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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: AUGUST 6, 1999
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(DATE OF EARLIEST EVENT REPORTED)
WSI INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 0-619 41-0691607
(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 August 6, 1999, WSI Industries, Inc. (the "Registrant") purchased all of
the issued and outstanding stock of Bowman Tool & Machining, Inc., a Minnesota
corporation based in Rochester, Minnesota ("BTM"), from William D. Bowman
("Bowman"). BTM and Bowman have no affiliation to the Registrant or any of its
affiliates. BTM is in the business of custom precision contract machining. BTM
will continue to operate its assets in the same business. Pursuant to a Stock
Purchase Agreement dated August 6, 1999 between the Registrant and Bowman (the
"Stock Purchase Agreement"), $886,618 was paid by the Registrant to Bowman in
the form of a Subordinated Promissory Note, subordinate to the interests of U.S.
Bank National Association ("U.S. Bank") and $6,000,000 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 $1,500,000) will be payable by the Registrant
to Bowman in the form of an addition to the Subordinated Promissory Note,
$750,000 will be based upon the sales of BTM during the twelve-month period
following the closing date of the transaction, with another $750,000 based upon
the operating income of BTM during the 12 month period commencing January 24,
2000. An additional contingent amount will be paid in the form of an addition to
the Subordinated Promissory Note if certain operating income targets are
exceeded. The Subordinated Note is payable in three equal annual installments
of principal beginning August 6, 2002. Interest is paid quarterly. The
purchase price was determined through arms-length negotiations. Upon the
closing of the Stock Purchase Agreement, BTM entered into a twelve-month lease
(with extension options) with William and Mary Jo Bowman for the facility used
in its business. BTM and Bowman also entered into a Non-Compete Agreement under
which Bowman will be paid $50,000 per quarter for five years. Bowman and BTM
also entered into an Employment Agreement which provides for one year of
employment and four years of consulting. Bowman shall receive monthly
compensation of $20,833 during such periods.
ITEM 5. OTHER EVENTS.
In connection with the acquisition of the capital stock of BTM 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 Fifth Amendment to Amended and
Restated Credit and Security Agreement dated August 6, 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 $4,400,000 and a revolving
credit facility in the maximum amount of $3,000,000. Registrant also entered
into a Loan Agreement with U.S. Bank pursuant to which Registrant borrowed an
additional $2,500,000 from U.S. Bank. This loan is secured by a mortgage on
Registrant's Long Lake, Minnesota facility.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
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(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 7(b)(2) of Form 8-K.
(c) EXHIBITS.
2.1 Stock Purchase Agreement dated August 6, 1999 between the Registrant
and Bowman.
4.1 Consent and Fifth Amendment to Amended and Restated Credit and
Security Agreement with accompanying Exhibit A dated August 6, 1999
between the Registrant and U.S. Bank.
4.2 Loan Agreement dated August 6, 1999.
4.3 Mortgage, Fixture Financing Statement.
10.1 Lease Agreement dated August 6, 1999 between BTM and William and
Mary Jo Bowman.
10.2 Non-Compete Agreement dated August 6, 1999 between BTM and Bowman.
10.3 Employment Agreement dated August 6, 1999 between BTM and Bowman.
99.1 Press release.
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
August 20, 1999
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated August 6, 1999 is by
and between WSI Industries, Inc., a Minnesota corporation (the "Buyer") and
William D. Bowman (the "Seller").
RECITAL
Seller owns and desires to sell, and Buyer desires to purchase, 100% of
the capital stock of Bowman Tool & Machining, 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), 100 shares (the "Shares") of duly and validly issued, fully paid and
non-assessable, common stock of the Corporation, representing 100% of the
outstanding capital 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 Seven Million and no/100s Dollars ($7,000,000) subject to
adjustment as provided in Sections 1.3, 1.6, and 6.14 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 has prepared and delivered to
Buyer the June 30, 1999 balance sheet of the Corporation (the "Latest Balance
Sheet"), which is attached hereto as Schedule 1.3. If the sum of the book value
of the Corporation as set forth on the Latest Balance Sheet is different from
$2,868,000, 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. For purposes of this Agreement and the adjustments in this
Section 1.3 and Section 1.6, the book value of the Corporation shall be
determined as of the respective measurement dates and shall equal the book value
of assets less the book value of liabilities but shall exclude cash and cash
equivalents and the note payable to Norwest Equipment Finance, Inc. or its
assigns (the "Bank Debt"). There shall be added to the book value the
adjustments, if any, required under
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Section 6.14. The adjustments under Section 6.14 shall be made prior to any
corresponding adjustments in Sections 1.3 and 1.6.
1.4. CLOSING PAYMENT. The Closing Payment shall be paid as follows:
(a) $6,000,000 in cash at Closing by wire transfer of funds,
subject to adjustment as provided in Section 6.14; and
(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, 1.5 and 1.6 of this Agreement. The parties
acknowledge that the Note shall be adjusted as of the
Closing to $886,618 based on the book value reflected on
the Latest Balance Sheet.
1.5. ADDITIONAL AMOUNT. Seller shall receive Seventy-Five Cents ($.75)
for every One Dollar ($1.00) of Sales (as defined below) above Six Million
Dollars ($6,000,000) generated by the Corporation during the twelve-month period
following the Closing Date, up to a maximum of Seven Hundred Fifty Thousand
Dollars ($750,000). If the Sales contingency described in the immediately
preceding sentence is not fully attained within the period provided in such
sentence, but the Operating Income contingency described in the immediately
following sentence is fully attained within the period provided in such sentence
(i.e., Operating Income exceeds $3,000,000), then, in such event, the Sales
contingency shall be deemed earned in full as of the date the Operating Income
contingency is deemed earned, but subject to the maximum of Seven Hundred Fifty
Thousand Dollars ($750,000) set forth in the first sentence of this Section 1.5.
Seller shall also receive Seventy-Five Cents ($.75) for every One Dollar
($1.00) of Operating Income (as defined below) above Two Million Dollars
($2,000,000) generated by the Corporation during the period from January 24,
2000 to January 24, 2001, up to a maximum of Seven Hundred Fifty Thousand
Dollars ($750,000). In addition, Seller shall receive an additional
Thirty-Three and 1/3 Cents ($.333) for every One Dollar of Operating Income over
Three Million Dollars ($3,000,000) for the 12 month fiscal period beginning
January 24, 2000 (all of the foregoing payments are collectively referred to as
the "Additional Amount"). For purposes of this Agreement, Sales shall be
defined as gross revenues derived from the Corporation's existing and new
customers (excluding revenue generated from Buyer's existing customers'
programs, which include Deere Waterloo Agricultural, ZF Industries, Kohler, Borg
Warner, IBM, Polaris, Deere, Ottumwa and Volvo Penta) as determined by the
Corporation in accordance with generally accepted accounting principles. For
purposes of this Agreement, Operating Income shall be defined as earnings before
interest expense, taxes and acquisition costs, each as determined by the
Corporation in accordance with generally accepted accounting principles, and
shall exclude corporate general and administrative expenses of Buyer, storage
costs at Buyer's Long Lake facility and expenses of employees of Buyer not
working directly and full-time for the Corporation. Buyer agrees not to
intentionally divert business from the Corporation to its Long Lake facility or
to a subsidiary in an attempt to circumvent the intent of
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this Section 1.5. The principal amount of the Note will be increased to reflect
any Additional Amount earned by the Seller as of the date such Additional Amount
is earned.
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 the Closing Date (the
"Closing Date Balance Sheet") prepared by the 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. 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 first business day
following 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. 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 or forecasted orders from customers.
(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, 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, 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.
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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 August 6, 1999. The
date and time of the Closing are herein referred to as the "Closing Date." The
Closing shall be effective as of 11:59 p.m. on August 6, 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:
(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
Corporation;
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(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;
(vii) Buyer shall have obtained financing necessary to
consummate the transactions contemplated hereby on
terms acceptable to Buyer;
(viii) Seller shall have reached a long-term agreement with
its major customer on terms satisfactory to Buyer;
and
(ix) All documents required to be delivered at Closing
pursuant to Section 4.1 of this Agreement have been
delivered.
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 December 31, 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.
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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 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.
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2.5. CAPITALIZATION OF THE CORPORATION. The authorized capital stock
of the Corporation consists of 1,000 shares of common stock, of which 100 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, other than shares held for investment in a publicly held company.
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 1.3) (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. The
Corporation has paid the Bank Debt.
2.8. REAL PROPERTY. All real property leased by the Corporation is
described in Schedule 2.8 (the "Real Property") and is owned by Seller. The
Corporation owns no real property.
2.9. ENVIRONMENTAL MATTERS.
(a) Neither the 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 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 Real Property.
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(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) There are no underground storage tanks, as defined
under federal or applicable state law, located on the Real
Property, and none have been placed on the Real Property during
the Corporation's operation of the Real Property or the Seller's
ownership of the Real Property.
(d) To the best knowledge of Seller, there are no
material expenditures required to bring the 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, 1998 and
1997, and related statements of income and retained earnings flows
for the years then ended; and
(b) Unaudited balance sheet dated March 31, 1999 and the 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 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.
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 September 1, 1990. 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
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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. Except as set forth on Schedule 2.24, Seller has no
knowledge of any facts which materially adversely affect, or may in the future
(so far as can now be reasonably foreseen) materially adversely affect, the
business, properties, operations or condition of the Corporation which have 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. In the event such accounts receivable are not fully collected
within such 90-day period, the principal amount of the Note shall be reduced
downward dollar-for-dollar effective as of the Closing Date by the uncollected
amount, subject to the allowance for doubtful accounts, and the uncollected
receivables shall be assigned to Seller.
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 within 12 months from the Closing Date. Such inventory is
carried on the Corporation's books of account in accordance with generally
accepted accounting principles.
2.15. CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Except as provided on
Schedule 2.15, the Corporation has conducted its business since March 31, 1999
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,
the name "Bowman Tool" and all intellectual property, know-how, trade secrets,
customer and supplier lists which it is using.
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2.17. COMMITMENTS. Except as described on Schedule 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;
(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
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necessary software licenses to conduct its business as currently conducted and
the Corporation is in compliance with such licenses.
2.18. LITIGATION. 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 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. Seller does not own
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 plans or arrangements; life insurance or other death benefit plans;
deferred compensation or other pension or retirement plans; or other fringe or
employee benefit plans or arrangements; any employment or consulting contracts
or executive compensation agreements; 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
<PAGE>
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.
(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
<PAGE>
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,
except as set forth on Schedule 2.24, 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 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, none of the
employees of the Corporation has suffered or is suffering from any illness or
disease caused directly or indirectly by any 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. 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. To the best of Seller's knowledge, all
computer software, firmware, hardware and other similar items of automated,
computerized, and/or software systems
<PAGE>
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.
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. 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. Buyer will pay all amounts due
Franklin Capital Partners as a result of this transaction.
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
<PAGE>
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 Seller
in the form of Exhibit B.
(c) An Employment Agreement between the Corporation and Seller
in the form of Exhibit C.
(d) A Non-Compete Agreement between the Corporation and Seller
in the form of Exhibit D.
(e) A Stock Option Agreement between the Buyer and the Seller
in the form of Exhibit E.
(f) An Opinion of the Seller's Counsel relating to the items
contained in Sections 2.1 through 2.5 of this Agreement.
(g) The Note.
(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) Required consents of third parties.
<PAGE>
(l) Termination and release of all liens and encumbrances on
the assets of the Corporation and evidence of payment by the Corporation
or Seller of all Bank Debt including any prepayment penalties and fees
associated therewith.
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 Law arising
out of, resulting from or relating to (1) the 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 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 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)
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; (e) the
failure of Mitsubishi to fulfill its obligations under its letter dated August
5, 1999; (f) failure of Seller to comply with the terms of that certain Contract
for Deed dated January 23, 1984 with respect to the Real Property; or (g) 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; (b) except to the extent indemnifiable by
Seller as provided in Section 5.1 above, liabilities of the Corporation arising
out of events first occurring after the Closing; or (c) any costs and expenses
associated with defending against any of the foregoing claims, liabilities,
obligations, costs, damages, losses and expenses and seeking indemnification
therefor.
<PAGE>
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 (Environmental), Section 2.11
(Taxes), Section 2.23 (Employee Benefits), or Section 6.2 (Expenses)
shall not be subject to the limitation contained in this Section 5.3(a).
(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 and Additional Amount; 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, the
Additional 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 August 1, 2002, 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; and (ii) Seller shall not be released from
the agreements of indemnification arising under Sections 5.1(b), 5.1(c)
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. 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
provided in this Agreement prior to such respective dates until such
claims are finally determined and satisfied in full.
<PAGE>
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 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.
5.5. SET-OFF. In the event Buyer makes a claim for indemnification
under this Agreement, and so long as the claim remains unpaid or unresolved,
then Buyer may, at its option, discontinue making any payments of interest or
principal on the Note or payments under the Non-Compete or Employment Agreement
(but not the salary amounts thereunder and not any payments under the Lease), up
to the amount of such claim, until such time as the claim is paid or resolved;
provided, however, that in lieu of making payments of interest or principal on
the Note or payments under the other agreements, Buyer shall make such payments
as they become due to a mutually acceptable third party, as escrow agent, to be
held by the escrow agent in an interest-bearing account for the benefit of
Seller or Buyer as ultimately determined by the disputants as a result of a
mutually satisfactory settlement, or by court or arbitrator's award. If the
parties are unable to agree on a mutually acceptable escrow agent, the escrow
agent shall be U.S. Trust National Association. Buyer agrees not to provide
Seller with a 1099 with respect to payments made into escrow.
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.
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
<PAGE>
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.
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 may 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.
<PAGE>
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. Seller's joining in the
election is conditioned on the payment of such taxes at the time of the
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.
(b) Seller will prepare the final income tax return for the
Corporation, and the related Forms K-1 through the Closing Date.
6.13. 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: William D. Bowman
172 River Bluffs Lane Northwest
Rochester, MN 55901
6.14. MINIMUM WORKING CAPITAL. Notwithstanding anything herein to the
contrary, Seller represents that the Corporation has a minimum Working Capital
(defined below) of $1,141,194 as of the Closing, excluding cash to be
distributed to Seller and the Bank Debt. Working Capital is defined as current
assets less current liabilities of the Corporation as determined in accordance
with generally accepted accounting principles. For purposes of
<PAGE>
determining the Closing Payment, the Working Capital shall be initially
determined based on the Latest Balance Sheet. If the Working Capital set forth
on the Latest Balance Sheet is less than $1,141,194, the cash portion of the
Closing Payment shall be reduced on a dollar for dollar basis or, at his option,
Seller shall provide sufficient cash to equal such deficiency. To the extent
the Closing Payment is reduced as provided herein, a corresponding adjustment
shall be made to the book value of the Corporation for purposes of determining
any adjustment upward to be made under Sections 1.3 or 1.6. If the Working
Capital as finally determined on the Closing Date Balance Sheet is less than
$1,141,194, Seller shall promptly reimburse Buyer for such deficiency. To the
extent Seller reimburses Buyer, a corresponding upward adjustment shall be made
to the book value of the Corporation for purposes of determining any adjustment
to be made under Section 1.6. If the Working Capital as fully determined on the
Closing Date Balance Sheet is more than $1,141,194, Buyer shall promptly pay
Seller for such excess up to $298,872 and a corresponding adjustment downward
shall be made to the book value of the Corporation for purposes of determining
any adjustment to be made under Section 1.6. Any breach of the Seller's
obligations in this Section 6.14 shall not be subject to the limitations set
forth in Article V.
6.15. DISTRIBUTION. Prior to the Closing, the Corporation shall
distribute to Seller all leasehold improvements reflected on the Corporation's
fixed assets listing.
6.16. CONTRACT FOR DEED. Seller shall promptly provide Buyer with a
copy of any notice of default received by Seller under that certain Contract for
Deed dated January 23, 1984 with respect to the Real Property.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto on the day and year first above written.
BUYER:
WSI INDUSTRIES, INC.
By: /s/ Michael J. Pudil
-------------------------------------
Its: President
------------------------------------
SELLER:
/s/ William D. Bowman
-----------------------------------------
William D. Bowman
<PAGE>
EXHIBIT 4.1
FIFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
(the "Amendment") is dated as of August 6, 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, a Third
Amendment to Amended and Restated Credit and Security Agreement dated as of
April 30, 1997 and by a Consent and Fourth Amendment to Amended and Restated
Credit and Security Agreement dated as of February 15, 1999 (as so amended, the
"Credit Agreement") under which the Lender has agreed to make Advances to the
Borrower; 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.
1.1(a) 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.
1.1(b) The following definitions of "Bowman," "Eligible Inventory,"
"Fifth Amendment," "Mortgage Loan" and "Mortgage Note" are added to Section 1.1
of the Credit Agreement in appropriate alphabetical order:
"BOWMAN:" Bowman Tool & Machining, Inc., a Minnesota corporation.
<PAGE>
"ELIGIBLE INVENTORY:" Inventory of the Borrower and of Bowman which
meets the following requirements:
(a) it is owned by the Borrower or Bowman and is not subject to any
prior assignment, claim or Lien other than (i) a Lien in favor of the
Lender and (ii) Liens consented to by the Lender in writing;
(b) if held for sale or lease or furnishing under contracts of
service, it is (except as the Lender may otherwise consent in writing)
new and unused;
(c) except as the Lender may otherwise consent, it is not stored
with a bailee, warehouseman or similar party; if so stored with the
Lender's consent, such bailee, warehouseman or similar party has issued
and delivered to the Lender, in form and substance acceptable to the
Lender, such documents and agreements as the Lender may require,
including, without limitation, warehouse receipts therefor in the
Lender's name;
(d) the Lender has determined, in its sole and absolute discretion,
that it is not unacceptable due to age, type, category, quality and/or
quantity;
(e) it is not held by the Borrower or Bowman on "consignment" and
is not subject to any other repurchase or return agreement;
(f) it complies with all standards imposed by any governmental
agency having regulatory authority over such goods and/or their use,
manufacture or sale;
(g) it does not, in any way, fail to meet or violate any warranty,
representation or covenant contained in the Loan Documents relating
directly or indirectly to the Borrower's or Bowman's Inventory; and
(h) it satisfies the Eligible Inventory requirements, if any, set
forth in SUPPLEMENT A.
Inventory of the Borrower or Bowman which is at any time Eligible Inventory but
which subsequently fails to meet any of the foregoing requirements shall
forthwith cease to be Eligible Inventory.
"FIFTH AMENDMENT:" The Fifth Amendment to this Credit and Security
Agreement dated as of August 6, 1999.
"LOAN AGREEMENT:" That certain Loan Agreement between the Borrower and
the Lender dated as of August 6, 1999 under the terms of which the Lender shall
make available to the Borrower the Mortgage Loan.
<PAGE>
"MORTGAGE LOAN:" As defined in Section 2.1.4.
"MORTGAGE NOTE:" As defined in Section 2.1.4.
1.1(c) The definition of "Eligible Account Receivable" in Section 1.1
of the Credit Agreement is amended to include therein the accounts owned by
Bowman that are otherwise eligible under such definition.
1.1(d) Sections 2.1.2(a) and 2.1.2(b) of the Credit Agreement are
amended 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 the effective
date of the Fourth Amendment in the principal amount of $3,200,000,
increasing to $4,400,000 on the effective date of the Fifth Amendment.
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 $52,381 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.
1.1(e) Section 2.1.3 of the Credit Agreement is amended to read as
follows:
2.1.3 LOANS PAYABLE ON TERMINATION DATE. The Revolving Loan and the
Term Loan and other Obligations hereunder, excluding the Mortgage Loan, shall be
paid by the Borrower on the Termination Date, unless payable sooner pursuant to
the provisions of this Agreement, but may, at the Borrower's election be repaid
in whole or in part at any time prior to such date without premium or penalty
except as set forth on SUPPLEMENT A. Recourse to Collateral, Third Party
Collateral or other security is not required at any time.
1.1(f) The following new Section 2.1.4 is added to the Credit
Agreement immediately following Section 2.1.3:
<PAGE>
2.1.4 MORTGAGE LOAN. Subject to the terms and conditions of the Loan
Agreement of even date herewith the Lender shall make available to the Borrower
the mortgage loan described therein (the "Mortgage Loan") which shall be
evidenced by the mortgage note described therein (the "Mortgage Note").
1.2 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 the new Term Note A,
the Loan Agreement and the Mortgage Note.
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. The execution by the Borrower of
this 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 (or as
required below), as the case may be:
<PAGE>
(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) REAFFIRMATION OF GUARANTY OF TAURUS. A reaffirmation of the
guaranty and third party security agreement of Taurus Numeric Tool, Inc.
of all obligations of Borrower, in form and in substance acceptable to
Lender.
(e) SECURITY AGREEMENT. A third party Security Agreement from
Bowman in form and substance acceptable to the Lender, together with a
secretary's certificate from Bowman certifying resolutions of the board
of directors of Bowman authorizing execution of the Security Agreement
and the Guaranty and certifying the incumbency of officers authorized to
sign the Security Agreement and the Guaranty.
(f) GUARANTY. A Guaranty of the Borrower's indebtedness under the
Credit Agreement duly executed by Bowman and in form and substance
acceptable to the Lender.
(g) SUBORDINATION AGREEMENT. A Subordination Agreement (the
"Subordination Agreement") in form and substance acceptable to Lender
executed by the seller of the shares of Bowman.
(h) STOCK PURCHASE AGREEMENT. Within 10 days after the date hereof,
a copy of the stock purchase agreement and all documents executed and
delivered in connection therewith evidencing the sale of all shares of
Bowman to the Borrower, duly certified by an officer of the Borrower.
(i) MORTGAGE. A mortgage in form and substance acceptable to the
Lender together with such title insurance commitment, environmental
report, flood certification, survey and related documents as the Lender
may reasonably require and as specified on the Lender's Closing
Checklist in connection with the Loan Agreement.
<PAGE>
(j) UCC MATTERS. A payoff letter or UCC termination statements in
form and substance acceptable to the Lender demonstrating that the
assets of Bowman will be released from any lien or security interest
(except the security interest required hereunder in favor of the Lender)
upon consummation of the purchase of the shares of Bowman by the
Borrower.
4.5 ORIGINATION FEE. The Borrower shall pay to the Lender an
origination fee of $25,000 for the Mortgage Loan on execution of this Fifth
Amendment.
ARTICLE V - CONSENT
Upon receipt by the Lender of the documents required in Section 4.4
above, effective August 6, 1999, the Lender hereby consents (a) to the purchase
by the Borrower of all of the outstanding shares of common stock of Bowman owned
by William Bowman (the "Selling Shareholder"), pursuant to the terms of the
Stock Purchase Agreement, (b) to Bowman being a wholly owned subsidiary of
Borrower, (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(g) above and (d) to the Loan Agreement and the Mortgage Loan and
Mortgage thereunder. The acquisition of Bowman shall not be construed as a
violation of the provisions of Section 6.10 of the Credit Agreement, the
ownership of Bowman 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 by
Bowman shall not be construed as a violation of the provisions of Sections 6.12
and 6.13 of the Credit Agreement. The Loan Agreement, the Mortgage Loan and the
Mortgage in connection therewith shall not be deemed a violation of any
provision 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.
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.
<PAGE>
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
CORPORATION
By: /s/ Leonard H. Ramotar
--------------------------------
Title: Vice President
<PAGE>
EXHIBIT A
SUPPLEMENT A
(AMENDED AUGUST 6, 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
the sum of (i) an amount of up to 85% 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, Taurus's and Bowman's Eligible Accounts Receivable,
plus (ii) the lesser of (x) 50% of the Borrower's and Bowman's
Eligible Inventory (as determined by the Lender after deduction of
such reserves and allowances as the Lender deems proper and
necessary), or (y) $1,400,000.
(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
<PAGE>
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
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, 2002.
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: 0.50%.
(b) Eurodollar Rate Advances: 3.00%.
"APPLICABLE TERM MARGIN:" With respect to:
(a) Reference Rate Advances: 0.75%.
(b) Eurodollar Rate Advances: 3.25%.
"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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
(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, 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
<PAGE>
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
Borrower's Initials MJP
-------------------
Lender's Initials LHR
---------------------
Dated as of 8-6-99 , 1999
---------------------------
<PAGE>
EXHIBIT 4.2
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of August 6, 1999 is by and between WSI
Industries, Inc., a corporation organized under the laws of the State of
Minnesota (the "Borrower"), and U.S. Bank National Association, a national
banking association (the "Lender").
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 DEFINED TERMS. As used in this Agreement the following
terms shall have the following respective meanings:
"BUSINESS DAY": Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open for business in Minneapolis, Minnesota.
"CLOSING DATE": The date on which the conditions set forth in Section
3.1 have been satisfied and the Loan is closed.
"DEFAULT": Any event which, with the giving of notice (whether
such notice is required under Section 6.1, or under some other provision of
this Agreement, or otherwise) or lapse of time, or both, would constitute an
Event of Default.
"DEFAULT RATE": As defined in the Note.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT": Any event described in Section 6.1.
"FINANCING STATEMENT": The Financing Statement(s) executed by the
Borrower, as Debtor, in favor of the Lender, as Secured Party.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
<PAGE>
"GOVERNMENTAL REQUIREMENTS": All laws, statutes, codes, ordinances,
and governmental rules, regulations and requirements applicable to the Borrower,
the Lender and the Project.
"IMPROVEMENTS": The buildings and improvements located upon the Land.
"INDEMNIFICATION AGREEMENT": The Environmental and ADA
Indemnification Agreement dated of even date herewith, executed by the Borrower
in favor of Lender.
"LAND": The land legally described on Exhibit A attached hereto and
hereby made a part hereof.
"LEASE": Any lease or other document or agreement, written or oral,
permitting any Person to use or occupy any part of the Project.
"LIEN": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"LOAN": As defined in Section 2.1.
"LOAN DOCUMENTS": This Agreement, the Note, the Mortgage, the
Indemnification Agreement, the Financing Statement and any other document
collateral to or as security for the Loan.
"LOAN FEE": As defined in Section 2.3.
"MATURITY DATE": August 6, 2004.
"MORTGAGE": The Mortgage, Security Agreement, Assignment of Leases
and Rents and Fixture Financing Statement dated of even date herewith, executed
by the Borrower in favor of the Lender.
"NOTE": The Note dated of even date herewith, in the amount of the
Loan, executed by the Borrower and payable to the order of the Lender.
"OBLIGATIONS": The Borrower's obligations in respect of the due and
punctual payment of principal and interest on the Note when and as due, whether
by acceleration or otherwise and all fees, expenses, indemnities, reimbursements
and other obligations of the Borrower under this Agreement or any other Loan
Document, in all cases whether now existing or hereafter arising or incurred.
<PAGE>
"PERMITTED ENCUMBRANCES": The liens, charges and encumbrances on
title to the Project listed on Exhibit B attached hereto and hereby made a part
hereof.
"PERSON": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"PROJECT": The Land, the Improvements and all fixtures, equipment and
personal property now or hereafter owned by the Borrower and located or to be
located in or on, and used in connection with the management, maintenance or
operation of, the Land and the Improvements.
"REGULATORY CHANGE": Any change after the date of this 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
banks 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.
"SUBSIDIARY": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Borrower either directly or through one or more Subsidiaries.
"TENANT": Any Person using or occupying any part of the Project
pursuant to a Lease.
"TITLE COMPANY": Chicago Title Insurance Company.
"TITLE POLICY": A current ALTA form loan title insurance policy,
dated as of the date of recording of the Mortgage, containing such endorsements
and assurances as the Lender may require, and containing only those exceptions
approved by the Lender.
Section 1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder shall be made
in accordance with GAAP.
Section 1.3 OTHER DEFINITIONAL TERMS, TERMS OF CONSTRUCTION. The
words "hereof", "herein" and "hereunder" and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. References to Sections, Exhibits,
Schedules and like references are to Sections, Exhibits, Schedules and the like
of this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
<PAGE>
limitation". Unless the context in which used herein otherwise clearly
requires, "or" has the inclusive meaning represented by the phrase "and/or".
All incorporations by reference of covenants, terms, definitions or other
provisions from other agreements are incorporated into this Agreement as if such
provisions were fully set forth herein, and include all necessary definitions
and related provisions from such other agreements. All covenants, terms,
definitions and other provisions from other agreements incorporated into this
Agreement by reference shall survive any termination of such other agreements
until the obligations of the Borrower under this Agreement and the Note are
irrevocably paid in full.
ARTICLE II
TERMS OF LENDING
Section 2.1 LOAN. Upon the terms and subject to the conditions
hereof, the Lender agrees to make a loan (the "Loan") to the Borrower of
$2,500,000 on the Closing Date.
Section 2.2 THE NOTE; INTEREST AND REPAYMENT. The Loan shall be
evidenced by the Note. The Lender shall enter in its ledgers and records the
payments made on the Loan, and the Lender is authorized by the Borrower to enter
on a schedule attached to the Note a record of such payments. The Note shall
accrue interest and shall be payable, together with interest thereon, and may be
prepaid, if at all, and is subject to mandatory prepayment, as provided in the
Note. If not sooner paid, the Note, together with all accrued and unpaid
interest thereon, shall be due and payable in full on the Maturity Date.
Section 2.3 LOAN FEE. In consideration of the Lender's agreement to
make the Loan, the Borrower shall pay the Lender, at or prior to the closing of
the Loan, a loan fee in the amount of $25,000 .
Section 2.4 CAPITAL ADEQUACY. In the event that any Regulatory Change
reduces or shall have the effect of reducing the rate of return on the Lender's
capital or the capital of its parent corporation (by an amount the Lender deems
material) as a consequence of the Loan to a level below that which the Lender or
its parent corporation could have achieved but for such Regulatory Change
(taking into account the Lender's policies and the policies of its parent
corporation with respect to capital adequacy), then the Borrower shall, within
five days after written notice and demand from the Lender, pay to the Lender
additional amounts sufficient to compensate the Lender or its parent corporation
for such reduction. Any determination by the Lender under this Section and any
certificate as to the amount of such reduction given to the Borrower by the
Lender shall be final, conclusive and binding for all purposes, absent error.
Section 2.5 USE OF PROCEEDS. The proceeds of the Loan shall be used
for the acquisition of the stock of Bowman Tool and Machining, Inc., and
transaction costs associated with such acquisition and the financing thereof.
<PAGE>
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 CONDITIONS OF THE LOAN. The obligation of the Lender to
make the Loan hereunder shall be subject to the prior or simultaneous
fulfillment of each of the following conditions:
3.1(a) DOCUMENTS. The Lender shall have received the documents
and other materials as set forth on Schedule 3.1(a) attached hereto and hereby
made a part hereof.
3.1(b) OTHER MATTERS. All organizational and legal proceedings
relating to the Borrower and all instruments and agreements in connection with
the transactions contemplated by this Agreement shall be satisfactory in scope,
form and substance to the Lender and its counsel, and the Lender shall have
received all information and copies of all documents, including records of
corporate proceedings, which it may reasonably have requested in connection
therewith, such documents where appropriate to be certified by Borrower or
governmental authorities.
3.1(c) FEES AND EXPENSES. The Lender shall have received the
Loan Fee and all other fees and amounts due and payable by the Borrower on or
prior to the Closing Date, including the reasonable fees and expenses of counsel
to the Lender payable pursuant to Section 7.2.
3.1(d) PERFECTION. The Mortgage and the Financing Statement, and
any other Loan Document creating or evidencing a lien or security interest which
Lender requires to be filed of record, shall have been appropriately filed to
the satisfaction of the Lender and the priority and perfection of the Lien
created thereby shall have been established to the satisfaction of the Lender.
3.1(e) NO DEFAULT. All representations and warranties of the
Borrower made in this Agreement shall remain true and correct and no Default or
Event of Default shall exist.
3.1(f) STOCK ACQUISITION. The Borrower shall have provided the
Lender with evidence reasonably acceptable to the Lender that the Borrower has
completed its acquisition of all of the stock of Bowman Tool and Machining, Inc.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 ORGANIZATION, STANDING, ETC. The Borrower is a
corporation duly organized and validly existing and in good standing under the
laws of the jurisdiction of its organization, and, if different, the
jurisdiction in which the Project is located, and has all requisite corporate
power and authority to own its properties and to carry on its business as now
conducted, to enter into this Agreement and the other Loan Documents to which it
is a party and to issue the Note and to perform its obligations hereunder and
thereunder. This Agreement, the Note and the other Loan Documents to which it
is a party have been duly authorized by all necessary corporate action and when
executed and delivered will be the legal and binding obligations of the
Borrower. The execution, delivery and performance of this Agreement, the Note
and the other Loan Documents to which it is a party will not violate the
Borrower's Articles of Incorporation or bylaws or any law applicable to the
Borrower, and will not violate or cause a default under or permit acceleration
of any agreement to which Borrower is a party or by which it or the Project is
bound. Except for consents, approvals and exemptions previously obtained
(copies of which have been delivered to the Lender), no approval of or exemption
by any Person is required in connection with the Borrower's execution, delivery
and performance of this Agreement, the Note and the other Loan Documents to
which it is a party. To the Borrower's knowledge, it is not in default (beyond
any applicable grace period) in the performance of any agreement, order, writ,
injunction, decree or demand to which it is a party or by which it is bound.
Section 4.2 FINANCIAL STATEMENTS AND NO MATERIAL ADVERSE CHANGE. The
Borrower's audited financial statements as at August 31, 1998 and its unaudited
financial statements as at June 30, 1999, as heretofore furnished to the Lender,
have been prepared in accordance with GAAP. The Borrower has no material
obligation, liability or asset not disclosed in such financial statements, and
there has been no material adverse change in the condition of the Borrower since
the dates of such financial statements.
Section 4.3 LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or the Project which, if determined adversely to the Borrower,
would have a Material Adverse Effect on the condition of the Borrower or on the
ability of the Borrower to perform its obligations under the Loan Documents.
Neither the Borrower nor the Project is in violation of any Governmental
Requirement where such violation could reasonably be expected to impose a
material liability on the Borrower.
Section 4.4 TAXES. The Borrower has filed all federal, state and
local tax returns required to be filed and has paid or made provision for the
payment of all taxes due and payable
<PAGE>
pursuant to such returns and pursuant to any assessments made against
it or any of its property (other than taxes, fees or charges the amount or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with GAAP have
been provided on the books of the Borrower).
Section 4.5 SUBSIDIARIES. The Borrower has the Subsidiaries listed on
Schedule 4.5 attached hereto and hereby made a part hereof.
Section 4.6 EMPLOYEE BENEFIT PLANS. Except as disclosed in writing
to the Lender: (a) the Borrower is not an employee benefit plan as defined
in Section 3(1) of ERISA, whether or not subject to ERISA; (b) no assets of
the Borrower constitute assets of any such plan under ERISA regulations or
rulings; (c) with respect to any such plan that the Borrower sponsors,
participates in or has fiduciary duties with respect to, the Borrower has
materially complied with all federal and state laws, plan documents and
funding requirements; (d) the Borrower does not sponsor, participate in, or
have fiduciary duties with respect to any defined benefit pension plan
subject to Title IV of ERISA or any multi-employer pension plan as defined in
Section 3(37)(A) of ERISA or any plan providing medical or other welfare
benefits to retirees or other former employees (except as required by federal
or state law); and (e) the Borrower is not (and has not ever been) a member
of a group of trades or businesses (whether or not incorporated) that is
treated as a single employer under Section 414 of the Internal Revenue Code.
Section 4.7 YEAR 2000. The Borrower has reviewed and assessed its
business operations and computer systems and applications and those of its
Subsidiaries to address the "year 2000 problem" (that is, that computer
applications and equipment used by the Borrower and its Subsidiaries
directly, or indirectly through third parties, may be unable to properly
perform date-sensitive functions before, during and after January 1, 2000).
The Borrower reasonably believes that the year 2000 problem will not result
in a material adverse change in the business condition (financial or
otherwise), operations, properties or prospects of the Borrower or any of its
Subsidiaries or the ability of the Borrower to repay the Lender. The
Borrower agrees that this representation will be true and correct on and
shall be deemed made by the Borrower on each date the Borrower requests any
advance under this Agreement or the Note or delivers any information to the
Lender. The Borrower will promptly deliver to the Lender such information
relating to this representation as the Lender requests from time to time.
ARTICLE V
COVENANTS
Until the Note and all of the Borrower's other Obligations shall have
been paid and performed in full, unless the Lender shall otherwise consent in
writing:
Section 5.1 FINANCIAL STATEMENTS AND REPORTS. The Borrower will
furnish to the Lender:
<PAGE>
5.1(a) As soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, the Borrower's financial statements
consisting of at least statements of income, cash flow and changes in
stockholder's equity, a balance sheet as at the end of such year, and a
statement of contingent liabilities as at the end of such year, setting forth in
each case in comparative form corresponding figures from the previous annual
statement, certified without qualification by Ernst & Young, L.L.P. or other
independent certified public accountants of recognized national standing
selected by the Borrower and acceptable to the Lender.
5.1(b) As soon as available and in any event within 20 days after
the end of each fiscal month of the Borrower, the Borrower's interim financial
statements for such month and for the period from the beginning of such fiscal
year to the end of such month, substantially similar to the annual audited
statements.
5.1(c) Immediately upon any officer of the Borrower becoming
aware of any Default or Event of Default, a notice describing the nature thereof
and what action the Borrower proposes to take with respect thereto.
5.1(d) From time to time, such other information regarding the
business, operation and financial condition of the Borrower and the Project as
the Lender may reasonably request.
Section 5.2 BOOKS AND RECORDS. The Borrower will keep adequate and
proper records and books of account in which full and correct entries will be
made of its dealings, business and affairs, including its use and operation of
the Project.
Section 5.3 INSPECTION. Upon reasonable prior notice, the Borrower
will permit any Person designated by the Lender to visit and inspect any of the
properties (including the Project), books and financial records of the Borrower,
to examine and to make copies of the books of accounts and other financial
records of the Borrower, and to discuss the affairs, finances and accounts of
the Borrower with its officers at such reasonable times and intervals as the
Lender may designate.
Section 5.4 EXISTENCE. The Borrower will maintain its existence in
good standing under the laws of its jurisdiction of incorporation or formation,
and, if different, the jurisdiction where the Project is located, and its
qualification to transact business in each jurisdiction (including the
jurisdiction where the Project is located) where failure so to qualify would
permanently preclude the Borrower from enforcing its rights with respect to any
material asset or would expose the Borrower to any material liability.
Section 5.5 NOTICE OF LITIGATION. The Borrower will give prompt
written notice to the Lender of the commencement of any action, suit or
proceeding affecting the Borrower.
<PAGE>
Section 5.6 EMPLOYEE BENEFIT PLANS. The Borrower shall neither take
any action, nor omit to take any action, if such action or omission would result
in any of the statements set forth in Section 4.6 (including any written
disclosures made by the Borrower to the Lender under Section 4.6) becoming
inaccurate or misleading at any time while the Note remains outstanding.
Section 5.7 INSURANCE. The Borrower will maintain with financially
sound and reputable insurance companies such insurance as may be required by law
and such other insurance in such amounts and against such hazards as is
customary in the case of reputable companies engaged in the same or similar
business and similarly situated, including, without limitation, the insurance
which the Borrower is required to maintain pursuant to Section 1.4 of the
Mortgage.
Section 5.8 PAYMENT OF TAXES AND CLAIMS. The Borrower will file all
tax returns and reports which are required by law to be filed by it and will pay
before they become delinquent, all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including those of suppliers, mechanics, carriers, warehousemen, landlords and
other like Persons) which, if unpaid, might result in the creation of a Lien
upon its property.
Section 5.9 MAINTENANCE OF PROPERTIES, COMPLIANCE. The Borrower will
maintain its properties in good condition, repair and working order, and
supplied with all necessary equipment, and make all necessary repairs, renewals,
replacements, betterments and improvements thereto, all as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times. The Borrower will comply in all material
respects with all laws, rules and regulations to which it may be subject.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
Section 6.1 EVENTS OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an Event of Default:
6.1(a) The Borrower shall fail to make when due, whether by
acceleration or otherwise, any payment of principal of or interest on the Note
or any other obligations of the Borrower to the Lender pursuant to this
Agreement or any of the other Loan Documents, and such failure shall continue
for a period of five (5) days after the due date thereof.
6.1(b) Any representation or warranty made by or on behalf of the
Borrower in this Agreement or any of the other Loan Documents or by or on behalf
of the Borrower in any certificate, statement, report or document herewith or
hereafter furnished to the Lender pursuant to this Agreement or any of the other
Loan Documents shall prove to have been
<PAGE>
false or misleading in any material respect on the date as of which the facts
set forth are stated or certified.
6.1(c) The Borrower shall fail to comply with Sections 5.1 or
5.7.
6.1(d) A sale, transfer, conveyance or encumbrance of the Project
or any part thereof or of all or any part of the Borrower's interest therein in
violation of Section 1.3 of the Mortgage shall occur.
6.1(e) The Borrower shall fail to comply with any other
agreement, covenant, condition, provision or term contained in this Agreement or
any of the other Loan Documents (other than those hereinabove set forth in this
Section 6.1) and such failure to comply shall continue for thirty (30) calendar
days after whichever of the following dates is the earliest: (i) the date the
Borrower gives notice of such failure to the Lender, (ii) the date the Borrower
should have given notice of such failure to the Lender pursuant to Section 5.1,
or (iii) the date the Lender gives notice of such failure to the Borrower.
6.1(f) The Borrower shall become insolvent or shall generally not
pay its debts as they mature or shall apply for, shall consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver of itself or
for a substantial part of its property, or, in the absence of such application,
consent or acquiescence, a custodian, trustee or receiver shall be appointed for
the Borrower or for a substantial part of the property thereof and shall not be
discharged within forty-five (45) days, or the Borrower shall make an assignment
for the benefit of creditors.
6.1(g) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by or
against the Borrower and, if instituted against the Borrower, shall have been
consented to or acquiesced in by the Borrower or shall remain undismissed for
sixty (60) days, or an order for relief shall have been entered against the
Borrower.
6.1(h) Any dissolution or liquidation proceeding shall be
instituted by or against the Borrower and, if instituted against the Borrower,
shall be consented to or acquiesced in by the Borrower or shall remain for
forty-five (45) days undismissed.
6.1(i) A judgment or judgments for the payment of money in excess
of the sum of $100,000 in the aggregate shall be rendered against the Borrower
and either (i) the judgment creditor executes on such judgment or (ii) such
judgment remains unpaid or undischarged for more than sixty (60) days from the
date of entry thereof or such longer period during which execution of such
judgment shall be stayed during an appeal from such judgment.
6.1(j) A default shall occur, and continue beyond any applicable
grace or cure period, under any note or other evidence of indebtedness or credit
or loan agreement, or other document or instruments executed in connection
therewith, now or hereafter entered into
<PAGE>
between the Lender and the Borrower, as any of the same may be amended,
modified, supplemented, extended, renewed or replaced, and if any such note
or other evidence of indebtedness or credit or loan agreement or other
document is terminated, as the same existed immediately prior to such
termination.
6.1(k) The maturity of any material indebtedness of the Borrower
(other than the Loan and any indebtedness referred to in the immediately
preceding subsection) shall be accelerated, or the Borrower shall fail to pay
any such material indebtedness when due (after the lapse of any applicable grace
period) or any event shall occur or condition shall exist and shall continue for
more than the period of grace, if any, applicable thereto and shall have the
effect of causing, or permitting the holder of any such indebtedness to cause,
such material indebtedness to become due prior to its stated maturity or to
realize upon any collateral given as security therefor. For purposes of this
Section, indebtedness shall be deemed "material" if it exceeds $100,000 as to
any item of indebtedness or in the aggregate for all items of indebtedness with
respect to which any of the events described in this Section has occurred.
6.1(l) Any execution or attachment shall be issued whereby any
substantial part of the property of the Borrower shall be taken or attempted to
be taken and the same shall not have been vacated or stayed within thirty (30)
days after the issuance thereof.
6.1(m) Any default shall occur under any other Loan Document, and
shall continue beyond any grace or cure period provided therein with respect to
such default.
Section 6.2 REMEDIES. If (a) any Event of Default described in
Sections 6.1 (f), (g) or (h) shall occur with respect to the Borrower, the Note
and all other obligations of the Borrower to the Lender under this Agreement and
the other Loan Documents shall automatically become immediately due and payable,
or (b) any other Event of Default shall occur and be continuing, then the Lender
may declare the Note and all other obligations of the Borrower to the Lender
under this Agreement and the other Loan Documents to be forthwith due and
payable, whereupon the same shall immediately become due and payable, in each
case without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, anything in this Agreement or in the Note or
in any of the other Loan Documents to the contrary notwithstanding. Upon the
occurrence of any of the events described in clauses (a) or (b) of the preceding
sentence the Lender may exercise all rights and remedies under this Agreement,
the Note and any of the other Loan Documents and under any applicable law. In
addition, the Lender may cure the Event of Default on behalf of the Borrower,
and, in doing so, may enter upon the Project, and may expend such sums as it may
deem desirable, including attorneys' fees, all of which shall be deemed to be
advances hereunder and under the Note, even though causing the Loan to exceed
the face amount of the Note, shall bear interest at the Default Rate and shall
be payable by the Borrower on demand, and shall be secured by the Mortgage and
all other Loan Documents securing the Loan.
<PAGE>
Section 6.3 OFFSET. In addition to the remedies set forth in Section
6.2, upon the occurrence of any Event of Default and thereafter while the same
be continuing, the Borrower hereby irrevocably authorizes the Lender to set off
all sums owing by the Borrower to the Lender against all deposits and credits
of the Borrower with, and any and all claims of the Borrower against, the
Lender.
ARTICLE VII
MISCELLANEOUS
Section 7.1 MODIFICATIONS. Notwithstanding any provisions to the
contrary herein, any term of this Agreement may be amended with the written
consent of the Borrower; PROVIDED that no amendment, modification or waiver of
any provision of this Agreement or consent to any departure by the Borrower
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such amendment, modification, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 7.2 COSTS AND EXPENSES. Whether or not the transactions
contemplated hereby are consummated, the Borrower agrees to reimburse the Lender
upon demand for all reasonable out-of-pocket expenses paid or incurred by the
Lender (including filing and recording costs and fees and expenses of Dorsey &
Whitney LLP, counsel to the Lender) in connection with the negotiation,
preparation, approval, review, execution, delivery, amendment, modification,
interpretation, collection and enforcement of this Agreement, the Note and the
other Loan Documents. The obligations of the Borrower under this Section shall
survive any termination of this Agreement.
Section 7.3 WAIVERS, ETC. No failure on the part of the Lender or the
holder of the Note to exercise and no delay in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof or
the exercise of any other power or right. The rights and remedies of the Lender
hereunder are cumulative and not exclusive of any right or remedy the Lender
otherwise has.
Section 7.4 NOTICES. Except when telephonic notice is expressly
authorized by this Agreement, any notice or other communication to any party in
connection with this Agreement shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
on the signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed. Either party may
<PAGE>
change its address for notices by a notice given not less than five (5)
Business Days prior to the effective date of the change.
Section 7.5 SUCCESSORS AND ASSIGNS; DISPOSITION OF LOANS. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors and assigns,
except that the Borrower may not assign its rights or delegate its obligations
hereunder without the prior written consent of the Lender. The Lender may at
any time sell, assign, transfer, grant participations in, or otherwise dispose
of any portion of the Loan to banks or other financial institutions. The Lender
may disclose any information regarding the Borrower in the Lender's possession
to any prospective buyer or participant.
Section 7.6 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY,
CONSTRUCTION AND ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO
CONFLICT OF LAWS OR PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS. WHENEVER POSSIBLE, EACH PROVISION
OF THIS AGREEMENT AND ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION
CONTEMPLATED HEREBY OR RELATING HERETO, SHALL BE INTERPRETED IN SUCH MANNER AS
TO BE EFFECTIVE AND VALID UNDER SUCH APPLICABLE LAW, BUT, IF ANY PROVISION OF
THIS AGREEMENT OR ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED
HEREBY OR RELATING HERETO SHALL BE HELD TO BE PROHIBITED OR INVALID UNDER SUCH
APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE ONLY TO THE EXTENT OF SUCH
PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION
OR THE REMAINING PROVISIONS OF THIS AGREEMENT OR ANY OTHER STATEMENT, INSTRUMENT
OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO.
Section 7.7 CONSENT TO JURISDICTION. AT THE OPTION OF THE LENDER,
THIS AGREEMENT AND THE NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA; AND THE BORROWER
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, THE LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
<PAGE>
Section 7.8 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE AND ANY OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 7.9 CAPTIONS. The captions or headings herein and any table
of contents hereto are for convenience only and in no way define, limit or
describe the scope or intent of any provision of this Agreement.
Section 7.10 NUMBER; GENDER. The singular of all terms used herein
shall include the plural and the plural shall include the singular, and the use
of any gender herein shall include all other genders, where the context so
requires or permits.
Section 7.11 ENTIRE AGREEMENT. This Agreement and the other Loan
Documents embody the entire agreement and understanding between the Borrower and
the Lender with respect to the subject matter hereof and thereof. This
Agreement supersedes all prior agreements and understandings relating to the
subject matter hereof.
Section 7.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
WSI INDUSTRIES, INC.
By /s/ Michael J. Pudil
------------------------------------
Print Name Michael J. Pudil
-----------------------------
Title President
--------------------------------
Borrower's Address:
WSI Industries, Inc.
2605 West Wayzata Boulevard
Long Lake, Minnesota 55356
Attention: President
Telecopy No. (612) 473-2945
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
By /s/ Leonard H. Ramotar
---------------------------------
Print Name Leonard H. Ramotar
-------------------------
Title Vice President
-----------------------------
Lender's Address:
U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402-4302
Attn: Mr. Len Ramotar
Telecopy No.: (612) 973-0829
<PAGE>
EXHIBIT A
(Legal Description of Land)
Parcel 1: That part of the South half of Northeast Quarter of Section 33,
Township 118, Range 23, which lies East of the East line of the plat
of Orono Industrial Park, and its extensions and West of the West line
of the plat of Long Lake West Industrial Park and its extensions,
Hennepin County, Minnesota.
Parcel 2: Lots 1 through 12, inclusive, Block 1, Orono Industrial Park, and all
of Lincoln Drive, vacated, as shown on the plat of said Orono
Industrial Park, Hennepin County, Minnesota.
(Torrens Property, evidenced by Certificate of Title No. 819735)
<PAGE>
EXHIBIT B
(Permitted Encumbrances)
Real estate taxes not yet due and installments of special assessments payable
therewith.
1. Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture
Filing dated December 10, 1993, filed December 30, 1993, as Document No. 6210390
(abstract) and filed January 7, 1994, as Document No. 2463274 (Torrens),
executed by Washington Scientific Industries, Inc., a Minnesota corporation, to
FBS Business Finance Corporation, a national banking association, to secure
$1,254,000.00.
Amended by Amendment to Mortgage and Extension Agreement dated April 1,
1994, filed September 28, 1994, as Document No. 6345512 (abstract) and 2554631
(Torrens).
Amended by Amendment to Mortgage and Extension Agreement dated February 28,
1995, filed February 28, 1995, as Document No. 6402162 (abstract) and 2592164
(Torrens).
Amended by Amendment to Mortgage and Extension Agreement dated March 31,
1995, filed May 15, 1995, as Document No. 6427082 (abstract) and 2608260
(Torrens).
Amended by Fourth Amendment to Mortgage and Extension Agreement dated April
30, 1997, filed August 29, 1997, as Document No. 2840001.
Assigned to U.S. Bank National Association, a national banking association,
by Assignment of Mortgage dated January 2, 1998, filed January 7, 1998, as
Document No. 3016787.
2. Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture
Financing Statement dated December 10, 1993, filed January 19, 1994, as Document
No. 6220671 (abstract), and filed January 24, 1994, as Document No. 2470147
(Torrens), executed by Washington Scientific Industries, Inc., a Minnesota
corporation, to Northwestern National Life Insurance Company, a Minnesota
corporation, Farm Bureau Life Insurance Company of Michigan, a Michigan
corporation, and FB Annuity Company, a Michigan corporation, to secure
$580,288.00.
Assigned to FBS Business Finance Corporation, a Delaware corporation, by
Assignment of Mortgage dated March 31, 1995, filed May 1, 1995, as Document No.
2605592.
Amended by Consolidation of and Amendment to Mortgages dated March 31,
1995, filed May 1, 1995, as Document No. 2605594.
<PAGE>
Assignment to U.S. Bank National Association, a national banking
association, by Assignment of Consolidated Mortgages dated January 2, 1998,
filed March 30, 1998, as Document No. 2902741, and filed September 30, 1998, as
Document No. 3065225.
Amended by Amendment to Mortgage and Extension Agreement dated April 8,
1998, filed April 14, 1998, as Document No. 3003909.
3. Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture
Financing Statement dated December 10, 1993, filed January 19, 1994, as Document
No. 6220672 (abstract), and filed January 24, 1994, as Document No. 2470148
(Torrens), executed by Washington Scientific Industries, Inc., a Minnesota
corporation, to Northwestern National Life Insurance Company, a Minnesota
corporation, and Northern Life Insurance Company, a Washington corporation, in
the amount of $1,300,712.00.
Assigned to FBS Business Finance Corporation, a Delaware corporation, by
Assignment of Mortgage dated March 31, 1995, filed May 1, 1995, as Document No.
2605593.
Amended by Consolidation of and Amendment to Mortgages dated March 31,
1995, filed May 1, 1995, as Document No. 2605594.
Assigned to U.S. Bank National Association, a national banking association,
by Assignment of Consolidated Mortgages dated January 2, 1998, filed March 30,
1998, as Document No. 2902741, and filed September 30, 1998, as Document No.
3065225.
Amended by Amendment to Mortgage and Extension Agreement dated April 8,
1998, filed April 14, 1998, as Document No. 3003909.
4. Real Property Waiver dated October 28, 1994, filed January 13, 1995, as
Document No. 2582652, executed by FBS Business Finance, to CLC Equipment
Company.
5. Real Property Waiver dated November 3, 1994, filed January 13, 1995, as
Document No. 2582653, executed by Northwestern National Life Insurance Company
and Northern Life Insurance Company to CLC Equipment Company.
6. Easements for utilities and drainage as shown on the recorded plat.
7. Terms and conditions of Conditional Use Permit filed December 27, 1988, as
Document No. 5491246.
8. Easement for ingress, egress and utility in favor of U.S. West
Communications, Inc. as created in document dated April 26, 1994, filed May 9,
1994, as Document No. 2512678.
<PAGE>
9. Easement for utilities and drainage in favor of City of Orono as created in
document dated December 31, 1994, filed January 18, 1995, as Document No.
2583345.
10. Easement for highway purposes for US Highway 12 over part of the
above-described land lying within Minnesota Department of Transportation
Right of Way Plat No. 27-55 filed August 23, 1994, as Document No. 6329982
(abstract), provided, however, that the right to erect and maintain snow
fences has been released as evidenced by Quit Claim Deed recorded as Document
No. 6311743 (abstract) as to Parcel 1 hereinbefore described.
11. Easement in favor of City of Orono for underground utility purposes, over
the East 20 feet of the above-described land as created by easement filed as
Document No. 3736406 (abstract) as to Parcel 1 hereinbefore described.
12. Easement rights to use the drainage ditch along the Easterly boundary of
property in favor of the owners, encumbrancers and occupants of Lots 4, 5 and 6
of Long Lake West Industrial Park as determined in Torrens Case No. 19977. (See
Court Order Document No. 2571925) as to Parcel 1 hereinbefore described.
<PAGE>
SCHEDULE 3.1(a)
This Agreement, the Note, the Mortgage, the Indemnification Agreement and the
Financing Statement, each duly executed by the Borrower and dated the Closing
Date.
A copy of the corporate resolutions of the Borrower authorizing the execution,
delivery and performance of this Agreement, the Note and the other Loan
Documents to which the Borrower is a party, and containing an incumbency
certificate showing the names and titles, and bearing the signatures of, the
officers of the Borrower authorized to execute this Agreement, the Note and the
other Loan Documents to which the Borrower is a party, certified as of the
Closing Date by the Secretary or an Assistant Secretary of the Borrower.
A copy of the Articles of Incorporation of the Borrower with all amendments
thereto, certified by the appropriate governmental official of the jurisdiction
of its incorporation as of a date not more than 15 days prior to the Closing
Date.
A certificate of good standing for the Borrower in the jurisdiction of its
incorporation, and, if different that the jurisdiction of its incorporation, the
jurisdiction in which the Project is located, certified by the appropriate
governmental officials as of a date not more than 15 days prior to the Closing
Date.
A copy of the bylaws of the Borrower, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Borrower.
The opinion of counsel to the Borrower covering such matters as the Lender may
request.
An appraisal of the Project, addressed to the Lender, prepared in conformance
with the Lender's real estate appraisal and evaluation policy, and signed by an
appraiser acceptable to the Lender.
The Title Policy, or a suitably marked up title insurance commitment issued by
Title Company unconditionally agreeing to issue the Title Policy upon
recordation of the Mortgage.
UCC chattel lien searches from the appropriate office in Hennepin County,
Minnesota, and from the office of the Secretary of State of Minnesota, covering
the name of the Borrower.
A written environmental assessment addressed to the Lender, conducted by an
environmental engineer or consultant acceptable to the Lender, setting forth the
results of an investigation of the Project, containing an analysis and
evaluation of any and all environmental risks associated with the Project, and
concluding that there is no significant risk of any hazardous materials
contamination of any portion of the Project.
<PAGE>
Insurance policies or certificates thereof in form satisfactory to the Lender,
satisfying the requirements of Section 1.4 of the Mortgage.
A flood check satisfactory to the Lender and satisfying the requirements of 42
U.S.C. Section 4104b and any rules and regulations promulgated pursuant thereto.
A Uniform Land Use Confirmation Form in form and substance satisfactory to the
Lender.
Such other documents as the Lender may reasonably require to assure compliance
with the requirements of this Agreement.
<PAGE>
SCHEDULE 4.5
Subsidiaries of the Borrower:
1. WSI South, Inc.
2. Taurus Numeric Tool, Inc.
3. Bowman Tool and Machining, Inc.
<PAGE>
EXHIBIT 4.3
THIS INSTRUMENT WAS PREPARED BY,
AND WHEN RECORDED SHOULD BE
RETURNED TO:
Dorsey & Whitney LLP (JFC)
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FINANCING
THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND
FIXTURE FINANCING STATEMENT (this "Mortgage") is made as of August 6, 1999, by
WSI Industries, Inc., a corporation organized under the laws of the State of
Minnesota ("Borrower"), having its principal offices at Long Lake, Minnesota, in
favor of U.S. Bank National Association, a national banking association
("Lender"), having its principal offices at Minneapolis, Minnesota.
RECITALS
A. Lender has lent, or agreed to lend, to Borrower the principal sum of
Two Million Five Hundred Thousand Dollars and No Cents ($2,500,000) (the
"Loan"), to be repaid with interest thereon, as evidenced by Borrower's Note
(the "Note", which term shall include any amendment, modification, supplement,
extension, renewal, replacement or restatement thereof), which Loan is the
subject of a Loan Agreement between Borrower and Lender (the "Loan Agreement",
which term shall include any amendment, modification, supplement, extension,
renewal, replacement or restatement thereof). The Note, the Loan Agreement and
any other Loan Document (as defined in the Loan Agreement) are each dated the
same date as this Mortgage, we hereby incorporated by reference, and, together
with this Mortgage, as any of the same may be amended, modified, supplemented,
extended, renewed, replaced or restated, are sometimes collectively referred to
as the "Loan Documents".
<PAGE>
B. The obligations secured by this Mortgage (the "Obligations") are as
follows:
(i) the principal mount of $2,500,000 or so much thereof as may be
advanced by Lender under the Note and pursuant to the Loan Agreement;
plus
(ii) interest on the amount advanced and unpaid, at the interest
rate or rates provided in the Note; plus
(iii) all other amounts payable by Borrower and all other
agreements of Borrower under the Loan Documents as the same now exist or
may hereafter be amended.
C. The Obligations shall mature on or before August 6, 2004 (the
"Maturity Date").
D. The maximum principal indebtedness secured hereby $2,500,000 plus
amounts which may be advanced by Lender in protection of the Mortgaged Property
of this Mortgage.
NOW, THEREFORE, Borrower, in consideration of Lender making the Loan, and
to secure the Loan and payment and performance of the Obligations, hereby
grants, bargains, sells, conveys and mortgages to Lender, its successors and
assigns, forever, with power of sale, and grants to Lender, its successors and
assigns, a security interest in, the following, all of which is called the
"Mortgaged Property":
A. LAND AND IMPROVEMENTS
The land described in Exhibit A attached hereto and all mineral rights,
hereditaments, easements and appurtenances thereto (collectively the "Land"),
and all improvements and structures thereon (the "Improvements"); and
B. FIXTURES AND PERSONAL PROPERTY
All fixtures (the "Fixtures"), and all machinery, equipment and personal
property (collectively the "Personal Property") now or hereafter located on, in
or under the land and the Improvements, or usable in connection with the Land or
the Improvements, and which are owned by Borrower or in which Borrower has an
interest, including any construction and building materials stored on and to be
included in the Improvements, plus any repairs, replacements and betterments to
any of the foregoing and the proceeds and products thereof; and
C. LEASES AND RENTS
All rights of Borrower with respect to tenants or occupants now or
hereafter occupying any part of the Land or the Improvements, if any, including
all leases and licenses and rights in connection therewith, whether oral or
written (collectively the "Leases"), and all rents, income, both from services
and occupation, royalties, revenues and payments, including prepayments and
security deposits (collectively the "Rents"), which are now or hereafter due or
to be paid in connection with the Land, the Improvements, the Fixtures or the
Personal Property; and
<PAGE>
D. GENERAL INTANGIBLES
All general intangibles of Borrower which relate to any of the Land, the
Improvements, the Fixtures, the Personal Property, the Leases or the Rents,
including proceeds of insurance and condemnation or conveyance of the Land and
the Improvements, accounts, trade names, contract rights, accounts receivable
and bank accounts; and
E. AFTER ACQUIRED PROPERTY AND PROCEEDS
All after acquired property similar to the property herein described and
conveyed which may be subsequently acquired by Borrower and used in connection
with the Land, the Improvements, the Fixtures, the Personal Property and other
property; and all cash and non-cash proceeds and products of all of the
foregoing property.
TO HAVE AND TO HOLD the same, and all estate therein, together with all
the rights, privileges and appurtenances thereunto belonging, to the use and
benefit of Lender, its successors and assigns, forever.
PROVIDED NEVERTHELESS, should Borrower pay and perform all the
Obligations, then these presents will be of no further force and effect, and
this Mortgage shall be satisfied by Lender, at the expense of Borrower.
This Mortgage constitutes an assignment of rents and profits within the
meaning of Minnesota Statutes, Sections 559.17 and 576.01, and is intended to
comply fully with the provisions thereof, and to afford Lender, to the fullest
extent allowed by law, the rights and remedies of a mortgage lender or secured
lender pursuant thereto.
This Mortgage also constitutes a security agreement within the meaning of
the Uniform Commercial Code as in effect in the State of Minnesota (the "UCC"),
with respect to all property described herein as to which a security interest
may be granted and/or perfected pursuant to the UCC, and is intended to afford
Lender, to the fullest extent allowed by law, the rights and remedies of a
secured party under the UCC.
BORROWER FURTHER agrees as follows:
ARTICLE I
AGREEMENTS
SECTION 1.1 PERFORMANCE OF OBLIGATIONS; INCORPORATION BY REFERENCE.
Borrower shall pay and perform the Obligations. Time is of the essence hereof.
All of the covenants, obligations, agreements, warranties and representations of
Borrower contained in the Loan Agreement and the other Loan Documents and all of
the terms and provisions thereof, are hereby incorporated herein and made a part
hereof by reference as if fully set forth herein.
<PAGE>
SECTION 1.2 FURTHER ASSURANCES. If Lender requests, Borrower shall sign
and deliver and cause to be recorded as Lender shall direct any further
mortgages, instruments of further assurance, certificates and other documents as
Lender reasonably may consider necessary or desirable in order to perfect,
continue and preserve the Obligations and Lender's rights, title, estate, liens
and interests under the Loan Documents. Borrower further agrees to pay to
Lender, upon demand, all costs and expenses incurred by Lender in connection
with the preparation, execution, recording, filing and refiling of any such
documents, including attorneys' fees and title insurance costs.
SECTION 1.3 SALE, TRANSFER, ENCUMBRANCE. If Borrower sells, conveys,
transfers or otherwise disposes of, or encumbers, any part of its interest in
the Mortgaged Property, whether voluntarily, involuntarily or by operation of
law, without the prior written consent of Lender, Lender shall have the option
to declare the Obligations immediately due and payable without notice. Included
within the foregoing actions requiring prior written consent of Lender are: (a)
sale by deed or contract for deed; (b) mortgaging or granting a lien on the
Mortgaged Property; and (c) a transfer which, when aggregated with any previous
transfer made after the date hereof, changes the persons in control of Borrower
or transfers more than 25% of the beneficial interest in Borrower. Borrower
shall give notice of any proposed action to Lender at least thirty (30) days
prior to taking such action. Borrower shall pay all costs and expenses incurred
by Lender in evaluating any such action. Lender may condition such consent upon
modification of the Loan Documents or payment of fees. No such action shall
relieve Borrower from liability for the Obligations. The consent by Lender to
any action shall not constitute a waiver of the necessity of such consent to any
subsequent action.
SECTION 1.4 INSURANCE. Borrower shall obtain, maintain and keep in full
force and effect (and upon request of Lender shall furnish to Lender copies of)
policies of insurance as described in, and meeting the requirements set forth
in, Exhibit B attached hereto, and upon request of Lender shall furnish to
Lender proof of payment of all premiums for such insurance. At least ten (10)
days prior to the termination of any such coverage, Borrower shall provide
Lender with evidence satisfactory to Lender that such coverage will be renewed
or replaced upon termination with insurance that complies with the provisions of
this Section. Borrower, at its sole cost and expense, from time to time when
Lender shall so request, will provide Lender with evidence, in a form acceptable
to Lender, of the full insurable replacement cost of the Mortgaged Property. All
property (including boiler and machinery) and liability insurance policies
maintained by Borrower pursuant to this Section shall (i) include effective
waivers by the insurer of all claims for insurance premiums against Lender, and
(ii) provide that any losses shall be payable notwithstanding (a) any act of
negligence by Borrower or Lender, (b) any foreclosure or other proceedings or
notice of foreclosure sale relating to the Mortgaged Property, or (c) any
release from liability or waiver of subrogation rights granted by the insured.
All insurance policies maintained by Borrower pursuant to the foregoing
provisions shall respond on a primary basis relative to any other insurance
carried by Lender in the event of loss. Insurance terms not otherwise defined
herein shall be interpreted consistent with insurance industry usage.
SECTION 1.5 TAXES, LIENS AND CLAIMS, UTILITIES. Borrower, at least five
(5) days before any penalty attaches thereto, shall pay and discharge, or cause
to be paid and discharged, all
<PAGE>
taxes, assessments and governmental charges and levies (collectively
"Impositions") imposed upon or against the Mortgaged Property or the Rents, or
upon or against the Obligations, or upon or against the interest of Lender in
the Mortgaged Property or the Obligations, except Impositions measured by the
income of Lender. Borrower shall provide evidence of such payment at Lender's
request. Borrower shall keep the Mortgaged Property free and clear of all liens,
encumbrances, easements, covenants, conditions, restrictions and reservations
(collectively "Liens") except those listed on Exhibit A attached hereto (the
"Permitted Encumbrances"). Borrower shall pay or cause to be paid when due all
charges or fees for utilities and services supplied to the Mortgaged Property.
Notwithstanding anything to the contrary contained in this Section, Borrower
shall not be required to pay or discharge any Imposition or Lien so long as
Borrower shall in good faith, and after giving notice to Lender, contest the
same by appropriate legal proceedings. If Borrower contests any Imposition or
Lien against the Mortgaged Property, Borrower shall provide such security to
Lender as Lender shall reasonably require against loss or impairment of
Borrower's ownership of or Lender's lien on the Mortgaged Property and shall in
any event pay such Imposition or Lien before loss or impairment occurs.
SECTION 1.6 ESCROW PAYMENTS. If requested by Lender following a material
adverse change in Borrower's financial condition, Borrower shall deposit with
Lender monthly on the same date as payments are due under the Note the amount
reasonably estimated by Lender to be necessary to enable Lender to pay, at least
five (5) days before they become due, all Impositions against the Mortgaged
Property and the premiums upon all insurance required hereby to be maintained
with respect to the Mortgaged Property. All funds so deposited shall secure the
Obligations. Such deposits shall be held by Lender, or its nominee, in a
non-interest being account and may be commingled with other funds. Such deposits
shall be used to pay such Impositions and insurance premiums when due. Any
excess sums so deposited shall be retained by Lender and shall be applied to pay
said items in the future, unless the Obligations have been paid and performed in
full, in which case all excess sums so paid shall be refunded to Borrower. Upon
the occurrence of an Event of Default, Lender may apply any funds in said
account against the Obligations in such order as Lender may determine.
SECTION 1.7 MAINTENANCE AND REPAIR; COMPLIANCE WITH LAWS. Borrower shall
cause the Mortgaged Property to be operated, maintained and repaired in safe and
good repair, working order and condition, reasonable wear and tear excepted;
shall not commit or permit waste thereof, except as provided in any Loan
Document, shall not remove, demolish or substantially alter the design or
structural character of any Improvements without the prior written consent of
Lender; shall complete or cause to be completed forthwith any Improvements which
are now or may hereafter be under construction upon the Land; shall comply or
cause compliance with all laws, statutes, ordinances and codes, and governmental
rates, regulations and requirements, applicable to the Mortgaged Property or the
manner of using or operating the same, and with any covenants, conditions,
restrictions and reservations affecting the title to the Mortgaged Property, and
with the terms of all insurance policies relating to the Mortgaged Property; and
shall obtain and maintain in full force and effect all consents, permits and
licenses necessary for the use and operation of the Mortgaged Property.
<PAGE>
SECTION 1.8 LEASES
(a) Borrower shall not enter into or amend any Lease without Lender's
prior written consent, and shall furnish to Lender, upon execution, a complete
and fully executed copy of each Lease. Borrower shall provide Lender with a copy
of each proposed Lease requiring the consent of Lender and with any information
requested by Lender regarding the proposed Tenant thereunder. Lender may declare
each Lease to be prior or subordinate to this Mortgage, at Lender's option.
(b) Borrower shall, at its cost and expense, perform each obligation to
be performed by the landlord under each Lease; not borrow against, pledge or
further assign any rents or other payments due thereunder; not permit the
prepayment of any rents or other payments due for more than thirty (30) days in
advance; and not permit any Tenant to assign its Lease or sublet the premises
covered by its Lease, unless required to do so by the terms thereof and then
only if such assignment does not work to relieve the Tenant of any liability for
performance of its obligations thereunder.
(c) If any Tenant shall default under its Lease, Borrower shall, in the
ordinary course of business, exercise sound business judgment with respect to
such default, but may not discount, compromise, forgive or waive claims or
discharge the Tenant from its obligations under the Lease or terminate or accept
a surrender of the Lease without the prior written consent of Lender.
(d) If Borrower fails to perform any obligations of Borrower under any
Lease or if Lender becomes aware of or is notified by any Tenant of a failure on
the part of Borrower to so perform, Lender may, but shall not be obligated to,
without waiving or releasing Borrower from any obligation in this Agreement or
any of the other Loan Documents, remedy such failure, and Borrower agrees to
repay upon demand all sums incurred by Lender in remedying any such failure,
together with interest thereon from the date incurred at the Default Rate (as
defined in the Note).
(e) For purposes of this Mortgage, the following terms shall have the
following meanings:
(i) "LEASE": Any lease or other document or agreement, written or
oral, permitting any Person to use or occupy any part of the Mortgaged Property.
(ii) "PERSON": Any natural person, corporation, partnership,
limited partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
(iii) "TENANT": Any person or party using or occupying any part of
the Mortgaged Property pursuant to a Lease.
<PAGE>
SECTION 1.9 INDEMNITY. Borrower shall indemnify Lender and its directors,
officers, agents and employees (collectively the "Indemnified Parties") against,
and hold the Indemnified Parties harmless from, all losses, damages, suits,
claims, judgments, penalties, fines, liabilities, costs and expenses
(collectively, the "Costs") by reason of, or on account of, or in connection
with the construction, reconstruction or alteration of the Mortgaged Property,
or any accident, injury, death or damage to any person or property occurring in,
on or about the Mortgaged Property or any street, drive, sidewalk, curb or
passageway adjacent thereto; provided that such indemnity shall not apply to
Costs resulting from the gross negligence or intentional misconduct of the
Indemnified Parties. The indemnity contained in this Section shall include costs
of defense of any such claim asserted against an Indemnified Party, including
attorneys' fees. The indemnity contained in this Section shall survive payment
and performance of the Obligations and satisfaction and release of this Mortgage
and any foreclosure thereof or acquisition of title by deed in lieu of
foreclosure.
SECTION 1.10 APPRAISALS. Lender shall have the right from time to time,
but not more often than once during any twelve (12)-month period, to obtain an
appraisal of the Mortgaged Property in form and substance satisfactory to Lender
and prepared by an independent MAI appraiser selected by Lender. Borrower shall
reimburse Lender for the cost incurred for any such appraisal within ten (10)
days following demand therefor by Lender, if Lender has reason to believe that
the value of the Mortgaged Property has declined materially, and such appraisal
determines that the original principal amount of the Note exceeds 65% of the
value of the Mortgaged Property.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties:
SECTION 2.1 OWNERSHIP, LIENS, COMPLIANCE WITH LAWS. Borrower owns the
Mortgaged Property free from all Liens, except the Permitted Encumbrances. All
applicable zoning, environmental, land use, subdivision, building, fire, safety
and health laws, statutes, ordinances, codes, rates, regulations and
requirements affecting the Mortgaged Property permit the current use and
occupancy thereof, and Borrower has obtained all consents, permits and licenses
required for such use. Borrower has examined and is familiar with all applicable
covenants, conditions, restrictions and reservations, and with all applicable
laws, statutes, ordinances, codes and governmental rules, regulations and
requirements affecting the Mortgaged Property, and the Mortgaged Property
complies with all of the foregoing.
SECTION 2.2 USE. The Mortgaged Property is not homestead property nor
is it agricultural property or in agricultural use.
SECTION 2.3 UTILITIES; SERVICES. The Mortgaged Property is serviced by
all necessary public utilities, and all such utilities are operational and have
sufficient capacity. There is no
<PAGE>
contract or agreement providing for services to or maintenance of the Mortgaged
Property which cannot be canceled upon 30 days' or less notice.
ARTICLE III
CASUALTY; CONDEMNATION
SECTION 3.1 CASUALTY, REPAIR, PROOF OF LOSS. If any portion of the
Mortgaged Property shall be damaged or destroyed by any cause (a "Casualty"),
Borrower shall:
(a) give immediate notice to the Lender; and
(b) promptly commence and diligently pursue to completion (in
accordance with plans and specifications approved by Lender) the restoration,
repair and rebuilding of the Mortgaged Property as nearly as possible to its
value, condition and character immediately prior to the Casualty; and
(c) if the Casualty is covered by insurance, immediately make
proof of loss and collect all insurance proceeds, all such proceeds to be
payable to Lender or as Lender shall direct. If an Event of Default shall be in
existence, or if Borrower shall fail to provide notice to Lender of filing proof
of loss, or if Borrower shall not be diligently proceeding, in Lender's
reasonable opinion, to collect such insurance proceeds, then Lender may, but is
not obligated to, make proof of loss, and is authorized, but is not obligated,
to settle any claim with respect thereto, and to collect the proceeds thereof.
Borrower shall not accept any settlement of an insurance claim, the result of
which shall be a payment which is $10,000 or more less than the full amount of
the claim, without the prior written consent of Lender.
SECTION 3.2 USE OF INSURANCE PROCEEDS. Lender shall make the net
insurance proceeds received by it (after reimbursement of Lender's out-of pocket
costs of collecting and disbursing the same) available to Borrower to pay the
cost of restoration, repair and rebuilding of the Mortgaged Property, subject to
the following conditions:
(a) There shall be no Event of Default in existence at the time of
any disbursement of the insurance proceeds.
(b) Lender shall have determined, in its reasonable discretion,
that the cost of restoration, repair and rebuilding is and will be equal to or
less than the amount of insurance proceeds and other funds deposited by Borrower
with Lender.
(c) Lender shall have determined, in its reasonable discretion,
that the restoration, repair and rebuilding can be completed in accordance with
plans and specifications approved by Lender (such approval not to be
unreasonably withheld), in accordance with codes and ordinances, and in
accordance with the terms, and within the time requirements in order to prevent
termination, of any Lease, and in any event not less than six (6) months prior
to the Maturity Date.
<PAGE>
(d) All funds shall be disbursed, at Lender's option, in
accordance with Lender's customary disbursement procedures for construction
loans.
(e) The Casualty shall have occurred more than twelve (12) months
prior to the Maturity Date.
If any of these conditions shall not be satisfied, then Lender shall have the
right to use the insurance proceeds to prepay the Loan in accordance with the
Note. If any insurance proceeds shall remain after completion of the
restoration, repair and rebuilding of the Mortgaged Property, they shall be
disbursed to Borrower, or at the Lender's discretion, used to prepay the Loan in
accordance with the Note.
SECTION 3.3 CONDEMNATION. If any portion of the Mortgaged Property shall
be taken, condemned or acquired pursuant to exercise of the power of eminent
domain or threat thereof (a "Condemnation"), Borrower shall:
(a) give immediate notice thereof to Lender, and send a copy of
each document received by Borrower in connection with the Condemnation to Lender
promptly after receipt; and
(b) diligently pursue any negotiation and prosecute any proceeding
in connection with the Condemnation at Borrower's expense. If an Event of
Default shall be in existence, or if Borrower, in Lender's reasonable opinion,
shall not be diligently negotiating or prosecuting the claim, Lender is
authorized, but not required, to negotiate and prosecute the claim and appear at
any hearing for itself and on behalf of Borrower and to compromise or settle all
compensation for the Condemnation. Lender shall not be liable to Borrower for
any failure by Lender to collect or to exercise diligence in collecting any such
compensation. Borrower shall not compromise or settle any claim resulting from
the Condemnation if such settlement shall result in payment of $10,000 or more
less than Lender's reasonable estimate of the damages therefrom. All awards
shall be paid to Lender.
SECTION 3.4 USE OF CONDEMNATION PROCEEDS. Lender shall make the net
proceeds of any Condemnation received by it (after reimbursement of Lender's
out-of-pocket costs of collecting and disbursing the same) available to Borrower
for restoration, repair and rebuilding of the Mortgaged Property, subject to the
following conditions:
(a) There shall be no Event of Default in existence at the time of
any disbursement of the condemnation proceeds.
(b) Lender shall have determined, in its reasonable discretion,
that the cost of restoration, repair and rebuilding is and will be equal to or
less than the amount of condemnation proceeds and other funds deposited by
Borrower with Lender.
(e) Lender shall have determined, in its reasonable discretion,
that the restoration, repair and rebuilding can be completed in accordance with
plans and specifications
<PAGE>
approved by Tender (such approval not to be unreasonably withheld), in
accordance with codes and ordinances, and in accordance with the terms, and
within the time requirements in order to prevent termination, of any Lease,
and in any event not less than six (6) months prior to the Maturity Date.
(d) All funds shall be disbursed, at Lender's option, in
accordance with lender's customary disbursement procedures for construction
loans.
(e) The Condemnation shall have occurred more than twelve (12)
months prior to the Maturity Date.
If any of these conditions shall not be satisfied, then Lender shall have the
right to use the condemnation proceeds to prepay the Loan in accordance with the
Note. If any condemnation proceeds shall remain after completion of the
restoration, repair and rebuilding of the Mortgaged property, they shall be
disbursed to Borrower, or at Lender's discretion, used to prepay the Loan in
accordance with the Note.
ARTICLE IV
DEFAULTS AND REMEDIES
SECTION 4.1 EVENTS OF DEFAULT. An Event of Default, as defined in the
Loan Agreement, shall constitute an Event of Default hereunder.
SECTION 4.2 REMEDIES. Upon the occurrence of an Event of Default
described in Sections 6.1 (f), (g) or (h) of the Loan Agreement, all of the
Obligations shall be accelerated and become immediately due and payable without
notice or declaration to Borrower. Upon the occurrence of one or more other
Events of Default, all of the Obligations, at the option of Lender, shall be
accelerated and become immediately due and payable upon notice to Borrower. In
either event, the Obligations shall be due and payable without presentment,
demand or further notice of any kind. Lender shall have the right to proceed to
protect and enforce its rights by one or more of the following remedies:
(a) LENDER SHALL HAVE THE RIGHT TO BRING SUIT either for damages,
for specific performance of any agreement contained in any Loan Document, for
the foreclosure of this Mortgage, or for the enforcement of any other
appropriate legal or equitable remedy.
(b) LENDER SHALL HAVE THE RIGHT TO SELL THE MORTGAGED PROPERTY AT
PUBLIC AUCTION AND CONVEY THE SAME TO THE PURCHASER IN FEE SIMPLE, as provided
by law, Borrower to remain liable for any deficiency. Said sale may be as one
tract or otherwise, at the sole option of Lender. In the event of any sale of
the Mortgaged Property pursuant to any judgment or decree of any court or at
public auction or otherwise in connection with the enforcement of any of the
terms of this Mortgage, Lender, its successors or assigns, may become the
purchaser, and for the purpose of making settlement for or
<PAGE>
payment of the purchase price, shall be entitled to deliver over and use the
Note and any claims for interest accrued and unpaid thereon, together with all
other sums, with interest, advanced or secured hereby and unpaid hereunder, in
order that there may be credited as paid on the purchase price the total amount
of the Obligations then due, including principal and interest on the Note and
all other sums, with interest, advanced or secured hereby and unpaid hereunder
or under any of the other Loan Documents.
(c) LENDER SHALL HAVE THE RIGHT TO OBTAIN THE APPOINTMENT OF A
RECEIVER at any time after the occurrence of an Event of Default. Lender may
apply for the appointment of a receiver to the district court for the county
where the Mortgaged Property or any part thereof is located, by an action
separate from any foreclosure of this Mortgage pursuant to Minnesota Statutes
Chapter 580 or pursuant to Minnesota Statutes Chapter 581, or as a part of
the foreclosure action under said Chapter 581 (it being agreed that the
existence of a foreclosure pursuant to said Chapter 580 or a foreclosure
action pursuant to said Chapter 581 is not a prerequisite to any action for a
receiver hereunder). Lender shall be entitled to the appointment of a
receiver without regard to waste, adequacy of the security or solvency of
Borrower. The receiver, who shall be an experienced property manager, shall
collect (until the Obligations are fully paid and satisfied and, in the case
of a foreclosure sale, during the entire redemption period) the Rents, and
shall manage the Mortgaged Property, execute Leases within or beyond the
period of the receivership if approved by the court and apply all rents,
profits and other income collected by him in the following order:
(i) to the payment of all reasonable fees of the receiver,
if any, approved by the court;
(ii) to the repayment of tenant security deposits, with
interest thereon, required by Minnesota Statutes, Section 504.20;
(iii) to the payment when due of delinquent or current real
estate taxes or special assessments with respect to the Mortgaged Property,
or the periodic escrow for the payment of the same;
(iv) to the payment when due of premiums for insurance of
the type required by this Mortgage, or the periodic escrow for the payment of
the same;
(v) to the payment for the keeping of the covenants
required of a lessor or licensor pursuant to Minnesota Statutes, Section
504.18, subdivision 1;
(vi) to the payment of all expenses for normal maintenance
of the Mortgaged Property; and
(vii) the balance to Lender (a) if received prior to the
commencement of a foreclosure, to be applied to the Obligations, in such
order as Lender may elect and (b) if received after the commencement of a
foreclosure, to be applied to the amount required to be paid to effect a
reinstatement prior to foreclosure sale, or, after a foreclosure sale to any
<PAGE>
deficiency and thereafter to the amount required to be paid to effect a
redemption, all pursuant to Minnesota Statutes, Sections 580.30, 580.23 and
581.10, with any excess to be paid to Borrower. Provided, that if this
Mortgage is not reinstated nor the Mortgaged Property redeemed as provided by
said Sections 580.30, 580.23 or 581.10, the entire amount paid to Lender
pursuant hereto shall be the property of Lender together with all or any part
of the Mortgaged Property acquired through foreclosure.
Lender shall have the right, at any time and without limitation, as
provided in Minnesota Statutes, Section 582.03, to advance money to the receiver
to pay any part or all of the items which the receiver should otherwise pay if
cash were available from the Mortgaged Property and sums so advanced, with
interest at the Default Rate set forth in the Note, shall be secured hereby, or
if advanced during the period of redemption shall be part of the sum required to
be paid to redeem from the sale.
(d) LENDER SHALL HAVE THE RIGHT TO COLLECT THE RENTS from the Mortgaged
Property and apply the same in the manner hereinbefore provided with respect to
a receiver. For that purpose, Lender may enter and take possession of the
Mortgaged Property and manage and operate the same and take any when which, in
Lender's judgment, is necessary or proper to collect the Rents and to conserve
the value of the Mortgaged Property. Lender may also take possession of, and for
these purposes use, any and all of the Personal Property. The expense (including
any receiver's fees, attorneys' fees, costs and agent's compensation) incurred
pursuant to the powers herein contained shall be secured by this Mortgage.
Lender shall not be liable to account to Borrower for any action taken pursuant
hereto other than to account for any Rents actually received by Lender.
Enforcement hereof shall not cause Lender to be deemed a mortgagee in possession
unless Lender elects in writing to be a mortgagee in possession.
(e) LENDER SHALL HAVE THE RIGHT TO ENTER AND TAKE POSSESSION of the
Mortgaged Property and manage and operate the same in conformity with all
applicable laws and take any action which, in Lender's judgment, is necessary or
proper to conserve the value of the Mortgaged Property.
(f) LENDER SHALL HAVE ALL OF THE RIGHTS AND REMEDIES PROVIDED IN THE
UNIFORM COMMERCIAL CODE including the right to proceed under the Uniform
Commercial Code provisions governing default as to any Personal Property
separately from the real estate included within the Mortgaged Property, or to
proceed as to all of the Mortgaged Property in accordance with its rights and
remedies in respect of said real estate. If Lender should elect to proceed
separately as to such Personal Property, Borrower agrees to make such Personal
Property available to Lender at a place or places acceptable to Lender, and if
any notification of intended disposition of any of such Personal Property is
required by law, such notification shall be deemed reasonably and properly given
if given at least ten (10) days before such disposition in the manner
hereinafter provided.
(g) LENDER SHALL HAVE THE RIGHT TO FILE PROOF OF CLAIM and other
documents as may be necessary or advisable in order to have its claims allowed
in any receivership, insolvency, bankruptcy, reorganization, arrangement,
adjustment, composition or
<PAGE>
other judicial proceedings affecting Borrower, its creditors or its property,
for the entire amount due and payable by Borrower in respect of the Obligations
at the date of the institution of such proceedings, and for any additional
amounts which may become due and payable by Borrower after such date.
Each remedy herein specifically given shall be in addition to every other right
now or hereafter given or existing at law or in equity, and each and every right
may be exercised from time to time and as often and in such order as may be
deemed expedient by Lender and the exercise or the beginning of the exercise of
one right shall not be deemed a waiver of the right to exercise at the same time
or thereafter any other right. Lender shall have all rights and remedies
available under the law in effect now and/or at the time such rights and
remedies are sought to be enforced, whether or not they are available under the
law in effect on the date hereof.
SECTION 4.3 EXPENSES OF EXERCISING RIGHTS POWERS AND REMEDIES. The
reasonable expenses (including any receiver's fees, attorneys' fees, appraisers'
fees, environmental engineers' and/or consultants' fees, costs incurred for
documentary and expert evidence, stenographers' charges, publication costs,
costs (which may be estimated as to items to be expended after entry of the
decree of foreclosure) of procuring all abstracts of title, continuations of
abstracts of title, title searches and examinations, title insurance policies
and commitments and extensions therefor, Torrens duplicate certificates of
title, UCC and chattel lien searches, and similar data and assurances with
respect to title as Lender may deem reasonably necessary either to prosecute any
foreclosure action or to evidence to bidders at any sale which may be had
pursuant to any foreclosure decree the true condition of the title to or the
value of the Mortgaged Property, and agent's compensation) incurred by Lender
after the occurrence of any Event of Default and/or in pursuing the rights,
powers and remedies contained in this Mortgage shall be immediately due and
payable by Borrower, with interest thereon from the date incurred at the Default
Rate set forth in the Note, and shall be added to the indebtedness secured by
this Mortgage.
Section 4.4 RESTORATION OF POSITION. In case Lender shall have proceeded
toenforce any right under this Mortgage by foreclosure, sale, entry or
otherwise, and such proceedings shall have been discontinued or abandoned for
any reason or shall have been determined adversely, then, and in every such
case, Borrower and Lender shall be restored to their former positions and rights
hereunder with respect to the Mortgaged Property subject to the lien hereof.
SECTION 4.5 MARSHALLING. Borrower, for itself and on behalf of all
Persons which may claim under Borrower, hereby waives all requirements of law
relating to the marshalling of assets, if any, which would be applicable in
connection with the enforcement by Lender of its remedies for an Event of
Default hereunder, absent this waiver. Lender shall not be required to sell or
realize upon any portion of the Mortgaged Property before selling or realizing
upon any other portion thereof.
SECTION 4.6 WAIVERS. No waiver of any provision hereof shall be implied
from the conduct of the parties. Any such waiver must be in writing and must be
signed by the party
<PAGE>
against which such waiver is sought to be enforced. The waiver or release of any
breach of the provisions set forth herein to be kept and performed shall not be
a waiver or release of any preceding or subsequent breach of the same or any
other provision. No receipt of partial payment after acceleration of any of the
Obligations shall waive the acceleration. No payment by Borrower or receipt by
Lender of a lesser amount than the full amount secured hereby shall be deemed to
be other than on account of the sums due and payable hereunder, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, and Lender may accept any check or
payment without prejudice to Lender's right to recover the balance of such sums
or to pursue any other remedy provided in this Mortgage, The consent by lender
to any matter or event requiring such consent shall not constitute a waiver of
the necessity for such consent to any subsequent matter or event.
SECTION 4.7 LENDER'S RIGHT TO CURE DEFAULTS. If Borrower shall fail to
comply with any of the terms of the Loan Documents with respect to the
procuring of insurance, the payment of taxes, assessments and other charges,
the keeping of the Mortgaged Property in repair, or any other term contained
herein or in any of the other Loan Documents, Lender may make advances to
perform the same without releasing Borrower from any of the Obligations.
Borrower agrees to repay upon demand all sums so advanced and all sums
expended by Lender in connection with such performance, including without
limitation attorneys' fees, with interest at the Default Rate set forth in
the Note from the dates such advances are made, and all sums so advanced
and/or expenses incurred, with interest, shall be secured hereby, but no such
advance and/or incurring of expense by Lender, shall be deemed to relieve
Borrower from any default hereunder or under any of the other Loan Documents,
or to release Borrower from any of the Obligations.
SECTION 4.8 SUITS AND PROCEEDINGS. Lender shall have the power and
authority, upon prior notice to Borrower, to institute and maintain any suits
and proceedings as Lender may deem advisable to (i) prevent any impairment of
the Mortgaged Property by any act which may be unlawful or by any violation of
this Mortgage, (ii) preserve or protect its interest in the Mortgaged Property,
or (iii) restrain the enforcement of or compliance with any legislation or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid, if, in the sole opinion of Lender, the enforcement of or compliance
with such enactment, rule or order might impair the security hereunder or be
prejudicial to Lender's interest.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 BINDING EFFECT; SURVIVAL; NUMBER; GENDER. This Mortgage shall
be binding on and inure to the benefit of the parties hereto, and their
respective heirs, legal representatives, successors and assigns. All agreements,
representations and warranties contained herein or otherwise heretofore made by
Borrower to Lender shall survive the execution, delivery and foreclosure hereof.
The singular of all terms used herein shall include
<PAGE>
the plural, the plural shall include the singular, and the use of any gender
herein shall include all other genders, where the context so requires or
permits.
SECTION 5.2 SEVERABILITY. The unenforceability or invalidity of any
provision of this Mortgage as to any person or circumstance shall not render
that provision unenforceable or invalid as to any other person or
circumstance.
SECTION 5.3 NOTICES. Any notice or other communication to any party in
connection with this Mortgage shall be in writing and shall be sent by manual
delivery, telegram, telex, facsimile transmission, overnight courier or United
States mail (postage prepaid) addressed to such party at the address specified
below, or at such other address as such party shall have specified to the other
party hereto in writing. All periods of notice shall be measured from thedate of
delivery thereof if manually delivered, from the date of sending thereof if sent
bytelegram, telex or facsimile transmission, from the first Business Day (as
defined in the Loan Agreement) after the date of sending if sent by overnight
courier, or from four days after the date of mailing if mailed. Notices shall be
given to or made upon the respective parties hereto at their respective
addresses set forth below:
If to Borrower: WSI Industries,
2605 West Wayzata Boulevard
Long Lake, Minnesota 55356
Attn: President
Telecopy No. (612) 473-2945
If to Lender: U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402-4302
Attn: Mr. Len Ramotar
Telecopy No. (612) 973-0829
Either party may change its address for notices by a notice given not less than
five (5) Business Days prior to the effective date of the change.
SECTION 5.4 APPLICABLE LAW. This Mortgage and the other Loan Documents
shall be construed and enforceable in accordance with, and be governed by, the
laws of the State of Minnesota, without giving effect to conflict of laws or
principles thereof, but giving effect to federal laws of the United States
applicable to national banks. Whenever possible, each provision of this Mortgage
and any other statement, instrument or transaction contemplated hereby or
relating hereto, shall be interpreted in such manner as to be effective and
valid under such applicable law, but, if any provision of this Mortgage or any
other statement, instrument or transaction contemplated hereby or relating
hereto shall be held to be prohibited or invalid under such applicable law, such
provision shall be ineffective only to the extent of such prohibition or
<PAGE>
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Mortgage or any other statement, instrument or
transaction contemplated hereby or relating hereto.
SECTION 5.5 WAIVER OF JURY TRIAL. Borrower and Lender each irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Mortgage or any of the other Loan Documents or the
transactions contemplated hereby or thereby.
SECTION 5.6 EFFECT. This Mortgage is in addition and not in substitution
for any other guarantees, covenants, obligations or other rights now or
hereafter hold by Lender from any other person or entity in connection with the
Obligations.
SECTION 5.7 ASSIGNABILITY. Lender shall have the right to assign this
Mortgage, in whole or in part, or sell participation interests herein, to any
person obtaining an interest in the Obligations.
SECTION 5.8 HEADINGS. Headings of the Sections of this Mortgage are
inserted for convenience only and shall not be deemed to constitute a part
hereof.
SECTION 5.9 FIXTURE FILING. This instrument shall be deemed to be a
Fixture Filing within the meaning of the Minnesota Uniform Commercial Code, and
for such purpose, the following information is given:
(a) Name and address of Debtor: WSI Industries, Inc.
2605 West Wayzata Boulevard
Long Lake, Minnesota 55356
Federal Tax I.D. No.: 41-0691607
(b) Name and address of
Secured Party: U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402-4302
(c) Description of the types (or
items) of property covered
by this Fixture Filing: See granting clause on pages 2
and 3 hereof.
(d) Description of real estate
to which the collateral is
attached or upon which it
is or will be located: See Exhibit A hereto.
Some of the above-described collateral is or is to become fixtures upon the
above-described real estate, and this Fixture Filing is to be filed for record
in the public real estate records.
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Mortgage as of the date
first written above.
WSI INDUSTRIES, INC.
By: /s/ Michael J. Pudil
--------------------------------
Name: Michael J. Pudil
-------------------------------
Title: President
------------------------------
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION (Granting Clause A)
Parcel 1: That part of the South half of Northeast Quarter of
Section 33, Township 118, Range 23, which lies East of the
East line of the plat of Orono Industrial Park, and its
extensions and West of the West line of the plat of Long
Lake West Industrial Park and its extensions, Hennepin
County, Minnesota.
Parcel 2: Lots 1 through 12, inclusive, Block 1, Orono Industrial
Park, and all of Lincoln Drive, vacated, as shown on the
plat of said Orono Industrial Park, Hennepin County,
Minnesota.
(Torrens Property, evidenced by Certificate of Title No. 819735)
PERMITTED ENCUMBRANCES (Section 2.1)
Real estate taxes not yet due and installments of special assessments payable
therewith.
1. Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Filing dated December 10, 1993, filed December 30, 1993, as Document
No. 6210390 (abstract) and filed January 7, 1994, as Document No. 2463274
(Torrens), executed by Washington Scientific Industries, Inc., a Minnesota
corporation, to FBS Business Finance Corporation, a national banking
association, to secure $1,254,000.00.
Amended by Amendment to Mortgage and Extension Agreement dated April 1,
1994, filed September 28, 1994, as Document No. 6345512 (abstract) and 2554631
(Torrens).
Amended by Amendment to Mortgage and Extension Agreement dated February
28, 1995, filed February 28, 1995, as Document No. 6402162 (abstract) and
2592164 (Torrens).
Amended by Amendment to Mortgage and Extension Agreement dated March 31,
1995, filed May 15, 1995, as Document No. 6427082 (abstract) and 2608260
(Torrens).
Amended by Fourth Amendment to Mortgage and Extension Agreement dated
April 30, 1997, filed August 29, 1997, as Document No. 2840001.
Assigned to U.S. Bank National Association, a national banking
association, by Assignment of Mortgage dated January 2, 1998, filed January 7,
1998, as Document No. 3016787.
<PAGE>
2. Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Financing Statement dated December 10, 1993, filed January 19,
1994, as Document No. 6220671 (abstract), and filed January 24, 1994,
as Document No. 2470147 (Torrens), executed by Washington Scientific
Industries, Inc., a Minnesota corporation, to Northwestern National
Life Insurance Company, a Minnesota corporation, Farm Bureau Life
Insurance Company of Michigan, a Michigan corporation, and FB Annuity
Company, a Michigan corporation, to secure $580,288.00.
Assigned to FBS Business Finance Corporation, a Delaware corporation,
by Assignment of Mortgage dated March 31, 1995, filed May 1, 1995, as Document
No. 2605592.
Amended by Consolidation of and Amendment to Mortgages dated March 31,
1995, filed May 1, 1995, as Document No. 2605594.
Assignment to U.S. Bank National Association, a national banking
association, by Assignment of Consolidated Mortgages dated January 2, 1998,
filed Much 30, 1998, as Document No. 2902741, and filed September 30,1998, as
Document No. 3065225.
Amended by Amendment to Mortgage and Extension Agreement dated
April 8, 1998, filed April 14, 1998, as Document No. 3003909.
3. Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Financing Statement dated December 10, 1993, filed January 19,
1994, as Document No. 6220672 (abstract), and filed January 24, 1994,
as Document No. 2470148 (Torrens), executed by Washington Scientific
Industries, Inc., a Minnesota corporation, to Northwestern National
Life Insurance Company, a Minnesota corporation, and Northern Life
Insurance Company, a Washington corporation, in the amount of
$1,300,712.00.
Assigned to FBS Business Finance Corporation, a Delaware corporation,
by Assignment of Mortgage dated March 31, 1995, filed May 1, 1995, as Document
No. 2605593.
Amended by Consolidation of and Amendment to Mortgages dated March 31,
1995, filed May 1, 1995, as Document No. 2605594.
Assigned to U.S. Bank National Association, a national banking
association, by Assignment of Consolidated Mortgages dated January 2, 1998,
filed March 30, 1998, as Document No. 2902741, and filed September 30, 1998, as
Document No. 3065225.
Amended by Amendment to Mortgage and Extension Agreement dated April 8,
1998, filed April 14, 1998, as Document No. 3003909.
4. Real Property Waiver dated October 28, 1994, filed January 13, 1995,
as Document No. 2582652, executed by FBS Business Finance, to CLC
Equipment Company.
<PAGE>
5. Real Property Waiver dated November 3, 1994, filed January 13, 1995,
as Document No. 2582653, executed by Northwestern National Life
Insurance Company and Northern Life Insurance Company to CLC Equipment
Company.
6. Easements for utilities and drainage as shown on the recorded plat.
(a) Terms and conditions of Conditional Use Permit filed December 27,
1988, as Document No. 5491246.
(b) Easement for ingress, egress and utility in favor of U.S. West
Communications, Inc. as created in document dated April 26, 1994,
filed May 9, 1994, as Document No. 2512678.
(c) Easement for utilities and drainage in favor of City of Orono as
created in document dated December 31, 1994, filed January 18, 1995,
as Document No. 2583345.
(d) Easement for highway purposes for US Highway 12 over part of the
above-described land lying within Minnesota Department of
Transportation Right of Way Plat No. 27-55 filed August 23, 1994, as
Document No. 6329982 (abstract), provided, however, that the right to
erect and maintain snow fences has been released as evidenced by Quick
Claim Deed recorded as Document No. 6311743 (abstract) as to Parcel 1
hereinbefore described.
(e) Easement in favor of City of Orono for underground utility purposes,
over the East 20 feet of the above-described land as created by
easement filed as Document No. 3736406 (abstract) as to Parcel 1
hereinbefore described.
(f) Easement rights to use the drainage ditch along the Easterly boundary
of property in favor of the owners, encumbrancers and occupants of
Lots 4, 5 and 6 of Long Lake West Industrial Park as determined in
Torrens Case No. 19977. (See Court Order Document No. 2571925) as to
Parcel 1 hereinbefore described.
<PAGE>
EXHIBIT B
(Insurance Requirements)
I. PROPERTY INSURANCE
As to Improvements while under construction:
An ORIGINAL (or evidence acceptable to Lender of) Builder's Risk
"All-Risk", Completed Value (Non-Reporting) Form POLICY naming Borrower
as an insured, and covering the interests of all contractors (of all
tiers) in the Mortgaged Property, reflecting coverage of 100% of the
insurable replacement cost, and written by a carrier approved by Lender
with a current A.M. Best Company rating of at least A: VII (which is
authorized to do business in the State of Minnesota), that includes:
--- Lender's Loss Payable Endorsement naming U.S. Bank National
Association as Mortgagee
--- 30-day notice to Lender in the event of cancellation or
non-renewal by either party or material adverse change
--- Replacement Cost Measure of Recovery
--- Stipulated Value/Agreed Amount Endorsement (No Coinsurance)
--- Coverage for Foundations, Off-site (Unscheduled and Temporary
Locations), Transit, Testing, Flood, Earthquake, Collapse, and
Boiler and Machinery/Mechanical and Electrical Breakdown, in such
amounts as Lender and Borrower mutually agree is appropriate
--- Coverage for indirect loss exposures (customarily referred to as
"soft cost" exposures), "Contingent Liability from Operation of
Building Laws" coverage,"Demolition Costs" coverage, "Increased
Cost of Construction" coverage, and "Increased Time to Rebuild"
coverage, with such additional limits for such coverages as Lender
may reasonably require
--- Policy to permit partial occupancy
--- No insurer subrogation action or recovery against any party whose
interests are covered under the policy
--- Deductible not to exceed $5,000
--- Coverage to become effective upon the date of the Notice to
Proceed, the date of site mobilization, or the start of any
shipment of materials, machinery or equipment to the site,
whichever is earlier, and to remain in effect until replaced by
the permanent All Risk Property Insurance described below, or
until such other time as may be mutually agreed upon by Lender
and Borrower
<PAGE>
As to completed Improvements:
An ORIGINAL (or evidence acceptable to Lender of) Special Form (or
so-called All Risk) Hazard Insurance POLICY naming Borrower as an
insured, reflecting coverage of 100% of the replacement cost, and written
by a carrier approved by Lender with a current A.M. Best Company rating
of at least A: Vll (which is authorized to do business in the State of
Minnesota), that includes:
--- Lender's Loss Payable Endorsement naming U.S. Bank National
Association as Mortgagee
--- 30-day notice to Lender in the event of cancellation or
non-renewal by either party or material adverse change
--- Replacement Cost Measure of Recovery
--- Stipulated Value/Agreed Amount Endorsement (No Coinsurance)
--- Boiler and Machinery Coverage (including business income, extra
expense coverage)
--- Flood Insurance
--- One (1) year's business interruption, leasehold interest and/or
rent loss insurance in an amount acceptable to Lender
--- Extra expense coverage in an amount acceptable to Lender
--- "Contingent Liability from Operation of Building Laws" coverage,
"Demolition Costs" coverage, "Increased Cost of Construction"
coverage, and "Increased Time to Rebuild" Coverage, with such
additional limits for such coverages as Lender may reasonably
require
--- No exclusion for "Collapse"
--- Earthquake Coverage
--- Deductible not to exceed $5,000
II. LIABILITY INSURANCE
An ORIGINAL (or evidence acceptable to Lender of) Commercial General Liability
Insurance POLICY (Insurance Services Offices policy form title) naming Borrower
as an insured, providing coverage on an "occurrence" rather than a "claims made"
basis, and written by a carrier approved by Lender with a current A.M. Best
Company rating of at least A: VII (which is authorized to do business in the
State of Minnesota), that includes:
--- Combined general liability policy limit of at least $2,000,000.00
each occurrence, applying to liability for Bodily Injury, Personal
Injury and Property Damage, which combined limit may be satisfied
by the limit afforded under the Commercial General Liability
Policy, or by such Policy in combination with the limits afforded
by Umbrella or Excess Liability Policy (or policies); provided,
that the coverage afforded under any such Umbrella or Excess
Liability Policy is at least as broad in all material respects as
that afforded by the underlying Commercial General Liability
Policy
<PAGE>
--- Coverage for Bodily Injury, Property Damage, Personal Injury,
Contractual Liability, Independent Contractors and
Products-Completed Operations Liability
--- Automobile Liability insurance covering liability for Bodily
Injury and Property Damage arising out of the ownership, use,
maintenance or operation of all owned, non-owned and hired
automobiles and other motor vehicles utilized by Borrower in
connection with the Mortgaged Property, which coverage may be
provided under a separate policy
--- Dram shop coverage if liquor is sold or served at or in the
Mortgaged Property, which coverage may be provided under a
separate policy Deductible not to exceed $5,000
--- Additional Insured Endorsement naming U.S. Bank National
Association and a Severability of Interest provision
--- 30-day notice to Lender in the event of cancellation or
non-renewal by either party or material adverse change
II. WORKER'S COMPENSATION
An ORIGINAL CERTIFICATE of Worker's Compensation coverage in the
statutory amount, naming Borrower as an insured, written by a carrier approved
by Lender.
<PAGE>
EXHIBIT 10.1
LEASE
THIS LEASE is made as of August 6, 1999, by and between WILLIAM D. BOWMAN
AND MARY JO BOWMAN, husband and wife ("Landlord") and BOWMAN TOOL & MACHINING,
INC., a Minnesota corporation ("Tenant").
RECITALS:
Landlord is the purchaser under a Contract for Deed dated January 23, 1984
of (a) certain real estate located at 1310 Valleyhigh Drive Northwest,
Rochester, Minnesota 55901, as legally described on Exhibit A (the "Land"); (b)
the approximately thirty eight thousand (38,000) 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, one hundred percent (100%) of the capital
stock of Tenant has been purchased from William D. Bowman 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.
<PAGE>
1.3. UTILITIES. All utilities required for the current operation of
the improvements on the Premises are installed and operating and Landlord
has not 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 approximately twelve
(12) months commencing on August 6, 1999 ("Commencement Date") and terminating
August 1, 2000. 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 six
(6) consecutive periods of six (6) months 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 ninety (90) 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 $120,000.00,
payable in equal monthly installments of $10,000.00, payable in advance, on the
first day of each month.
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.
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; provided, however, taxes payable in the year in which this
Lease terminates shall be prorated to the date of such termination so that
Tenant shall only be responsible for the taxes that relate to its occupancy of
the Premises. Any over-payment of taxes by the Tenant shall be reimbursed by
Landlord or shall reduce the final payment of Base Rent.
<PAGE>
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
non-structural portions of the Premises and all equipment in or on the
Premises, specifically including without limitation, electrical, plumbing,
and HVAC systems, as well as maintain the parking area, which includes snow
removal and lawn maintenance.
7.2 LANDLORD'S OBLIGATIONS. Except as provided in Section 7.1,
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 maintain,
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.
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 the environmental condition of the
Premises prior to the commencement of the Term of this Lease.
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 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
<PAGE>
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. The policy required by the
foregoing sentence shall name Landlord as an additional insured and loss payee.
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 $3,000,000 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 should be substantially destroyed (which,
as used herein, means destruction or damage which would cost in excess of
$200,000 to repair or rebuild) by fire or other casualty, Landlord may, at
its option, terminate this Lease by giving written notice thereof to the
Tenant within thirty (30) days after such casualty. In such event, the Base
Rent shall be apportioned to and shall cease as of the date of such
casualty and any prepaid Base Rent shall be refunded. In the event Landlord
does not exercise this option or if the Premises are not substantially
destroyed (as defined above), Landlord agrees, with reasonable dispatch, 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.
<PAGE>
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 forty-five (45) 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, 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 shall be paid by
the Tenant on the day when rent shall next become payable, or (b) terminating
<PAGE>
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 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
<PAGE>
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, to the extent Tenant is eligible, 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 fifty percent (50%) ownership
interest.
<PAGE>
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: William D. Bowman and Mary Jo Bowman
172 River Bluffs Lane Northwest
Rochester, MN 55901
To Tenant: Bowman Tool & Machining, Inc.
c/o WSI Industries, Inc.
2605 West Wayzata Boulevard
Long Lake, MN 55356
Attention: Michael J. Pudil
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.
<PAGE>
IN AGREEMENT, the parties have executed this Lease as of the day and year
first above written.
LANDLORD: TENANT:
BOWMAN TOOL & MACHINING, INC.
/s/ William D. Bowman By /s/ Michael J. Pudil
- ------------------------------ ---------------------------------
William D. Bowman Its: President
-----------------------------
/s/ Mary Jo Bowman
- ------------------------------
Mary Jo Bowman
<PAGE>
EXHIBIT 10.2
NON-COMPETE AGREEMENT
DATE: August 6, 1999
PARTIES: Bowman Tool & Machining, Inc.,
a Minnesota corporation ("Company")
William D. Bowman ("Bowman")
RECITALS
A. Bowman 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. ("WSI") as of the date hereof.
B. The Company and Bowman acknowledge that the Company would be
irreparably harmed in the event Bowman competed with the Company during the
term of this Agreement.
C. The Company and Bowman 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 August 1, 2004.
2. During the term of this Agreement, Bowman 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, other than family members for
a business which does not otherwise violate this Agreement. In consideration of
Bowman's agreements under this Section 2, the Company shall pay Bowman a total
of $1,000,000 payable $50,000 per quarter on the first day of each November,
February, May and August, beginning November 1, 1999, until paid in full.
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
<PAGE>
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 Bowman 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 and WSI shall have the right to offset any amounts due
hereunder for any and all liabilities, obligations or claims the Company or WSI
may have against Bowman as provided in Section 5.5 of the Stock Purchase
Agreement dated this date between Bowman and WSI.
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 Bowman
hereunder are personal and may not be assigned or transferred except as may be
agreed to in writing by the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement the date and
year first above written.
BOWMAN TOOL & MACHINING, INC.
By: /s/ Michael J. Pudil
----------------------------------------
Its: President
----------------------------------------
/s/ William D. Bowman
----------------------------------------
William D. Bowman
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of August 6, 1999, by and
between WILLIAM D. BOWMAN ("Employee") and BOWMAN TOOL & MACHINING, INC., a
Minnesota corporation (the "Company").
WITNESSETH:
In consideration of the covenants and agreements herein set forth and of
the mutual benefits accruing to the Company and to Employee from the
relationship to be established between the parties by the terms of this
Agreement, the Company and Employee agree as follows:
1. EMPLOYMENT.
(a) The Company hereby employs Employee, and Employee does hereby
accept such employment, all subject to the terms and provisions of this
Agreement. Employee shall endeavor in good faith to carry out his duties
efficiently and in a manner designed to maximize profitability.
(b) During the Initial Term, Employee agrees to devote his entire
working time, attention, and energies on a full-time basis to the business and
affairs of the Company and such other affiliates of the Company as may from time
to time exist.
(c) During the Initial Term, Employee will perform all duties, comply
with all instructions, policies and objectives as are reasonably related to the
business of the Company.
(d) During the Consulting Term (as such term is defined in Paragraph
2(a), below), Employee will serve as a consultant and not as an employee.
Employee agrees to devote such amount of time, attention, and energies during
the Consulting Term as may be required to properly complete all projects
reasonably assigned to him, taking into account his background, experience and
expertise. The extent of Employee's activities during the Consulting Term, and
the amount of time he will be required to devote to such activities, will be
determined by the Company and Employee by mutual agreement, it being understood
that Employee will be expected to devote 50 days per year to his duties during
the Consulting Term. Employee's duties during the Consulting Term will consist
of special projects assigned by the Company. In performing his duties as a
consultant, Employee will not be required to perform work on-site, but shall be
allowed to perform such work by telephone, e-mail or other medium to the extent
feasible.
<PAGE>
(e) For purposes of this Agreement, the Initial Term and the
Consulting Term are collectively referred to as the "Term."
2. TERM.
(a) Employee's employment by the Company on a full time basis will
commence on the date hereof and will, unless earlier terminated hereunder, end
on August 1, 2000 (the "Initial Term"). Employee's retention by the Company as
a consultant will commence on August 1, 2000 and will, unless earlier terminated
hereunder, end on July 31, 2004 (the "Consulting Term").
(b) During the Initial Term, Employee's employment by the Company
hereunder may be terminated at any time, whether or not prior to the end of the
Initial Term, as follows:
(i) At the option of the Company, effective immediately upon
written notice to Employee, in the event Employee commits a material
violation of any of the provisions of this Agreement, resigns or purports
to resign unless there exists Good Reason (as such term is defined in
clause (iii) below), commits a violation of the Non-Compete Agreement
between Employee and the Company of this date, commits an act of
dishonesty involving the Company, or engages in gross or willful
misconduct during the Initial Term (such as, by way of example and not by
way of limitation, sexual harassment of an employee, or refusal or
willful failure to carry out duties) (any of the foregoing in this clause
(i) being hereinafter referred to as "Cause"). If the Company believes
that Employee has engaged or is engaging in conduct which constitutes
Cause, and if the situation is of such a nature that it can be rectified,
the Company will so notify Employee in writing and Employee will have a
period of thirty (30) days thereafter within which to rectify the
situation. For example, an act of sexual harassment would not be of such
a nature that it can be rectified. For purposes hereof, a situation will
be deemed to have been rectified only if all of the consequences of the
conduct in question are fully rectified and the conduct is not repeated.
(ii) Immediately upon Employee's death or Disability (as such
term is defined in subparagraph (c), below).
(iii) At the option of Employee during the Initial Term,
effective upon two (2) weeks prior written notice to the Company, in the
event the Company commits a material violation of any of the provisions
hereof which is not cured within thirty (30) days after written notice
thereof ("Good Reason"). For purposes hereof, the Company will not be
deemed to have committed a material violation of a provision of this
Agreement requiring the payment of money to Employee so long as the
amount in question is and remains the subject of a BONA FIDE dispute and
the Company deposits the disputed funds in an escrow account pending
resolution of the dispute. If Employee believes that Good Reason exists
for resigning and so notifies the Company in writing, and if the Company
disputes such
<PAGE>
claim, the parties shall resolve the dispute by binding arbitration to be
conducted before a single arbitrator in Minneapolis, Minnesota accordance
with the rules of the American Arbitration Association then in effect for
commercial arbitrations. The parties shall select the arbitrator by
mutual agreement or, if they are unable to agree, each shall select an
arbitrator and the two arbitrators so selected shall select a third
arbitrator who shall conduct the arbitration. The arbitrator may, in his
discretion, allow reasonable discovery prior to the hearing and shall
have discretion to award costs (including his fees) and attorneys fees to
the prevailing party if, and to the extent, he deems such to be just and
equitable. If any funds deposited in escrow hereunder are distributed to
Employee as a result of the arbitrator's decision, Employee shall also
receive interest on the funds so distributed at the rate earned in the
escrow.
(c) For purposes hereof, Employee will be deemed to become Disabled if
Employee suffers an accident, illness or condition which, in the good faith
judgment of a reputable, qualified physician selected by the Company (the
"Physician"), (i) renders Employee, for a period of ninety (90) consecutive
days, physically or mentally unable to perform his regular duties hereunder on a
full-time basis ("Unavailable"); (ii) continues to affect Employee physically or
mentally after expiration of said ninety (90) day period; and (iii) is expected
by the Physician to render Employee Unavailable for more than six (6) months in
the aggregate in any twelve (12) month period. For purposes hereof a condition
will be deemed to affect Employee continuously unless such condition ceases for
a period of not less than forty-five (45) consecutive days.
(d) If Employee's employment terminates prior to the end of the
Initial Term, the following shall apply:
(i) Employee shall be entitled to receive his Base Salary
prorated through the effective date of termination. In addition, the
following shall apply:
(x) If Employee is discharged at any time during the
Initial Term without Cause, or if Employee resigns during the
Initial Term for Good Reason, Employee shall be entitled to
receive severance payments for the balance of the Initial Term at
the rate of $20,833.33 per month.
(y) If Employee resigns during the Initial Term,
Employee shall not be entitled to receive any further salary
payments and the consulting fee payments shall be reduced by 25%.
(z) If Employee is discharged for Cause at any time
during the Initial Term, Employee shall not be entitled to receive
any further salary payments; provided, however, the consulting
payments shall continue under the terms of this Agreement.
<PAGE>
(ii) In any event, Employee shall be entitled to receive any
payments due to him under any life insurance policies, 401(k) plans or
other benefit programs or plans established by the Company in accordance
with the terms of such plans, and the Company shall reimburse Employee
for expenses reimbursable under Paragraph 4(a), below incurred by
Employee through the effective date of termination.
(iii) Except for the items identified in this subparagraph (d),
the Company shall have no further liability or obligation to Employee
whatsoever under this Agreement upon the termination of Employee's
employment, and the items described in this subparagraph (d) shall
constitute Employee's sole and exclusive rights and remedies with respect
to termination of his employment, regardless of the reason for
termination.
(e) If Employee's employment or retention as a consultant terminates
at any time during the Term by reason of death or Disability, Employee or his
legal representatives shall be entitled to receive consulting fee continuation
payments for the balance of the Consulting Term at the rate of $20,833.33 per
month.
3. COMPENSATION.
(a) The Company shall pay Employee a monthly base salary ("Base
Salary") during the Initial Term of Twenty Thousand Eight Hundred Thirty-Three
and 33/100 Dollars ($20,833.33). The Base Salary will be payable at the times
and in the manner dictated by the Company's standard payroll policy. Except as
provided in Section 2(d)(i)(y), the Company shall pay Employee a monthly
consulting fee ("Consulting Fee") during the Consulting Term of Twenty Thousand
Eight Hundred Thirty-Three and 33/100 Dollars ($20,833.33), except to the extent
it is reduced as provided in Section 2(d)(i)(y) above.
(b) All amounts whatsoever payable to Employee under this Agreement
are stated before withholding taxes and other payroll deductions. It is the
intent of the parties that Employee will be an independent contractor, and not
an employee, with respect to the services to be provided under this Agreement
during the Consulting Term. Nevertheless, the Company reserves the right to
withhold all amounts required by applicable tax laws and regulations. Employee
acknowledges that the Company may rely upon the advice of counsel with respect
to its withholding obligations.
4. EXPENSES, VACATIONS, BENEFITS, ETC.
(a) The Company agrees to reimburse Employee for expenses reasonably
incurred by Employee in performing his duties hereunder in accordance with such
policies and procedures as may from time to time be prescribed by the Company.
(b) During the Initial Term, Employee will be entitled to receive such
fringe benefits (e.g., group health insurance coverage) as may from time to time
be made generally available to employees of the Company and such vacation
benefits provided to Employee consistent with
<PAGE>
past practices. The Company reserves the right to modify or discontinue any
such benefits at any time and from time to time, so long as any such changes are
made applicable to employees generally. During the Consulting Term, Employee
will not be entitled to any health insurance, sickness, disability or other
benefits whatsoever.
5. WORK PRODUCT. It is understood that works which constitute trade
secrets or which are subject to patent or copyright protection or which are
otherwise considered by the Company to be proprietary to the Company and which
have been or may hereafter be conceived or created by Employee, either solely or
jointly with others, in connection with his involvement with the Company or
which have been conceived or created by other employees of the Company
(collectively "Work Product"), are in whole or in part the result of the
resources and support of the Company. Employee acknowledges and agrees that all
Work Product shall be the sole and exclusive property of the Company.
Employee's rights in all future Work Product are hereby assigned to the Company.
In the event that any Work Product shall be deemed by the Company to be a work
of a patentable or copyrightable nature, Employee, whether or not then in the
employ of the Company, will assist the Company or its nominees to obtain,
maintain, and enforce domestic and foreign patents and copyrights for such Work
Product and will supply evidence, give testimony, sign and execute all papers,
and do all other legal and proper things (at the Company's expense) which the
Company or its nominees may deem necessary for obtaining, maintaining, and
enforcing patents and copyrights for such Work Product and for vesting in the
Company or its nominees full title thereto. Employee hereby appoints the
Company as his attorney-in-fact to execute and deliver all such papers and take
all such actions, as aforesaid in this paragraph, on his behalf. In addition,
Employee will promptly and freely disclose all Work Product to the Company's
management personnel and, if requested, provide the Company with a written
description thereof.
6. LOYALTY. Employee will give undivided loyalty to the Company
during the Initial Term and will not engage in any way whatsoever, directly or
indirectly, in any other employment, consulting or business activity (other than
passive investment activities), nor will Employee undertake planning for or
organization of any business activity other than on behalf of the Company.
7. RETURN OF ITEMS. Upon leaving the employ of the Company, Employee
will not take with him, without the written consent of the Company, any papers,
records or other materials of the Company whatsoever (including without
limitation computer listings, tapes or disks), or any copies thereof or
summaries, memoranda or other written information relating thereto, whether
created by Employee or by others, and Employee will immediately return to the
Company any of the foregoing items previously taken.
8. INJUNCTION. Employee recognizes that irreparable and incalculable
injury will result to the Company and its businesses and properties in the event
of a breach by Employee of the restrictions imposed by Paragraphs 5, 6 or 7,
above. Employee therefore agrees that, in the event of any such actual,
impending or threatened breach, the Company shall be entitled, without waiving
any other remedies that may be available to them, to temporary and permanent
<PAGE>
injunctive relief (without the necessity of posting a bond or other security)
restraining the violation, or further violation, of such restrictions by
Employee and by any other person for whom Employee may be acting or who is
acting for Employee or in concert with Employee.
9. AMENDMENT. This Agreement may be amended only by a written
document signed by both parties to this Agreement. All previous agreements and
understandings between Employee and the Company relating to the terms of
Employee's employment and retention as a consultant are superseded hereby.
10. OTHER MATTERS. All matters related to Employee's employment with
the Company and retention as a consultant which are not addressed in this
Agreement shall be governed by such policies and procedures as may be
established from time to time by the Chairman.
11. GOVERNING LAW; ASSIGNMENT. This Agreement shall be governed by
the internal laws of the State of Minnesota. This Agreement shall inure to the
benefit of and be binding upon the heirs, successors, and assigns of the parties
hereto, except that Employee shall not assign or transfer any rights or
obligations hereunder without the prior written consent of the Company. The
Company may assign this Agreement provided the assignee assumes, in writing,
expressly for Employee's benefit, all of the Company's obligations hereunder.
12. SEVERABILITY. If any provision of this Agreement shall be
contrary to the laws of the State of Minnesota any other applicable law, at the
present time or in the future, such shall not affect the enforceability of the
remaining provisions of this Agreement.
13. COUNTERPARTS. This Agreement may be executed in separate
counterparts which together shall constitute one and the same document.
14. ATTORNEYS FEES. The Company shall be entitled to recover its
reasonable costs and expenses (including attorneys fees) incurred in enforcing
its rights under this Agreement, in any proceeding in which it is the prevailing
party. Similarly, Employee shall be entitled to recover his reasonable costs
and expenses (including attorneys fees) incurred in enforcing his rights under
this Agreement, in any proceeding in which he is the prevailing party.
15. SETOFF. The Company and its parent company WSI Industries, Inc.
("WSI") shall have the right to offset any amounts due hereunder for any and all
liabilities, obligations or claims the Company or WSI may have against Employee
as provided in Section 5.5 of the Stock Purchase Agreement dated this date
between Employee and WSI.
<PAGE>
IN WITNESS WHEREOF, the Company and Employee have executed this
Employment Agreement on the date above written.
BOWMAN TOOL & MACHINING, INC.
By: /s/ Michael J. Pudil
----------------------------------------
Its: President
----------------------------------------
EMPLOYEE:
/s/ William D. Bowman
--------------------------------------------
William D. Bowman
<PAGE>
EXHIBIT 99.1
LONG LAKE, Minn.--(BUSINESS WIRE)--Aug. 9, 1999--
Acquired Unit Expected To Be Accretive To WSI's Consolidated Earnings
WSI Industries, Inc.(Nasdaq NMS: WSCI) today announced it has acquired the stock
of Bowman Tool and Machining, Inc. in Rochester, MN, a precision machining
company with annual sales of approximately $8 million.
Terms of the cash transaction were not disclosed. Bowman will be operated as a
WSI subsidiary in its current manufacturing facility in Rochester.
Bowman's largest customers are the Construction operations and Power Systems of
Deere & Co. Construction operations manufactures more than 65 machine models
serving the construction and forestry industries, while Power Systems
manufactures engines for Deere equipment in addition to private labeling for
other companies. Deere is also WSI's largest customer for whom the Company
manufactures a range of components for tractors and other agricultural
equipment.
Michael J. Pudil and chief executive officer, commented that he is extremely
please to have this opportunity to broaden WSI's business relationship with a
high-quality customer like Deere. He said another benefit of this acquisition
is that it further diversifies the base of industries served by WSI. He said
the two Deere operations served by Bowman are performing generally better than
Deere's agricultural segment, reflecting the fact that these are affected by
different sets of market conditions and forces.
Pudil said Bowman has recorded solid performances in recent years, and as a
highly efficient contract manufacturer was recognized as Deere's supplier of the
year for 1998. He said Bowman will be included in the Company's consolidated
operating results for the final three weeks of fiscal 1999 ending August 29 and
is expected to be accretive. Bowman is also expected to make a positive
contribution to the Company's profitability during fiscal 2000.
In February 1999, the Company acquired the stock of Taurus Numeric Tool, Inc., a
specialized precision machining company serving the avionics and aerospace
markets. Taurus made a positive contribution to the Company's profitability in
the third quarter of 1999 ended May 30 and is again expected to be accretive to
fourth quarter operating results.
WSI Industries, Inc. is a leading contract manufacturer that specializes in the
machining of complex, high-precision parts for a wide range of industries,
including agriculture, construction, aerospace and avionics, recreational
vehicles and computers.
