SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
_X_ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999 or
___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number 0-2387
RESEARCH, INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota 41-0908058
- ------------------------------------ --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 24064, Minneapolis, Minnesota 55424
- ---------------------------------------------- --------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (612) 941-3300
- --------------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
As of July 30, 1999, 1,279,708 common shares were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESEARCH, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 5,463,966 $ 4,308,441 $ 16,402,791 $ 12,391,481
Cost of sales 3,352,344 3,232,151 9,728,856 8,000,818
------------ ------------ ------------ ------------
Gross profit 2,111,622 1,076,290 6,673,935 4,390,663
------------ ------------ ------------ ------------
Expenses:
Selling 1,122,987 1,328,163 3,672,840 4,251,924
Research and development 656,368 739,969 1,732,960 2,341,590
General and administrative 178,803 237,926 629,522 723,713
Restructuring -- 1,041,000 -- 1,676,000
------------ ------------ ------------ ------------
Total expenses 1,958,158 3,347,058 6,035,322 8,993,227
------------ ------------ ------------ ------------
Income (loss) from operations 153,464 (2,270,768) 638,613 (4,602,564)
Interest expense (109,427) (99,342) (310,702) (243,795)
------------ ------------ ------------ ------------
Income (loss) before taxes 44,037 (2,370,110) 327,911 (4,846,359)
Income tax provision (benefit) 18,157 (770,803) 114,769 (1,518,855)
------------ ------------ ------------ ------------
Net income (loss) $ 25,880 $ (1,599,307) $ 213,142 $ (3,327,504)
============ ============ ============ ============
Net income (loss) per common share:
Basic $ 0.02 $ (1.28) $ 0.17 $ (2.68)
Diluted $ 0.02 $ (1.28) $ 0.16 $ (2.68)
Weighed average shares outstanding (Note 1):
Basic 1,279,708 1,254,237 1,270,451 1,241,229
Diluted 1,316,781 1,260,624 1,298,352 1,268,516
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
RESEARCH, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
As of June 30 As of September 30
ASSETS 1999 1998
- ----------------------------------------------------------- -------------- ------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 326,812 $ 108,647
Accounts receivable, net of reserves of $150,000 3,498,860 2,897,503
Income tax receivable -- 493,241
Inventories 3,986,909 3,943,157
Deferred income tax benefit 455,866 537,000
Prepayments 475,983 215,784
- ----------------------------------------------------------- -------------- --------------
Total current assets 8,744,430 8,195,332
- ----------------------------------------------------------- -------------- --------------
PROPERTY AND EQUIPMENT, at cost
Land and land improvements 235,569 235,569
Building 2,298,694 2,298,694
Machinery and equipment 4,302,739 4,339,268
Less accumulated depreciation (4,767,684) (4,481,995)
- ----------------------------------------------------------- -------------- --------------
Net property and equipment 2,069,318 2,391,536
- ----------------------------------------------------------- -------------- --------------
DEFERRED INCOME TAX BENEFIT 663,614 786,000
- ----------------------------------------------------------- -------------- --------------
Total assets $ 11,477,362 $ 11,372,868
=========================================================== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Line of credit and current portion of long-term debt $ 1,582,790 $ 4,100,000
Accounts payable 2,179,237 1,692,062
Deferred revenue 1,092,892 623,196
Accrued liabilities:
Salaries and benefits 210,403 326,645
Warranty reserve 350,000 350,000
Restructuring reserves 57,772 602,723
Other 282,116 459,748
- ----------------------------------------------------------- -------------- --------------
Total current liabilities 5,755,210 8,154,374
- ----------------------------------------------------------- -------------- --------------
LONG-TERM DEBT 2,347,138 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.50 par value, 5,000,000 shares authorized,
1,279,708 and 1,266,337 shares issued and outstanding 639,854 633,168
Additional paid-in capital 622,125 591,906
Accumulated other comprehensive income (1,430) 92,097
Retained earnings 2,114,465 1,901,323
- ----------------------------------------------------------- -------------- --------------
Total stockholders' equity 3,375,014 3,218,494
- ----------------------------------------------------------- -------------- --------------
Total liabilities and stockholders' equity $ 11,477,362 $ 11,372,868
=========================================================== ============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
<PAGE>
RESEARCH, INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Operating Activities:
Net income (loss) $ 213,142 $ (3,327,504)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 426,576 491,389
Deferred taxes 203,520 (785,015)
Changes in current operating items:
Accounts receivable (601,357) 924,977
Inventories (43,752) (61,374)
Income tax receivable 493,241 (1,518,855)
Prepayments (260,199) 261,530
Accounts payable and accrued liabilities 193,301 (702,858)
Deferred revenue 469,696 626,520
Restructuring reserves (544,951) 1,111,850
------------ ------------
Net cash provided by (used in) operating activities 549,217 (2,979,340)
------------ ------------
Investing Activities:
Purchases of property and equipment (104,358) (499,497)
Other -- (2,325)
------------ ------------
Net cash used in investing activities (104,358) (501,822)
------------ ------------
Financing Activities:
Cash dividends paid -- (144,087)
Issuance of common stock 36,905 180,835
Proceeds from (payment on) line of credit, net (2,788,877) 2,334,000
Proceeds from long-term debt 3,312,000 --
Payments on long-term debt (693,195) --
------------ ------------
Net cash provided by (used in) financing activities (133,167) 2,370,748
------------ ------------
Effect of foreign currency translation (93,527) 20,703
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 218,165 (1,089,711)
Cash and cash equivalents, at beginning of year 108,647 1,204,827
------------ ------------
Cash and cash equivalents, at end of period $ 326,812 $ 115,116
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
RESEARCH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
The Company's significant accounting policies not elsewhere set forth in the
accompanying consolidated financial statements are as follows:
Consolidated Financial Statements -
The consolidated balance sheet as of June 30, 1999, the consolidated statements
of operations for the three and nine months ended June 30, 1999 and 1998 and the
consolidated statements of cash flows for the nine months ended June 30, 1999
and 1998 have been prepared by the Company without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in cash flows at June 30, 1999 and for all periods presented have been
made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's September 30, 1998 Form
10-K. The results of operations for the period ended June 30, 1999 are not
necessarily indicative of the operating results for the full fiscal year or for
future interim periods.
Inventories -
Inventories are stated at the lower of first-in, first-out cost or market and
include direct labor, material and overhead costs. Inventories consist of the
following components at:
June 30, September 30,
1999 1998
----------- -----------
Raw materials and
purchased parts $ 3,086,736 $ 2,228,521
Work in process and
finished goods 900,173 1,714,636
----------- -----------
Total $ 3,986,909 $ 3,943,157
=========== ===========
<PAGE>
Warranty Reserve -
The surface mount technology (SMT) products are under warranty against defects
in material and workmanship for a two-year period with an extended warranty on
three components. The Company's other products are generally under warranty for
a one-year period. Estimated warranty costs are accrued in the same period as
products are shipped. An analysis of reserves for product warranties is
performed on a quarterly basis by reviewing the status of new product
introductions, trends of warranty expense by product, and internal management
information to identify known or potential defects and the estimated warranty
exposure.
Earnings per Share -
Earnings per share are computed by dividing net income (loss) by the weighted
average shares outstanding. Basic weighted average shares outstanding includes
common shares outstanding. Diluted weighted average shares outstanding includes
the basic weighted average shares outstanding and dilutive common stock
equivalents. Earnings per share data for June 30, 1999 and for all periods
presented have been restated to reflect the 5 for 4 stock split effective on the
record date of December 31, 1997. The number of common shares outstanding did
not change during the quarter.
2. Debt Obligations:
Line of Credit -
On January 21, 1999, the Company entered a new three-year loan and security
agreement with a bank. The new agreement provides for total borrowings of up to
$8 million, subject to lending formulas based on eligible receivables,
inventories, certain long-term assets and other terms specified in the
agreement. This new credit facility consists of a line of credit with interest
charged at 2.25% above prime and four term-loans with interest charged initially
at 2.75% above prime. The agreement contains certain restrictive covenants and
any outstanding borrowings are secured by substantially all of the Company's
assets. The Company was in compliance with all of the covenants as of June 30,
1999.
Loan Amendment -
On July 15, 1999, the loan was amended to provide a supplemental real estate
loan and reduce the minimum interest calculation.
<PAGE>
3. Comprehensive Income:
During June 1997, the Financial Accounting Standards Board released SFAS No.
130, "Reporting Comprehensive Income," effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 established standards for reporting and
display in the financial statements of total net income and the components of
all other non-owner changes in equity, referred to as comprehensive income. The
Company has adopted SFAS No. 130 beginning in fiscal 1999. Comprehensive income
(loss) was comprised of the effect of changes in foreign currency exchange rates
in translating assets, liabilities and the results of operations of the
Company's foreign subsidiary. Comprehensive income (loss) for the following
three and nine month periods were:
Three Months Ended Nine Months Ended
June 30 June 30
--------------------------- ---------------------------
1999 1998 1999 1998
--------------------------- ---------------------------
Net income(loss) $ 25,880 $(1,599,307) $ 213,142 $(3,327,504)
Other comprehensive
income(loss) (79,932) (12,937) (93,527) 20,703
----------- ----------- ----------- -----------
Comprehensive
income (loss) $ (54,052) $(1,612,244) $ 119,615 $(3,306,801)
=========== =========== =========== ===========
4. Property Sale and Leaseback:
On June 29, 1999, the Company entered into a sale and leaseback agreement on its
Minneapolis real property. The sale price is $3,650,000. The pretax gain of
$2,200,000 will be recognized over the seven year term of the lease. The
transaction will also allow the Company to utilize approximately $600,000 of the
Companies deferred tax assets. The proceeds will be used to reduce debt. The
transaction is expected to close prior to September 30, 1999.
5. Alternatives:
In June 1999, the Company announced that John G. Kinnard & Company has been
retained to explore various alternatives for accelerating growth and maximizing
shareholder value, which may include the sale or merger of the company. The
Company noted that there could be no assurance that this exploration would
result in proposals acceptable to the Company, or that any transaction would be
completed.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operations
Sales for the third quarter of fiscal 1999 increased $1,156,000 to $5,464,000,
an increase of 26.8% compared to the third quarter of fiscal 1998. Sales for the
nine-month period of fiscal 1999 increased $4,011,000 to $16,403,000, an
increase of 32.3% compared to the nine-month period of fiscal 1998. Sales
increases in the third quarter and year to date are due to higher level sales in
both the printing market and the surface mount technology (SMT) market.
Sales in the printing market increased 106% in the third quarter and 42% year to
date in fiscal 1999 compared to the same periods in fiscal 1998, due to new
product introductions. Sales in the SMT market increased 28% in the third
quarter and 62% year to date fiscal 1999 compared to the same periods in fiscal
1998, due to new product introductions, and new market penetration in the
semiconductor industry. The prior periods were impacted by the Asian economic
crisis.
Gross margins increased 13.6% to 38.6% in the third quarter and increased by
5.3% to 40.7% for the nine-month period of fiscal 1999 compared to the same
periods in fiscal 1998. The prior year third quarter gross margins were
unusually low due to volume, unabsorbed fixed costs and a reserve of $606,000
for excess inventory, mainly in the SMT market.
Selling expenses decreased $205,000 in the third quarter or 15.4% compared to
the third quarter of fiscal 1998. Selling expenses decreased $579,000 or 13.6%
for the nine-month period of fiscal 1999 compared to the nine-month period of
fiscal 1998. Selling expenses decreased due to expense reductions and to the
Company leveraging its selling expenses in fiscal 1999 on higher levels of
sales.
Expenditures for research and development decreased $84,000 or 11.3% for the
third quarter of fiscal 1999 and decreased $609,000 or 26.0% for the nine-month
period of fiscal 1999 compared to the same period in fiscal 1998. Expenditures
for research and development are lower than the prior periods due to the
Company's efforts to leverage resources and temporarily devoting a portion of
engineering resources to the sale of product in the first and second quarter of
fiscal 1999.
<PAGE>
General and administrative expenses decreased $59,000 and $94,000 in the third
quarter and nine-month period respectively, in fiscal 1999 as compared to the
same periods of fiscal 1998. This is due to the higher sales levels and the
ability to leverage expenses.
Interest expense was $109,000 for the quarter for fiscal 1999 compared to
$99,000 for the same quarter one year ago. The increase is due to higher
interest rates on the new financing bank arrangements.
Net profit was $26,000 for the third quarter of fiscal 1999 compared to a net
loss of $1,599,000 for the same period in fiscal 1998. The prior year was
impacted by a charge of $606,000 to reserve for excess inventory and a
restructuring charge of $1,676,000, and by lower sales volume due to the Asian
economic crisis.
Liquidity and Sources of Capital
The Company's working capital of $2,989,000 at June 30, 1999 increased from
$41,000 at September 30, 1998. The Company's current ratio at June 30, 1999 was
1.5 compared to 1.0 at September 30, 1998. The increase in working capital is
due primarily to refinancing short-term debt to long-term debt.
Accounts receivable increased due to timing of shipments late in the quarter and
higher levels of sales.
On December 17, 1998, the Company signed a new three-year loan and security
agreement with a bank. The new agreement provides for total borrowings of up to
$8 million subject to lending formulas based on eligible receivables,
inventories, certain long-term assets and other terms specified in the
agreement. This new credit facility consists of a line of credit with interest
charged at 2.25% above prime and four term loans with interest charged initially
at 2.75% above prime. The agreement contains certain restrictive covenants and
any outstanding borrowings are secured by substantially all of the Company's
assets. The Company closed and drew on the new loan on January 21, 1999.
On June 29, 1999, the Company entered into a sale and leaseback of its
Minneapolis real estate. The sales price is $3,650,000. The pre-tax gain of
$2,200,000 will be recognized over the seven-year term of the lease. The
transaction will also allow the Company to utilize approximately $600,000 of the
Company's deferred tax
<PAGE>
assets. The proceeds will be used to reduce debt. The transaction is expected to
close prior to September 30, 1999.
The Company's management believes its cash flow from operations, borrowing
facilities and sale of property will be sufficient to meet the Company's
financing requirements for the foreseeable future. The Company believes that
success in its industries requires substantial financial flexibility due to
customer expectations and rapidly changing technologies. The Company will need
additional finances to accelerate growth and fully exploit product
opportunities.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company's computer
equipment, software, devices and products with imbedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a shut down in the
Company's manufacturing operations, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
STATE OF READINESS
The Company has undertaken various initiatives to evaluate the Year 2000
readiness of the products sold by the Company ("Products"), the information
technology systems used in the Company's operations ("IT Systems"), its non-IT
systems, such as power to its facilities, HVAC systems, building security,
voicemail and other systems, as well as the readiness of its customers and
suppliers. The Company has identified eleven, Year 2000 target areas that cover
the entire scope of the Company's business and has internally established a team
committed to completing an 8-step Compliance Validation Process ("CVP") for each
target area. The team is expected to fully complete this process on or before
September 1, 1999. The table below identifies the Company's target areas as well
as the 8-step CVP with its expected timeline. Phase 1 has been completed, and
the team activity is currently focused towards the process of completing Phase 2
per schedule. The Company's financial, manufacturing, and engineering hardware
and software have been updated (where necessary) and tested for Year 2000
compliance. The team activity is currently focused toward the process of
completing Phase 2, which is expected to be completed on schedule.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Year 2000 Target Areas Compliance Validation
Process
- --------------------------------------------------------------------------------------
<S> <C>
1. Business Computer Systems PHASE 1
2. Technical Infrastructure -------
3. End-User Computing 1. Team Formation Completed
4. Manufacturing Equipment 2. Inventory Assessment End of Q3
5. Test Lab 3. Compliance Assessment Fiscal 1999
6. Telecommunications 4. Risk Assessment
7. Research & Development
8. Logistics
9. Facilities
10. Customers
11. Suppliers/KeyServiceProviders
-------------------------------------------------
PHASE 2
-------
5. Resolution/Remediation Expected Completion:
6. Validation
7. Contingency Plan End of Q4 Fiscal 1999
8. Sign-Off Acceptance
- --------------------------------------------------------------------------------------
</TABLE>
With respect to the Company's relationships with third parties, the Company
relies both domestically and internationally upon various vendors, governmental
agencies, utility companies, telecommunications service companies, delivery
service companies and other service providers. Although these service providers
are outside of the Company's control, the Company has mailed letters to those
with whom its believes its relationships are material and is verbally
communicating with some of its strategic customers and vendors to determine the
extent to which interfaces with such entities are vulnerable to Year 2000 issues
and whether products and services purchased from or by such entities are Year
2000 ready. The Company intends to complete follow-up activities, including but
not limited to site surveys, phone surveys and mailings, with significant
vendors and service providers as part of the Phase 2 validation.
COSTS TO ADDRESS YEAR 2000 ISSUES
To date, the Company has not incurred any material expenditure in connection
with identifying or evaluating Year 2000 compliance issues. The Company has
incurred the majority of its costs from the recent installation of an update to
its business computer system consisting primarily of Year 2000 software upgrades
as well as the opportunity cost of time spent by employees of the
<PAGE>
Company evaluating Year 2000 compliance matters. Because the Company did not
accelerate the installation of the software upgrades, it does not consider the
costs related thereto to be charges for Year 2000 compliance. Presently, the
Company expects to replace some desk top computer systems. The Company
anticipates the cost of these systems to be within the Company's fiscal 1999 and
2000 budgets. At this time, the Company does not possess information necessary
to estimate the potential financial impact of Year 2000 compliance issues
relating to its non-IT Systems, Products, vendors, customers and other third
parties. Such impact, including the effect of a Year 2000 business disruption,
could have a material adverse impact on the Company's financial condition and
results of operations.
RISKS OF YEAR 2000 ISSUES
While the Company has completed the discovery and evaluation phase of assessing
its overall Year 2000 exposure, it cannot state with certainty that the Year
2000 issues will not have a material adverse impact on its financial condition,
results of operations and liquidity. Although the Company considers them
unlikely, the Company believes that the following several situations, not in any
particular order, make up the Company's "most reasonably likely worst case Year
2000 scenarios":
1. Disruption of a Significant Customer's Ability to Accept Products or Pay
Invoices
The Company's significant customers are large, well-informed customers, mostly
in the surface mount technology and printing industries, who are disclosing
information to their vendors that indicates they are well along the path toward
Year 2000 compliance. These customers have demonstrated their awareness of the
Year 2000 issue by issuing requirements of their suppliers and indicating the
stages of identification and remediation which they consider adequate for
progressive calendar quarters leading up to the century mark. The Company's
significant customers, moreover, are substantial companies that the Company
believes would be able to make adjustments in their processes as required to
cause timely payment of invoices.
2. Disruption of Supply Materials
The Company has completed the process of surveying its vendors with regard to
their Year 2000 readiness, and has cataloged the responses to the survey. The
Company is assessing the responses from critical vendors and many non-critical
vendors. The Company expects to work with vendors that show a need for
assistance or that provide inadequate responses, and in many cases expects that
<PAGE>
survey results will be refined significantly by such work. Where ultimate survey
results show that the need arises, the Company will arrange for back-up vendors
before the changeover date.
3. Disruption of the Company's IT Systems
The Company has completed a scheduled upgrade of its current business software
systems to be Year 2000 compliant. Year 2000 testing of end-user computing
hardware and software was completed successfully. For this reason, the Company
considers that disruption of its IT Systems is very unlikely.
4. Disruption of the Company's Non-IT Systems
The Company has completed a comprehensive assessment of all non-IT systems,
including among other things its manufacturing systems and operations, with
respect to both embedded processors and obvious computer control. Considering
the nature of the equipment and systems involved, the Company expects it will be
able to complete any remediation efforts on a reasonably short schedule, and in
any case before arrival of the Year 2000. The Company also believes that, after
such remediation, if any disruptions do occur, such will be dealt with promptly
and will be no more severe with respect to correction or impact than would be an
unexpected breakdown of well-maintained equipment.
CONTINGENCY PLANS
While the Company recognizes the need for contingency planning, it has not yet
developed any specific contingency plans for potential Year 2000 disruptions.
The aforementioned 8-step Compliance Validation Process, however, does include
contingency planning by the team and such plans, as developed, will be carefully
reviewed by the Company. The Company does anticipate developing contingency
plans for its most critical areas, but details of such plans will depend on the
Company's final assessment of the problem as well as the evaluation and success
of its remediation efforts. Future disclosures will include contingency plans as
they become available.
For further information regarding the current year items impacting cash flows,
see the Company's Consolidated Statements of Cash Flows.
Inflation
In the past three years, inflation has not had a significant effect on
operations.
<PAGE>
Forward-Looking Statements
The statements included herein that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. There are certain important
factors that could cause actual results to differ materially from those
anticipated by some of the statements made herein. Investors are cautioned that
all forward-looking statements involve risks and uncertainty. Some of the
factors that could affect results are the effectiveness of new product
introductions, the product mix of our sales, the amount of sales generated or
volatility in the major markets, competition, currency fluctuations,
availability of labor, general economic conditions, market cycles, dependence on
capital expenditures of contract manufactures in SMT, product cancellations or
rescheduling, loss of a significant customer, interruptions in the Company's
operations or those of any of its suppliers or major customers as such may be
caused by problems arising from the Year 2000.
Item 3. Quantitative and qualitative disclosures about market risk
Not applicable
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Amendment to Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific
Bank and the Company dated July 15, 1999
4.2 Secured Promissory Note between Coast Business
Credit, a division of Southern Pacific Bank and the
Company dated July 15, 1999
10.1 Form of Employment (change of control) Agreement
10.2 Research, Incorporated Severance Plan dated May 21,
1999
10.3 Distributor/Reseller Purchase Agreement (Scitex
Digital Printing, Incorporated) dated October 6, 1998
10.4 Purchase Agreement between the Company and
Continental Property Group, Inc. dated June 25, 1999
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current report on Form 8-K filed on July 16, 1999, reporting
Item 5 of 8-K, announcing Purchase Agreement for property
sale-leaseback
<PAGE>
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 thereunto duly authorized.
RESEARCH, INCORPORATED
(Registrant)
Date 8/12/99 /s/ Claude C. Johnson
-------------- -----------------------------------------
Claude C. Johnson
President,
Chief Executive Officer
Date 8/12/99 /s/ Richard L. Grose
-------------- -----------------------------------------
Richard L. Grose
Treasurer
EXHIBIT 4.1
AMENDMENT TO LOAN AND SECURITY AGREEMENT
This AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"), dated as of
this 15 day of July 1999, between Coast Business Credit(R), a division of
Southern Pacific Bank ("Coast") and Research, Incorporated ("Borrower"), is made
in reference to the following facts:
Borrower previously entered into a Loan and Security Agreement
with Coast dated December 17, 1998 (as the same may be amended,
supplemented or modified from time to time, the "Loan Agreement").
As security for Borrower's obligations to Coast under the Loan
Agreement, Borrower delivered to Coast a Mortgage and Security
Agreement and Fixture Filing dated as of January 20, 1999 (the
"Mortgage") with respect to certain improved real property with an
address of 6425 Flying Cloud Drive, Eden Praire, Minnesota 55344
situated in Hennepin County (the "Property").
Borrower and Continental Property Group, Inc., a Minnesota
corporation ("Buyer") are parties to that certain Purchase Agreement
(the "Purchase Agreement") dated as of June 25, 1999 wherein Borrower
agrees to sell to Buyer and Buyer agrees to purchase from Borrower the
Property. As more fully set forth therein, the Purchase Agreement
provides, among other things, as follows: (i) the purchase price for
the Property shall be equal to Three Million Six Hundred Fifty Thousand
Dollars ($3,650,000), subject to adjustment for taxes and assessments
pertaining to the Property; (ii) the transfer of title to the Property
from Borrower to Buyer (the "Real Estate Closing") shall occur no later
than August 24, 1999; and (iii) concurrent with the Real Estate
Closing, Borrower and Buyer shall enter into a lease (the "Lease") with
respect to the Property wherein Buyer leases the Property to Borrower
for a term of no less than five (5) years from the date of the Real
Estate Closing.
NOW THEREFORE, in consideration of the foregoing recitals and the terms and
conditions hereof, the parties do hereby agree as follows, effective as of the
date set forth above:
1. Definitions. Terms used herein, unless otherwise defined herein,
shall have the meanings set forth in the Loan Agreement.
2. Real Estate Supplemental Loans. The Section of the Schedule entitled
"SECTION 2. CREDIT FACILITIES," is hereby amended by adding a subsection (g)
thereto as follows:
(g) Real Estate Supplemental Loans in minimum advances of One
Thousand Dollars ($1,000) in an aggregate
<PAGE>
outstanding principal amount not to exceed Seven Hundred Thousand
Dollars ($700,000).
(1) Advances under the Real Estate Supplemental Loans
facility may be reborrowed once repaid.
(2) All outstanding principal and interest on the
Real Estate Supplemental Loans shall be due and payable on the
earlier to occur of the following: (x) the date of the Real
Estate Closing and (y) August 31, 1999.
(3) The Real Estate Supplemental Loans shall be
subject to the terms and conditions of a Secured Promissory
Note in form and substance satisfactory to Coast in its sole
discretion.
3. Sale of the Property; Application of Proceeds. Coast hereby consents
to the sale of the Property pursuant to the Purchase Agreement. The proceeds of
such sale shall be paid directly to Coast and shall be applied as follows:
first, to the expenses and costs chargeable under the Loan Documents to Borrower
or any guarantor of the Obligations; second, to outstanding principal and
interest under the Real Estate Supplemental Loans facility; third, to
outstanding principal and interest for the Real Estate Term Loan; and fourth, to
outstanding principal and interest under the Inventory Loans facility and the
Receivable Loans facility.
4. Minimum Monthly Interest. Concurrently with the Real Estate Closing,
the subsection entitled "Section 3.1 - Minimum Monthly Interest" of the section
of the Schedule entitled "SECTION 3 - INTEREST AND FEES" shall be automatically
amended by striking the phrase "fifty percent (50%)" therein and replacing it
with "thirty-five percent (35%)."
5. Conditions Precedent. The effectiveness of this Amendment is subject
to Borrower's satisfaction of the following conditions:
(a) Borrower shall have provided Coast with copies of the final,
executed Purchase Agreement, the lease agreement between Buyer and
Borrower, and any and all other documents and instruments executed or
delivered in connection therewith, all of which shall be satisfactory
to Coast in its sole discretion. Without limiting the generality of the
foregoing, the term of the Lease shall extend beyond the last Business
Day of the month three (3) years from the Closing Date.
(b) Borrower shall execute and cause any applicable third parties and
affiliates to execute any and all additional documents as requested by
Coast in connection with this Amendment and to otherwise ensure the
satisfaction of the Obligations, all in form and substance satisfactory
to Coast in its sole discretion. Without limiting the generality of the
foregoing, Borrower shall provide Coast with a landlord waiver executed
by Buyer suitable for recordation in the real property records of
Hennepin County, Minnesota and otherwise in form and substance
satisfactory to Coast in its sole discretion.
<PAGE>
(c) Coast shall have received an endorsement to the title insurance for
the Mortgage, which endorsement shall insure that the Mortgage secures
Coast's advances to Borrower under the Real Estate Supplemental Loans
facility and shall otherwise be in form and substance satisfactory to
Coast in its sole discretion.
(d) No Event of Default shall have occurred and be continuing and
Borrower shall be in full compliance with the terms and conditions of
the Loan Agreement.
6. Reconveyance. Coast hereby agrees to release the Mortgage
concurrently with the indefeasible payment in full of all outstanding
Obligations in connection with the Real Property Term Loan and the Real Property
Supplemental Loans and payment of the Modification Fee as set forth below.
7. Modification Fee. In consideration of this Amendment and the Real
Estate Supplemental Loans made available by Coast to Borrower hereunder, and in
addition to all other fees and charges, Borrower shall pay to Coast a
modification fee of One Hundred Thirty Thousand Dollars ($130,000), which fee is
fully earned as of the date hereof and shall be payable on the earlier to occur
of the following: (a) the sale of the Property and (b) August 31, 1999.
8. Reaffirmation. Except as modified by the terms herein, the Loan
Agreement and the other Loan Documents remain in full force and effect. If there
is any conflict between the terms and provisions of this Amendment and the terms
and provisions of the Loan Agreement or documents related thereto, the terms and
provisions of this Amendment shall govern.
9. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. This Amendment may be
executed by facsimile signatures.
10. Governing Law. This Amendment shall be governed by and construed
according to the laws of the State of California.
11. Attorneys' Fees; Costs; Jury Trial Waiver. Borrower agrees to pay,
on demand, all attorneys' fees and costs incurred in connection with the
negotiation, documentation and execution of this Amendment. If any legal action
or proceeding shall be commenced at any time by any party to this Amendment in
connection with its interpretation or enforcement, the prevailing party or
parties in such action or proceeding shall be entitled to reimbursement of its
reasonable attorneys' fees and costs in connection therewith, in addition to all
other relief to which the prevailing party or parties may be entitled. Each of
Coast and Borrower hereby waives its right to a jury trial in any such action or
proceeding.
<PAGE>
RESEARCH, INCORPORATED
By: /s/ Richard L. Grose
------------------------
Title: Treasurer
---------------------
COAST BUSINESS CREDIT, a division
of Southern Pacific Bank
By: /s/ Roger Schnurr
------------------------
Title: Vice President
---------------------
The undersigned Guarantor hereby acknowledges and consents to the
foregoing Amendment and confirms and agrees that the Guarantee executed by it in
favor of Coast shall remain in full force and effect in accordance with its
terms.
Signed and delivered as of this 15 day of July, 1999.
RESEARCH INCORPORATION LIMITED
acting by:
/s/ Richard Grose /s/ Claude Johnson
- ----------------- ------------------
Richard Grose, Director Claude Johnson, Secretary
EXHIBIT 4.2
(Real Property Supplemental Loans)
$700,000 As of July 15, 1999
Los Angeles, California
FOR VALUE RECEIVED, the undersigned, RESEARCH, INCORPORATED (the "Borrower"),
hereby promises to pay to Coast Business Credit, a division of Southern Pacific
Bank ("Lender"), or order, at 12121 Wilshire Blvd., Suite 1400, Los Angeles,
California, or at such other address as the holder may specify in writing, the
principal sum of Seven Hundred Thousand Dollars ($700,000) or so much as shall
have been drawn by the undersigned pursuant to the terms of the Agreement (as
defined below), plus interest in the manner and upon the terms and conditions
set forth in the Loan and Security Agreement (as referenced below). This Secured
Promissory Note -- Real Property Supplemental Loans ("Note") is made pursuant to
that certain Loan and Security Agreement dated as of December 17, 1998 between
the undersigned and Lender, as amended by that certain amendment thereto dated
as of even date herewith (collectively, the "Agreement"), the provisions of
which are incorporated herein by this reference. Capitalized terms herein,
unless otherwise noted, shall have the meaning set forth in the Agreement.
1.0 Rate and Payment of Interest
This Note shall bear interest on the unpaid principal balance hereof from time
to time outstanding at a rate equal to the "Prime Rate" (as hereinafter defined)
plus 2.75%, subject to reduction to the Prime Rate plus 2.25% pursuant to the
terms and conditions of the Agreement, but in no event shall the interest rate
in any month be less than 9% per annum. Interest shall be calculated on the
basis of a 360-day year for the actual number of days elapsed. As used herein,
the term "Prime Rate" shall mean the actual "Reference Rate" or the substitute
therefor of Bank of America NT & SA whether or not that rate is the lowest
interest rate charged by said bank. The interest rate applicable to this Note
shall be adjusted monthly, as of the first day of each month, and the interest
rate charged during each month shall be based on the highest Prime Rate in
effect during said month. If the Prime Rate is unavailable, "Prime Rate" shall
mean the highest of the prime rates published in the Wall Street Journal on the
first business day of the month, as the base rate of corporate loans at large
U.S. money center banks. Accrued interest shall be payable monthly, commencing
on the last day of the month during which
<PAGE>
Lender first advances any sums to Borrower under this Note and continuing on the
last day of each succeeding month. Principal of, and interest on, this Note
shall be payable in lawful money of the United States of America. If a payment
hereunder becomes due and payable on a Saturday, Sunday or legal holiday, the
due date thereof shall be extended to the next succeeding business day, and
interest shall be payable thereon during such extension.
2.0 Schedule of Principal Payments
Subject to the provisions of Section 4.0 below, all unpaid principal plus
accrued and unpaid interest and charges under this Note shall be due and payable
on the earlier to occur of the following: (x) the date of the Real Estate
Closing or (y) August 31, 1999.
3.0 Intentionally Deleted.
4.0 Holder's Right of Acceleration
If the Agreement is terminated for any reason whatsoever, the entire remaining
principal balance and all accrued and unpaid interest and other fees and charges
with respect to this Note shall become due and payable on the effective date of
termination.
5.0 Holder's Rights upon Default
In the event any payment of principal or interest on this Note is not paid in
full when due, or if any other default or event of default occurs under the Loan
Agreement or any other present or future instrument, document, or agreement
between Borrower and Coast, Coast may, at its option, at any time thereafter,
declare the entire unpaid principal balance of this Note plus all accrued
interest to be immediately due and payable, without notice or demand. Without
limiting the foregoing, and without limiting Coast's other rights and remedies,
in the event any installment of principal or interest is not paid in full on or
before the date due, Borrower agrees that it would be impracticable or extremely
difficult to fix the actual damages resulting therefrom to Coast, and therefore
the Borrower agrees immediately to pay to Coast an amount equal to 5% of the
installment (or portion thereof) not paid, as liquidated damages, to compensate
Coast for the internal administrative expenses in administering the default,
provided that said liquidated damages shall not be payable on an acceleration of
indebtedness under this Note arising out of a default or event of default under
the Loan Agreement. Without limiting the foregoing, and without limiting Coast's
other rights and remedies, in the event any installment of interest is not paid
on or before the date due, it shall thereafter bear like interest
<PAGE>
as the principal of this Note. The acceptance of any installment of principal or
interest by Coast after the time when it becomes due, as herein specified, shall
not be held to establish a custom, or to waive any rights of Coast to enforce
payment when due of any further installments or any other rights, nor shall any
failure or delay to exercise any rights be held to waive the same. All payments
hereunder are to be applied first to costs and fees referred to hereunder,
second to the payment of accrued interest and the remaining balance to the
payment of principal. Any principal prepayment hereunder, to the extent
permitted under the Agreement, shall be applied against principal payments in
the inverse order of maturity. Coast shall have the continuing and exclusive
right to apply or reverse and reapply any and all payments hereunder in its sole
discretion.
6.0 Additional Rights of Holder
If any installment of principal or interest hereunder is not paid when due, the
holder shall have, in addition to the rights set forth herein, in the Agreement
and under law, the right to compound interest by adding the unpaid interest to
principal, with such amount thereafter bearing interest at the rate provided in
this Note.
7.0 General Provisions
7.1 If this Note is not paid when due or upon the occurrence of an
Event of Default, the undersigned further promises to pay all costs of
collection, foreclosure fees, and reasonable attorneys' fees incurred by the
holder, whether or not suit is filed hereon, and the fees, costs and expenses as
provided in the Agreement.
7.2 The undersigned hereby consents to any and all renewals,
replacements and/or extensions of time for payment of this Note before, at or
after maturity.
7.3 The undersigned hereby consents to the acceptance, release or
substitution of security for this Note.
7.4 Presentment for payment, notice of dishonor, protest and notice
of protest are hereby expressly waived.
7.5 In no event whatsoever shall the interest rate and other charges
charged hereunder exceed the highest rate permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that a court determines that the payee hereunder has
received interest in excess of the highest rate applicable hereto, the payee
shall promptly refund such excess amount to the undersigned and the provisions
hereof shall be deemed amended to provide for such permissible rate.
7.6 No delay or omission on the part of the holder of this Note in
exercising any right shall operate as a waiver thereof or of any other right.
<PAGE>
7.7 A waiver by the holder of this Note upon any one occasion shall
not be construed as a bar or waiver of any right or remedy on any future
occasion.
7.8 Should any one or more of the provisions of this Note be
determined illegal or unenforceable, all other provisions shall nevertheless
remain effective.
7.9 This Note cannot be changed, modified, amended or terminated
orally.
7.10 This Note shall be governed by the laws of the State of
California, without reference to the principles of conflicts of laws thereof.
8.0 Security for the Note
This Note is secured by the Collateral described in the Agreement and is subject
to all of the terms and conditions thereof, including, but not limited to, the
remedies specified therein.
IN WITNESS WHEREOF, this Note has been executed and delivered as of the date
first set forth above.
RESEARCH, INCORPORATED
By: /s/ Richard L. Grose
----------------------------------
Its: Treasurer
---------------------------------
EXHIBIT 10.1
EMPLOYMENT (CHANGE OF CONTROL) AGREEMENT
This Employment (Change of Control) Agreement (the "Agreement") is made
and entered into effective as of May 21, 1999 (the "Effective Date"), by and
between ___________________ (the "Employee") and Research, Incorporated (the
"Company").
RECITAL
The purpose of this Agreement is to assure the continued employment and
to motivate employees to maximize the value of the Company in the event of the
possibility or occurrence of a Change of Control (as defined below) of the
Company for the best interests of the Company and its stockholders.
1. Definitions
For purposes of this Agreement, the following definitions shall apply:
(a) "Change of Control Payment" shall mean a lump sum payment equal to
____ months of the Employee's annual base salary (excluding bonuses and non-wage
benefits), less necessary taxes and withholding, in effect immediately preceding
the Closing Date.
(b) "Cause" with respect to termination shall mean:
(i) Conviction of a crime involving moral turpitude;
(ii) Employee's malfeasance in connection with his
employment or neglect of his duties after written
notification thereof by the Company or its successor,
which notice shall specify the alleged instances of
neglect of his duty, and shall provide Employee with
30 days in which to remedy such neglect, if it is
subject to being remedied;
(iii) Employee's material breach of this Agreement; or
<PAGE>
(iv) Employee's personally engaging in knowing and
intentional illegal conduct which is seriously
injurious to the Company or its affiliates.
(c) "Change of Control" shall mean (i) a corporate reorganization of
the Company which results in the stockholders of the Company immediately prior
to such reorganization owning less than 50% of the combined voting power of the
capital stock of the surviving company immediately following such
reorganization; (ii) the sale of all or substantially all of the assets of the
Company; or (iii) the sale of substantially all of the assets of a business unit
if Employee is the manager of that business unit immediately prior to such sale.
(d) "Closing Date" means that date upon which a Change of Control is
consummated.
2. Payment of Change of Control Payment; Effect of Termination of
Employment.
(a) Triggering Event. On the Closing Date, as long as the Employee has
maintained continuous employment with the Company or its successor from the date
hereof through the Closing Date, Employee shall be entitled to receive the
Change of Control Payment. The Company or its successor shall pay such Change of
Control Payment to the Employee not later than five (5) business days after the
Closing Date.
(b) No Change of Control Payment. No Change of Control Payment shall be
payable to Employee if Employee's employment is terminated for Cause prior to
the Closing Date or if Employee is not in active employment status for any
reason prior to the Closing Date.
(c) Employment. For purposes of this Agreement, Employee shall be
deemed to be in active employment status and to have maintained continuous
employment as required in this Agreement if Employee is on an approved medical
leave of absence during the relevant period.
3. At-Will Employment.
This Agreement does not guarantee or imply any right to continued
employment for any period whatsoever. The Company and the Employee acknowledge
that the Employee's employment is and shall continue to be at-will, as defined
under applicable law.
4. Duration.
<PAGE>
This Agreement shall terminate, unless extended for an additional
period by resolution adopted by the Board of Directors, upon the earlier of (1)
the date that all obligations of the parties hereunder have been satisfied; or
(2) on June 30, 2000.
5. Confidential Information.
Employee acknowledges that the Company's Confidential Information is a valuable,
special and unique asset of the Company's business. The Company's Confidential
Information includes, but is not limited to, its trade secrets, records, data,
specifications, developments, secret inventions, research activity, processes,
designs, sketches, drawings, bills of material, supplier lists, manufacturing
processes, methods and equipment, customer and prospective customer and vendor
lists and information, short term and long range plans, all financial
information, including sales, specific customer account sales, gross margin
information, operating expense and information, competitive strategies and
pricing information, procurement resources, information concerning the Company's
business of or its manner of operation, personnel information, sales and
marketing strategies and information, and any other confidential or technical
information which Employee may obtain during his employment with the Company.
Confidential Information shall mean information not generally known in the
business community that has been disclosed to Employee and is known to Employee
as a consequence of his employment by the Company. Employee will not, either
directly or indirectly, during the term of his employment with the Company and
thereafter, disclose any such information to any person, firm, corporation,
association or other entity for any reason or purposes whatsoever. Employee
further agrees to deliver to the Company at the termination of his employment
all memoranda, notes, plans, records, reports, other documentation and software,
and all copies of the foregoing and any other Company property relating to the
Company's business which he may then possess or have under his control.
6. Miscellaneous Provisions.
(a) Other Benefits. Neither the provisions of this Agreement nor the
payment provided for shall reduce any amounts otherwise payable, or in any way
diminish Employee's rights as an employee of the Company under any benefit,
incentive, retirement, stock option, stock bonus, stock ownership or any
employment agreement or other plan or arrangement.
<PAGE>
(b) Entire Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof.
(c) Employment Taxes. All payments made pursuant to this Agreement will
be subject to withholding of applicable income and employment taxes.
(d) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duty authorized officer, as of the day and year
first above written.
RESEARCH, INCORPORATED
By
---------------------------------------
Its
--------------------------------------
-----------------------------------------
Employee
EXHIBIT 10.2
RESEARCH, INCORPORATED
SEVERANCE PLAN
Plan Purpose
The purpose of this Plan is to provide uniform and consistent
guidelines under which eligible employees of Research, Incorporated
("Research"), whose employment is terminated as a result of a position
elimination or reduction in workforce, will receive severance pay from Research.
Research is the Plan sponsor and is responsible for the administration of the
Plan.
This Plan constitutes the complete and entire statement regarding
severance pay for all employees who meet the Plan's eligibility requirements and
supersedes any and all previous severance agreements and any other plan, policy,
custom or procedure providing severance or other benefits in connection with
termination of employment, except for separate written agreements as may be
entered into by Research and an eligible employee.
ARTICLE I
Establishment of Plan
1.1 ESTABLISHMENT OF PLAN. As of the Effective Date, Research hereby
establishes a severance plan to be known as Research, Incorporated Severance
Plan. The purpose of the Plan is set forth above.
1.2 APPLICABILITY. The benefits provided by this Plan shall be
available to all employees who, at or after the Effective Date, meet the
eligibility requirements set forth herein. The Plan shall not apply to any
employee whose employment was terminated prior to the Effective Date.
1.3 CONTRACTUAL RIGHTS. This Plan establishes and vests in each
participant a contractual right to the benefits to which each participant is
entitled hereunder, enforceable by the participant against Research.
ARTICLE II
Definitions and Construction
2.1 DEFINITIONS. Whenever used in the Plan the following terms shall
have the meaning set forth below:
<PAGE>
A. "Annual Compensation" of a participant means all wages and
salary (excluding bonuses and non-wage benefits), less
necessary taxes and withholdings, in effect immediately
preceding the date participant's employment is terminated.
B. "Cause" with respect to termination of employment means:
(i) Conviction of a crime involving moral turpitude;
(ii) Employee's malfeasance in connection with his
employment or neglect of his duties after written
notification thereof by Research or its successor,
which notice shall specify the alleged instances of
neglect of his duty, and shall provide Employee with
30 days in which to remedy such neglect, if it is
subject to being remedied;
(iii) Employee's material breach of this Agreement or any
written agreement entered into with Research; or
(iv) Employee's personally engaging in knowing and
intentional illegal conduct which is seriously
injurious to Research or its affiliates.
C. "Change of Control" shall mean:
(i) a corporate reorganization of Research which results
in the shareholders of Research immediately prior to
such reorganization owning less than 50% of the
combined voting power of the capital stock of the
surviving company immediately following such
reorganization; or
(ii) the sale of all or substantially all of the assets of
Research; or
(iii) the sale of substantially all of the assets or
business of a business unit if participant is the
manager of that unit immediately prior to such sale.
<PAGE>
D. "Effective Date" as to employees means the date the Plan is
approved by the Board of Directors of Research, or such other
date as the Board shall designate in its resolution approving
this Plan.
E. "Employee" means an employee employed by the employer on a
full time basis or on an approved medical leave of absence.
F. "Employer" means Research, Incorporated or any subsidiary
which has adopted the Plan.
G. "Involuntary Termination" means:
(i) the continued assignment to Employee of any duties or
the continued significant reduction of Employee's
duties, either of which is not substantially
equivalent to the Employee's duties with Research as
of the Effective Date, provided that a change in job
title shall not constitute a significant reduction in
Employee's duties;
(ii) any reduction in Employee's total compensation;
(iii) receipt of employee benefits (including incentive
pay) which are not comparable to employee benefits
received by other employees of Research or successor
corporation who have comparable salaries and duties
to the Employee; or
(iv) the relocation of Employee's principal place for
rendering the Employee's services to Research to a
location more than fifty (50) miles from the present
location of the principal executive office of
Research prior to the Effective Date.
H. "Participant" means an employee who meets the eligibility
requirements contained herein.
I. "Research" means Research, Incorporated, a Minnesota
corporation, or any successor.
<PAGE>
J. "Severance Agreement" means (i) the level of participation for
each participant in terms of months as designated in a
resolution approved by the Board of Directors, divided by (ii)
12, and the result multiplied by the participant's Annual
Compensation.
K. An offer of "Continued Employment" shall mean an offer
extended by Research or its successor to an Employee of
employment with Research or its successor after a Change of
Control which (1) the Employee accepts, or (2) which meets
each of the following conditions:
(i) the assignment to Employee of duties which are
substantially equivalent to the Employee's duties
with Research as of the Effective Date;
(ii) a salary which is equal to or greater than the
Employee's salary with Research as of the Effective
Date; and
(iii) receipt of employee benefits which are comparable to
employee benefits received by other employees of
Research or successor corporation who have comparable
salaries and duties to the Employee.
It is understood and agreed that an offer of employment which
meets the requirements of the term "Continued Employment" may
carry a different title but may not require Employee to
relocate more than fifty (50) miles from the present location
of the principal executive office of Research.
2.2 APPLICABLE LAW. To the extent not preempted by federal law, the
laws of the State of Minnesota shall be the controlling law in all matters
relating to this Plan. The Plan neither requires nor establishes the ongoing
administrative system for its effect or operation. It is intended that the Plan
shall not be covered by or subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
2.3 SEVERABILITY. If a provision of this Plan shall be held to be
illegal or invalid, that portion shall not affect the
<PAGE>
remaining parts of the Plan and the Plan shall be construed and enforced as if
the illegal or invalid portion had not been included.
ARTICLE III
Eligibility
3.1 ELIGIBILITY. Each employee who is a manager, officer or other key
employee of Research and who has been designated as an eligible employee in a
resolution approved by the Board of Directors shall be eligible participants.
3.2 DURATION OF PARTICIPATION. A participant shall cease to be a
participant in the Plan when the participant ceases to be an employee of
Research, unless such participant is then entitled to a payment as provided in
the Plan. Furthermore, an employee shall cease to be a participant upon entering
into a separate employment or change of control severance agreement with the
employer, excluding, however, an Employment (Change of Control) Agreement
entered into contemporaneous with the adoption of this Plan. A participant
entitled to receipt of a payment shall remain a participant in this Plan until
the full amount of such payment has been paid to the participant.
ARTICLE IV
Payments
4.1 RIGHT TO PAYMENT. A participant shall be entitled to receive from
Research a payment in the amount provided in Section 4.2 if participant's
employment is terminated without Cause or by reason of an Involuntary
Termination, or, in the event of a Change of Control if not offered Continued
Employment. A participant shall not be entitled to a payment if termination
occurs by reason of death, voluntary retirement, voluntary termination, total
and permanent disability or for Cause.
4.2 AMOUNT OF PAYMENT. Each participant entitled to a payment under
this Plan shall receive a payment in an amount equal to the Severance Amount.
Each participant who is entitled to a payment under this Plan shall also be
entitled to outplacement services in an amount not to exceed $6,000.
4.3 TIME OF PAYMENT. The payment to which a participant is entitled
shall be paid by Research or by the successor shall be made in equal monthly
installments beginning the end of the month of the month of termination of
participant's employment. Notwithstanding the foregoing, in the event
participant's
<PAGE>
employment is terminated as a result of or following a Change of Control, the
payment to which participant is entitled shall be paid by Research or by the
successor in a lump sum not later than five (5) business days after the
termination of participant's employment. After a participant is entitled to
receive a payment as provided in Section 4.1, Research or its successor shall
make such required payments regardless of participant's death during the payment
period.
ARTICLE V
Other Rights and Benefits Not Affected
5.1 OTHER BENEFITS. Neither the provisions of this Plan nor the payment
provided for shall reduce any amounts otherwise payable, or in any way diminish
the participant's rights as an employee of the employer under any benefit,
incentive, retirement, stock option, stock bonus, stock ownership or any
employment agreement or other plan or arrangement, other than any severance
plan, policy or custom providing severance or other benefits in connection with
termination of employment, except for separate written agreements as may be
entered into by Research and an eligible employee.
5.2 EMPLOYMENT STATUS. This Plan does not constitute a contract of
employment or impose on the participant or on Research any obligation to retain
the participant as an employee, to change the status of the participant's
employment, or to change Research's policies regarding termination of
employment.
ARTICLE VI
Successor
6.1 SUCCESSOR. Research shall require any successor to or assignee of,
whether direct or indirect, by purchase, merger, consolidation or otherwise, all
or substantially all of the business or assets of Research, expressly and
unconditionally to assume and agree to perform Research's obligations under the
Plan.
ARTICLE VII
Duration and Amendment
7.1 DURATION. The Plan shall expire on June 30, 2000 unless extended
for an additional period or periods by resolution adopted by the Board of
Directors. Notwithstanding the foregoing, if a Change of Control occurs prior to
the expiration
<PAGE>
of the Plan, the Plan shall continue in full force and effect for a period of
one year from the date of the Change of Control, and shall not terminate or
expire until such date as all participants who become entitled to payments
hereunder shall have received such payments in full.
7.2 AMENDMENT. The Plan may be amended in any respect by resolution
adopted by a majority of the Board of Directors of Research and approved by any
participant in the Plan on the date of such amendment.
ARTICLE VIII
Arbitration
8.1 ARBITRATION. Any dispute or controversy arising under or in
connection with the Plan shall be settled exclusively by arbitration conducted
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered in the award of the arbitrator in any court
having jurisdiction. All expenses of such arbitration, excluding fees of legal
counsel, shall be borne equally by the parties.
Having been adopted by its Board of Directors on May 21, 1999, the Plan
is executed by its duly authorized officers as of the 21st day of May, 1999.
Attest: RESEARCH, INCORPORATED
/s/ Karen O'Rourke By: /s/ Claude C. Johnson
- ------------------ -------------------------
Its President
EXHIBIT 10.3
SCITEX DIGITAL PRINTING, INC.
DISTRIBUTOR/RESELLER PURCHASE AGREEMENT
This Agreement is made and entered into this 6th day of October, 1998
("Effective Date") by and between Scitex Digital Printing, Inc., 3000 Research
Blvd., Dayton, Ohio 45420 ( "Distributor" hereafter "Buyer"), and Research,
Inc., 6425 Flying Cloud Drive, Eden Prairie, Minnesota 55344 (hereafter
"Seller").
I. AGREEMENT
1.01 Appointment. Seller develops and manufactures dryers and system
integration elements (hereafter "Products") for integration with
Buyer's ink jet printing equipment (hereafter "Equipment"). Seller
authorizes Buyer to purchase, inventory, promote, market and resell
Products as described in Exhibits A and B. The Products listed in
Exhibits A and B are intended to include all the Research, Inc.
products to be sold with Scitex Digital Printing, Inc. equipment. This
list will be amended from time to time. Products that are not
specifically listed, but that are a part of the Research, Inc. product
offering intended for use with Scitex equipment, are considered to be a
part of Exhibits A and B. Combination of Products and Equipment shall
be hereafter referred to as "System". Buyer hereby accepts this
appointment subject to the terms and conditions of this Agreement,
including those terms, conditions, limitations and procedures set out
in the exhibits which are an integral part of this Agreement.
1.02 Buyer's Rights. Seller agrees to grant Buyer exclusive, world-wide
rights to buy the Products in Exhibit A, and non-exclusive, world-wide
rights to buy the products in Exhibit B, when used with Buyer's
Equipment.
Buyer retains all rights to Equipment and to technical data and
information relating to Equipment, whether patentable or not, arising
out of or evolving as a result of Seller rendering engineering services
to Equipment and designing Products for Buyer's use. Seller agrees not
to enforce against Buyer or customers of Buyer any patent rights the
scope of which includes a system utilizing Products delivered hereunder
by Seller and which relates to an invention made by or for Buyer on a
date subsequent to the date of Buyer's offer hereunder.
Seller will not sell Products in Exhibit A for connection to any of
Buyer's equipment without the prior written consent of Buyer.
1.03 Distributor Definition. Buyer certifies that it will purchase Products
to integrate with its Equipment to make a System for resale
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to its customers, or to upgrade products of Seller, previously
purchased by Buyer's customers.
1.04 Right to Appoint Resellers. Buyer shall have the right to appoint
resellers within the Territory provided that each reseller be bound by
the following terms and conditions:
That the reseller be limited to a specified territory; that the
reseller be limited to sales to end users under the applicable terms
and conditions of this Agreement. Buyer agrees to exercise prudent
business management to ensure that each reseller acts in accordance
with the terms and conditions of its agreement with Seller.
II. BUYER'S DUTIES
2.01 Equipment for Developmental Use. Buyer may from time to time provide
Equipment to Seller for Seller's use in developing and testing new
Products for use with Buyer's Equipment. Buyer will support such
Equipment, as described in Exhibit D, at Seller's site. Such Equipment
shall be provided for developmental use only by Seller. Buyer shall
retain all rights to such Equipment.
2.02 Beta Tests. Any new Products developed by Seller may be installed in at
least one Beta site to test the use of System in a live customer
environment.
2.03 Sale of Beta Test Systems. Should Beta Test result in purchase of
System, Seller will be reimbursed for Products and the terms and
conditions of sale for Systems will be the responsibility of Buyer.
2.04 Forecasts. See Exhibit F.
III. SELLER'S RIGHTS, DUTIES AND SUPPORT TO BUYER
3.01 Qualification Tests. Seller will perform qualification testing as
required by Buyer and defined in Exhibit E.
3.02 Beta Tests. Seller, with Buyer's assistance, shall install and support
Products at customer sites during Beta Tests under the terms and
conditions of a separate Beta Test Agreement which will be mutually
agreed to by Buyer and Seller.
3.03 Sales Training. Seller will provide sales training on new Products to
Buyer on or around the time of delivery of such new Products. Seller
will also provide continuing sales advisory assistance for special or
custom applications.
3.04 Maintenance Support Services. Seller will provide maintenance services
to Buyer according to the provisions of Section VII of this Agreement.
3.05 Documentation. Seller will provide one copy each of Installation,
Operator's, and Maintenance Manuals with each unit shipped.
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Additional copies of manuals may be purchased at the same discount
level Buyer receives on Products.
3.06 Finder's Fee. In the event Buyer agrees to allow Seller to sell
Products in Exhibit A directly to Buyer's distributors or customers,
Seller agrees to pay Buyer a Finder's Fee that will not exceed ten
percent (10%) of the sales price of the Products purchased by said
distributors or customers. The amount of the Finder's Fee will be
negotiated prior to the sale to distributors or customers.
3.07 Inventory. Seller will maintain inventory of Products and provide
direct shipment to Buyer's customers as directed by Buyer, according to
Exhibit F.
IV. PRICING AND PAYMENT
4.01 Pricing. Buyer will purchase Products at the discounts set forth in
Exhibit C. Discounts will be based upon Seller's published list prices.
List prices are understood to be the prices at which dryers are sold to
most end-users. Seller shall notify Buyer sixty (60) days in advance of
any price increase on Products. Prices shall not be increased more than
a maximum of five percent (5%) of aggregate Product price in any
12-month period.
4.02 Inventory Protection. Should Buyer elect to maintain inventory in the
future and in the event Seller puts into effect a general price
decrease for any standard Product, Seller will so notify Buyer and will
grant a corresponding retroactive price decrease on any such
unmodified, standard Seller's Product in Buyer's inventory (or in the
process of being shipped to Buyer), which had been shipped to Buyer by
Seller within ninety (90) days of the effective date of the price
decrease. Seller will grant such decrease by crediting Buyer's account
with an amount equal to the number of such Product times the difference
between the price each unit of Product was sold to Buyer for, less any
prior credits granted by Seller, and the new price of each such
Product. To obtain such retroactive price decrease Buyer must submit to
Seller, within 30 days of the effective date of the price decrease, an
inventory report itemizing all such Product received from Seller within
the subject 90-day period. Upon verification by Seller of the inventory
report, Buyer's account will be credited by Seller.
4.03 Payment. Buyer agrees to pay for Products per the following schedule:
Prompt payment discount of two percent (2%) 10 days or net 30
days from the date of invoice which shall be dated on or after
the date of shipment.
4.04 Taxes. Buyer shall pay any and all applicable sales, use or excise
taxes, or any other charges levied by federal, state, county, city or
other governmental authority relating to the purchase of Products.
Buyer will supply to Seller any appropriate tax exemption certificates.
Such taxes will be charged by Seller to Buyer until Buyer supplies
Seller with the appropriate exemption certificates. On shipments
outside of the United States, all required import
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duties, licenses, taxes, and fees shall be payable by Buyer in addition
to stated prices.
V. PURCHASES BY BUYER
5.01 Purchase Orders. All purchases made under this Agreement will be
authorized only upon issuance of Buyer's written purchase order to
Seller which shall expressly reference this Agreement and shall
include: model number of Products to be purchased; quantity, routing
instructions; requested delivery schedule; destination; confirmation of
price; and purchase order number.
5.02 Use of Buyer's Purchase Order. In the event that Buyer uses its
standard purchase order form for orders, said orders, change orders or
notices will be governed by the terms and conditions of this Agreement,
and any term or condition set forth in such standard form which is
inconsistent with or in addition to the terms and conditions of this
Agreement shall have no force or effect.
5.03 Cancellation and Reschedule of Orders. Buyer may cancel or reschedule
any purchase order for Products according to Exhibit F.
VI. DELIVERY
6.01 Shipment. All shipments of Products to Buyer or Buyer's customer shall
be F.O.B. Seller's dock or distribution facility.
VII. MAINTENANCE SUPPORT SERVICES AND SPARE PARTS
7.01 Service By Buyer. Buyer will install Products and perform warranty
service.
Buyer will promptly report to Seller:
(a) Any complaint about, or customer requirements for, Products
that Buyer cannot immediately remedy or satisfy or finds
difficult to remedy or satisfy, and
(b) Any recurring complaint regarding Products, and
(c) All incidents that result in personal injury and/or property
damage involving Products.
7.02 Maintenance Training by Seller. Seller agrees to train Buyer's Service
Technician Trainer in the maintenance of Products to ensure that
Buyer's service representatives can then be trained to properly service
Products.
7.03 Service Support by Seller. Seller will provide service support on
Products for Buyer and/or Buyer's customers, when required, at Seller's
then-current service rates.
7.04 Spare Parts. Seller will make spare parts for Products and service
support (as defined in 7.04) available to Buyer for a period of seven
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(7) years after final shipment of Product has ceased. Seller will also
provide Buyer with notification and the opportunity of a last-time buy
on such spare parts.
7.05 Spares Prices. Seller's prices for spare parts shall be in accordance
with its Spare Parts Price List in effect at the time of receipt of
Buyer's purchase order, less any applicable discounts.
VIII. WARRANTY
8.01. Warranty. Seller warrants to Buyer and the end-user that new Products
will perform according to Seller's written specifications and are free
of defects in materials and workmanship for a period of one year from
the date of installation. Replacement parts and accessories will be
warranted for a period of one year from the date of shipment except for
normally "expendable parts".
If a defect is discovered during the applicable warranty period, Buyer
will send Seller prompt written notice describing Product, including
the date and place of original purchase and installation, and the
problem. Seller will replace the defective part (except for normally
expendable parts) free of charge. Buyer will retain any part alleged to
be defective for sixty (60) days after notice for Seller's inspection
or, at Seller's request, will forward the part to Seller.
Buyer will return Product or part to Seller. Seller will pay shipping
charges incurred to return Product or part to Buyer.
IX. PRODUCT MODIFICATIONS AND DISCONTINUANCE
9.01 Modifications. Seller will obtain Buyer's written agreement prior to
making any modifications that affect form, fit or function of Products.
Buyer will notify Seller of any changes affecting mechanical or
electrical interface of Equipment to Products.
9.02 Product Discontinuance. Seller has the right to discontinue the
manufacture and supply of any Products effective one (1) year after
written notice of discontinuance to Buyer. If Seller discontinues
manufacture of any Product, Seller shall, at Buyer's request, provide
all documentation and drawings, and sell all manufacturing tooling to
Buyer, and provide Buyer the right to manufacture Products.
X. INDEMNITY
10.01 Patent Indemnity. Seller shall indemnify and defend Buyer and the
end-user against any claim or suit for alleged infringement of any
patent arising from the sale or use by Buyer of Products designed and
manufactured by Seller, provided that Buyer promptly notifies Seller of
the claim and authorizes Seller to control and/or conduct the defense
thereof. Should any such claim prove successful, Seller agrees to
assume responsibility for any judgment awarded by a court of last
resort or settlement cost consented to by Seller provided Buyer has
provided the notifications described above. In addition,
<PAGE>
Seller shall attempt to negotiate feasible means to enable Buyer to
continue to purchase and use the same or equivalent Product, or, as a
last recourse, will take back the infringing Product and refund the
purchase price. If Buyer does not consent to such removal, Buyer shall
notify Seller thereof in writing and may continue using Product in
which event Buyer shall, at its expense, undertake the defense of any
action against Buyer and shall indemnify Seller in respect of any costs
or damages attributable to such continued use and Seller may
participate, at its expense, in the defense of any such action (against
Buyer). The foregoing sets forth the entire agreement of Seller for
patent indemnity.
XI. CONFIDENTIALITY
11.01 Information. Each party shall, for a five (5) year period following the
date of disclosure, hold as being confidential and proprietary to the
other party all technical and business information which has or will
come into the possession or knowledge of each about the other and which
has been designated in writing within thirty (30) days of disclosure as
confidential and proprietary. Such information may be disclosed to
others only with the prior written consent of the other party. Before
disclosing any confidential and proprietary information, the disclosing
party agrees to inform the other party of the nature of the information
to be disclosed, and the other party has the option of whether or not
to receive the confidential and proprietary information from the
disclosing party. After disclosure, the receiving party agrees not to
disclose the information to any other party, nor make use of the
information thereof other than for the performance of this Agreement.
Neither party shall be obligated to protect information designated as
confidential in the event such confidential information:
(1) as already known to such party at the time of the Effective
Date of this Agreement, (unless prior to the Effective Date of
the Agreement such information was designated as being
confidential), or
(2) was known or was generally available to the public at the time
of or subsequent to its disclosure hereunder, or
(3) becomes known or generally available to any third party due to
the willful conduct of the party so designating such
information as being confidential, or
(4) is disclosed to the recipient by a third party who is not in
default of any confidentiality obligation to the disclosing
party hereunder; or
(5) is developed by or on behalf of the receiving party, without
reliance on confidential information received hereunder.
XII. TERM RENEWAL AND TERMINATION
12.01 Term and Renewal. Subject to earlier termination pursuant to Paragraph
12.02, the term of this Agreement shall be for a period of
<PAGE>
two years commencing on the Effective Date and continuing for
successive twelve-month periods thereafter unless either party receives
from the other, at least sixty (60) days prior to the end of the
current term, written notification of its intention not to renew for an
additional twelve-month period.
12.02 Termination for Cause. Either party may terminate this Agreement upon
written notice of termination to the other party for any of the events
given in 12.03 through 12.05.
12.03 Material Breach. The other party materially breaches this Agreement and
such breach remains uncured for thirty (30) days following written
notice specifying the breach from the terminating party unless the
other party has undertaken commercially reasonable steps to cure the
breach.
12.04 Delays. Any cause set forth in Section 13.03 which delays the other
party's performance for more than ninety (90) days.
12.05 Bankruptcy. A petition for relief under any bankruptcy legislation is
filed by or against the other party, or the other party makes an
assignment for the benefit of creditors, or a receiver is appointed for
all or a substantial part of the other party's assets, and such
petition, assignment or appointment is not dismissed or vacated within
thirty (30) days.
12.06 Effect of Termination or Expiration. In the event of any termination or
expiration of this Agreement:
(a) Neither party shall be liable to the other for any damage,
expenditures, loss of profits or prospective profits of any
kind or nature sustained or arising out of or alleged to have
arisen out of such termination or expiration. Termination or
expiration of this Agreement shall not, however, relieve or
release either party from making payments which may be owing
to the other party under the terms of this Agreement, or from
its obligations to perform any duties or take any action which
by the terms of this Agreement require performance subsequent
to such termination.
(b) Upon termination of this Agreement for any reason, Buyer
agrees to give Seller first right of refusal to purchase
Buyer's inventory of Products at terms to be mutually agreed
upon. Seller agrees to exercise this right to purchase
products within thirty (30) days of termination of the
Agreement.
XIII. GENERAL PROVISIONS
13.01 Notices. Any notice which may be or is required to be given under this
Agreement shall be written. All written notices shall be sent by
registered or certified mail, postage prepaid, return receipt
requested. All such notices shall be deemed to have been given five
days after mailing, addressed in the manner indicated below or at such
other addresses as the parties may from time to time notify each other
of:
<PAGE>
SELLER: BUYER:
Research, Inc. Scitex Digital Printing, Inc.
6425 Flying Cloud Avenue Purchasing Department
Eden Prairie, Minnesota 55344 3000 Research Blvd.
Attention: Bruce Bailey, Dayton, Ohio 45420
Vice President, Drying Division Attention: Charles E. Bechter,
Buyer
13.02 Publicity. Neither party shall issue a press release or other like
publicity of any nature regarding this Agreement without the other
party's prior written approval, which approval shall not be
unreasonably withheld. However, such approval shall be deemed to have
been given to the extent such disclosure is required to comply with
governmental requirements. In such event, the publishing party shall
review the text of such disclosure with the other party prior to such
disclosure.
13.03 Force Majeure. Neither party shall be liable to the other for its
failure to perform any of its obligations hereunder during any period
in which such performance is delayed by circumstances beyond its
reasonable control including, but not limited to, fire, flood, war,
embargo, strike, riot, act of the other party, inability to secure
materials and transportation facilities, or the intervention of any
governmental authority. If such delaying cause shall continue for more
than ninety (90) days, the party injured by the inability of the other
to perform shall have the right upon written notice to either (1)
terminate the Agreement with respect to materials not already shipped,
or (2) treat this Agreement as suspended during the delay and reduce
any commitment in proportion to the duration of the delay.
13.04 Amendment. This Agreement may be amended only by written amendment duly
signed by authorized representatives of both parties.
13.05 Entire Agreement. This Agreement constitutes the entire agreement of
the parties as to the subject matter hereof, and supersedes any and all
prior oral or written understandings and agreements including purchase
orders.
13.06 Assignment. This Agreement may not be assigned by the Seller without
the prior written consent of Buyer.
13.07 Severability. If any provision of this Agreement is held invalid by any
law, rule, order or regulation of any government, or by the final
determination of any state or federal court, such invalidity shall not
affect the enforceability of any other provisions not held to be
invalid.
13.08 Omissions. Any delay or omission by either party to exercise any right
or remedy under this Agreement shall not be construed to be a waiver of
any such right or remedy or any other right or remedy
<PAGE>
hereunder. All of the rights of either party under this Agreement shall
be cumulative and may be exercised separately or concurrently.
13.09 Governing Law. This Agreement and the sale of Products hereunder shall
be governed by and construed within and in accordance with the laws of
the State of Ohio.
13.10 Official Agreement. This Agreement becomes effective only upon
execution by authorized representatives of both parties.
SCITEX DIGITAL PRINTING, INC.
By: /s/ Hercules Mousidades V. P., Mktg. & Business Development
----------------------------------- ------------------------------------
(Signature) (Title)
Hercules Mousiades October 6, 1998
----------------------------------- ------------------------------------
(Typed Name) (Date)
RESEARCH, INC.
By: /s/ Bruce Bailey Vice President, Dryer Division
----------------------------------- ------------------------------------
(Signature) (Title)
Bruce Bailey October 6, 1998
----------------------------------- ------------------------------------
(Typed Name) (Date)
EXHIBIT 10.4
PURCHASE AGREEMENT
THIS AGREEMENT is made as of June 25, 1999, by RESEARCH, INCORPORATED,
a Minnesota corporation ("Seller") and CONTINENTAL PROPERTY GROUP, INC., a
Minnesota corporation, or its assigns ("Buyer").
RECITALS:
Seller is the fee owner of (a) approximately 11.1 acres of land
situated in Hennepin County, Minnesota, with an address of 6425 Flying Cloud
Drive, Eden Prairie, Minnesota 55344, as legally described on Exhibit A attached
and depicted on Exhibit B attached (the "Land") and (b) a building which the
parties agree for purposes of this Agreement is agreed to be 90,000 square feet
in size and is located on the Land (the "Building"). The Land and Building are
collectively described in this Agreement as the "Property". The parties agree
that the Property does not include trade fixtures and equipment used in
connection with Seller's business operations upon the Property, including
without limitation moveable wall partitions and moveable work stations located
in the Building, whether or not any of the same are affixed to floors, walls or
ceilings of the Building at this time.
Buyer desires to purchase the Property and Seller desires to sell the
Property pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Seller agrees to sell the Property and Buyer agrees to purchase
the Property, upon the following conditions:
1. Purchase Price. The purchase price to be paid by Buyer (the
"Purchase Price") shall be Three Million Six Hundred Fifty Thousand and no/100
Dollars ($3,650,000.00).
2. Payment of the Purchase Price. The Purchase Price, subject to those
adjustments, prorations and credits described in this Agreement, shall be paid
as follows:
2.1 Earnest Money. One Hundred Thousand Dollars ($100,000), to
be deposited within twenty-four (24) hours of the date upon which
Seller and Buyer shall have executed this Agreement (the "Execution
Date") with Old Republic National Title Insurance Company ("Title") in
an interest bearing account, with interest accruing to the benefit of
the Buyer (except where specifically stated to the contrary in this
Agreement). Buyer shall pay all costs of establishing and maintaining
the earnest money account described in this Section 2.1.
2.2 Payment at Closing. Three Million Five Hundred Fifty
Thousand and no/100 Dollars ($3,550,000.00 shall be paid in cash or
certified funds at Closing.
3. Closing. The closing of the transaction contemplated by this
Agreement ("Closing") shall take place on a mutually agreeable date not later
than August 24, 1999 (the "Closing Date"). The Closing shall take place in
<PAGE>
the office of Title Company. Seller and Buyer shall each pay one-half (1/2) of
any closing fee charged by Title to close the transaction.
4. Real Estate Taxes and Special Assessments. At Closing, the Purchase
Price shall be adjusted as follows:
4.1 Taxes. All real property taxes which have become a lien on
the Property and which are due and payable prior to the year in which
Closing occurs, shall be paid by Seller at or prior to Closing. All
real property taxes which have become a lien on the Property and which
are due and payable in the year in which Closing occurs, shall be
prorated to the Closing Date and Buyer shall reimburse Seller for any
prepaid amounts at Closing.
4.2 Assessments. All charges for improvements or services
already made to or which benefit the Property, and all levied and
pending assessments (general or special) arising out of or in
connection with any assessment district created or confirmed prior to
the Closing Date shall be paid in full by Seller at Closing.
5. Examination of Title. Within a reasonable time following the
Execution Date, Seller shall furnish to Buyer a commitment for an Owner's Policy
of Title Insurance (ALTA Form B-1992) for the Property issued by Title (the
"Commitment"). The Commitment shall (a) bear the most recent date available
given the records of the Hennepin County Registrar of Titles; (b) include the
most available legible copies of all documents, maps or plats set forth in the
Commitment as affecting the Property; and (c) identify the Property and
easements appurtenant thereto. Seller shall pay the cost of obtaining the
Commitment.
5.1 Additional Commitment Options. At Buyer's option and cost,
the Commitment shall be revised to include (a) the zoning
classification of the Property and (b) confirmation that the Property
abuts the public street(s) immediately adjacent to the Property and has
direct and valid access to the same (the "Additional Commitment
Options"). The provision of the Additional Commitment Options shall not
extend the time period for Buyer's examination of title as described in
Section 5.2 of this Agreement. If the Additional Commitment Options are
not available, Buyer may terminate this Agreement within ten (10) days
of Title's informing Buyer that the Additional Commitment Options are
not available, which termination shall be made by written notice
delivered to Seller on or before such tenth (10th) day, in which event,
the Earnest Money and all accrued interest shall be returned to Buyer
and this Agreement shall be null and void and neither party shall
thereafter be obligated pursuant to this Agreement.
5.2 Objections to Title. Buyer shall be allowed twenty (20)
days after receipt of the Commitment by Buyer for examination of said
title and the making of any objections, said objections to be made in
writing or deemed to be waived. Buyer agrees that the encumbrances
described on Exhibit C (the "Permitted Encumbrances") are not, and will
not be raised as, objections to title.
5.3 Correction of Title. If any objections are so made, Seller
shall be allowed sixty (60) days from the date of receipt of said
objections to make such title marketable. Pending correction of title,
<PAGE>
the Closing shall be postponed, if necessary, but upon correction of
title and within ten (10) days after written notice, the parties shall
complete this transaction according to its terms.
5.4 Default. If title is not marketable and is not made so
within said sixty (60) days or if Seller shall otherwise default
pursuant to this Agreement and such failure or refusal to perform
continues for a period of ten (10) days following written notice from
Buyer to Seller, then Buyer may (a) terminate this Agreement and the
Earnest Money and all accrued interest shall be refunded to Buyer or
(b) enforce the specific performance of this Agreement, provided action
to enforce the specific performance of this Agreement shall be
commenced within six (6) months after such right of action shall arise.
If the title to the Property shall be made marketable and Buyer shall
fail to close this transaction pursuant to this Agreement, then and in
that case upon ten (10) days written notice to Buyer, Seller may
terminate this Agreement and, in that event, the Earnest Money and all
accrued interest shall be released to Seller as liquidated damages,
time being of the essence hereof. Alternatively, following the
expiration of said ten (10) days, Seller may enforce specific
performance of Buyer's obligations pursuant to this Agreement, provided
that such action be commenced within six (6) months after such right of
action shall arise.
5.5 Expense of Enforcement. If either party brings an action
at law or in equity to enforce or interpret this Agreement, the
prevailing party in such action shall be entitled to recover reasonable
attorney's fees and court costs in addition to any other remedy
granted.
6. Seller's Closing Documents. At the Closing, Seller shall execute
and/or deliver to Buyer the following (collectively, "Seller's Closing
Documents"):
6.1 Deed. A Warranty Deed, in recordable form reasonably
satisfactory to Buyer, conveying the Real Property to Buyer, free and
clear of all encumbrances, except the Permitted Encumbrances.
6.2 Seller's Affidavit. An Affidavit of Seller in the standard
Minnesota form.
6.3 FIRPTA Affidavit. A non-foreign affidavit, properly
executed and in recordable form, containing such information as is
required by IRC Section 1445(b)(2) and its regulations.
6.4 Owner's Duplicate Certificates of Title. The owner's
duplicate certificates of title regarding the Land.
6.5 Other Documents. Any other documents reasonably requested
by Title to confirm the authority of Seller to consummate this
transaction or to permit Title to issue to Buyer, upon completion of
the Closing, an Owner's Title Insurance Policy in an amount equal to
the Purchase Price, subject only to (a) the Permitted Encumbrances and
(b) those other matters shown on the Commitment which were approved by
Buyer, provided however that this Section 6.5 shall not be construed to
obligate Seller to provide any indemnity or to pay any sums not
otherwise required to be paid by Seller pursuant to this Agreement.
<PAGE>
6.6 Seller Lease. The lease by Seller of the Property
effective as of the Closing, in the form attached as Exhibit D (the
"Seller Lease"), which Buyer shall also execute at Closing.
7. Contingencies. The parties acknowledge that, pursuant to the Seller
Lease, following the Closing the Property will be used for the same use as the
Property has been used during Seller's ownership of the Property (the "Continued
Use"). Unless waived by Buyer (or Seller, as the case may be, as to each stated
contingency) in writing, the parties' obligations to sell and to purchase the
Property shall be subject to (a) performance of the other party's obligations
hereunder, (b) the continued accuracy of Seller's representations and warranties
set forth in Section 9 of this Agreement, (c) Buyer's satisfaction, in Buyer's
sole discretion, as to those contingencies described in this Section 7 which
benefit Buyer, and (d) Seller's satisfaction as to the contingency described in
Section 7.5, which contingency benefits Seller.
7.1 Utilities. On or before the Contingency Date, Buyer shall
have satisfied itself, in Buyer's sole discretion, that water and gas
mains, electric power lines and sanitary and storm sewers are available
to the Property and adequate for the Continued Use.
7.2 Hazardous Substances. On or before the Contingency Date,
Buyer shall have satisfied itself, in its sole discretion, that the
soils on the Property are free from hazardous substances, wastes,
pollutants and other contaminants.
7.3 Survey. On or before the Contingency Date, Buyer shall
have received from Seller an ALTA survey, certified to the Buyer and
the Title Company bearing the legal description of the Property, and
showing the area, dimensions and location of the Property, the location
of all improvements and encroachments, the location of any recorded
easements, which survey shall be prepared at Seller's sole cost and
expense. On or before the Contingency Date, Buyer shall have satisfied
itself, in its sole discretion, that the survey does not disclose any
condition rendering the Property unusable for the Continued Use.
7.4 Zoning. On or before the Contingency Date, Buyer shall
have satisfied itself that the Property is properly zoned for the
Continued Use.
7.5 Contingency Date. The "Contingency Date" for this
Agreement is agreed to be July 26, 1999.
7.6 Exercise of Contingencies. Both parties hereby reserve the
right to waive performance of any or all of the contingencies which
benefit such party by written notice executed and delivered to the
other party, which notice shall be received by the other as of the
Contingency Date, and, in such event, this Agreement shall be
terminated. If neither party provides the other party with written
notice of the failure of any condition as of the Contingency Date, said
condition shall be deemed waived and the parties shall proceed to
consummate the Closing. In the event of termination due to the failure
of any condition pursuant to this Section 7, the Earnest Money and all
accrued interest shall be returned to Buyer.
<PAGE>
7.7 Seller's Cooperation. Except as otherwise specifically
provided, all of the above contingencies shall be undertaken at Buyer's
sole cost and expense, provided, however, that Seller shall reasonably
cooperate with Buyer's efforts to complete said contingencies, said
cooperation to include without limitation, Seller's assistance in
obtaining appropriate zoning and governmental permits.
8. Inspection. From and after the date of this Agreement, Buyer and
Buyer's representatives, at Buyer's sole cost and expense, shall have the right
to enter upon the Property for the purposes of viewing the Property, performing
a Phase I environmental audit of the Property and making such other physical
inspection as Buyer deems reasonably appropriate.
8.1 Phase I. Buyer may obtain, at Buyer's sole cost and
expense, a Phase I environmental audit of the Property certified to
Buyer. If, following receipt and review of the Phase I, Buyer
reasonably believes a Phase II environmental audit is necessary, Buyer
shall obtain Seller's approval before proceeding with such Phase II,
which approval shall not be unreasonably withheld by Seller. If Seller
does refuse to approve a Phase II environmental audit, then Buyer may
elect to terminate this Agreement by written notice to Seller, in which
event (a) the Earnest Money and all accrued interest shall be returned
to Buyer, (b) neither party shall be obligated to the other pursuant to
this Agreement, and (c) this Agreement shall be null and void.
8.2 Indemnification. Buyer hereby agrees to indemnify and hold
Seller harmless from any and all liabilities of whatever nature arising
out of Buyer's presence on the Property prior to the Closing Date.
Notwithstanding the foregoing, the provisions of this paragraph shall
not apply to any condition discovered by Buyer in the course of Buyer's
due diligence.
8.3 Copies of Reports. Buyer shall provide Seller with a copy
of any written test result or report regarding the Property, including
without limitation the Phase I and any Phase II, within ten (10) days
of Buyer's receipt of the same.
9. Seller's Representations and Warranties. To induce Buyer to (a)
enter into this Agreement, (b) purchase the Property and (c) consummate the
transaction contemplated by this Agreement, Seller hereby warrants and
represents to Buyer, as follows:
9.1 Title. Seller will have marketable and insurable record
title to the Property as of Closing, subject only to the Permitted
Encumbrances.
9.2 Condemnation. Seller has not received any notice of any
pending action to take by eminent domain or by deed in lieu thereof all
or any portion of the Property.
9.3 Assessments. Seller shall be solely responsible for and
shall pay on the Date of Closing any deferred tax or assessment.
9.4 Foreign Person. Seller is not a "foreign person" as
contemplated by Section 1445 of the Internal Revenue Code. At the
Closing Seller will deliver to Buyer a certificate so stating, in a
form complying with the Federal tax law.
<PAGE>
9.5 Authority. Seller has the full right, power and authority
to enter into this Agreement and to carry out the terms and provisions
hereof including, but not limited to, compliance with all appropriate
procedures to authorize the execution and delivery of this Agreement.
9.6 Hazardous Substances. To the actual knowledge of Seller's
officers and directors, without any inquiry or investigation
whatsoever, and except as specifically set forth in this Section 9.6,
the Property has not been unlawfully used for storage or disposal of,
nor does it contain (beyond lawful limits), any hazardous substance or
high concentrations of pollutants or contaminants, including but not
limited to, petroleum or gas products and those defined in 42 USC ss.
6903 or ss. 6921, nor has the Property been used for the dumping of
trash or other waste products. To the actual knowledge of Seller's
officers and directors, without any inquiry or investigation
whatsoever, and except as specifically set forth in this Section 9.6,
any asbestos or other health endangering elements or chemicals are
either absent from the Property or are properly encapsulated and do not
present any health risk. Notwithstanding the foregoing, Seller hereby
specifically inform Buyer that (a) a previous spill of hazardous
material occurred on the Property, the results of which spill have been
removed from the Property as required by law such that the spill is no
longer monitored by or the subject of any ongoing reporting or open
files maintained by any governmental entity responsible for the same,
including without limitation the Minnesota Pollution Control Agency;
and (b) low levels of asbestos exist in certain floor tiles in the
Building, which do not present any health risk so long as the floor
tiles remain in their current location and condition.
9.7 Unrecorded Interests. To the actual knowledge of Seller's
officers and directors, without any inquiry or investigation
whatsoever, no unrecorded condition, restriction, obligation or
agreement shall exist which shall materially and adversely affect the
Property or Buyer's ability to use the Property for its proposed use.
9.8 Flood Zone. To the actual knowledge of Seller's officers
and directors, without any inquiry or investigation whatsoever, no
portion of the Property is located within an area designated as "flood
plain" or "flood prone area" under any statute, regulation or
ordinance. To the actual knowledge of Seller's officers and directors,
without any inquiry or investigation whatsoever, the Property is free
from any use or occupancy restrictions, except those imposed by zoning
laws and regulations, and no part is dedicated or has been used as a
cemetery or burial ground.
9.9 Access. There exists access to the Property from a public
street and, to the actual knowledge of Seller's officers and directors,
without any inquiry or investigation whatsoever, no fact or condition
exists which would result in the termination of the current access to
the Property from any presently existing streets and roads adjoining or
situated on the Property or to any existing sewer or other utility
facilities servicing, adjoining or situated on the Property.
9.10 Litigation. There is no litigation at law or in equity,
and no pending proceedings of any administrative or regulatory
authority pending against the Seller or affecting the Property which
would have a
<PAGE>
material adverse effect on the Property or the transaction contemplated
by this Agreement.
For a period of twelve (12) months following Closing, Seller agrees to indemnify
and hold Buyer harmless from all claims, expenses and liabilities (including
reasonable attorneys' fees) incurred by Buyer as a result of Seller's breach of
any of the foregoing warranties. Any claim not made within said 12-month period
is deemed waived and Buyer may make no claim against Seller pursuant to the
warranties and representations contained in this Section 9 after the expiration
of said 12-month period.
10. AS IS Condition. Buyer hereby acknowledges that Seller is selling
the Property AS IS. Buyer will have the opportunity to inspect the Property and
become acquainted with the condition of the Property. Buyer agrees that in
entering into this Purchase Agreement, Buyer has not relied upon any statements
or representations, oral or written, made by Seller (except as specifically set
forth in Section 9 of this Purchase Agreement) or anyone acting on Seller's
behalf. Except as specifically set forth in Section 9 of this Purchase
Agreement, Buyer is relying entirely upon its own investigation, inspection and
review in making this purchase. Buyer hereby waives any and all claims against
Seller for misrepresentation or breach of warranty, except any warranty of
title.
11. Risk of Loss. Between the date of this Agreement and the Closing
Date, the risk of ownership and loss of the Property shall belong solely to
Seller. If, prior to Closing, all or any portion of the Property is condemned,
taken by eminent domain, damaged by fire or by any other cause of any nature,
Seller shall, to the extent Seller receives knowledge of the same, immediately
give Buyer notice of such condemnation, taking or damage. After receipt of
notice of such condemnation, taking or damage (from Seller or otherwise), Buyer
shall have the option either (a) to require Seller to (i) convey the Property at
Closing to Buyer in its damaged condition, upon and subject to all of the other
terms and conditions of this Agreement without reduction of the Purchase Price,
(ii) assign to Buyer all of Seller's right, title and interest in and to any
claims Seller may have to insurance proceeds, condemnation awards and/or any
causes of action with respect to such condemnation or taking of or damage to the
Property, and (iii) pay to Buyer by certified or official bank check all
payments made prior to Closing under such insurance policies or by such
condemning authorities or (b) to terminate this Agreement by giving notice of
such termination to Seller, whereupon this Agreement shall be terminated, all
sums paid by Buyer to Seller shall be refunded to Buyer and thereafter neither
party shall have any further obligations or liabilities to the other. The right
to terminate this Agreement shall be exercised within sixty (60) days of the
date of notice of the event giving rise to such notice and if not exercised by
Buyer within said time period such right shall be deemed to have been waived.
12. Brokers. Buyer represents and warrants to Seller and Seller
represents and warrants to Buyer that each dealt with no broker, agent, finder
or other intermediary in connection with the sale and purchase other than
Benchmark Commercial Real Estate Group, Inc., for whose commission Buyer shall
be solely responsible if and when a Closing takes place. In the event any third
party institutes a legal action in an effort to recover such fees, the parties
jointly shall defend such action. If a judgment is obtained against the parties
jointly, the party responsible for breach of this warranty shall reimburse the
other for the latter's attorneys' fees, court costs and share of judgment.
Seller agrees to indemnify and hold Buyer harmless from
<PAGE>
and against any loss, cost, charge and expense, including attorneys' fees,
resulting from any claim for such fee or commission.
13. Notices. Any notices, elections, payment or demand, permitted or
required to be given or made pursuant to this Agreement shall be delivered
personally or mailed by United States certified or registered mail, with return
receipt requested, to the parties, as follows:
If to Seller: Research, Incorporated
6425 Flying Cloud Drive (55344)
P.O. Box 24064
Eden Prairie, MN 55424
Attn: Claude C. Johnson, President
With a copy to: Debra K. Page
Lindquist & Vennum P.L.L.P.
4200 IDS Center
Minneapolis, MN 55402
If to Buyer: Continental Property Group, Inc.
253 East Lake Street
Wayzata, Minnesota 55391
Attn: Bradley A. Hoyt
14. Binding Agreement. All previous negotiations and understandings
between Seller and Buyer or their respective agents and employees with respect
to the transaction set forth herein are merged in this Agreement which alone
fully and completely expresses the parties' rights, duties and obligations. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives, it
being understood and agreed that the warranties, representations and/or
indemnities made and expressed herein shall survive the closing of this
transaction and shall not be merged therein.
15. Governing Law. This Agreement shall be deemed to be a contract made
under the laws of the State of Minnesota and for all purposes shall be governed
and construed in accordance with the laws of said State.
16. Public Release. Seller and Buyer agree that upon the execution of
this Agreement by both parties, a general public release will be made regarding
the purchase and sale of the Property, in a form which is mutually agreed to by
both Seller and Buyer.
IN AGREEMENT, the parties have executed this Purchase Agreement as of
the day and year first above written.
SELLER: BUYER:
RESEARCH, INCORPORATED CONTINENTAL PROPERTY GROUP, INC.
By /s/ Claude C. Johnson By /s/ Bradley A. Hoyt
--------------------- -------------------
Its President Its President
<PAGE>
EXHIBIT A
Legal Description of the Land
Lot 1, Block 1, Research Addition, according to the plat
thereof, Hennepin County, Minnesota.
EXHIBIT B
Depiction of the Property
EXHIBIT C
Permitted Encumbrances
1. Limitation of access onto State Highway No. 169 formerly known as
County State Aid Highway No. 18 conveyed to the County of Hennepin as
contained in Warranty Deed dated August 3, 1967, filed September 14,
1967, as Document Number 887361, Office of Registrar of Titles.
2. Highway and snow-fence easements conveyed to the State of Minnesota as
contained in Highway Easement dated September 26, 1925. filed October
16, 1925, in Book 1052 of Deeds on Page 535, as Document Number
1311469, and Highway Easement dated June 9, 1926, filed July 9, 1926,
in Book 1117 of Deeds on page 276, as Document Number 1362312, and
Highway Easement dated June 14, 1926, filed November 22, 1926, in Book
1126 of Deeds on page 7 as Document Number 1388841, all in the Office
of County Recorder.
3. Highway easement conveyed to the County of Hennepin and terms and
conditions contained in Highway Easement dated April 5, 1968, filed
July 18, 1968, as Document Number 915029, Office of Registrar of
Titles.
4. Sanitary sewer main easement conveyed to the Village of Eden Prairie
(now City of Eden Prairie) as contained in Quit Claim Deed dated
February 12, 1968, filed July 18, 1968, as Document Number 915028,
Office of Registrar of Titles.
5. Right of way of Flying Cloud Drive as shown by available maps.
6. Ordinance No. 6 by the Town of Eden Prairie regarding the regulation of
subdivisions was filed August 26, 1957, in Book 785 of Misc. Records,
on page 354, as Document Number 3080507, Office of County Recorder, and
appears as a recital on the certificate of title.
7. Drainage Easement by and between Research, Incorporated, a Minnesota
corporation, and Starkey Laboratories, Inc., a Minnesota corporation,
dated October 4, 1996, filed _______________, as Document Number
______________.
8. Storm sewer easement in favor of the City of Eden Prairie dated October
4, 1996, filed _______________, as Document Number _____________.
9. The Seller Lease.
<PAGE>
10. Drainage and utility easements as shown on the plat of Research
Addition.
11. Building and zoning laws, ordinance, state and federal regulations.
EXHIBIT D
Form of Seller Lease
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THE 10-Q FOR THE QUARTER ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
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<S> <C>
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<PERIOD-END> JUN-30-1999
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0
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