord, make
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all necessary repairs or alterations so as to constitute the remaining
Premises a complete architectural unit and the Base Rent and other charges
to be paid by Tenant pursuant to this Lease shall be adjusted so that
Tenant shall be required for the remainder of the Term, to pay for only
the actual square footage of the Premises remaining after the condemnation.
19.2 CONDEMNATION PROCEEDS. All condemnation proceeds or damages
awarded for a taking under the power of eminent domain of all or any part
of the Premises shall belong to and be the property of Landlord, provided,
however, the parties specifically agree that Tenant shall be entitled to
any award made for relocation of Tenant's business and depreciation or
damage to and cost of removal of Tenant's personal property and trade
fixtures.
20. SUBORDINATION. This Lease and all payments required hereunder
shall be subject and subordinate to any mortgages, trust deeds or ground
leases now or hereafter placed upon the Premises, and to any advances made
thereunder, and to the interest thereon, and all renewals, replacements and
extensions thereof. Upon written request by Landlord, Tenant shall execute
and deliver a written agreement subordinating this Lease to any mortgage(s)
encumbering the Premises, provided, however, any subordination shall be upon
the express condition that the validity of this Lease shall be recognized by
the mortgagee(s), and that, notwithstanding any default by the mortgagor with
respect to a mortgage or any foreclosure of a mortgage, Tenant's possession
and right of use under this Lease in and to the Premises shall not be
disturbed by such mortgagee(s) unless and until Tenant shall breach any of
the provisions hereof and this Lease or Tenant's right to possession
hereunder shall have been terminated in accordance with the provisions of
this Lease.
21. SURRENDER OF PREMISES. Tenant shall, at the expiration or earlier
termination of this Lease, surrender the Premises to Landlord in as good
condition and repair as at the time Tenant took possession, except for (a)
damage from normal wear and tear and (b) damage from an insured casualty.
Notwithstanding the foregoing, Tenant may remove its trade fixtures and
personal property from the Premises at the expiration or earlier termination
of this Lease, whether or not the same are affixed to the Premises, provided
Tenant repairs any damage caused by such removal.
22. MEMORANDUM OF LEASE. This Lease shall not be recorded, but at the
request of either party a memorandum of lease of even date herewith
describing the Premises and stating the Term, shall be prepared and executed
by the parties and may be recorded by either party.
23. ASSIGNMENT. Neither Landlord nor Tenant shall assign this Lease or
sublet the Premises without the prior written consent of the other party,
which consent shall not be unreasonably withheld or delayed. Notwithstanding
the foregoing, Landlord or Tenant may, without the consent of another party,
assign this Lease to an entity which is owned or controlled by it. For
purposes of this Section 23, "control" shall mean more than a 50% ownership
interest.
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24. RELATIONSHIP OF PARTIES. It is understood and agreed that the
relationship of the parties hereto is strictly that of Landlord and Tenant
and that Landlord has no ownership in Tenant's enterprise, and that this
Lease shall not be construed as a joint venture or partnership. Landlord is
not and shall not be deemed to be an agent or representative of Tenant.
25. NOTICE. Whenever in this Lease it shall be required or permitted
that notice or demand be given or served upon either party to this Lease,
such notice or demand shall be given in writing and forwarded by certified
mail addressed as follows:
To Landlord: Rodney Winter
16040 Northeast 56th Street
Elk River, MN 55330
To Tenant: Taurus Numeric Tool, Inc.
c/o WSI Industries, Inc.
2605 West Wayzata Boulevard
Long Lake, MN 55356
Such addresses may be changed from time to time by either party upon serving
notice of such change as above provided.
26. WAIVER. No terms or conditions of this Lease shall be in any
manner altered, waived or abandoned except by written instrument signed by
the party to be bound thereby. No assent, express or implied by Landlord or
any breach by Tenant of any of the terms or conditions of this Lease shall be
deemed taken to be a waiver of any succeeding breach of said terms and
conditions.
27. QUIET ENJOYMENT. Landlord covenants and agrees that they have good
and marketable title to the Premises, and that if Tenant shall perform all
the covenants and agreements herein stipulated to be performed on Tenant's
part, Tenant may quietly have, hold and enjoy the Premises during the term
hereof and any renewal thereof, subject to the terms of this Lease.
28. EXPANSION OPTION. Landlord and Tenant agree that during the Term
of this Lease, Landlord and Tenant shall act in good faith and use all
reasonable efforts to agree on the size, location and other terms of any
expansion of the Premises requested by Tenant. The parties have agreed that
any expansion would be approximately 17,000 square feet. The Base Rent for
the expansion area shall be the Fair Market Rent, as defined above.
29. RIGHT OF FIRST REFUSAL. During the Term of this Lease, Landlord
grants Tenant a right of first refusal to purchase the Premises, subject to
the following terms and conditions:
9
<PAGE>
29.1 NOTICE OF OFFER. If at any time during the Term, Landlord
desires to sell all or any part of the Premises, and receives a bona fide
offer which it is willing to accept from any person, firm or corporation,
ready, willing and able to purchase any or all of the Premises, then and in
such case Landlord shall immediately give written notice thereof to Tenant
including in said notice the name and address of the offeror, the price
offered and the terms and conditions of the offer. Said notice shall be
accompanied by a copy of the offer and of any letter of intent or other
memorandum of the offer.
29.2 NOTICE OF INTENT TO PURCHASE. Tenant shall have twenty (20)
business days after receipt of said written notice to agree to purchase the
Premises covered by said offer at the price and according to the terms
specified in said offer.
29.3 LOSS OF RIGHT TO PURCHASE. If Tenant does not exercise said
right to purchase by giving written notice thereof to Landlord within said
period, Landlord may accept said offer and complete said sale to the
offeror in accordance with said offer, after the expiration of said twenty
(20) business day period, which sale shall be subject to the terms and
conditions of this Lease.
29.4 REVIVAL OF RIGHT TO PURCHASE. If the terms of said offer are
changed, then the right of first refusal given hereby to Tenant shall be
revived and said offer shall again be submitted to Tenant for the period
and in the manner herein stated.
IN AGREEMENT, the parties have executed this Lease as of the day and
year first above written.
LANDLORD: TENANT:
TAURUS NUMERIC TOOL, INC.
/S/ RODNEY WINTER By /S/ MICHAEL J. PUDIL
- ----------------------------- ---------------------------
Rodney Winter Its President
---------------------------
/S/ REBA WINTER
- -----------------------------
Reba Winter
10
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
DIAGRAM OF PREMISES
<PAGE>
NON-COMPETE AGREEMENT
DATE: February 15, 1999
PARTIES: Taurus Numeric Tool, Inc., a Minnesota corporation ("Company")
Rodney Winter ("Winter")
RECITALS
A. Winter has considerable knowledge and experience relating to the
business of the Company as a result of his employment by the Company and
ownership of capital stock of the Company, all of the stock of which has been
acquired by WSI Industries, Inc. as of the date hereof.
B. The Company and Winter acknowledge that the Company would be
irreparably harmed in the event Winter competed with the Company during the
term of this Agreement.
C. The Company and Winter desire to set forth in this Agreement their
understandings and agreements.
AGREEMENTS
1. The term of this Agreement shall begin on the date hereof and
continue until February 15, 2004.
2. During the term of this Agreement, Winter shall not, directly or
indirectly, alone or as an officer, director, stockholder, partner,
associate, employee, agent, principal, salesman, consultant, creditor, owner,
representative, or in any other capacity, (i) take any action in or
participate with or become interested or associated with any person, firm,
partnership, corporation or other entity whatsoever which intends to engage,
or is engaged, anywhere in the world, in the business of custom precision
contract machining and related businesses in competition with the Company; or
(ii) employ, solicit or in any way retain any employee of the Company.
Notwithstanding the foregoing, Winter may provide consulting services to a
business conducted directly by Justin R. Winter, provided such business
conducted by Justin R. Winter is not contrary to the non-compete restrictions
set forth in the Equipment Purchase and Non-Compete Agreement between the
Company, Justin R. Winter and JRW Enterprises, Inc. In consideration of
Winter's agreements under this Section 2, so long as Winter is not in
violation of the terms of this Section 2, the Company shall pay Winter a
total of $500,000 payable $25,000 per quarter beginning on May 1, 1999 and
thereafter on the first day of each February, May, August and November.
<PAGE>
3. If, at the time of enforcement of Section 2, a court shall hold
that the duration, scope or area restriction stated herein is unreasonable,
under circumstances then existing, the parties agree that the maximum
duration, scope or area reasonable under such circumstances shall be
substituted for the state of duration, scope or area.
4. In the event of the breach of Winter of any of the provisions of
Section 2, the Company, in addition and supplementary to any other rights and
remedies existing in its favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violation of the provisions hereof.
5. The Company shall have the right to offset any amounts due
hereunder for any and all liabilities, obligations or claims the Company may
have against Winter.
6. This Agreement may not be changed orally. No modification,
termination or attempted waiver of any of the provisions of this Agreement
shall be valid unless in writing signed by the party against whom the same is
sought to be enforced.
7. The validity, enforceability, construction and interpretation of
this Agreement shall be governed by the laws of the State of Minnesota.
8. This Agreement shall be binding upon and inure to the benefit of
the Company, its successors and assigns. The rights and obligations of
Winter hereunder are personal and may not be assigned or transferred except
as may be agreed to in writing by the Company.
9. In the event of Winter's death or disability during the term of
this Agreement, all payments due hereunder shall be made on their scheduled
payment dates.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year first above written.
TAURUS NUMERIC TOOL, INC.
By: /S/ MICHAEL J. PUDIL
---------------------------
Its: President
---------------------------
/S/ RODNEY WINTER
---------------------------
Rodney Winter
2
<PAGE>
PRESS RELEASE
WSI Industries, Inc. Acquires Taurus Numeric Tool, Inc.
Profitable, Growing Precision Machining Company Positions WSI in
Avionics/Aerospace Markets
LONG LAKE, Minn.--(BUSINESS WIRE)--Feb. 16, 1999-- WSI Industries, Inc. (Nasdaq
National Market: WSCI)--known previously as Washington Scientific Industries,
Inc.--today announced it has acquired the stock of Taurus Numeric Tool, Inc., a
specialized precision machining company serving the avionics, aerospace,
electronic and medical markets. The transaction was financed through cash and
debt.
Taurus had 1998 sales of approximately $7.5 million, compared to WSI's sales of
nearly $24 million in fiscal 1998. The company's largest customer is Rockwell
International Corporation, for which Taurus manufactures avionics related
components. Taurus will continue to be headquartered at its facility in Osseo,
Minnesota, a northwestern suburb of Minneapolis.
Taurus, which will be operated under its current management as a subsidiary of
WSI, is expected to contribute to the Company's consolidated earnings in fiscal
1999. Taurus has posted strong sales growth during the past three years.
Michael J. Pudil, president and chief executive officer, said the Taurus
acquisition represents an excellent opportunity for WSI, since it enables the
Company to enter an attractive new market and to further diversify its mix of
business. He said the new WSI unit has a skilled and capable organization and is
expected to make a positive contribution to the Company over the balance of
fiscal 1999.
Pudil added that this transaction is the result of a carefully planned growth
strategy by which the Company is pursuing strategic acquisitions in the highly
fragmented precision machining industry. He said the Company is evaluating
additional transactions that can provide the Company with new manufacturing
technologies, significant new customers and strong positions in attractive
markets.
WSI Industries, Inc. is a leading contract manufacturer that specializes in the
machining of complex, high-precision parts for a wide range of industries.
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Statements that are not historical or based on current facts are forward-looking
made pursuant to the safe harbor provisions of the Private Securities Reform Act
of 1995. Certain important factors could cause actual results to differ
materially from those anticipated by some of the statements in this release,
including the Company's ability to efficiently integrate its new Taurus
operation, retain current business volumes of its new subsidiary, and other
factors discussed in the Company's filings with the Securities and Exchange
Commission.
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Contact:
WSI Industries, Inc., Long Lake
Michael J. Pudil (CEO)
or
Paul D. Sheely (CFO)
612/473-1271
