<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TOP AIR MANUFACTURING, INC.
(Exact name of registrant as specified in its charter)
IOWA 3563 42-1155462
(State or other (Primary Standard (I.R.S. employer
jurisdiction of incorporation Industrial Classification identification
or organization) Code Number) number)
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406 HIGHWAY 20, PARKERSBURG, IOWA 50665
(319) 346-1788
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
STEVEN R. LIND, PRESIDENT
406 Highway 20
Parkersburg, Iowa 50665
(319) 346-1788
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all correspondence to:
ROBERT H. WEXLER, ESQ. JOHN C. LARSEN, ESQ.
GALLOP, JOHNSON & NEUMAN, L.C. REDFERN, MASON, DIETER, LARSEN & MOORE
1600 INTERCO CORPORATE TOWER 315 CLAY STREET
101 SOUTH HANLEY RD. CEDAR FALLS, IOWA 50613
ST. LOUIS, MISSOURI 63105
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS DESCRIBED IN THAT CERTAIN ASSET
PURCHASE AGREEMENT DATED AS OF APRIL 11, 1995 BETWEEN THE REGISTRANT AND CLAY
EQUIPMENT CORPORATION AND CLAY HOLDING, INC. HAVE BEEN SATISFIED OR WAIVED.
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IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. [ ]
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<TABLE>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
<CAPTION>
Proposed
maximum Proposed maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered per share offering price<F1> registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par
value . . . . . . . . . . . . . . . . . . 850,000 shares $0.906 $770,100 $265
====================================================================================================================================
<FN>
<F1> Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and based upon the average of the bid and asked
price of Top Air Common Stock, as published on the NASDAQ Bulletin Board
on May 5, 1995.
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE> 2
PROSPECTUS/INFORMATION STATEMENT
------------------------------------
PROSPECTUS
TOP AIR MANUFACTURING, INC.
850,000 SHARES
COMMON STOCK
------------------------------------
INFORMATION STATEMENT
CLAY HOLDING, INC.
------------------------------------
WE ARE NOT ASKING OUR SOLE SHAREHOLDER FOR A PROXY
AND YOU ARE REQUESTED NOT TO
SEND US A PROXY
This Prospectus of Top Air Manufacturing, Inc., an Iowa
corporation ("Top Air"), relates to 850,000 shares of the common
stock, without par value, of Top Air (the "Top Air Common Stock")
to be issued to Clay Equipment Corporation, an Iowa corporation
("Clay Equipment"), and subsequently distributed to the
participants of the Clay Holding, Inc. Employee Stock Ownership
Plan (respectively, the "ESOP Participants" and the "ESOP")
pursuant to that certain Asset Purchase Agreement dated as of April
11, 1995 among Clay Equipment, Clay Holding, Inc., an Iowa
corporation ("Clay Holding") which holds all of the outstanding
shares of the capital stock of Clay Equipment, and Top Air, as
amended by amendatory agreement dated May 5, 1995 (such Asset
Purchase Agreement, as thus amended, being collectively referred to
herein as the "Purchase Agreement"). Pursuant to the Purchase
Agreement and subject to its terms and conditions, substantially
all of the assets of Clay Equipment will be sold to Top Air or a
wholly-owned subsidiary of Top Air in exchange for the issuance to
Clay Equipment of the lesser of (i) 750,000 shares of the no par
value common stock of Top Air (the "Top Air Common Stock"), or (ii)
the number of shares of Top Air Common Stock having an aggregate
market value of $1,000,000 as of the Closing Date (as defined in
the Purchase Agreement), in either case subject to adjustment (as
adjusted, the "Top Air Shares"), and the assumption by Top Air of
certain liabilities of Clay Equipment (the "Proposed Transaction").
This Prospectus also serves as the Information Statement of Clay
Holding for use in connection with the special meeting of
stockholders of Clay Holding (the "Special Meeting") to be held
June 26, 1995 at the time and place stated in the Notice of Special
Meeting accompanying this Prospectus/Information Statement.
SEE "INVESTMENT CONSIDERATIONS" FOR INFORMATION THAT SHOULD BE CONSIDERED
BY RECIPIENTS OF THIS PROSPECTUS/INFORMATION STATEMENT.
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------------
The date of this Prospectus/Information Statement is ------------, 1995.
<PAGE> 3
Consummation of the Proposed Transaction is subject to various
conditions, including the approval of the Proposed Transaction by
the ESOP Trustee, the direction by ESOP Participants entitled to
the distribution of at least ninety percent (90%) of the Top Air
Shares in connection with the Proposed Transaction that such
distribution be made as a direct rollover which satisfies the
requirements of Section 401(a)(31) of the Internal Revenue Code of
1986, as amended (the "Code"), to an "Eligible Retirement Plan," as
defined in Section 402(c)(8)(B) of the Code, and the absence of the
exercise by any ESOP Participant of their dissenters' rights. See
"SUMMARY INFORMATION - Proposed Transaction"; "TERMS OF THE
PROPOSED TRANSACTION - General Description of the Proposed
Transaction and Conditions of the Transaction"; "RIGHTS OF
DISSENTING STOCKHOLDERS."
No ESOP Participant who directs that the distribution of that
portion of the Top Air Shares to which he or she is entitled be
made as a "direct rollover" to an Eligible Retirement Plan will be
subject in the current tax year to federal income tax on the income
derived from such distribution, and thus no amount will be withheld
on behalf of such ESOP Participants. Each ESOP Participant who
directs that the portion of the Top Air Shares to which he or she
is entitled be distributed directly to such Participant will be
subject to (i) federal income tax (and withholding) attributable to
such distribution, (ii) in the case of those ESOP Participants who
are residents of the State of Iowa or certain other states, state
income (and withholding) attributable to such distribution, and
(iii) a ten percent (10%) penalty applicable to such distribution
if such Participant is under the age of 59-1/2 years. See "SUMMARY
INFORMATION - Certain Federal Income Tax Consequences" and "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES."
Top Air Common Stock is currently quoted on the Nasdaq
Bulletin Board under the trading symbol "TOPM." On May 5, 1995,
the average of the bid and asked prices for Top Air Common Stock as
published by the Nasdaq Bulletin Board was $0.906 per share. See
"SUMMARY INFORMATION - Markets and Market Prices" and "INVESTMENT
CONSIDERATIONS - NASDAQ Delisting; Market Volume Considerations."
This Prospectus/Information Statement and the Notice of
Special Meeting were first mailed to the ESOP Trustee and the ESOP
Participants on or about June --, 1995.
2
<PAGE> 4
AVAILABLE INFORMATION
Top Air is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"), which may be inspected at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; at its New York Regional Office, Room
1400, 7 World Trade Center, New York, New York 10048; and its
Chicago Regional Office, 500 West Madison, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained at
prescribed rates from the public reference section of the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549.
This Prospectus/Information Statement does not contain all of
the information set forth in the Registration Statement on Form S-4
and exhibits thereto (the "Registration Statement") covering the
securities offered hereby which has been filed by Top Air with the
Commission. As permitted by the rules and regulations of the
Commission, this Prospectus/Information Statement omits certain
information contained in the Registration Statement. For further
information with respect to Top Air and the Top Air Common Stock
offered hereby, reference is made to such Registration Statement
and to the exhibits and schedules filed therewith. Statements made
in this Prospectus/Information Statement regarding the contents of
any contract or other document referred to herein as an exhibit to
the Registration Statement are qualified in all respects by such
reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/INFORMATION
STATEMENT AND, IF SUCH INFORMATION IS GIVEN OR REPRESENTATION MADE,
NEITHER MAY BE RELIED UPON AS HAVING BEEN AUTHORIZED BY TOP AIR,
CLAY EQUIPMENT OR CLAY HOLDING. THIS PROSPECTUS/INFORMATION
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE TOP AIR SHARES TO
WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS/INFORMATION STATEMENT NOR ANY DISTRIBUTION OF
SECURITIES PURSUANT HERETO SHALL IMPLY OR CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TOP AIR, CLAY
EQUIPMENT OR CLAY HOLDING OR IN THE INFORMATION SET FORTH HEREIN
SUBSEQUENT TO THE DATE HEREOF.
3
<PAGE> 5
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
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<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 3
SUMMARY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 6
Business of Top Air . . . . . . . . . . . . . . . . . . . . . . . 6
Business of Clay Equipment. . . . . . . . . . . . . . . . . . . . 6
Business of Clay Holding. . . . . . . . . . . . . . . . . . . . . 6
Proposed Transaction. . . . . . . . . . . . . . . . . . . . . . . 7
Direction by ESOP Participants; Voting at Special Meeting . . . . 8
Certain Federal Income Tax Consequences . . . . . . . . . . . . . 8
Reasons for the Proposed Transaction. . . . . . . . . . . . . . . 9
Recommendation of Clay Holding Directors. . . . . . . . . . . . . 9
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Operations After the Proposed Transaction . . . . . . . . . . . . 9
Interest of Certain Persons in the Proposed Transaction . . . . . 10
Federal Securities Law; Restrictions on Transfer. . . . . . . . . 10
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . 10
Markets and Market Prices . . . . . . . . . . . . . . . . . . . . 11
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . 12
Summary Financial Data. . . . . . . . . . . . . . . . . . . . . . 12
INVESTMENT CONSIDERATIONS. . . . . . . . . . . . . . . . . . . . . . 14
Seasonal Industry . . . . . . . . . . . . . . . . . . . . . . . . 14
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dependence on Key Personnel . . . . . . . . . . . . . . . . . . . 14
Control of Top Air by Principal Shareholders. . . . . . . . . . . 14
NASDAQ Delisting; Market Volume Considerations. . . . . . . . . . 14
Lack of Fairness Opinion. . . . . . . . . . . . . . . . . . . . . 15
Tax Consequences of the ESOP Distribution . . . . . . . . . . . . 15
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Uninsured Losses. . . . . . . . . . . . . . . . . . . . . . . . . 16
Clay Equipment - Significant Losses; Need for Additional
Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Clay Holding - Ability to Continue as a Going Concern . . . . . . 16
INFORMATION REGARDING THE SPECIAL MEETING. . . . . . . . . . . . . . 17
Date, Time and Place. . . . . . . . . . . . . . . . . . . . . . . 17
Record Date; Vote Required. . . . . . . . . . . . . . . . . . . . 17
TERMS OF THE PROPOSED TRANSACTION. . . . . . . . . . . . . . . . . . 18
General Description of the Proposed Transaction . . . . . . . . . 18
Background and Reasons for the Proposed Transaction . . . . . . . 19
Board Recommendation. . . . . . . . . . . . . . . . . . . . . . . 20
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Operations After the Consummation of the Proposed
Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Conditions of the Proposed Transaction. . . . . . . . . . . . . . 22
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
No Fractional Shares. . . . . . . . . . . . . . . . . . . . . . . 23
Interest of Certain Persons in the Proposed Transaction . . . . . 23
Indemnification Obligations . . . . . . . . . . . . . . . . . . . 23
Accounting Method . . . . . . . . . . . . . . . . . . . . . . . . 24
4
<PAGE> 6
<CAPTION>
Page
----
<S> <C>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . 24
The Proposed Transaction. . . . . . . . . . . . . . . . . . . . . 24
Distribution By The ESOP. . . . . . . . . . . . . . . . . . . . . 25
FEDERAL SECURITIES LAW; RESTRICTIONS ON TRANSFER . . . . . . . . . . 27
RIGHTS OF DISSENTING STOCKHOLDERS. . . . . . . . . . . . . . . . . . 27
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . 29
INFORMATION REGARDING TOP AIR. . . . . . . . . . . . . . . . . . . . 35
The Business of Top Air . . . . . . . . . . . . . . . . . . . . . 35
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 37
Management's Discussion and Analysis of Financial Condition
and Results of Operation . . . . . . . . . . . . . . . . . . . 38
Principal Shareholders. . . . . . . . . . . . . . . . . . . . . . 40
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . 42
Compensation of Directors and Executive Officers. . . . . . . . . 42
Certain Relationships and Related Transactions. . . . . . . . . . 44
INFORMATION REGARDING CLAY HOLDING AND CLAY EQUIPMENT. . . . . . . . 45
The Business of Clay Equipment. . . . . . . . . . . . . . . . . . 45
Market Price of and Dividends on Clay Holding Common Stock and
Related Shareholder Matters. . . . . . . . . . . . . . . . . . 45
Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . 46
Clay Holding. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
DESCRIPTION OF TOP AIR COMMON STOCK. . . . . . . . . . . . . . . . . 47
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . . . 48
COMPARISON OF RIGHTS OF HOLDERS OF
TOP AIR COMMON STOCK AND CLAY EQUIPMENT COMMON STOCK. . . . 49
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Indemnification of Directors and Officers . . . . . . . . . . . . 49
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . 50
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . 52
ANNEX A - Dissenters' Rights Provision of the Iowa Business
Corporation Act . . . . . . . . . . . . . . . . . . . . . . . . .A-1
</TABLE>
5
<PAGE> 7
SUMMARY INFORMATION
The following is a summary of certain information regarding
Top Air, Clay Equipment and Clay Holding, and certain important
terms of the Proposed Transaction and other related matters. This
summary does not purport to be complete and is qualified in its
entirety by reference to the more detailed information which
appears elsewhere in this Prospectus/Information Statement.
BUSINESS OF TOP AIR
Top Air was incorporated under the laws of the State of Iowa
in 1981. Top Air is engaged in the business of manufacturing
several products used primarily in agricultural operations,
including several types of agricultural sprayers, the Auger Dolly,
an apparatus used to facilitate the relocation of grain augers, the
Straw Command, an attachment for combines that enhances the even
spreading of straw and other harvest byproducts, and a line of
sprayer replacement parts. Although Top Air's current facility is
located in Parkersburg, Iowa, it is anticipated that within 6
months after consummation of the Proposed Transaction the
operations of Top Air and Clay Equipment will be consolidated into
a newly constructed 85,000 square foot facility located in Cedar
Falls, Iowa. See "TERMS OF THE PROPOSED TRANSACTION - Reasons for
the Proposed Transaction." At February 28, 1995 Top Air had total
assets of approximately $6.0 million, long term debt of
approximately $0.3 million and stockholders' equity of
approximately $2.5 million. See "Summary Financial Data."
Top Air's principal executive offices are located at 406
Highway 20, Parkersburg, Iowa 50665, and its telephone number is
(319) 346-1788.
BUSINESS OF CLAY EQUIPMENT
Clay Equipment was incorporated under the laws of the State of
Iowa in 1900 as Iowa Gate Company. Like Top Air, Clay Equipment is
engaged in the business of the design, manufacture and sale of
agricultural products, including a line of agricultural spreaders
sold under the name of "Better Built." Clay Equipment's current
facility is located in Cedar Falls, Iowa, and will be closed in
conjunction with the removal of the operations of Clay Equipment to
the new facility described above. At December 31, 1994, Clay
Equipment had total assets of approximately $3.1 million, total
borrowings of approximately $1.7 million, and stockholder's deficit
of approximately $3.3 million. See "CLAY HOLDING COMPANY, INC. -
Consolidated Balance Sheet at December 31, 1994" and "Note 11 to
the Clay Holding Company, Inc. Consolidated Financial Statements."
Clay Equipment's principal executive offices are located at
101 Lincoln Street, Cedar Falls, Iowa 50613, and its telephone
number is (319) 268-0473.
BUSINESS OF CLAY HOLDING
Clay Holding, which was incorporated under the laws of the
State of Iowa in 1976, is not directly engaged in any business
other than the holding of all of the issued and outstanding shares
of the capital stock of Clay Equipment. Contemporaneously with
the consummation of the Proposed Transaction (the "Closing"),
Clay Equipment will be liquidated pursuant to a plan of
liquidation adopted by the Board of Directors of Clay Equipment
(the "Clay Equipment Board") by means of the merger of Clay
Equipment with and into its parent, Clay Holding (the "Clay
Equipment Liquidation"). All of the shares of the
6
<PAGE> 8
capital stock of Clay Holding are owned by the ESOP. See "TERMS OF
THE PROPOSED TRANSACTION - General Description of the Proposed
Transaction."
Clay Holding's principal executive offices are located at 101
Lincoln Street, Cedar Falls, Iowa 50613, and its telephone number
is (319) 268-0473.
PROPOSED TRANSACTION
Subject to the satisfaction of various terms and conditions
set forth in the Purchase Agreement, Clay Equipment will transfer
substantially all of its assets, including the proceeds of the
"Condemnation Award" (defined below), to Top Air in consideration
for Top Air's assumption of certain liabilities of Clay Equipment
and the delivery to Clay Equipment of the Top Air Shares.
Contemporaneously with the Closing, Clay Equipment will be merged
with and into Clay Holding, the ESOP will be terminated, and all of
the Top Air Shares, except for the shares of "Hold-Back Stock"
(hereinafter defined), will be distributed to the ESOP
Participants. The Hold-Back Stock to be issued to the ESOP
Participants will be held of record by the "Escrow Agent" (defined
below) or other independent financial institution (the "Hold-Back
Stock Record Owner") for the benefit of the ESOP Participants,
subject to the terms of the escrow discussed below.
The number of Top Air Shares to be delivered by Top Air will
be equal to the lesser of (i) 750,000 and (ii) that number of
shares (rounded up to the next full share) having an aggregate
"Market Value" (defined below) of $1,000,000, in either case
subject to increase by that number of shares having a Market Value
equal to one-half the amount by which the award (the "Condemnation
Award") received by Clay Equipment in connection with the pending
condemnation of its manufacturing facility (exclusive of relocation
expenses) exceeds $500,000. No assurance can be given as to the
amount of the Condemnation Award or that the condemnation
proceedings will be concluded. See "TERMS OF THE PROPOSED
TRANSACTION - Financing." At the Closing, 25% of the Top Air
Shares (the "Hold-Back Stock") will be delivered to Norwest Bank
Iowa, N.A., Cedar Falls, Iowa, as escrow agent (the "Escrow
Agent"), and held in escrow for a period of two years pursuant to
an escrow agreement to be entered into among Top Air, Clay
Equipment and the Escrow Agent (the "Escrow Agreement") to secure
certain indemnification obligations of Clay Equipment to Top Air
under the terms of the Purchase Agreement. See "TERMS OF THE
PROPOSED TRANSACTION - General Description of the Proposed
Transaction" and "Indemnification Obligations."
The Purchase Agreement provides that no shares of Top Air
Common Stock distributed to Clay Equipment will be transferable for
a period of one year following the Closing (the "Lock-Up Period")
without the prior consent of Top Air, except with respect to the
distribution of the Top Air Shares in a series of contemporaneous
transactions (defined herein as the "Distribution") to the ESOP
Participants. See "TERMS OF THE PROPOSED TRANSACTION - General
Description of the Proposed Transaction."
The Purchase Agreement provides that the consummation of the
Proposed Transaction is subject to certain terms and conditions,
including the approval of the Purchase Agreement by the required
vote of the ESOP Trustee, as the sole holder of Clay Holding common
stock, as directed by the ESOP Participants with respect to those
shares of Clay Holding common stock allocated to them pursuant to
the terms of the Second Restated Clay Holdings, Inc. Employee Stock
Ownership Plan and Trust Agreement dated June 29, 1994 (the "ESOP
Trust"), the failure of any person to assert dissenters' rights
and the direction of the ESOP Trustee by ESOP Participants
entitled to the distribution of at least ninety percent
7
<PAGE> 9
(90%) of the Top Air Shares to make such distribution as a "direct
rollover" to an Eligible Retirement Plan, as defined in Section
402(c)(8)(B) of the Code. Under the terms of the Purchase
Agreement, the Proposed Transaction, if approved, will be
consummated on June 26, 1995 (the "Closing Date"), unless such
Closing Date is extended by Top Air to a date not later than
December 31, 1995. See "TERMS OF THE PROPOSED TRANSACTION - General
Description of the Proposed Transaction" and "Conditions of the
Proposed Transaction."
DIRECTION BY ESOP PARTICIPANTS; VOTING AT SPECIAL MEETING
The ESOP Trust essentially provides that each ESOP Participant
has the right to direct the Trustee with respect to the voting of
the common stock of Clay Holding that is allocated to his or her
ESOP account on any matter that requires shareholder action.
The Special Meeting of Stockholders of Clay Holding will be
held at the offices of Clay Holding, 101 Lincoln Street, Cedar
Falls, Iowa 50613 on June 26, 1995, at 9:00 a.m. local time.
Approval of the Purchase Agreement requires the affirmative vote of
at least a majority of the 90,039 shares of Clay Holding common
stock issued and outstanding May 15, 1995. Of such outstanding
shares, 42,211 were allocated to the accounts of individual ESOP
Participants and 47,828 were unallocated. The ESOP Trustee is
required to vote the allocated shares as directed by the ESOP
Participants to whom such shares are allocated and the unallocated
shares in accordance with the instructions of the ESOP's Advisory
Committee. See "INFORMATION REGARDING THE SPECIAL MEETING."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Proposed Transaction has been structured as a tax-free
reorganization under Section 368(a) of the Code so that no gain or
loss will be recognized for federal income tax purposes by Clay
Equipment or Clay Holding. The distribution of the Top Air Shares
(including the shares of Hold-Back Stock to be held in escrow) by
Clay Holding to the ESOP Trust will be taxable to Clay Holding for
federal income tax purposes to the extent that the fair value of
such Top Air Shares exceeds Clay Holding's tax basis in such
shares. It is expected that no gain will be recognized by Clay
Holding as a result of such distribution.
If an ESOP Participant directs that his or her distribution be
made in a "direct rollover" to an "Eligible Retirement Plan" (such
as, for example, an IRA), he or she will not be taxed in the
current year and no income tax will be withheld. If an ESOP
Participant directs that his or her distribution be made directly
to such Participant, such distribution will be taxable in the
current year unless, within 60 days, the Participant rolls it over
to an IRA or other plan that accepts rollovers. All ESOP
Participants will be subject to federal income tax withholding at
the rate of 20% of the value of any portion of the distribution
that is not directly rolled over to an Eligible Retirement Plan.
Additionally, if the distributee is an Iowa resident, Iowa income
tax withholding at the rate of 5% is required. Participants
requesting non-rollover distributions who are under age 59-1/2 will
incur an additional 10% tax unless certain special tax rules are
applicable. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
BECAUSE OF THE SIGNIFICANT TAX CONSEQUENCES WHICH CAN
RESULT FROM A DISTRIBUTION, AND THE RESTRICTION UPON THE
TRANSFERABILITY OF THE TOP AIR SHARES DURING THE ONE YEAR
LOCK-UP PERIOD, EACH ESOP PARTICIPANT IS URGED TO SEEK TAX
ADVICE FROM HIS OR HER PERSONAL TAX ADVISOR BEFORE ELECTING
8
<PAGE> 10
NOT TO DIRECTLY ROLL OVER THE TOP AIR SHARES RECEIVED IN THE
DISTRIBUTION AS DESCRIBED ABOVE.
REASONS FOR THE PROPOSED TRANSACTION
In arriving at a decision to authorize the Purchase Agreement
and to recommend that Clay Holding and the ESOP approve the
Proposed Transaction with Top Air, the Board of Directors of Clay
Equipment considered various factors, including: (a) the
opportunity to share in the potential growth of the combined
operation, which can compete more effectively than either entity on
a stand-alone basis; (b) the unique opportunity to preserve
substantially all of the jobs of its employees; (c) the additional
liquidity of the Top Air Common Stock as compared to the Clay
Holding common stock; (d) the significant benefits and efficiencies
expected to result from the relocation of the combined operations
to the state-of-the-art, 85,000 square foot manufacturing facility
to be constructed in Cedar Falls, Iowa (the "New Facility"); and
(e) the positive effects on the community in which Clay Equipment
operates. See "TERMS OF THE PROPOSED TRANSACTION - Background and
Reasons for the Proposed Transaction" and "Conditions of the
Proposed Transaction."
RECOMMENDATION OF CLAY HOLDING DIRECTORS
At the meeting of directors held to consider the Proposed
Transaction, the Board of Directors of Clay Holding (the "Clay
Holding Board") carefully considered each aspect of the Proposed
Transaction and unanimously concluded that its terms are in the
best interests of Clay Equipment, Clay Holding and the ESOP
Participants. THE CLAY HOLDING BOARD RECOMMENDS THAT THE ESOP
TRUSTEE VOTE, AND THAT EACH ESOP PARTICIPANT DIRECT THE ESOP
TRUSTEE TO VOTE THOSE SHARES OF CLAY HOLDING COMMON STOCK ALLOCATED
TO HIS OR HER ACCOUNT, FOR THE PROPOSAL TO APPROVE THE PURCHASE
AGREEMENT. See "TERMS OF THE PROPOSED TRANSACTION - Background and
Reasons for the Proposed Transaction" and "Board Recommendation."
FINANCING
The combined long-term debt of Top Air and Clay Equipment will
be refinanced through a single term loan and a revolving line of
credit (to fund future working capital requirements), which
refinancing (the "New Financing") will be provided by Norwest Bank
Iowa, N.A. (the "Bank"). The Bank has issued to Top Air its
commitment to provide the New Financing, subject to certain
conditions specified therein. The New Facility will be constructed
by the City of Cedar Falls, Iowa (the "City"), and leased to Top
Air (as assignee of Clay Equipment) under a lease agreement (the
"New Facility Lease") for an initial term of ten years (with a
renewable five year option on the part of the lessor) at an annual
rental of $206,664. See "TERMS OF THE PROPOSED TRANSACTION -
Financing."
OPERATIONS AFTER THE PROPOSED TRANSACTION
Following the Closing of the Proposed Transaction,
substantially all of the employees of Clay Equipment will
become employees of Top Air. Top Air has agreed to recognize
Local 1728 of the International Association of Machinists and
Aerospace Workers ("IAMAW") as the exclusive bargaining agent for
employees who were included in the IAMAW bargaining unit at Clay
Equipment. Pending their relocation to the New Facility, Top Air
and Clay Equipment will continue to conduct their operations
at their current facilities. None of the directors or
officers of Clay Equipment or Clay Holding will become
9
<PAGE> 11
a director or officer of Top Air. See "TERMS OF THE PROPOSED
TRANSACTION - Operations After Consummation of the Proposed
Transaction."
INTEREST OF CERTAIN PERSONS IN THE PROPOSED TRANSACTION
Top Air holds an option (the "Option") to purchase up to
22,956 shares of the common stock of Clay Holding at a cash price
of $10.90 per share. The Option is exercisable upon the occurrence
of certain events involving third parties that would be
inconsistent with the consummation of the Proposed Transaction, and
terminates upon the first to occur of the closing of the Proposed
Transaction and June 30, 1995. See "TERMS OF THE PROPOSED
TRANSACTION - Interest of Certain Persons in the Proposed
Transaction."
FEDERAL SECURITIES LAW; RESTRICTIONS ON TRANSFER
Subject to the one year lock-up period discussed below, all
ESOP Participants, other than those who receive Top Air Common
Stock pursuant to the Proposed Transaction who are deemed to be
"affiliates" of Clay Holding as of the date of the Special Meeting,
will receive freely transferable shares of Top Air Common Stock.
Affiliates of Clay Holding (e.g. directors, executive officers and
large shareholders) will be limited by Rule 145 of the Securities
Act of 1933, as amended (the "Securities Act"), regarding their
right to resell such stock. Such affiliates may not sell such
stock within two years of receiving it unless pursuant to an
effective Registration Statement, in accordance with Rule 145(d)
under the Securities Act, or in a transaction otherwise exempt from
registration under the Securities Act.
In addition, the Purchase Agreement provides that all of the
Top Air Shares distributed in the Proposed Transaction to Clay
Equipment will not be transferable for a period of one year without
the consent of Top Air, other than in furtherance of the
Distribution whereby in a series of transactions to occur
contemporaneously with the Closing, the Top Air Shares, except for
the Hold-Back Shares, will be distributed to the ESOP Participants.
None of the shares of Hold-Back Stock will be transferable during
the two-year escrow period. See "TERMS OF THE PROPOSED TRANSACTION
- - General Description of the Proposed Transaction." See "FEDERAL
SECURITIES LAW; RESTRICTIONS ON TRANSFER."
DISSENTERS' RIGHTS
Under Iowa law, any ESOP Participant may dissent from the
proposed transaction and, if the proposed transaction is
consummated, receive payment of the fair value of his or her
allocated shares of Clay Holding common stock in cash by (i)
delivering to Clay Holding prior to the taking of the vote at the
Special Meeting a written demand for appraisal of his or her
shares, together with a written consent to such demand signed by
the ESOP Trustee, and (ii) not directing the ESOP Trustee to vote
in favor of the approval of the Purchase Agreement at the Special
Meeting. The obligation of Top Air to consummate the Proposed
Transaction is conditioned upon the failure of any person to assert
such dissenters' rights. See "RIGHTS OF DISSENTING STOCKHOLDERS."
10
<PAGE> 12
MARKETS AND MARKET PRICES
<TABLE>
Top Air Common Stock is currently quoted on the NASDAQ
Bulletin Board under the symbol TOPM. Top Air Common Stock had
been quoted on the NASDAQ Small-Cap Market until April 13, 1995.
See "INVESTMENT CONSIDERATIONS - NASDAQ Delisting; Market Volume
Considerations." There is no established public trading market for
the Clay Holding common stock. However, certain estimates have
been made by independent appraisal for certain purposes. See Note
c, below. Such estimated per share prices for the Clay Holding
common stock are shown in the following table.
<CAPTION>
Top Air Common Stock<Fa> Clay Holding Common Stock<Fb>
------------------------------- ------------------------------
Bid Price Cash Estimated Price
--------------- Dividend ---------------- Dividend
Fiscal 1993 High Low Declared High Low Declared
- ----------- ---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $0.8750 $0.5000 $ - $16.00 $16.00 $ -
Second Quarter 0.7500 0.5625 - 16.00 16.00 -
Third Quarter 0.8125 0.3750 - 14.00 14.00 -
Fourth Quarter 1.1875 0.6250 - 14.00 14.00 -
Fiscal 1994
- -----------
First Quarter $1.2500 $0.8125 $ - $14.00 $14.00 $ -
Second Quarter 0.8125 0.6250 - 14.00 14.00 -
Third Quarter 1.0625 0.6250 - <Fc> <Fc> -
Fourth Quarter 1.1250 0.8750 - <Fc> <Fc> -
Fiscal 1995
- -----------
First Quarter $1.0000 $0.6875 $ - $13.00<Fc> $13.00<Fc> $ -
Second Quarter 1.3750 0.7500 - 13.00<Fc> 13.00<Fc> -
Third Quarter 1.8125 0.5625 - 13.00<Fc> 13.00<Fc> -
Fourth Quarter (through 1.0000 0.8125 - 13.00<Fc> 13.00<Fc> -
May 4, 1995)
<FN>
- -------------------------
<Fa> These quotations reflect interdealer prices without retail markup,
markdowns or commissions, and may not necessarily represent actual
transactions.
<Fb> Because of the lack of an established public market for shares of Clay
Holding Common Stock, the Estimated Prices indicated may not reflect
the prices which would be paid for such shares on an active market.
<Fc> Under the terms of the ESOP Trust, upon their retirement, all ESOP
Participants have the right to require the repurchase by Clay Holding
of those shares of Clay Holding common stock distributable to such
ESOP Participants at a price equal to their fair value at the time
such right is exercised. The fair value of the ESOP is determined
annually by independent appraisal, as of the close of each calendar
year, and at such other times as directed by the Advisory Committee
of the ESOP. No fair value for the ESOP was established as of year-
end 1994. However, in connection with Top Air's due diligence review
of Clay Equipment, the independent appraiser who normally establishes
the fair value of the ESOP Trust performed an appraisal of Clay
Holding as of August 31, 1994 and concluded that the per share fair
value of Clay Holding as $13.00. See, "INFORMATION REGARDING CLAY
HOLDING AND CLAY EQUIPMENT - Market Price of and Dividends on Clay
Holding Common Stock and Related Shareholder Matters."
</TABLE>
11
<PAGE> 13
<TABLE>
COMPARATIVE PER SHARE DATA
The following table sets forth, for the periods indicated (i) selected
historical per common share data of Top Air and Clay Holding, (ii)
corresponding pro forma per common share amounts for Top Air after giving
effect to the Proposed Transaction, and (iii) the pro forma equivalence of
one share of Clay Holding common stock after giving effect to the Proposed
Transaction. The data presented is based upon the consolidated financial
statements and related notes of Top Air and Clay Holding and the pro forma
financial statements presented elsewhere herein. The assumptions used in
preparation of this table are presented in the Assumptions to Pro Forma
Financial Statements.
<CAPTION>
Top Air/ Clay
Clay Holding
Clay Equipment Pro Forma
Top Air Holding Pro Forma Equivalent
Historical Historical<F1> Combined<F2> <F1><F3>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Book value per common share:
February 28, 1995 $ 0.80 $ 1.08 $ 0.81 $ 15.55
Cash dividends per common share:
Year ended May 31, 1994 -- -- -- --
Nine months ended February 28, 1995 -- -- -- --
Income (loss) per share:
Primary and fully diluted:
Year ended May 31, 1994 0.08 (15.01) 0.08 1.48
Nine months ended February 28, 1995 0.01 (33.00) (0.25) (4.40)
<FN>
<F1> Calculated based on ESOP's allocated shares. Unallocated shares will
be cancelled.
<F2> See "PRO FORMA FINANCIAL INFORMATION."
<F3> The pro forma equivalent represents the combined pro forma earnings,
dividends and book value per share of Top Air and Clay Equipment
multiplied by an assumed distribution of 19.12 shares of Top Air
common stock for each share of Clay Holding common stock so that the
pro forma equivalent amounts represent the respective values of one
share of Clay Holding common stock. No assurances can be given as to
the actual distribution of shares that will be utilized in the
transaction.
</TABLE>
<TABLE>
SUMMARY FINANCIAL DATA
The following set forth for the periods indicate certain summary
historical financial information for Top Air and Clay Holding. The
balance sheet information and statement of income information of Top
Air included in the summary financial information for the one year
period ended May 31, 1995 are derived from the audited financial
statements of Top Air as of the last day of, and for, such year.
The balance sheet information and the statement of income
information for Top Air included in the summary financial
information for the nine-months ended February
12
<PAGE> 14
28, 1995 and 1994 are derived from the unaudited financial
statements of Top Air as of, and for the nine-months ended, February
28, 1995 and 1994. The balance sheet information and statement of
income information of Clay Holding included in the summary financial
information for the year ended December 31, 1994 and 1993 are
derived from the audited financial statements of Clay Holding as of
the last day of, and for, such period. All such information includes
all adjustments which are, in the opinion of the respective managements of
Top Air and Clay Holding, necessary to present a fair statement of the
respective financial conditions and results of operations of Top Air and
Clay Holding for these period and are of a normal recurring nature.
Results of Top Air for the nine-months ended February 28, 1995 is not
necessarily indicative of the results for the entire year. The following
information should be read in conjunction with the financial statements of
Top Air and Clay Holding, and the related notes thereto, included herein,
and in conjunction with the unaudited pro forma condensed combined
financial information, appearing elsewhere herein. See "PRO FORMA
FINANCIAL INFORMATION."
<CAPTION>
Nine Months Ended Twelve Months Ended
February 28, May 31,
---------------------------- -----------------------------
1995 1994 1994 1993
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Top Air Manufacturing, Inc.
- ---------------------------
Net sales $ 3,250,605 $ 2,911,617 $ 5,554,182 $ 4,856,907
Gross profit 1,023,655 883,697 1,829,043 1,395,351
Operating income 79,052 14,381 457,616 122,597
Net income 28,461 1,966 243,510 56,544
Current assets 5,080,750 4,466,109 2,824,510 2,290,289
Current liabilities 3,097,883 2,763,425 858,592 421,355
Total assets 5,958,496 5,217,605 3,558,586 2,910,816
Total stockholder's equity 2,531,909 2,261,706 2,503,250 2,259,740
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
-----------------------------
1994 1993
<S> <C> <C> <C> <C>
Clay Holding, Inc.
- ------------------
Net sales $ 7,788,916 $ 6,381,591
Gross profit 1,843,564 2,256,244
Operating income (1,283,013) (727,165)
Net income (1,416,493) (611,005)
Current assets 1,868,083 2,946,667
Current liabilities 2,711,471 2,618,931
Total assets 2,994,948 4,178,159
Total stockholder's equity 55,859 1,410,579
</TABLE>
13
<PAGE> 15
INVESTMENT CONSIDERATIONS
The ESOP Trustee and the ESOP Participants should carefully consider
the following, as well as the other information contained in this
Prospectus/Information Statement, before deciding to vote or directing the
ESOP Trustee to vote, as the case may be, in favor of the Purchase
Agreement.
SEASONAL INDUSTRY
The sale of sprayers, sprayer parts and sprayer booms is seasonal,
with approximately 80% of Top Air's sprayer sales being made from December
1 through May 31 of each year. A large percentage of Auger Dollies and
Straw Command units are sold during the summer and early fall months in
anticipation of the harvesting season.
COMPETITION
Top Air competes with a large number of other agricultural equipment
manufacturers and suppliers who distribute sprayers and sprayer parts.
Although Top Air believes that its products are sufficiently different from
other products to enable it to establish and maintain a market for such
products, many of Top Air's principal competitors are larger than Top Air
and have substantial resources. There can be no assurance that competitors
will not be able to take actions, including developing new products or
offering reduced pricing, which could materially adversely affect the sales
revenues of Top Air.
DEPENDENCE ON KEY PERSONNEL
The continued success of Top Air will depend upon the efforts and
abilities of certain key officers and employees, particularly Steven R.
Lind, its President and Chief Executive Officer. Top Air could be
adversely affected if for any reason such officers and employees should no
longer be active in Top Air's operations. Steven R. Lind, President and
Chief Executive Officer of Top Air, has entered into an employment
agreement with Top Air.
CONTROL OF TOP AIR BY PRINCIPAL SHAREHOLDERS
After consummation of the Proposed Transaction, Top Air's officers,
directors and principal stockholders will beneficially own approximately
51% of the outstanding shares of Top Air Common Stock (assuming the number
of Top Air Shares issued at Closing is 750,000). Accordingly, these
officers, directors, and stockholders will have the ability to determine
the outcome of most corporate actions requiring stockholder approval and
to influence the policies and direction of Top Air. There are no
provisions for cumulative voting by stockholders in Top Air's Articles of
Incorporation and, accordingly, holders of a majority of the outstanding
shares can elect all of Top Air's directors. These facts may tend to
discourage attempts to acquire control of Top Air by persons other than
those holders. See "INFORMATION REGARDING TOP AIR - Principal
Shareholders."
NASDAQ DELISTING; MARKET VOLUME CONSIDERATIONS
From June 20, 1988 until April 13, 1995, the shares of Top Air Common
Stock were quoted and traded on the NASDAQ Small-Cap Market. The Top Air
Common Stock was delisted from quotation on the NASDAQ Small-Cap Market for
failure to maintain a certain minimum bid price of the stock (the "Minimum
Bid Criterion"). The Minimum Bid Criterion requires that shares quoted on
the NASDAQ Small-Cap Market maintain a minimum bid price of $1.00 per share
or, as an alternative, that the issuer maintain capital and surplus in
excess of $2 million and a market value of the "public float" (i.e.,
shares not held by directors, officers and holders of 10% or more of
the outstanding stock) of $1 million. Upon review of its decision,
the NASDAQ Listing Qualifications Committee agreed
14
<PAGE> 16
to permit relisting of the Top Air Common Stock on the NASDAQ
Small-Cap Market on evidence that Top Air is in compliance with the
Minimum Bid Criterion (the standard for continued, rather than
initial, inclusion) and that Top Air meets the initial inclusion
standards for all remaining criteria, by June 30, 1995. Management
of Top Air believes that upon consummation of the Proposed
Transaction, the shares of Top Air Common Stock distributed to the ESOP
Participants will be considered "public float" and accordingly, the Minimum
Bid Criterion will be met. Top Air further believes that it meets all of
the other requirements for initial listing on the NASDAQ Small Cap Market.
Although quoted on the NASDAQ Small-Cap Market until April 13, 1995,
shares of Top Air Common Stock had traded sporadically. Since being
delisted, shares of Top Air stock have continued to trade in such manner.
Although bid and asked price quotes are readily available for stocks quoted
on the NASDAQ Bulletin Board, such stocks are generally not as actively
followed as stocks which trade on the NASDAQ Small-Cap Market.
Accordingly, management of Top Air believes that the relisting of the Top
Air Common Stock on the NASDAQ Small-Cap Market would be of value and will
use its best efforts to accomplish such relisting. No assurance can be
given that the Top Air Common Stock will be relisted for quotation on the
NASDAQ Small-Cap Market and, if it is so relisted, that an active trading
market will develop. See"DESCRIPTION OF TOP AIR COMMON STOCK."
LACK OF FAIRNESS OPINION
Although the Clay Equipment Board and the Clay Holding Board
considered the financial condition, potential alternative transactions and
other factors in approving the Purchase Agreement, no formal fairness
opinion from an investment advisor was sought in connection with the
Proposed Transaction. In concluding that such an opinion would not be
obtained, the directors of Clay Equipment and Clay Holding concluded that
in view of the financial and other circumstances, the considerable cost
involved in obtaining a formal fairness opinion would not be justified.
TAX CONSEQUENCES OF THE ESOP DISTRIBUTION
Although Clay Holding will submit an application to the IRS for the
issuance of a determination letter as to the continued qualification of the
ESOP under Section 401(a) upon termination and the tax-exempt status of the
ESOP Trust under Section 501 of the Code, it is unlikely that such
determination letter will be issued prior to the termination of the ESOP
and the distribution of the Top Air Shares to the ESOP Participants in
connection therewith. Clay Holding has received an option of counsel with
respect to the continuation of such qualification and status, which opinion
is based upon, among other things, the Code, the regulations promulgated
thereunder, and certain private letter rulings currently in effect. Such
opinion of counsel is not binding upon the IRS. Although it is believed
that distributions of this type are generally ruled upon favorably by the
IRS, no assurance can be given that a favorable determination will
ultimately be received from the IRS or that the position of counsel will
not be challenged by the IRS. If the termination of the ESOP would result
in the disqualification of the ESOP as a "Qualified Retirement Plan," then
certain adverse tax consequences may result in connection with the
contemplated cancellation of certain indebtedness of approximately $1.8
million currently owed by the ESOP to Clay Holding (the "ESOP Debt") and
income recognition on the part of ESOP Participants in connection with the
distribution from the ESOP of the Top Air Shares (and other ESOP assets)
to the ESOP Participants. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES -
Distribution by the ESOP."
DIVIDENDS
Top Air has never declared or paid any cash dividends on its Common
Stock and does not intend to do so in the foreseeable future. Top
Air anticipates that earnings, if any, will be used to finance the
development and expansion of its business. Under the terms of its
current credit agreement with the Bank, Top Air is restricted from
15
<PAGE> 17
paying cash dividends without the Bank's consent and it is expected
that the New Financing will contain restrictions upon the ability of
Top Air to declare dividends without the consent of the Bank.
UNINSURED LOSSES
Top Air has warranted the sprayers, sprayer booms, Straw Commands,
Auger Dollies and other products manufactured by Top Air to be free from
defects in material and workmanship under normal use and service for a
period of twenty-four months after date of purchase. Although Top Air
carries product liability insurance and casualty insurance customary for
manufacturing operations of its type, there are certain types of losses
which are uninsurable or not economically insurable. There can be no
guaranty against uninsured losses of any kind.
CLAY EQUIPMENT - SIGNIFICANT LOSSES; NEED FOR ADDITIONAL FINANCING
Clay Holding recorded net losses of $1,416,943 and $611,055 in 1994
and 1993, respectively. Additionally, Clay Equipment's current working
capital credit line expired in March 1995 and has not been renewed by the
provider thereof. While no demand for payment of outstanding balances
under such working capital credit line has been made by the provider
thereof, no further drawdowns on such credit line may be made by Clay
Equipment. Further, Clay Equipment is not in compliance with various
financial covenants required to be met under its credit agreement with a
lending institution in connection with its term debt. At December 31,
1994, the outstanding principal balance of such term debt (which, because
of its status, has been classified as current debt) was $825,000. While
no demand for payment has been formally made, such noncompliance has not
been waived by the lender. The working capital line of credit and the term
debt are collateralized by substantially all of the assets of Clay
Equipment. No assurance can be given that the provider of the working
capital credit line or the provider of the term loan to Clay Equipment will
not demand repayment and, in absence of such repayment, take all measures,
including foreclosure, to enforce its rights as a secured party. Further,
no assurance can be given that if demand for payment is made by either
lender, Clay Equipment would be able to obtain alternate financing or sell
a sufficient amount of its assets to avoid foreclosure. See "INFORMATION
REGARDING CLAY HOLDING AND CLAY EQUIPMENT - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CLAY HOLDING - ABILITY TO CONTINUE AS A GOING CONCERN
Because of the significant losses and default position of Clay
Equipment under its working capital credit line and term loan discussed
above, Clay Holding's independent accountants have issued a report which
indicates that substantial doubt exists as to Clay Holding's ability to
continue as a going concern. See "CONSOLIDATED FINANCIAL STATEMENTS OF
CLAY HOLDING CORPORATION - Report of Independent Public Accountants."
16
<PAGE> 18
INFORMATION REGARDING THE SPECIAL MEETING
This Prospectus/Information Statement is being furnished to the ESOP
Trustee and each ESOP Participant in connection with the Special Meeting,
and the request of the ESOP Trustee for letters of direction.
The purpose of the Special Meeting is to consider and vote upon a
proposal to approve the Purchase Agreement pursuant to which substantially
all of the assets of Clay Equipment (including the proceeds of the
Condemnation Award) will be transferred to Top Air or its wholly-owned
subsidiary in exchange for the assumption by Top Air of certain liabilities
of Clay Equipment and the delivery to Clay Holding of the Top Air Shares.
The Purchase Agreement provides that the ESOP will be terminated
contemporaneously with the Proposed Transaction, and the Top Air Shares,
other than the Hold-Back Stock, will be distributed to the ESOP
Participants upon such termination. The Hold-Back Stock, which will be
issued to the Hold-Back Stock Record Owner for the benefit of the ESOP
Participants, will be held in escrow for a period of two years to secure
certain indemnification obligations of Clay Equipment to Top Air under the
terms of the Purchase Agreement.
DATE, TIME AND PLACE
The Special Meeting of Stockholders will be held at the offices of
Clay Holding, 101 Lincoln Street, Cedar Falls, Iowa 50613 on June 26, 1995,
at 9:00 a.m. local time.
RECORD DATE; VOTE REQUIRED
Shares of Clay Holding common stock which are allocated to ESOP
Participants will be voted by the ESOP Trustee at the Special Meeting in
the manner directed in the letter of direction forwarded by each ESOP
Participant to the ESOP Trustee. Failure to return a letter of direction
will have the effect of directing the ESOP Trustee to vote against the
Proposed Transaction.
Only holders of record of Clay Holding common stock at the close of
business on May 15, 1995 (the "Record Date") are entitled to notice of, and
to vote at, the Special Meeting. On the Record Date, there were 90,039
shares of Clay Holding common stock outstanding, all of which were held by
the ESOP. Of such shares, 42,211 were allocated for the benefit of ESOP
Participants and 47,828 were unallocated. Under the provisions of the
Second Restated Clay Holding, Inc. Employee Stock Ownership Plan and Trust
Agreement dated June 24, 1994, the ESOP Trustee is required to vote all
allocated shares of Clay Holding common stock in accordance with the
direction of the ESOP participant to whom the shares are allocated. If an
ESOP Participant fails to provide direction to the ESOP Trustee, the Clay
Holding shares allocated to such ESOP Participant will not be voted. All
unallocated shares of Clay Holding common stock held by the ESOP will be
voted by the ESOP Trustee as directed by the Advisory Committee, which
presently consists of Donald Hartlay (Chairman), Harlan Ehlert, David
Clipperton, Curt Hanson and Mark Schrage. The Advisory Committee may take
into account the collective voting instructions of the ESOP Participants
with respect to their allocated shares in determining the best interests
of the ESOP and all ESOP Participants in connection with the Proposed
Transaction. Stockholders are entitled to one vote for each share held in
their name on the Record Date on each matter to come before the Special
Meeting and any adjournment thereof.
All shares of Clay Holding common stock with respect to which duly
executed letters of direction have been received by the ESOP Trustee before
the vote will be voted by the ESOP Trustee at the Special Meeting in the
manner specified on such letters of direction. Any executed letter of
direction which does not specify a choice will not be voted at the Special
Meeting.
17
<PAGE> 19
TERMS OF THE PROPOSED TRANSACTION
The following is a summary of the material terms and conditions of the
Purchase Agreement, which document is incorporated by reference herein.
The summary is qualified in its entirety by reference to the full text of
the Purchase Agreement. Top Air, upon written request, will furnish a copy
of the Purchase Agreement, without charge, to any person who receives a
copy of this Prospectus/Information Statement. Such requests should be
directed to Top Air Manufacturing, Inc., 406 Highway 20, Parkersburg, Iowa
50665, Attention: Steven R. Lind, President.
GENERAL DESCRIPTION OF THE PROPOSED TRANSACTION
Under the terms of the Purchase Agreement, on the Closing Date, Clay
Equipment will transfer to Top Air (or a wholly-owned subsidiary of Top Air
established for the purpose of consummating the Proposed Transaction) all
of its assets (including the proceeds of the Condemnation Award or Clay
Equipment's right to receive such proceeds, if not then received by Clay
Equipment) except Clay Equipment's current manufacturing facility and
corporate office located at 101 Lincoln Street, Cedar Falls, Iowa and
certain incidental property. In consideration of such transfer, Top Air
will assume certain liabilities of Clay Equipment, as described below, and
issue the Top Air Shares to Clay Equipment for simultaneous distributions
(i) by Clay Equipment to its sole shareholder, Clay Holding (pursuant to
the Clay Equipment Liquidation), (ii) by Clay Holding to the ESOP, and
(iii) pursuant to the termination of the ESOP, by the ESOP to the ESOP
Participants of their share of the ESOP's net assets, including the Top Air
Shares (other than the Hold-Back Shares) and its rights to receive all or
any portion of the Hold-Back Shares (such series of transactions
culminating in the distribution of the Top Air Shares to the ESOP
Participants being herein referred to as the "Distribution").
The number of shares of Top Air Common Stock to be issued by Top Air
to Clay Equipment shall equal the lesser of (i) 750,000 and (ii) that
number of shares (rounded up to the next full share) having an aggregate
"Market Value" (as defined below) at Closing of $1,000,000, in each case
subject to adjustment as hereinafter described. "Market Value" is defined
in the Purchase Agreement to mean the average of the bid and asked price
of Top Air Common Stock, on a per share basis, as published on the NASDAQ
Bulletin Board for the trading day immediately preceding the Closing Date.
The number of shares to be issued and delivered by Top Air is subject to
increase by that number of shares the Market Value of which is equal to
one-half of the amount by which the Condemnation Award to Clay Equipment
by the City and the Iowa Department of Transportation ("DOT") in connection
with the pending condemnation of Clay Equipment's current facility
(exclusive of any portion attributable to the costs of relocating Clay
Equipment's operations) exceeds $500,000. See "Financing." At the
Closing, that number of shares of Top Air Common Stock (rounded up to the
next full share) which equals twenty-five percent (25%) of the Top Air
Shares will be held in escrow, pursuant to the Escrow Agreement, for a
period of two years to secure Top Air's rights to indemnification by Clay
Equipment and Clay Holding under the terms of the Purchase Agreement. See
"Indemnification Obligations." The shares of Hold-Back Stock will be held
of record by the Hold-Back Stock Record Owner for the benefit of those ESOP
Participants for whom such shares are allocated, and all incidents of
ownership with respect thereto, including the right to vote such shares,
will vest in such ESOP Participants, subject to certain risks in connection
with payments, if any, of such indemnification obligations to Top Air and
certain restrictions on transferability, all as set forth in the Purchase
Agreement and the Escrow Agreement.
To effect the Distribution, the Clay Equipment Liquidation will be
consummated simultaneously with the Closing, and at or prior to the
Closing, Clay Equipment and Clay Holding will cause the ESOP to be amended
to provide that, upon termination of the ESOP, each ESOP Participant
entitled to distribution of ESOP assets, including the Top Air Shares,
shall either (i) direct the ESOP trustee in writing to distribute or
"roll over" his or her ESOP assets to an "Eligible Retirement Plan"
(as defined in Section 402(c)(8)(B) of the Code), or (ii) if the
ESOP participant chooses not to "roll over" the ESOP assets to be
distributed to him or her, make payment to the ESOP trustee of the
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amount required to be withheld for federal tax purposes and for
applicable state tax purposes in respect of the value of the ESOP
assets being distributed to such ESOP Participant. Such withholding
amounts are currently 20% for Federal tax purposes and 5% for Iowa
state tax purposes.
The Purchase Agreement provides that for a period of one year from the
Closing, other than in furtherance of the Distribution, none of the Top Air
Shares will be transferable or assignable without the consent of Top Air,
except by operation of law. To the extent Top Air Shares are transferred
or assigned in the Distribution, with the consent of Top Air or by
operation of law, the Top Air Shares shall continue to be subject to such
restriction on transfer in the hands of the distributee, transferee or
assignee.
On or prior to the Closing, Clay Equipment and Clay Holding will cause
the ESOP to be terminated. Upon termination, in addition to distributing
to the ESOP assets to the ESOP Participants, the ESOP will cause
distribution of the Hold-Back Shares to the Hold-Back Stock Record Owner,
for the benefit of such ESOP Participant, to be deposited with and held by
the Escrow Agent pursuant to the Escrow Agreement.
As additional consideration for the assets to be transferred, Top Air
has agreed to assume all liabilities and obligations of Clay Equipment in
respect of the business of Clay Equipment, including Clay Equipment's
accounts payable existing as of the close of business on the Closing Date.
Top Air shall not assume any liabilities or obligations related to (i) the
real estate on which Clay Equipment's current manufacturing facility is
located, including environmental liabilities, (ii) any breach by Clay
Equipment of any contract, (iii) any product liability claim against Clay
Equipment, (iv) taxes payable by Clay Equipment for any period prior to the
Closing Date or in connection with the Proposed Transaction, (v) employee
claims against Clay Equipment, including any claims made under the contract
dated February 4, 1991 between Clay Equipment and Local 1728 of the
International Association of machinists and Aerospace Workers, (vi) any
violation by Clay Equipment or Clay Holding of any environmental law or
certain other matters disclosed in the Purchase Agreement, (vii) any
intercompany debt or indebtedness by Clay Equipment to an affiliate, and
(viii) any obligation to the ESOP or to any ESOP Participant.
Top Air has agreed to recognize Local 1728 of the International
Association of Machinists and Aerospace Workers as the exclusive bargaining
agent of the same group of employees who are presently included in the
bargaining unit of Clay Equipment.
BACKGROUND AND REASONS FOR THE PROPOSED TRANSACTION
Because of the substantial losses incurred by Clay Equipment in 1993
and the continuation of such losses to a greater extent throughout the
first seven months in 1994, in August, 1994, the Clay Equipment Board
decided to pursue a possible sale of the business of Clay Equipment or, in
the alternative, to sell certain assets in order to generate sufficient
cash to remain operating for an indefinite period of time. The Clay
Equipment Board had determined that Clay Equipment's market niche was not
sufficiently broad to successfully compete with its competitors, most of
whom had substantially greater resources than Clay Equipment. Because the
Clay Equipment Board recognized that Clay Equipment did not have and could
not reasonably expect to obtain sufficient capital to support the
development and production of additional product lines, the Clay Equipment
Board began to focus on the sale of its business, rather than remaining
independent. In August, 1994, Leonard J. Hare, the President and Chief
Executive Officer of Clay Equipment met with Steven R. Lind, the President
and Chief Executive Officer of Top Air, to discuss a transaction whereby
Top Air would acquire Clay Equipment and that all or substantially all of
the consideration to be paid by Top Air would consist of shares of Top Air
Common Stock. Prior to his meeting with Mr. Lind, Mr. Hare had met with
representatives of an investment group who had indicated some interest in
acquiring the business of Clay Equipment, subject to numerous conditions,
including financing.
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During September 1994, representatives of Clay Equipment commenced
negotiations with representatives of Top Air for a potential transaction
which culminated in a letter agreement dated October 31, 1994 (the "Letter
of Intent") describing the structure and other salient aspects of the
Proposed Transaction, and permitting each party the opportunity to conduct
a due diligence review, on a confidential basis, of the business,
operations and financial condition of the other party. The terms of the
definitive Purchase Agreement were reached on or about April 7, 1995. The
Purchase Agreement was presented to the Clay Equipment Board at a special
meeting held on April 7, 1995. At this meeting, with counsel for Clay
Equipment and Clay Holding present, the material terms of the Proposed
Transaction as set forth in the Purchase Agreement were reviewed and
discussed. Following discussion and deliberation, the Clay Equipment Board
concluded that taking into account the financial condition of Clay
Equipment, the consummation of the Proposed Transaction would be in the
best interest of Clay Equipment, Clay Holding and the ESOP Participants.
Accordingly, the Clay Equipment Board, with all directors present, voted
unanimously to approve the Purchase Agreement and to submit it to its sole
shareholder, Clay Holding and the ESOP Trustee for approval.
In arriving at its decision to authorize the Purchase Agreement and
to recommend to Clay Holding and the sole shareholder of Clay Holding the
approval of the Proposed Transaction with Top Air, the Clay Equipment Board
considered various factors, including: (a) the opportunity to share in the
potential growth of the combined operation which can compete more
effectively than either entity on a stand-alone basis; (b) the unique
opportunity to preserve substantially all of the jobs of its employees; (c)
the additional liquidity of the Top Air Common Stock as compared to the
Clay Holding common stock; (d) the significant benefits and efficiencies
expected to result from the relocation of the combined operations to the
New Facility; and (e) the positive effects on the community in which Clay
Equipment operates.
As a means of expanding its product lines and revenue base, the Board
of Directors of Top Air (the "Top Air Board") had been seeking an
acquisition of a company engaged in a similar business as Top Air and
offering complementary agricultural products. At its meeting held on
January 26, 1995, the Top Air Board, which had been advised at prior
meetings of the negotiations with representatives of Clay Equipment,
reviewed and discussed in detail the salient terms of the Proposed
Transaction as set forth in the Letter of Intent presented to the meeting.
Following discussion and deliberation, the Top Air Board concluded that the
Proposed Transaction would be in the best interest of Top Air and its
shareholders and unanimously authorized Mr. Lind to negotiate a definitive
agreement with Clay Equipment and Clay Holding consistent with the terms
of the Letter of Intent and containing such other terms, provisions and
conditions as deemed necessary or advisable by Mr. Lind and counsel for Top
Air. The definitive Purchase Agreement was reviewed by the Top Air
directors and approved on April 11, 1995, and formally ratified by the Top
Air Board at a meeting held on April 18, 1995.
In arriving at the determination to approve the Purchase Agreement,
the Top Air Board took into consideration various factors, including: (a)
the current and historical financial results of Clay Equipment; (b) the
diversification of its product line to include automation equipment and
many components currently purchased by Top Air from third party vendors;
(c) the opportunity to relocate to the New Facility, and the expected
synergies and efficiencies to result from operating such a modern state of
the art facility; (d) the increased number of shareholders resulting from
the Distribution and the effect thereof upon Top Air's ability to meet the
Minimum Bid Criterion for relisting on the NASDAQ Small-Cap Market; and (e)
the significantly increased customer base and expected increased revenues
to result therefrom.
BOARD RECOMMENDATION
THE BOARDS OF DIRECTORS OF CLAY HOLDING AND CLAY EQUIPMENT
HAVE CAREFULLY CONSIDERED THE TERMS OF THE PURCHASE AGREEMENT
AND HAVE UNANIMOUSLY CONCLUDED
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THAT SUCH TERMS ARE FAIR AND THAT THE PROPOSED TRANSACTION IS IN THE
BEST INTERESTS OF CLAY EQUIPMENT, CLAY HOLDING AND THEIR RESPECTIVE
STOCKHOLDERS, INCLUDING THE ESOP. ACCORDINGLY, THE BOARDS RECOMMEND
THAT THE PROPOSAL TO APPROVE THE PURCHASE AGREEMENT BE ADOPTED.
FINANCING
The construction of the New Facility (excluding the costs of the
relocation of Clay Equipment's current operations to the New Facility) is
expected to cost approximately $2.0 million. Such cost will be financed
through a grant of $1.6 million from the federal Economic Development
Administration matched by a $400,000 grant from the City, under a program
to aid flood distressed businesses such as Clay Equipment. The relocation
costs of Clay Equipment will be borne by the City and the Federal Economic
Development Authority. The DOT and the City have expressed their intent
to acquire Clay Equipment's existing facility through the City's power of
eminent domain for construction of a new bridge and possible construction
of a flood protection dike. Condemnation proceedings are currently in
process; however, no assurance can be given as to the amount of any
Condemnation Award which may result from such proceedings or that such
proceedings will result in the City's acquisition of the facility. Top Air
is not obligated to close the Proposed Transaction if the amount of the
Condemnation Award is less than $500,000. See "Conditions of the Proposed
Transaction." The acquisition by the City of Clay Equipment's current
facility is subject to an environmental review, and to the extent that
clean-up or other costs would be required, the purchase price to be paid
by the City for Clay Equipment's current facility would be reduced.
The City will construct the New Facility on nine acres of land located
in an industrial park within the City and lease the New Facility to Top Air
(as assignee of Clay Equipment) pursuant to the New Facility Lease. The
Lease Agreement will be for an initial term of ten years with a five-year
renewal option on the part of the City, as lessor. Top Air will have an
option to buy the New Facility for $1.2 million at the end of such 15 year
period. The Lease Agreement will require annual lease payments of $200,664
(which include real estate and personal property taxes), and Top Air will
be responsible for utilities, insurance and maintenance.
Top Air has obtained a financing commitment (the "Commitment") from
the Bank that provides for the refinancing of existing debt of both Top Air
and Clay Equipment by means of a term loan in the amount of $1,500,000 (the
"Term Loan"), the financing of certain aspects of the Proposed Transaction
through an additional term loan in the amount of $500,000 (the "Bridge
Loan") and a $3,000,000 revolving line of credit to fund working capital
requirements. Interest accrues on the Term Loan and Bridge Loan at a
fluctuating rate equal at all times to one-half percent over the Bank's
base rate (which base rate is currently 9%). Subject to certain
requirements that outstanding principal be reduced by a percentage of cash
flow, the Term Loan is due five years from the closing of the Proposed
Transaction, and the Bridge Loan requires that the principal be repaid in
two installments, one due May 31, 1996 and one due May 31, 1997. The
Commitment contains customary provisions that certain financial criteria
be met and requires that all proceeds of the Condemnation Award and all
proceeds received from the sale of the present Top Air facility be applied
to repay principal amounts due under the Bridge Loan, with any excess to
be applied in reduction of the Term Loan. The Term Loan and the Bridge
Loan will be secured by all of the assets of Top Air, which will include
the assets acquired by Top Air from Clay Equipment.
OPERATIONS AFTER THE CONSUMMATION OF THE PROPOSED TRANSACTION
Following the consummation of the Proposed Transaction, substantially
all of the employees of Clay Equipment will become employees of Top Air.
Top Air has agreed to recognize Local 1728 of the IAMAW as the exclusive
bargaining agent for employees who were included in the IAMAW bargaining
unit at Clay Equipment. None of the directors or officers of Clay
Equipment or Clay Holding will become a director or officer of Top Air.
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Pending the completion of the New Facility, the operations of Top Air will
continue to be conducted at the separate facilities of Top Air and Clay
Equipment that are currently in use. It is currently anticipated that
completion of the New Facility will occur on or about January 1, 1996.
Upon such completion, the operations of Top Air will be relocated to the
New Facility and combined with those of Clay Equipment.
CONDITIONS OF THE PROPOSED TRANSACTION
The obligations of Top Air and Clay Equipment to consummate the
Proposed Transaction are subject to the approval of the Purchase Agreement
by at least a majority of issued and outstanding shares of Clay Holding.
The obligation of Top Air to consummate the Proposed Transaction is
also subject to the fulfillment of certain other conditions (each of which
may be waived by Top Air in its discretion), including:
(a) no adverse change in or loss or damage to the assets to be
transferred or to the business of Clay Equipment shall have occurred;
(b) the representations and warranties of Clay Equipment and Clay
Holding shall be true and not breached as of the Closing Date, and all
obligations of Clay Equipment and Clay Holding shall have been performed;
(c) a reasonably satisfactory legal opinion from counsel for Clay
Equipment and Clay Holding as to certain legal matters shall have been
received by Top Air;
(d) no action, suit or proceeding shall have been instituted or
threatened before any court or governmental body or authority prior to the
Closing Date pertaining to the Proposed Transaction, the distribution of
the Top Air Shares to the ESOP Participants or to the assets or business
of Clay Equipment, which has not been disclosed in the Purchase Agreement;
(e) Top Air shall be satisfied, in its sole discretion, with the
physical, operating, and financial condition of the assets and business of
Clay Equipment;
(f) no person entitled under Iowa law to dissenters' rights shall
have exercised such rights;
(g) Clay Equipment shall have delivered to Top Air satisfactory
evidence of the agreement and obligation of the City (or other appropriate
governmental authority) with respect to the amount and payment of a
Condemnation Award in connection with the City's acquisition of Clay
Equipment's current facility of not less than $500,000 (see "Financing");
(h) Top Air shall have received satisfactory evidence of the
commitment of the City or other governmental authorities to build the New
Facility and to enter into the Lease Agreement with Top Air on terms and
conditions satisfactory to Top Air (see "Financing");
(i) Top Air shall have received the binding commitment of a
financial institution to refinance certain indebtedness of Clay Equipment
on terms satisfactory to Top Air (see "Financing");
(j) the stockholder's equity of Clay Equipment, as shown on a
balance sheet prepared as of the last day of the calendar month
immediately preceding the Closing Date, shall be not less than $1,250,000;
and
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(k) Plan Participants entitled to the distribution of at least
ninety percent (90%) of the Top Air Shares shall have directed the ESOP
Trustee to distribute their allocated portion of the ESOP assets as
"direct rollovers" to Eligible Retirement Plans.
Clay Equipment's obligation to consummate the Proposed Transaction is
also subject to the satisfaction of certain other conditions (each of which
may be waived by Clay Equipment in its discretion), including:
(a) all representations and warranties of Top Air shall be true
and not breached as of the Closing Date, and all obligations of Top Air
shall have been performed;
(b) a reasonably satisfactory legal opinion from counsel to Top Air
as to certain legal matters shall have been received by Clay Equipment;
(c) Clay Equipment shall have been advised in writing by the ESOP
Trustee that the ESOP Trustee has approved the Proposed Transaction and
has voted in excess of the majority of the outstanding shares of Clay
Holding in favor of the Proposed Transaction.
CLOSING DATE
The Closing will occur on June 26, 1995, unless all of the conditions
to Closing have not been met, in which case Top Air has the option to
extend the Closing Date once to a date not later than December 31, 1995.
Until Closing, the entire risk of loss with respect to the assets will
remain with Clay Equipment.
NO FRACTIONAL SHARES
No fractional shares of Top Air common stock will be distributed to
the ESOP Participants. In lieu thereof, each ESOP Participant who is
entitled to a fraction of a share of Top Air common stock will, upon
distribution of the Shares to the ESOP Participants, receive a full share
of Top Air common stock in full payment for such fractional share.
INTEREST OF CERTAIN PERSONS IN THE PROPOSED TRANSACTION
In connection with the Letter of Intent, Clay Holding granted to Top
Air an option (the "Option") to purchase up to 22,956 shares of the common
stock of Clay Holding at a cash price of $10.90 per share. The Option is
exercisable upon the commencement by a third party of a tender offer
regarding the Stock of Clay Holding or any securities of Clay Equipment;
the entry by Clay Holding or any affiliated entity into an agreement with
a third party to acquire securities or assets of, or to merge with, Clay
Holding or Clay Equipment; the acquisition of beneficial ownership by a
third party of any stock of Clay Holding or securities of Clay Equipment;
or the announcement by a third party of its intention to make such an offer
or acquisition. The Option terminates upon the first to occur of the
Closing of the Proposed Transaction and June 30, 1995.
INDEMNIFICATION OBLIGATIONS
Pursuant to the Purchase Agreement, Clay Equipment and Clay Holding
have agreed to indemnify and hold harmless Top Air against liability, costs
and expenses arising from or in connection with any representation or
warranty made by either Clay Equipment or Clay Holding in the Purchase
Agreement which is not true and correct on the date of the Purchase
Agreement and on the Closing Date or the failure of Clay Equipment or Clay
Holding to perform under the Purchase Agreement or other document delivered
in connection with the Proposed Transaction.
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Clay Equipment and Clay Holding will also indemnify and hold Top Air
harmless from any liability cost and expense arising from or in connection
with (i) any transferee liability law (other than the unemployment
compensation experience rating of former employees of either Clay Equipment
or Clay Holding); (ii) any payment or performance made by Top Air to any
third party in order to perform or discharge fully or partially any
liability or obligation of Clay Equipment (except the liabilities assumed
by Top Air on the Closing Date); and (iii) any judgment or other
circumstances pursuant to which Top Air may be held liable or accountable
for, or the assets transferred by Clay Equipment to Top Air may be charged
in respect of, any liability or obligation of Clay Equipment (other than
the liabilities assumed by Top Air of the Closing Date); (iv) the presence
of contaminants, pollutants and other harmful substances in the premise
subject to any lease or occupancy assumed by Top Air, and (v) the
noncompliance by Clay Equipment with any environmental laws.
Pursuant to the Purchase Agreement, Top Air has agreed to indemnify
and hold harmless Clay Equipment against any and all liability, cost and
expense arising from or in connection with any representation or warranty
made by Top Air in the Purchase Agreement which is not complete, accurate
and true at the date of the Purchase Agreement and on the Closing Date or
the failure of Top Air to perform under the Purchase Agreement or other
document delivered in connection with the Proposed Transaction (including
the obligation of Top Air to discharge the liabilities of Clay Equipment
assumed on the Closing Date).
The Purchase Agreement provides that the indemnification obligations
described above survive the closing of the Proposed Transaction for a
period of two years.
ACCOUNTING METHOD
The Proposed Transaction will be accounted for as a purchase.
Accordingly, the assets and acquired liabilities assumed will be recorded
at their estimated fair values at the date of acquisition. It is estimated
that the fair value of net assets acquired by Top Air in the Proposed
Transaction will exceed the fair value of the Top Air Shares by
approximately $288,000. Accordingly, such excess will be applied toward
the reduction of the assets acquired by Top Air in the Proposed
Transaction.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE PROPOSED TRANSACTION
The Proposed Transaction has been structured as a reorganization
within the meaning of Section 368(a) of the Code. As a reorganization, no
gain or loss will be recognized by Clay Equipment with respect to the Top
Air Shares received in the Proposed Transaction. The tax basis of the Top
Air Shares received by Clay Equipment will be equal to the tax basis of the
assets transferred to and the liabilities assumed by Top Air. No assurance
can be given, however, that the IRS will not challenge the qualification
of the Proposed Transaction as a reorganization under Section 368(a) of the
Code and, if challenged, that the IRS will not prevail in its position.
Top Air and Clay Holding believe that even if the IRS were to successfully
challenge the treatment of the proposed Transaction as a reorganization
under Section 368(a) of the Code, the consequences of such a successful
challenge would not be material to Top Air's results of operations, Clay
Equipment, Clay Holding, the ESOP or the ESOP Participants.
No gain or loss will be recognized by Clay Holding upon the
distribution of such Top Air Shares by its subsidiary, Clay Equipment,
which distribution will be made pursuant to the Clay Equipment Liquidation.
The tax basis of such Top Air Shares received by Clay Holding will be equal
to Clay Equipment's tax basis in such shares.
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The distribution of the Top Air Shares received by Clay Holding
(including the shares of Hold-Back Stock to be held in escrow) to the ESOP
will be taxable to Clay Holding for federal income tax purposes to the
extent that the fair value of such Top Air Shares exceeds Clay Holding's
tax basis in such shares. It is expected that no gain will be recognized
by Clay Holding as a result of such distribution.
DISTRIBUTION BY THE ESOP
A distribution of Top Air Shares from the ESOP upon its termination
may be received by an ESOP Participant in either of two ways so long as the
distribution qualifies as an "eligible rollover distribution" to such
Participant. Distributions from the ESOP will be eligible rollover
distributions with respect to each ESOP Participant unless, with respect
to an ESOP Participant, the distribution is a required minimum distribution
that must be paid to such ESOP Participant because he or she has attained
age 70 1/2. An ESOP Participant may have all or any portion of the
distribution either (1) paid in a "direct rollover", or (2) paid directly
to such ESOP Participant. A direct rollover is a transfer of the
distribution to an Eligible Retirement Plan such as an individual
retirement arrangement ("IRA") or to an employer retirement plan.
If a direct rollover is chosen, the distribution will not be taxed in
the current year for federal tax purposes and no income tax will be
withheld; rather, the incurrence of such a taxable event will be deferred
until distribution by the ESOP Participant's Eligible Retirement Plan
directly to such ESOP Participant. If the ESOP distribution is paid
directly to the ESOP Participant, the distribution will be taxed in the
year in which it is received unless, within 60 days of such payment, the
participant rolls it over to an IRA or another plan that accepts rollovers.
If the distribution is received before age 59 1/2, an additional 10% tax may
be imposed. If the ESOP distribution is not rolled over to an Eligible
Retirement Plan, special tax rules may apply and reduce the amount of tax
owed. Additionally, the ESOP Trust is required to withhold, for federal
income tax purposes, an amount equal to 20% and, with respect to Iowa
residents, an additional 5% of the value of the distributions made directly
to ESOP Participants for state income tax purposes.
Because the distribution from the ESOP will consist primarily of Top
Air Shares and because income tax withholding must be remitted in cash,
participants who elect to receive a distribution of their ESOP accounts
will be requested to remit to the ESOP plan administrator an amount equal
to 20% of the value of their distribution and appropriate amounts to cover
state tax withholding requirements in order that the withholding may be
accomplished and the distribution made in a timely manner.
An eligible rollover distribution that is paid to the ESOP Participant
may still be rolled over in whole or in part to an IRA or another employer
plan that accepts rollovers. The rollover must be made within 60 days
after the distribution is received. Subject to the withholding
requirements discussed above, federal tax on that portion of the
distribution that is rolled over will be deferred until it is taken out of
the IRA or the employer plan. Up to 100% of the eligible rollover
distribution, including an amount equal to the 20% that was withheld, may
be rolled over. Since an ESOP Participant who does not elect a direct
rollover is required to advance to the ESOP Trustee cash in the amount to
be withheld for federal and state purposes, all or part of the Top Air
Shares distributed to such ESOP Participant may be rolled over to the IRA
or the employer plan within such 60 day period, and the ESOP Participant
may seek a refund of the amount withheld. The ESOP Participant will be
taxed on the portion of the Top Air Shares not timely rolled over to an IRA
or other qualified plan.
If an ESOP Participant receives a payment before reaching age 59 1/2
and it is not rolled over, a penalty tax equal to 10% of the distribution
may be imposed in addition to the regular income tax. The additional
10% tax does not apply to the distribution if it is (1) paid to a
Participant because of termination of employment during or after
the year in which the Participant reaches age 55, (2) paid because
of retirement due to disability, (3) paid as equal (or
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almost equal) payments over the Participant's life or life expectancy
(or the participant's and his beneficiary's lives or joint life
expectancies), or (4) used to pay certain medical expenses.
As discussed above, if the eligible rollover distribution is not
rolled over, it will be taxed in the year received. However, if it
qualifies as a "lump sum distribution," it may be eligible for the special
tax treatment discussed in the next paragraph. A lump sum distribution is
a payment, within one year, of the entire balance of an ESOP Participant
under the ESOP that is payable because the Participant has reached age 59 1/2
or has separated from service with the employer. For a payment to qualify
as a lump sum distribution, the ESOP Participant must have been in the plan
for at least five years.
If a lump sum distribution is received after age 59 1/2, the ESOP
Participant may be able to make a one time election to figure the tax on
the payment by using "five year averaging" or "ten year averaging." Five-
year averaging treats the payment much as if it were paid over five years.
If the ESOP Participant receiving the lump sum distribution was born before
January 1, 1936, a one-time election to figure the tax on the payment by
using "ten year averaging" (using 1986 tax rates) instead of five year
averaging (using current tax rates) may be made. Like the five year
averaging rules, ten year averaging often reduces the tax owed. A lump sum
distribution received by an ESOP Participant before he or she reaches age
59 1/2 will not qualify for this special tax treatment.
There are other limits on the special tax treatment for lump sum
distributions. For example, an ESOP Participant can generally elect this
special tax treatment only once in his lifetime, and the election applies
to all lump sum distributions received in that same year. If a payment
from the ESOP has been rolled over, this special tax treatment for later
payments from the ESOP. If the distribution is rolled over to an IRA, the
special tax treatment cannot be used for later payments from the IRA.
Also, if only a portion of the distribution is rolled over to an IRA, this
special tax treatment is not available for the remainder of the payment.
The distribution of Top Air Shares will not be considered to be a
distribution of employer securities eligible for deferral of tax on the net
unrealized appreciation of the stock until the stock is later sold.
In general, the rules summarized above that apply to payments to
employees also apply to payments to surviving spouses of employees and to
spouses or former spouses who are "alternate payees" under a "qualified
domestic relations order," which is an order issues by a court, usually in
connection with a divorce or legal separation. Some of the rules
summarized above also apply to a deceased employee's beneficiary who is not
a spouse.
A surviving spouse, an alternate payee, or another beneficiary is not
subject to the additional 10% tax described above, even if that person is
younger than age 59 1/2.
Although Clay Holding will submit an application to the IRS for the
issuance of a determination letter as to the continued qualification of the
ESOP under Section 401(a) of the Code upon termination and the tax-exempt
status of the ESOP Trust under Section 501 of the Code, it is unlikely that
such determination letter will be issued prior to the termination of the
ESOP and the distribution of the Top Air Shares to the ESOP Participants
in connection therewith. Clay Holding has received an opinion of counsel
with respect to the continuation of such qualification and status, which
opinion is based upon, among other things, the Code, the regulations
promulgated thereunder, and certain private letter rulings currently in
effect. Such opinion of counsel is not binding upon the IRS. Although
it is believed that distributions of this type are generally ruled
upon favorably by the IRS, no assurance can be given that a favorable
determination will ultimately be received from the IRS or that the
position of counsel will not be challenged by the IRS. If the
termination of the ESOP would result in the disqualification of the
ESOP as a Qualified Retirement Plan, then certain adverse tax
consequences may result in connection with the cancellation of the
ESOP
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Debt and the ESOP Participants may be required to recognize taxable
income in connection with the distribution from the ESOP of the Top
Air Shares and other assets to the ESOP Participants. See "INVESTMENT
CONSIDERATIONS - Tax Consequences of the ESOP Distribution."
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS DISCUSSED ABOVE, AND BECAUSE
THE TAX CONSEQUENCES TO A ESOP PARTICIPANT WHO ELECTS NOT TO RECEIVE A
"DIRECT ROLLOVER DISTRIBUTION" FROM THE ESOP MAY BE SIGNIFICANT, IT IS
RECOMMENDED THAT EACH ESOP PARTICIPANT CONSULT HIS OR HER PERSONAL TAX
ADVISOR CONCERNING THE APPLICATION OF THESE FEDERAL, STATE AND LOCAL INCOME
TAX CONSEQUENCES OF THE DISTRIBUTION.
FEDERAL SECURITIES LAW; RESTRICTIONS ON TRANSFER
The Top Air Shares to be issued in connection with the Proposed
Transaction and distributed to the ESOP Participants have been registered
under the Securities Act so that such shares may be sold without
restriction (subject to the one year lock-up period described below and the
restrictions upon the transferability of the Hold-Back Stock) by such ESOP
Participants are not deemed to be "affiliates" of Clay Holding and who do
not become affiliates of Top Air. With respect to Clay Holding, the term
"affiliate" would include any person who, directly or indirectly, controls,
or is controlled by, or is under common control with, Clay Holding at the
time that the Purchase Agreement is submitted to a vote of the shareholders
of Clay Holding at the Special Meeting. Generally, all directors and
executive officers of Clay Holding are considered "affiliates." An
affiliate of Clay Holding who desires to resell his or her Top Air Shares
must sell such stock either pursuant to an effective registration
statement, in accordance with applicable provisions of Rule 145(d) under
the Securities Act or in transactions otherwise exempt from registration
under the Securities Act.
Rule 145(d) requires that if persons deemed to be affiliates wish to
resell their stock within the first two years after receiving it, they may
do so only pursuant to and within the quantity of other limitations of Rule
144 under the Securities Act. After two years, if such a person is not an
affiliate of Top Air and Top Air is current in the filing of its periodic
reports under the Exchange Act, a former affiliate of Clay Holding may
resell Top Air Common Stock received in the Proposed Transaction freely and
without limitation. After three years, if such a person is not a Top Air
affiliate, he or she may resell Top Air Common Stock so received freely and
without limitation without regard to the status of Top Air's periodic
reports under the Exchange Act.
In addition, none of the shares of Top Air Common Stock distributed
to an ESOP Participant or to his or her Eligible Retirement Plan will be
transferable or assignable without the prior written consent of Top Air for
a period of one year following the closing of the Proposed Transaction
except by operation of law. In the event of a transfer by operation of
law, the transferee or assignee of such shares shall be bound by the same
restriction. Certificates evidencing the Top Air Shares will bear a legend
as to the restrictions upon their transferability. Also, none of the
shares of Hold-Back Stock will be transferable during the two-year escrow
period. See "TERMS OF THE PROPOSED TRANSACTION - General Description of
the Proposed Transaction."
RIGHTS OF DISSENTING STOCKHOLDERS
Any ESOP Participant has the right to dissent from the Proposed
Transaction and to receive the fair value of his or her shares in cash if
such participant follows the procedure set forth under the Iowa Business
Corporation Act and summarized below:
Under Division XIII of the Iowa Business Corporation Act (a
copy of which is attached hereto as Exhibit A), any ESOP Participant
may object to the Proposed Transaction and demand payment of the fair
value of his or her shares of Clay Holding held by the ESOP, if the
Proposed Transaction is consummated, by (i) delivering to Clay
27
<PAGE> 29
Holding, before the vote is taken with respect to the Proposed
Transaction, a written notice of the ESOP Participant's intent to
demand payment for his or her shares if the proposed action is
effectuated, together with the ESOP Trustee's written consent to the
dissent, and (ii) not directing the ESOP Trustee to vote his or her
allocated shares in favor of the Proposed Transaction.
A DIRECTION TO THE ESOP TRUSTEE TO VOTE "AGAINST" THE PROPOSED TRANSACTION
WILL NOT CONSTITUTE WRITTEN NOTICE OF AN INTENTION TO DEMAND PAYMENT;
HOWEVER, SUCH A DIRECTION OR A PARTICIPANT'S FAILURE TO DIRECT THE ESOP
TRUSTEE WITH RESPECT TO THE PROPOSED TRANSACTION WILL SUFFICE AS NOT
DIRECTING THE ESOP TRUSTEE TO VOTE IN FAVOR OF THE PROPOSED TRANSACTION.
Under the terms of the Purchase Agreement, the obligations of Top Air
to consummate the Proposed Transaction are subject to the condition that
no person entitled to dissenter's rights shall have asserted such rights.
If the Proposed Transaction is approved and Top Air chooses to waive this
condition, Top Air will notify by letter each ESOP Participant who has
complied with the foregoing provisions within ten (10) days after the
Special Meeting. Such letter will supply a form demanding payment, state
where the payment demand must be sent, and set a date by which Top Air must
receive the payment demand. A dissenting Participant must then demand
payment and certify whether the Participant acquired beneficial ownership
of the shares before the date stated in the letter. On the Closing Date
or upon receipt of a payment demand, whichever occurs later, Top Air will
pay each dissenting ESOP Participant who complied with the foregoing
provisions the amount which Top Air estimates to be the fair value of the
dissenting Participant's allocated shares, plus accrued interest. If (i)
within thirty (30) days after Top Air has made or offered payment for the
dissenting ESOP Participant's allocated shares the dissenting participant
believes the amount paid or offered is less than the fair value of the
shares or that the interest due is incorrectly calculated or (ii) Top Air
fails to make payment within sixty (60) days after the date set for
demanding payment, the dissenting ESOP participant may notify Clay Holding
in writing of the dissenter's own estimate of the fair value of the
allocated shares and the amount of interest due, and demand payment of his
or her estimate (less any payment made by Top Air) or reject Top Air's
offer and demand payment of the fair value of his or her shares and the
interest due.
If a demand for payment remains unsettled, Top Air must commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the court to determine the fair value of the shares and accrued
interest. If Top Air does not so commence the proceeding, it shall pay
each dissenter whose demand remains unsettled the amount demanded. The
court may appoint one or more persons as appraisers to recommend decision
on the question of fair value immediately before the Closing of the
Proposed Transaction, exclusive of any appreciation or depreciation in
anticipation of the Proposed Transaction unless such exclusion would be
inequitable. All costs and expenses of such proceedings would be
assessable against Top Air, however, the Court may assess costs against the
dissenter to the extent it finds that such dissenter acted arbitrarily,
vexatiously or not in good faith. Attorneys' fees are generally borne by
the party incurring such fees.
If Clay Holding and Clay Equipment do not consummate the Proposed
Transaction within sixty (60) days after the date set for demanding
payment, a new letter must be sent to each ESOP Participant who has
complied with the foregoing provisions and the payment demand procedure
repeated.
The above summary of the provisions regarding the rights of the
dissenting ESOP Participants under the Iowa Business Corporation Act is
qualified in its entirety by the text of Division XIII of such Act which
is attached hereto as Exhibit A. Interested ESOP Participants should
consult their own counsel for further information regarding dissenters'
rights under Iowa law.
28
<PAGE> 30
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information set forth below presents
the pro forma condensed balance sheet of Top Air and Clay Equipment as of
February 28, 1995, as if the Proposed Transaction (and related issuance of
Top Air Common Stock) had been consummated at such date. In addition, the
unaudited pro forma condensed statements of income of Top Air and Clay
Equipment for the fiscal year ended May 31, 1994, and the nine-month period
ended February 28, 1995, is presented as if the Proposed Transaction (and
related issuance of Top Air Common Stock) had been consummated as of the
beginning of the respective periods. The pro forma adjustments do not
reflect any operating efficiencies and cost savings which Top Air believes
are achievable or the cost of achieving any such operating efficiencies and
cost savings.
The following unaudited pro forma financial information has been
prepared from, and should be read in conjunction with, the Financial
Statements, including the notes thereto, of Top Air and of Clay Holding,
respectively, included elsewhere in this Prospectus/Information Statement
or incorporated herein by reference.
The unaudited pro forma financial information presented below has been
prepared using the purchase method of accounting, whereby the total cost
of the acquisition of the business, assets and operations of Clay Equipment
will be allocated to the tangible assets acquired and liabilities assumed
based upon their respective fair values at the effective date of the
Proposed Transaction.
The unaudited pro forma financial information is provided for
informational purposes only and is not necessarily indicative of the
financial position or operating results that would have occurred had the
Proposed Transaction been consummated on the dates, or at the beginning of
the period, for which the consummation of such transaction is being given
effect, nor is it necessarily indicative of future operating results or
financial position.
29
<PAGE> 31
<TABLE>
TOP AIR MANUFACTURING, INC.
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
FEBRUARY 28, 1995
<CAPTION>
CLAY PRO FORMA PRO FORMA
ASSETS TOP AIR EQUIPMENT ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets
Cash $ 50 $ 1,550 $ - $ 1,600
Receivables 2,938,672 580,394 - 3,519,066
Condemnation award receivable - - 50,000 <F3>
550,000 <F1> 600,000
Inventories 2,033,595 1,018,551 1,283,156 <F1> 4,335,302
Other 108,433 99,222 - 207,655
------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,080,750 1,699,717 1,883,156 8,663,623
Long Term Receivables 56,092 136,139 - 192,231
Property and Equipment, less
accumulated depreciation 801,163 329,262 (329,262)<F1> 801,163
Intangibles and Other Assets 20,491 676,664 (676,664)<F1> 20,491
------------------------------------------------------------------
$ 5,958,496 $ 2,841,782 $ 877,230 $ 9,677,508
==================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of debt $ 2,008,025 $ 3,110,704 $(1,402,480)<F3> $ 3,716,249
Accounts payable and accrued expenses 1,089,858 1,307,763 (291,078)<F3> 2,106,543
------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,097,883 4,418,467 (1,693,558) 5,822,792
------------------------------------------------------------------
Long-Term Debt 286,504 - - 286,504
------------------------------------------------------------------
Deferred Income Tax 42,200 - - 42,200
------------------------------------------------------------------
Excess of Net Assets Acquired Over Cost - - 287,977 <F1> 287,977
------------------------------------------------------------------
ESOP Debt Commitment - 1,723,871 (1,723,871)<F2> -
------------------------------------------------------------------
Stockholders' Equity
Common Stock 198,402 513,050 46,875 <F1>
(513,050)<F2>
3,563 <F3> 248,840
Additional paid-in capital 840,877 1,743,605 609,375 <F1>
(1,743,605)<F2>
46,313 <F3> 1,496,565
Retained earnings (deficit) 1,492,630 (3,833,340) 3,833,340 <F2> 1,492,630
------------------------------------------------------------------
2,531,909 (1,576,685) 2,282,811 3,238,035
Less employee stock ownership
plan debt guarantee
- (1,723,871) 1,723,871 <F2> -
------------------------------------------------------------------
2,531,909 (3,300,556) 4,006,682 3,238,035
------------------------------------------------------------------
$ 5,958,496 $ 2,841,782 $ 877,230 $ 9,677,508
==================================================================
See Notes to Unaudited Pro Forma Balance Sheet.
</TABLE>
30
<PAGE> 32
TOP AIR MANUFACTURING, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
- ---------------------------------------------------------------------
(1) To record allocation of purchase price to Clay
Equipment assets acquired, including the excess of net
assets over cost, and issuance of 750,000 shares of Top
Air common stock, at the average of bid and asked price
at February 28, 1995.
(2) To eliminate the Clay liabilities not assumed by Top
Air and Clay Equipment's ESOP debt guarantee, common
stock, additional paid in capital and retained deficit.
(3) To record additional Top Air common stock issued for
condemnation proceeds in excess of $500,000, as
required by the purchase agreement.
31
<PAGE> 33
<TABLE>
TOP AIR MANUFACTURING, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED MAY 31, 1994
<CAPTION>
Clay Pro Forma Pro Forma
Top Air Equipment Adjustments Combined
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 5,554,182 $ 7,620,460 $ - $ 13,174,642
Cost of goods sold 3,725,139 5,141,293 (257,284)<F1>
(123,684)<F4> 8,485,464
-------------------------------------------------------------------
GROSS PROFIT 1,829,043 2,479,167 380,968 4,689,178
-------------------------------------------------------------------
Operating expenses:
Selling 772,980 1,555,291 - 2,328,271
Other 598,447 1,637,148 (156,181)<F2>
(33,265)<F3>
(252,685)<F5> 1,793,464
-------------------------------------------------------------------
1,371,427 3,192,439 (442,131) 4,121,735
-------------------------------------------------------------------
OPERATING INCOME (LOSS) 457,616 (713,272) 823,099 567,443
-------------------------------------------------------------------
Financial income (expense):
Interest income 6,507 29,045 - 35,552
Interest expense (61,432) (107,965) 2,562 <F6> (166,835)
-------------------------------------------------------------------
(54,925) (78,920) 2,562 (131,283)
-------------------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAXES 402,691 (792,192) 825,661 436,160
Federal and state
income taxes (credits) 159,181 489 (50,000)<F7> 109,670
-------------------------------------------------------------------
NET INCOME (LOSS) $ 243,510 $ (792,681) $ 875,661 $ 326,490
===================================================================
Income (loss) per common share $ 0.08
================
Weighted average number of
shares outstanding 3,924,100
================
See Notes to Unaudited Pro Forma Statements of Income.
</TABLE>
32
<PAGE> 34
<TABLE>
TOP AIR MANUFACTURING, INC.
PRO FORMA CONDENSED STATEMENT OF INCOME (UNAUDITED)
NINE MONTHS ENDED FEBRUARY 28, 1995
<CAPTION>
Clay Pro Forma Pro Forma
Top Air Equipment Adjustments Combined
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 3,250,605 $ 5,067,672 $ - $ 8,318,277
Cost of goods sold 2,226,950 4,100,902 241,268 <F1>
(95,596)<F4> 6,473,524
-------------------------------------------------------------------
GROSS PROFIT 1,023,655 966,770 (145,672) 1,844,753
-------------------------------------------------------------------
Operating expenses:
Selling 424,418 1,150,408 - 1,574,826
Other 501,893 1,253,277 (117,136)<F2>
(36,985)<F3>
(184,850)<F5> 1,416,190
-------------------------------------------------------------------
926,311 2,403,685 (338,971) 2,991,025
-------------------------------------------------------------------
OPERATING INCOME (LOSS) 97,344 (1,436,915) 193,299 (1,146,272)
-------------------------------------------------------------------
Financial income (expense):
Interest income 6,718 40,182 - 46,900
Interest expense (56,801) (282,862) 124,706 <F6> (214,957)
-------------------------------------------------------------------
(50,083) (242,680) 124,706 (168,057)
-------------------------------------------------------------------
INCOME (LOSS) BEFORE
INCOME TAXES 47,261 (1,679,595) 318,005 (1,314,329)
Federal and state
income taxes (credits) 18,700 3,561 (365,261)<F7> (343,000)
-------------------------------------------------------------------
NET INCOME (LOSS) $ 28,561 $(1,683,156) $ 683,266 $ (971,329)
===================================================================
Income (loss) per common share $ (0.25)
================
Weighted average number of
shares outstanding 3,956,854
================
See Notes to Unaudited Pro Forma Statements of Income.
</TABLE>
33
<PAGE> 35
TOP AIR MANUFACTURING, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
- -----------------------------------------------------------------------------
(1) To record adjustments to account for Clay Equipment
inventories on the lower of cost (first-in, first-out method)
or market.
(2) To amortize excess of assets acquired over cost over a 10 year
period using the straight-line method.
(3) To eliminate amortization of Clay Equipment goodwill.
(4) To eliminate depreciation on Clay Equipment property and
equipment.
(5) To eliminate Clay Equipment ESOP contribution.
(6) To eliminate interest expense on Clay Equipment liabilities
not assumed.
(7) To adjust for the income tax effects of the combination.
34
<PAGE> 36
INFORMATION REGARDING TOP AIR
THE BUSINESS OF TOP AIR
Business Development. Top Air was incorporated under the laws of
- --------------------
the State of Iowa in 1981. Top Air manufactures and markets
several products including sprayers, the Auger Dolly, the Straw
Command, and a line of sprayer replacement parts.
Principal Products and Markets
- ------------------------------
Sprayers. Top Air currently manufactures several types of
- --------
agricultural sprayers including skid mount, two-wheel models,
three-wheel models, saddle tank models, home lawn models, trailer
sprayers, tandem wheel sprayers, Master Link sprayers, Terrain
Master sprayers and models which can be mounted in the bed of a
pickup truck. The sprayers are sold in sizes ranging from a 14 to
1,000 gallon capacity. Top Air also offers various accessories for
the sprayers including several models of folding and self-leveling
booms in various lengths and designs.
The sprayers are used primarily for farming activities. They can be
pulled directly by a tractor or they can be hooked to a disc so
that their combined functions allow the farmer to eliminate one
trip over the ground. The sprayers are used for spraying jobs of
all types, including the spraying of chemicals, fertilizers,
insecticides and weed killers. They are used by farmers and
commercial sprayers primarily for row crops, but can also be used
on other crops, golf courses, cemeteries, etc. The wheels may be
adjusted to compensate for difficult row crop widths. Trees and
shrubs may be sprayed by a hand gun attachment to the sprayers.
Auger Dolly. Grain augers are generally used by farmers or grain
- -----------
elevator operators to fill or empty grain storage facilities.
Without use of the Auger Dolly, the augers are difficult to
transport to a new location. Several individuals may be required
to lift and move them. The Auger Dolly is designed to lift the end
of the auger which enables one or two individuals to more easily
move the grain auger to a new location.
There are two models of Auger Dollies; i.e., a standard model and
an economy model. At the present time, Top Air is manufacturing
eight models of collars for the Auger Dolly, the device by which
the auger dolly is attached to the grain auger.
Straw Command. The Straw Command is attached to the rear of a
- -------------
combine to allow straw and harvest trash to be spread evenly over
the field, resulting in a better soil bed for spring planting and
helping to prevent wind and water erosion.
Sprayer Parts. Top Air stocks a full line of repair and
- -------------
replacement parts to fit all popular models of sprayers. Top Air
distributes these parts to retailers and utilizes them in its own
manufacturing processes. Top Air has actively promoted these
sprayer parts and has established itself as a major supplier in the
replacement parts market.
Other Products. Top Air also custom manufactures products for
- --------------
other firms on a contract basis. Traditionally, these have been
limited production runs of new designs.
35
<PAGE> 37
Method of Distribution. Top Air has six salesmen and four
- ----------------------
manufacturers' representatives calling upon dealers and
distributors in twelve states. Efforts are on going to continue
expanding its sales territory into additional states and to further
enhance market penetration in the current marketing areas. Top Air
is selling its products primarily to implement dealers, farm supply
stores and feed stores located primarily in lesser populated
agricultural areas for resale to farmers, tradesmen and to the
general public for commercial and individual use.
Seasonal Factors. The sale of sprayers, sprayer parts and sprayer
- ----------------
booms is seasonal with approximately 80% of its sprayer sales being
made from December 1 through May 31 of each year. A large
percentage of Auger Dollies and Straw Command units are sold during
the summer and early fall months in anticipation of the harvesting
season.
Competitive Conditions. Top Air competes with a large number of
- ----------------------
other agricultural equipment manufacturers and suppliers who
distribute sprayers and sprayer parts. Top Air's products,
however, are considered sufficiently different so that Top Air can
establish and maintain a market for its products. In addition, Top
Air offers a full line of sprayer products that add to Top Air's
ability to penetrate the market. Top Air sells sprayers and fall
harvest products on a dated billing program. Under this program,
finance charges are suspended until May 10 for sprayers, and
October 10 for harvest products to allow Top Air's dealers an
incentive to stock larger quantities of products without the
necessity to commit financial resources several months in advance.
This also allows Top Air to plan its production on a more
convenient basis.
Major Customers. The customer base is sufficiently broad that no
- ---------------
customer accounts for 10% or more of Top Air's sales.
Backlog Orders. Top Air had no material sales backlog as of May 1,
- --------------
1995 or May 31, 1994. Because of the seasonality of its business,
Top Air would normally have little or no sales backlog at the end
of its fiscal year. See "Seasonal Factors."
Source and Availability of Raw Materials. Top Air currently
- ----------------------------------------
manufactures the frames for the sprayers but the remaining
component parts are purchased for assembly in Top Air's plant. See
"TERM OF THE PROPOSED TRANSACTION - Background and Reasons for the
Proposed Transaction." Top Air purchases its raw materials from a
number of suppliers. Top Air has had no difficulty in obtaining
component parts and does not anticipate any difficulty in obtaining
sufficient component parts and raw materials as production
increases.
Patents and Trademarks. Top Air has received a design patent on
- ----------------------
the three-wheel sprayer, the master-link sprayer and the
self-leveling boom, and has trademark registrations for Top-Air(R)
and E-Z Boy(R). While Top Air believes that its patents and
trademarks have significant value, Top Air is not dependent upon
patents, trademarks, service marks or copyrights.
Product Warranty. Top Air has warranted the sprayers, sprayer
- ----------------
booms, Straw Commands, Auger Dollies and other products
manufactured by it to be free from defects in material and
workmanship under normal use and service for a period of
twenty-four months after date of purchase. Top Air carries product
liability insurance. See "INVESTMENT CONSIDERATIONS - Uninsured
Losses."
36
<PAGE> 38
Environmental Compliance. Top Air believes that it is presently in
- ------------------------
substantial compliance with all existing applicable environmental
laws and does not anticipate that such compliance will have a
material effect on its future capital expenditures, earnings or
competitive position.
Employees. On May 1, 1995, Top Air's plant and executive offices
- ---------
employed 47 people on a full-time basis. Of this number, five are
officers and the remainder are sales representatives, production
workers, secretaries and truckers. None of Top Air's employees are
covered under collective bargaining agreements. However, Top Air
has agreed to recognize the IAMAW as the exclusive bargaining agent
for employees who were included in the IAMAW bargaining unit at
Clay Equipment. See "TERMS OF THE PROPOSED TRANSACTION -
Operations After the Consummation of the Proposed Transaction."
Research and Development. Research and development costs incurred
- ------------------------
for the years ended May 31, 1994 and 1993 were $150,242 and
$90,846, respectively. Research and development activities consist
primarily of wages paid for the design and testing of new equipment
and improvements to existing equipment.
PROPERTIES
Top Air owns eight acres of land in Parkersburg, Iowa. The
facilities located on this land consist of a building containing
the executive offices (approximately 1,600 square feet), assembling
area (approximately 2,400 square feet) and manufacturing area
(approximately 10,000 square feet). The facilities are constructed
out of steel. Although Top Air believes the plant has sufficient
capacity to construct its products for the foreseeable future, Top
Air believes the contemplated relocation of the combined operations
of Top Air and Clay Equipment to the New Facility would result in
significant operating synergies and efficiencies. See "TERMS OF
THE PROPOSED TRANSACTION - Background and Reasons For the Proposed
Transaction," "Financing" and "Operations After the Consummation of
the Proposed Transaction."
Top Air also owns a warehouse in Parkersburg, Iowa (containing
approximately 8,700 square feet) which was purchased from a former
officer for $80,000 on December 20, 1988. This property is being
financed through a contract with the former officer which is being
amortized annually through January 1997.
Top Air believes its facilities are adequately insured.
LEGAL PROCEEDINGS
There are no material legal proceedings pending to which Top Air is
a party or of which any of its property is the subject.
37
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Nine Months Ended February 28, 1995, Compared to Nine Months Ended
- ------------------------------------------------------------------
February 28, 1994
- -----------------
Net Sales. Net sales for the third quarter and nine months ended
- ---------
February 28, 1995 increased 15% to $2,281,271 and 12% to
$3,250,605, respectively, compared to $1,991,189 and $2,911,617 for
the same periods of the previous year. The increases were a result
of an overall favorable agricultural industry and a strong demand
for Top Air's new line of T-Tank sprayers introduced in the 1995
model year. The backlog of orders at February 28, 1995 was
approximately $ 1.5 million compared to $ 1.2 million a year ago.
Operating Costs & Expenses. Top Air's cost of goods sold decreased
- --------------------------
to 68% and 69% of sales for the third quarter and nine months ended
February 28, 1995, respectively, compared to 69% and 70% for the
same periods a year ago. The increases in margins were a result of
fixed costs being spread over a higher volume of sales and a change
in the sales mix consisting of a larger percentage of wholegoods,
which carry a higher profit margin. Operating expenses increased
10% to $ 316,784 and 9% to $ 944,603 respectively, for the third
quarter and nine months ended February 28, 1995 compared to $
286,806 and $ 869,316 for the same periods of the previous year.
The increases were primarily a result of expanding Top Air's
research and development in order to improve product quality and
enhance the product line, combined with increased marketing efforts
to strengthen the image of Top Air as a manufacturer of high
quality agricultural products. Accordingly, sales salaries and
travel increased approximately $39,000, advertising and promotion
increased approximately $15,000 and R & D expenses increased nearly
$20,000 for the nine month period. Top Air anticipates that it
will continue with these expanded efforts as projects and market
conditions dictate.
Interest Expense. Interest expense increased 74% to $35,888 from
- ----------------
$20,659 for the third quarter and 76% from $56,901 to $32,245 for
the nine months ended February 28, 1995. The increases are a
result of somewhat higher levels of short-term operating debt
outstanding during the periods combined with significantly higher
interest rates.
Material Changes in Financial Position. Top Air's income from
- --------------------------------------
operations of $28,461 net additions of property and equipment of
approximately $235,000 offset by $197,000 of net proceeds from
long-term debt borrowings to purchase property and equipment
resulted in a increase in working capital of $16,949 for the nine
months ended February 28, 1995.
Liquidity and Capital Resources. At February 28, 1995, Top Air had
- -------------------------------
working capital of $1,982,867 an increase of $280,180 over a year
ago and an increase of $16,949 since May 31, 1994. The current
ratio decreased to 1.64 from 3.29 at May 31, 1994. On August 26,
1994 Top Air's Board of Directors approved a plan for a building
expansion project. The project would enable Top Air to increase
capacity, improve product quality and gain manufacturing
efficiencies. It is currently anticipated that the expansion will
be approximately 30,000 square feet and will house all of
production and assembly operations. The total project cost,
including some updated equipment, is expected to be approximately
$800,000. Top Air has been awarded $133,500 in grants and
forgivable loans (subject to job creation goals) in connection with
this project. It is anticipated that the balance of the funds
would be provided through long-term borrowings from a financial
institution; however no such commitment has as yet been made by Top
Air. In view of the Proposed Transaction and resulting relocation
of Top Air's current operations to the New Facility, such project
has been postponed indefinitely. The costs of such relocation to the
38
<PAGE> 40
New Facility, to the extent borne by Top Air, will not be
material and will be provided through internally generated funds.
Fiscal Year Ended May 31, 1994 Compared to Fiscal Year Ended May,
- -----------------------------------------------------------------
31, 1993
- --------
Net Sales. Net sales increased $697,275, or 14.4%, to $5,554,182
- ---------
in fiscal 1994 from $4,856,907 in fiscal 1993. Approximately
$118,000, or 16.9%, of this increase was the result of increases in
the sale prices charged by Top Air. The remaining increase was
primarily a result of a combination of successful sales of new
products introduced, increased marketing efforts and an overall
favorable agricultural economy. Sales of sprayers increased
$642,528 or 21.8% and replacement parts increased $54,747 or 2.9%.
Top Air is continuing to develop new products and to modify
existing products to meet the demands of the spraying industry.
Operating Costs and Expenses. Cost of goods sold increased 7.6% to
- ----------------------------
$3,725,139 in fiscal 1994 from $3,461,556 in fiscal 1993. However,
cost of goods sold as a percentage of net sales decreased to 67.1%
in fiscal 1994 from 71.3% in fiscal 1993. The decreased percentage
was a result of three primary factors. First, Top Air was able to
raise selling prices, which more than offset increased input
prices. Secondly, as mentioned above, a greater percentage of
sprayers were sold, as opposed to replacement parts, during the
past year. Sprayers normally carry a higher profit margin than
replacement parts. Finally, the fixed costs included in cost of
goods sold were spread over a substantially higher volume of sales.
Operating expenses increased $98,673, or 7.8%, to $1,371,427 (or
24.7% of net sales) in fiscal 1994 from $1,272,754 (or 26.2% of net
sales) in fiscal 1993. The increase resulted from expected
increases in variable expenses coupled with planned increases in
selling expenses and research and development expenses which
enabled Top Air to expand the product line and sales. Top Air is
continuing to add sales personnel, as necessary, to open up new
sales territories.
Interest Expense. Interest expense decreased $4,653, or 7.0%, to
- ----------------
$61,432 (or 1.1% of net sales) in fiscal 1994 from $66,085 (or 1.4%
of net sales) in fiscal 1993. Such decrease in interest expense
resulted principally from a reduction in the average balance
outstanding under Top Air's line of credit.
Income Tax Expense. Top Air's effective income tax rate increased
- ------------------
to 39.5% of income before taxes in fiscal 1994 from 20.0% in fiscal
1993.
Material Changes in Financial Position. Net income for fiscal 1994
- --------------------------------------
was $243,510, or 4.4% of net sales, an increase of $186,966 (or
331%) from the fiscal 1993 net income of $56,544, or 1.2% of fiscal
1993 net sales.
Liquidity. Top Air generated cash flow from operating activities
- ---------
during fiscal 1994 of $504,670 which decreased from the cash
generated in fiscal 1993 of $556,331. The decrease in cash flow
was primarily due to a general increase in current assets offset
with a general increase in current liabilities and an increase in
net income.
Investing activities produced a negative cash flow during fiscal
1994 of $245,104 which increased over the negative cash flow in
fiscal 1993 of $90,740. The change was primarily a result of
increased fixed asset purchases.
39
<PAGE> 41
Financing activities produced a negative cash flow during fiscal
1994 of $35,336 which decreased from the negative cash flow during
fiscal 1993 of $300,929. The decrease in fiscal 1994 was primarily
a result of an increase in net short term borrowings.
Top Air intends to use cash generated from operations and short-
term bank loans to fund fiscal 1995 cash requirements. As of May
31, 1994 Top Air has a $3,000,000 line of credit, from a bank
pursuant to a credit and security agreement originally dated
November 10, 1989 which expires October 1, 1994, and bears interest
at the prime rate plus 1/2% (currently 7.75%). As of May 31, 1994,
there was no indebtedness outstanding under Top Air's line of
credit.
Top Air has working capital requirements due primarily to the need
to maintain inventories and to finance accounts receivable. Top
Air believes it has access to sufficient working capital for its
present and immediately foreseeable working capital requirements.
Top Air anticipates that it will be borrowing funds seasonally, as
the need arises.
Top Air's working capital increased to $1,965,918 in fiscal 1994
from $1,868,934 in fiscal 1993. The current ratio decreased to
3.29:1 in fiscal 1994 from 5.44:1 in fiscal 1993. The working
capital increase is primarily due to the trade receivables,
inventories and accounts payable increasing or decreasing without
a proportional increase or decrease in short-term borrowing
necessary to finance them.
Capital Resources. Top Air has had minor changes in capital assets
- -----------------
during the past four years, and, except for the Proposed
Transaction, anticipates no significant changes in fiscal year
1995. In connection with the Proposed Transaction, the combined
long-term debt of Top Air and Clay Equipment will be refinanced
through the New Financing, to consist of a single term loan and a
revolving line of credit (to fund future working capital
requirements). The New Financing will be provided by the Bank.
The Bank has issued to Top Air its commitment to provide the New
Financing, subject to certain conditions specified therein. The
New Facility will be constructed by the City and leased to Top Air
(as assignee of Clay Equipment) under the New Facility Lease for an
initial term of 10 years (with a renewable five year option on the
party of the City, as lessor) at an annual rental of $206,664. See
"TERMS OF THE PROPOSED TRANSACTION - Financing" and "PRO FORMA
FINANCIAL INFORMATION."
Effects of Inflation. Inflation and changing prices have had a
- --------------------
minor effect on Top Air's cost of sales and operating expenses.
Top Air had minor price increases during fiscal 1994 and fiscal
1993 as disclosed above.
Impact of Recently Issued Accounting Standards. Top Air adopted
- ----------------------------------------------
FASB Statement No. 109, "Accounting for Income Taxes" for the year
ended May 31, 1994. The adoption of FASB No. 109, did not have a
material effect on its results of operations or financial
condition.
PRINCIPAL SHAREHOLDERS
As of March 31, 1995, the following persons were known to Top Air
individually or as a group, to be the beneficial owners,
respectively, of more than 5% of the Common Stock. Except as
otherwise noted, each person or group identified below holds sole
voting and sole investment power with respect to the shares
identified as beneficially owned.
40
<PAGE> 42
<TABLE>
<CAPTION>
Number of Percentage of
Shares Owned Shares Outstanding
------------ -------------------------------
Prior to After
Proposed Proposed
Name and Address Transaction Transaction<F3>
---------------- ----------- -----------
<S> <C> <C> <C>
Robert J. Freeman and 1,950,000<F1> 61.43% 49.69
Dennis W. Dudley, Trustees
under Amended and Restated
Voting Trust Agreement
dated 9/15/92
9387 Dielman Industrial Dr.
St. Louis, MO 63132
Wayne C. Dudley 771,284<F2> 24.30% 19.65
R.R. 1
Aplington, IA 50604
Robert J. Freeman 300,250<F2> 9.46% 7.65
990 Hammond Drive
Suite 980
Atlanta, GA 30328
S. Lee Kling 270,250<F2> 8.51% 6.89
1401 S. Brentwood Blvd.
St. Louis, MO 63144
Franklin A. Jacobs 300,250<F2> 9.46% 7.65
9387 Dielman
Industrial Drive
St. Louis, MO 63132
- ------------------------
<FN>
<F1> The Amended and Restated Voting Trust Agreement (the "Voting
Trust") was adopted September 15, 1992 and terminates January
4, 2000 or by earlier agreement. The names and addresses of
the voting trustees are: Dennis W. Dudley, R.R. 1,
Parkersburg, IA 50665; and Robert J. Freeman, 990 Hammond
Drive, Suite 980, Atlanta, GA 30328. Voting power of the
Shares deposited in the Voting Trust is shared equally by the
trustees. Pursuant to the Voting Trust, the trustees are
required to vote to elect Wayne C. Dudley, Dennis W. Dudley,
Robert J. Freeman, Franklin A. Jacobs, S. Lee Kling and
Sanford W. Weiss as directors.
<F2> These shares are also included in the shares listed as being
subject to the Voting Trust discussed in footnote (1).
<F3> Assumes that the number of Top Air Shares issued upon the
consummation of the Proposed Transaction will be 750,000.
</TABLE>
41
<PAGE> 43
BOARD OF DIRECTORS
Set forth below are descriptions of the backgrounds of the
directors of Top Air.
STEVEN R. LIND, 32, has served as President of Top Air since
November 1992 and was appointed Chief Executive Officer in July
1993. He also has served as a Director of Top Air since 1993. Mr.
Lind had served as a Staff Accountant with McGladrey & Pullen, LLP,
certified public accountants, from 1985 to 1988. From 1988 to
1992, he served as Controller of Top Air. From 1992 to 1993, Mr.
Lind served as Chief Financial Officer of Top Air.
WAYNE C. DUDLEY, 63, is the founder of Top Air, has served as a
Director of Top Air from 1981 to the present, and served as the
Chairman of the Board and President or Chief Executive Officer of
Top Air from 1981 until 1992. Mr. Dudley is currently a member of
the Executive Committee.
DENNIS W. DUDLEY, 43, has served as a Director of Top Air since
1981. From 1989 until 1992, he served as President and Chief
Operating Office of Top Air. Currently, Mr. Dudley is self-
employed. Prior to serving as President and Chief Operating
Officer of Top Air, Mr. Dudley served as executive vice-president
from 1981 to 1989.
ROBERT J. FREEMAN, 66, has served as a Director of Top Air since
1990. He has been retired for 17 years. Mr. Freeman currently
serves on the Executive Committee, the Audit Committee and the
Salary and Stock Option Committee.
FRANKLIN A. JACOBS, 62, has served as a Director of Top Air since
1990. He currently serves on the Executive Committee and the Audit
Committee. Mr. Jacobs has served as Chief Executive Officer and
Chairman of the Board and a Director of Falcon Products, Inc., a
St. Louis-based commercial furniture manufacturer, for
approximately 20 years. He is also a member of the Board of
Directors of Magna Group, Inc.
SANFORD W. WEISS, 61, has served as a Director of Top Air since
1990. Mr. Weiss currently serves on the Salary and Stock Option
Committee. He has been a principal owner of Weiss & Neuman Shoe
Company, an owner of retail shoe stores, for more than 16 years.
S. LEE KLING, 66, has served as a Director of Top Air and Chairman
of the Board since 1990. He currently serves on the Executive
Committee and the Audit Committee. Mr. Kling served as Chairman of
the Board of Landmark Bancshares Corporation, a St. Louis-based
bank holding company, from 1974 until 1991 and served as its chief
executive officer until 1990. He also serves as Chairman of the
Board of Kling Rechter Company, a merchant banking company and as
a Director of the following corporations: Bernard Chaus, Inc.; E-
Systems, Inc.; Hanover Direct, Inc.; Falcon Products, Inc.; Lewis
Galoob Toys, Inc.; Magna Group, Inc.; and National Beverage Co.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Director Compensation. For their services, Top Air pays a
- ---------------------
quarterly director's fee of $1,500 to each director except Steven
R. Lind. In addition, Top Air pays to S. Lee Kling a fee of $1,000
per month for serving as Chairman of the Board and consulting
services rendered to Top Air.
42
<PAGE> 44
Executive Compensation. The following table sets forth certain
- ----------------------
information regarding the compensation paid to the Chief Executive
Officer. No executive officer of Top Air received compensation
(annual salary and bonus) in excess of $100,000 during fiscal 1994.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ---------------------------------
AWARDS PAYOUTS
---------------------- ---------
RESTRICTED OPTIONS/ LTIP
NAME AND OTHER ANNUAL STOCK SARS PAYOUTS ALL OTHER
PRINCIPAL POSITION YEAR <F1> SALARY BONUS COMPENSATION AWARD(S) (SHARES) (DOLLARS) COMPENSATION <F2>
- ------------------ -------- ------ ----- ------------ ---------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven R. Lind, 1994 $56,458 $17,100 -- -- 10,000 -- $1,202
President and Chief
Executive Officer 1993 $47,448 $ 1,575 -- -- 10,000 -- $ 981
- ------------------------------
<FN>
<F1> In accordance with transitional provisions applicable to the
revised rules on directors and executive officers compensation
disclosure adopted by the Securities and Exchange Commission
("SEC"), as interpreted by the SEC's staff, compensation
information for Top Air's 1992 fiscal year has been omitted.
<F2> Includes a contribution of $1,110 in 1994 to the 401(k) Plan
by Top Air on behalf of Mr. Lind. Also includes premiums in
the amount of $92 paid by Top Air in 1994 for term life
insurance.
</TABLE>
Stock Options. The following table sets forth certain information
- -------------
concerning stock options granted under Top Air's 1993 Stock Option
Plan during fiscal 1994 to the Chief Executive Officer of Top Air:
43
<PAGE> 45
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------
<CAPTION>
OPTIONS/ PERCENTAGE OF TOTAL
SARS OPTIONS/SARS EXERCISE OR
GRANTED GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME (SHARES) IN FISCAL YEAR (DOLLARS/SHARE) DATE
---- -------- -------------------- --------------- ----------
<S> <C> <C> <C> <C>
Steven R. Lind 10,000<F1> 24.4% $.8438 1/12/04
- ------------------------------
<FN>
<F1> Each option listed above was issued at fair market value on
date of grant and is exercisable in 33-1/3% annual increments,
beginning on the first anniversary of the date of grant and
on each anniversary thereafter. All options listed above
expire ten years from date of grant, subject generally to
earlier termination upon cessation of employment.
</TABLE>
The following table sets forth certain information concerning
the number of unexercised options and value of unexercised options
outstanding at May 31, 1994 with respect to the Chief Executive
Officer of Top Air. No stock options were exercised during fiscal
1994.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS AT THE-MONEY OPTIONS/SARS AT
ACQUIRED VALUE MAY 31, 1994 MAY 31, 1994
ON EXERCISE REALIZED (EXERCISABLE/UNEXERCISABLE) EXERCISABLE/UNEXERCISABLE
NAME (SHARES) (DOLLARS) (SHARES) (DOLLARS)
---- ----------- --------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Steven R. Lind N/A N/A 5,333/16,667 $2,145/$5,572
</TABLE>
Employment Arrangements. Top Air has entered into an employment
- -----------------------
agreement, dated as of November 6, 1992, with Steven R. Lind (the
"Agreement"). Under the terms of the Agreement, Mr. Lind will
provide services to Top Air in exchange for annual compensation of
$57,000 until such time as the Agreement is terminated. In the
event Mr. Lind's employment is terminated, he would receive a one-
time payment in an amount equal to fifty percent (50%) of his
annual compensation, which would be $28,500 at present.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 1, 1991, Top Air refinanced a short-term note receivable
from Wayne C. Dudley, a former Chief Executive Officer of Top Air,
in the amount of $53,407. The note, as amended, is non-interest
bearing and is payable in quarterly installments through December
31, 1994. Top Air agreed to continue
44
<PAGE> 46
to accept such quarterly payments in lieu of full payment on December
31, 1994, until such note is fully amortized.
Also, on January 31, 1991, Top Air accepted four notes receivable
totaling $64,000 from Robert Freeman, Franklin Jacobs, S. Lee Kling
and Sanford Weiss, members of the Board of Directors of Top Air, in
payment of an advance made during the year ended May 31, 1990, to
Parker/Marshall Group, Inc. Each of these notes was paid in full
in October 1993.
INFORMATION REGARDING CLAY HOLDING AND CLAY EQUIPMENT
THE BUSINESS OF CLAY EQUIPMENT
Clay Equipment is engaged in the business of the design,
manufacture and sale of agricultural products, including a line of
agricultural spreaders sold under the trade name "Better Built."
Clay Equipment competes with a large number of other agricultural
equipment manufacturers and suppliers who distribute products
similar to those manufactured and sold by Clay Equipment. Clay
Equipment's customer base is sufficiently broad so that no customer
accounts for more than 10% of Clay Equipment's sales. Clay
Equipment purchases its raw materials from a number of suppliers
and has not, in the past, had difficulty in obtaining component
parts. The current financial condition of Clay Equipment has made
purchases of component parts on credit more difficult, and it is
expected that such difficulty will continue unless and until such
financial condition is improved.
On March 31, 1995, Clay Equipment's plant and executives
offices employed 63 people on a full-time basis. Clay Equipment
production workers are covered under a collective bargaining
agreement with the IAMAW.
Clay Equipment owns its current manufacturing facility located
in Cedar Falls, Iowa, consisting of a building containing the
executive offices, assembling and manufacturing areas of
approximately 120,000 square feet. The facilities are constructed
out of concrete and clay tile. Although the plant has sufficient
capacity to support Clay Equipment's current sales levels, Clay
Equipment does not believe that the design and layout of the plant
is such that its manufacturing operations can be conducted
efficiently. See "TERMS OF THE PROPOSED TRANSACTION - Operations
After the Consummation of the Proposed Transaction."
There are no material legal proceedings pending to which Clay
Holding or Clay Equipment is a party or of which any of the
properties of Clay Holding is subject.
MARKET PRICE OF AND DIVIDENDS ON CLAY HOLDING COMMON STOCK AND
RELATED SHAREHOLDER MATTERS
There is no established public trading market for the Clay
Holding common stock. However, under the terms of the ESOP Trust,
upon their retirement, all ESOP Participants have the right to
require the repurchase by Clay Holding of those shares of Clay
Holding stock distributable to such ESOP Participants at a
redemption price equal to their fair value at the time such right
is exercised. The fair value of the ESOP is determined annually by
independent appraisal as of the close of each calendar year and at
such other times as directed by the Advisory Committee of the ESOP.
Based on such independent appraisals, the per share redemption
prices for 1992 and 1993 were $16.00 and $14.00, respectively. No
fair value for the ESOP was established as of year-end 1994.
However, in connection with Top Air's due diligence review of Clay
Equipment, the independent appraiser who normally establishes the
fair value of the ESOP Trust performed an appraisal of Clay Holding
as of August 31, 1994 and concluded
45
<PAGE> 47
that the per share fair value of Clay Holding was $13.00. In view of
the continuation of significant losses by Clay Equipment, its strained
cash flow position and its default status under certain credit
agreements, Clay Holding believes that the current per share fair
value of the ESOP Trust is significantly less than $13.00. See
"INFORMATION REGARDING CLAY HOLDING AND CLAY EQUIPMENT - Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net Sales increased from $6,381,591 in 1993 to $7,788,916 in 1994
for an increase of $1,407,325, or 22%. This increase was primarily
attributable to the sales from the Better Bilt line of manure
handling equipment purchased on October 15, 1993, offset by a
decrease in the sales of the Clay products. Sales of the Better
Bilt products, which included only a portion of the year in 1993,
increased approximately $2,000,000, while the Clay products
decreased approximately $600,000.
Cost of goods sold increased from $4,125,347 in 1993 to $5,960,669
in 1994 for an increase of $1,835,322, or 44%. The increase
resulted from a combination of the sales increase mentioned above,
the current year sales mix consisting of a larger volume of
products in the Better Bilt line being sold at lower margins, and
an adjustment to inventory of approximately $400,000 to reflect
actual quantities and establish a reserve for obsolescence.
Operating expenses increased $113,168 or 3.8% to $3,126,577 (or
40.1% or net sales) for 1994 from $3,013,409 (or 47.2% of new
sales) for 1993. This increase was primarily attributable to an
increase in administrative expenses of $220,000 offset by a
decrease in selling expenses of $115,000. The increase in
administrative expenses resulted from professional fees and bad
debt expense increasing $140,000 and $85,000, respectively.
Selling expenses decreased approximately $115,000 due to reduction
in size of the sales staff. As a result of this reduction, sales
salaries decreased approximately $90,000 and related travel
expenses decreased $30,000.
Selling expenses for 1994, which decreased by approximately
$115,000 in 1994 compared to 1993, were comprised primarily of
salaries and commission of $730,000 and advertising and promotions
of $300,000. Administrative expenses for 1994, which increased by
approximately $220,000 in 1994 compared to 1993, consisted
primarily of salaries of $230,000, professional fees of $265,000,
bad debts and collection expense of $90,000 and general insurance
of $165,000.
Interest expense increased $109,930 or 206% to $163,206 (or 2.1% of
net sales) in 1994 from $53,276 (or 8% of net sales) in 1993. This
increase was a result of increased borrowing required to purchase
the new product line discussed above coupled with higher interest
rates in 1994.
As a result of the foregoing, the net loss for 1994 was $1,416,493
(or -18.2% of net sales) compared to the net loss for 1993 of
$611,005 (or -9.6% of 1993 sales). This represents an increase in
the net loss of $805,488 (or -132%) from 1993.
46
<PAGE> 48
Liquidity and Capital Resources
- -------------------------------
Clay Equipment's principal source of funds for its working capital
requirements is its cash flow from operations, coupled with
available borrowings under its working capital credit line. The
significant operating losses incurred by Clay Equipment during the
last two years has put significant strain on Clay Equipment's cash
flow from operations.
Clay Equipment's current working capital credit line expired in
March 1995 and has not been renewed by the provider thereof. While
no demand for payment of outstanding balances under such working
capital credit line has been made by the provider thereof, no
further drawdowns on such credit line may be made by Clay
Equipment. Further, Clay Equipment is not in compliance with
various financial covenants required to be met under its Credit
Agreement with a lending institution in connection with certain
term debt. At December 31, 1994, the outstanding principal balance
of such term debt (which, because of its status, has been
classified as current) was $825,000. While no demand for payment
has been formally made, such non-compliance has not been waived by
the lender. The working capital line of credit and the term debt
are collateralized by substantially all of the assets of Clay
Equipment. No assurance can be given that the provider of the
working capital credit line or the provider of the term loan to
Clay Equipment will not demand repayment and, in absence of such
repayment, take all measures, including foreclosure, to enforce its
rights as a secured party. Further, no assurance can be given that
if demand for payment is made by either lender, Clay Equipment
would be able obtain alternative financing or sell a significant
amount of its assets to avoid foreclosure.
Because of the significant losses incurred by Clay Equipment during
the past two years, its strained cash flow position and the default
position of Clay Equipment under its working capital credit line
and term loan discussed above, Clay Holding's independent
accountants have issued a report which indicates that substantial
doubt exist as to Clay Holding's ability to continue as a going
concern.
CLAY HOLDING
All of the issued and outstanding shares of the common stock
of Clay Equipment are owned of record by Clay Holding, and all of
the issued and outstanding shares of the common stock of Clay
Holding are owned by the ESOP, for the benefit of the ESOP
Participants. As of December 31, 1994, there were 79 ESOP
Participants, including 22 inactive Participants.
DESCRIPTION OF TOP AIR COMMON STOCK
GENERAL
Top Air is authorized to issue Twenty Million (20,000,000)
shares of no par value common stock.
The holders of common stock are entitled to cast one vote for
each share of record on all matters to be voted on by stockholders,
including the election of directors. The holders of common stock
are entitled to receive dividends when and if declared by the Board
of Directors out of legally available funds. In the event of
liquidation, dissolution or winding up of the affairs of Top Air,
the holders of the common stock are entitled to share ratably in
all remaining assets available for distribution to them after the
payment of liabilities and after provision has been made for each
class of stock,if any, having preference over the common stock.
Holders of shares of Top Air Common Stock, as such, have no
47
<PAGE> 49
conversion, preemptive or other subscription rights, and there are
no redemption provisions applicable to the Top Air Common Stock.
All of the outstanding shares of Top Air Common Stock are fully
paid and nonassessable.
The bid and asked prices for Top Air Common Stock are
currently quoted on the NASDAQ Bulletin Board.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is the
Firstar Trust Company, Milwaukee, Wisconsin.
48
<PAGE> 50
COMPARISON OF RIGHTS OF HOLDERS OF
TOP AIR COMMON STOCK AND CLAY EQUIPMENT COMMON STOCK
GENERAL
The rights of Clay Holding stockholders are governed by Clay
Holding's Articles of Incorporation and Bylaws and Iowa law and the
rights of Top Air stockholders are governed by Top Air's Articles
of Incorporation and Bylaws and Iowa law. In most respects, the
rights of holders of Clay Holding common stock and Top Air common
stock are similar. Stockholders of each of Clay Holding and Top
Air are entitled to one (1) vote per share held. Neither the
holders of Clay Holding common stock nor the holders of Top Air
common stock have preemptive rights to subscribe for or purchase
any shares issued by their respective corporations.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Top Air, Clay Equipment and Clay Holding are all subject to
the provisions of The Iowa Business Corporation Act ("IBCA"). The
IBCA provides that a corporation may indemnify an officer,
director, employee or agent made a party to a proceeding because he
was an officer, director, employee or agent of the corporation
against liability incurred in connection with a proceeding if: (a)
such person acted in good faith; (b) in the case of conduct in an
official capacity, the person reasonably believed such conduct was
in the corporation's best interests; (c) in all other cases, such
person reasonably believed that such conduct was not opposed to the
best interests of the corporation; and (d) in the case of any
criminal proceeding, such person had no reasonable cause to believe
his or her conduct was unlawful. In actions brought by or in the
right of the corporation, however, the IBCA provides that no
indemnification may be made if the director was judged liable to
the corporation. The IBCA also provides that in connection with
any proceeding charging personal benefit to a director, no
indemnification may be made if such director was adjudged liable on
the basis that personal benefit was improperly received by the
director. Unless otherwise limited by its charter, a corporation
must indemnify a director, officer, agent or employee who
successfully defends himself in a proceeding to which he was a
party because he was a director of the corporation against
reasonable expenses incurred by him in connection with such
proceeding. A corporation may pay for or reimburse the reasonable
expenses incurred by a director, officer, agent or employee who is
a party to a proceeding in advance of the final disposition of the
proceeding if such person furnishes the corporation a written
affirmation of his good faith belief that he has met the applicable
standard of conduct, undertakes to repay the advance if it is
ultimately determined that he is not entitled to indemnification
and a determination is made that the facts then known to those
making the determination would not preclude indemnification. The
indemnification and expense advancement provisions contained in the
IBCA are not exclusive of any other rights which may be granted by
the articles of incorporation or bylaws, a resolution of directors
or stockholders, or an indemnification agreement; however, no
indemnification may be granted if a director is found liable for
breach of the duty of loyalty, acts or omissions not in good faith
or involving intentional misconduct, or unlawful distributions.
The termination of a proceeding by judgment, order, settlement
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the
standard of conduct described above. Any indemnification under the
IBCA in connection with a proceeding by or in the right of the
corporation is limited to reasonable expenses incurred in
connection with the proceeding. Notwithstanding the foregoing, the
IBCA provides that a court of competent jurisdiction, upon
application, may order that an officer or director be indemnified
for reasonable expenses, if, in consideration of all relevant
circumstances, the court determines that such individual is fairly
and reasonable entitled to indemnification, notwithstanding the
fact that (i) he breached the standard
49
<PAGE> 51
of conduct required of him; or (ii) he (a) was adjudged liable to the
corporation in a proceeding by or in right of the corporation or (b)
he was adjudged liable on the basis that personal benefit was
improperly received by him; provided that if he was so judged liable
his indemnification is limited to reasonable expenses incurred.
The Amended and Restated Articles of Incorporation of Top Air
permit Top Air to indemnify directors of the Registrant to the
fullest extent permitted by law and authorizes Top Air, by action
of its board of directors, to provide indemnification to such of
the officers, employees and agents of Top Air to such extent and to
such effect as the board of directors determines to be appropriate
and authorized by applicable law. The bylaws of Top Air provide
for mandatory indemnification of each individual who is or was a
director of Top Air to the fullest extent permitted by applicable
law.
The Amended and Substituted Articles of Incorporation of Clay
Equipment provide that Clay Equipment shall indemnify any person
made a party to a proceeding by reason of the fact that the person
is or was a director of Clay Equipment or while a director or
officer of Clay Equipment was serving at the request of Clay
Equipment as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, or
other enterprise to the fullest extent possible, except for (a)
breach of a director's duty of loyalty to the corporation or its
stockholders, (b) acts or omissions not in good faith or which
involve intentional misconduct or knowing violation of the law, (c)
transactions from which a director derived an improper personal
benefit, or (d) liability under Section 496A.44 of the IBCA (which
provides for liability to directors in the event of the payment of
an unlawful dividend or an unlawful stock purchase or redemption).
The Restated Articles of Incorporation of Clay Holding provide
that Clay Holding shall indemnify any person made a party to a
proceeding by reason of the fact that the person is or was a
director of Clay Holding or while a director or officer of Clay
Holding was serving at the request of Clay Holding as a director,
officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise
to the fullest extent possible, except for (a) breach of a
director's duty of loyalty to the corporation or its stockholders,
(b) acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law, (c)
transactions from which a director derived an improper personal
benefit, or (d) directors who vote for or assent to an unlawful
distribution under the IBCA. The Bylaws of Clay Holding provide
that Clay Holding shall indemnify and hold harmless its directors,
and the directors of its subsidiaries, to the fullest extent
permitted by law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of Top Air pursuant to the foregoing
provisions, or otherwise, Top Air has been advised that in the
opinion of the Securities and Exchange commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
McGladrey & Pullen, LLP served as the independent auditors for
Top Air for the fiscal year ended May 31, 1994 and has been
selected to serve in that capacity for the current fiscal year.
McGladrey & Pullen, LLP served as independent auditors for
Clay Equipment and Clay Holding for the year ended December 31,
1994 and has been selected to serve in that capacity for the
current fiscal year.
50
<PAGE> 52
LEGAL MATTERS
The validity of the Top Air Common Stock to be issued in
connection with the Proposed Transaction is being passed upon for
Top Air by Gallop, Johnson & Neuman, L.C., St. Louis, Missouri.
Certain legal matters in connection with the Proposed Transaction
will be passed upon for Clay Equipment by Redfern, Mason, Dieter,
Larsen & Moore, Cedar Falls, Iowa. Certain matters with respect to
the amendment and termination of the ESOP will be passed upon for
Clay Holding by Simmons, Perrine, Albright & Ellwood, P.L.C., Cedar
Rapids, Iowa.
EXPERTS
The financial statements of Top Air at May 31, 1994 and 1993
and for each of the three years in the period ended May 31, 1994
appearing in this Prospectus/Information Statement and Registration
Statement have been audited by McGladrey & Pullen, LLP, independent
auditors, as set forth in their report thereon appearing in such
1994 Annual Report, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Clay Holding at December 31, 1994,
and for each of the two years in the period ended December 31, 1994
appearing in this Prospectus/Information Statement and Registration
Statement have been audited by McGladrey & Pullen, LLP, independent
auditors, as set forth in a report thereon appearing elsewhere
herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such firm as
such experts in accounting and auditing.
51
<PAGE> 53
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Top Air Manufacturing, Inc.
<S> <C>
Report of Independent Public Accountants . . . . . . . . . F-1
Balance Sheets at May 31, 1994 and 1993. . . . . . . . . . F-2
Statements of Income for the Twelve Month Periods
Ended May 31, 1994, 1993 and 1992 . . . . . . . . . . F-4
Statements of Stockholders' Equity for the Twelve Month
Periods
Ended May 31, 1994, 1993 and 1992 . . . . . . . . . . F-5
Statements of Cash Flows for the Twelve Month Periods
Ended May 31, 1994, 1993 and 1992 . . . . . . . . . . F-6
Notes to Financial Statements. . . . . . . . . . . . . . . F-8
Condensed Balance Sheets at February 28, 1995 (unaudited)
and May 31, 1994. . . . . . . . . . . . . . . . . . . . F-13
Condensed Statements of Operations for the Nine Month Period
Ended February 28, 1995 and 1994 (unaudited). . . . . . F-14
Condensed Statements of Cash Flows for the Nine Month Period
Ended February 28, 1995 and 1994 (unaudited). . . . . . F-15
Notes to Condensed Financial Statements (unaudited). . . . . F-16
<CAPTION>
Clay Holding, Inc.
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . F-17
Consolidated Balance Sheet at December 31, 1994. . . . . . . F-18
Consolidated Statements of Income for the
Twelve Month Periods
Ended December 31, 1994 and 1993. . . . . . . . . . . . F-20
Consolidated Statement of Stockholder's Equity for the
Twelve Month Periods
Ended December 31, 1994 and 1993. . . . . . . . . . . . F-21
Consolidated Statement of Cash Flows for the Twelve
Month Periods
Ended December 31, 1994 and 1993. . . . . . . . . . . . F-22
Notes to Financial Statements. . . . . . . . . . . . . . . . F-24
</TABLE>
52
<PAGE> 54
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Top Air Manufacturing, Inc.
Parkersburg, Iowa
We have audited the accompanying balance sheets of Top Air
Manufacturing, Inc. as of May 31, 1994 and 1993, and the related
statements of income, stockholders' equity, and cash flows for the
years ended May 31, 1994, 1993 and 1992. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Top
Air Manufacturing, Inc. as of May 31, 1994 and 1993, and the results of
its operations and its cash flows for the years ended May 31, 1994,
1993 and 1992 in conformity with generally accepted accounting
principles.
/s/ McGladrey & Pullen
Waterloo, Iowa
July 6, 1994
F-1
<PAGE> 55
<TABLE>
TOP AIR MANUFACTURING, INC.
BALANCE SHEETS
May 31, 1994 and 1993
<CAPTION>
ASSETS (NOTE 3) 1994 1993
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 440,241 $ 216,011
Trade receivables, less allowance for doubtful
accounts 1994 $47,000; 1993 $35,000 1,069,360 881,582
Current portion of long-term notes receivable
(Note 4) 26,271 18,582
Inventories (Note 2) 1,218,985 1,113,349
Prepaid expenses 49,153 49,365
Deferred income taxes (Note 5) 20,500 11,400
---------- ----------
Total current assets $2,824,510 $2,290,289
---------- ----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Notes receivable, net of current portion (Note 4) $ 67,401 $ 53,090
Other assets 1,144 1,256
---------- ----------
$ 68,545 $ 54,346
---------- ----------
PROPERTY AND EQUIPMENT
Land and improvements $ 72,740 $ 53,118
Buildings 450,075 449,368
Machinery and equipment 509,568 424,602
Transportation equipment 274,642 258,508
Office equipment 132,101 124,975
---------- ----------
$1,439,126 $1,310,571
Less accumulated depreciation 773,595 744,390
---------- ----------
$ 665,531 $ 566,181
---------- ----------
$3,558,568 $2,910,816
========== ==========
See Notes to Financial Statements.
</TABLE>
F-2
<PAGE> 56
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt (Note 3) $ 35,813 $ 34,172
Accounts payable 398,595 196,536
Accrued salaries and bonuses, including amounts
due to officers 1994 $71,570; 1993 $5,085 134,047 28,822
Accrued commissions payable 104,122 96,443
Other accrued expenses, including amounts due to
officers and related party 1994 $6,827; 1993 $6,124 47,381 61,874
Income taxes payable (Note 5) 138,634 3,508
---------- ----------
Total current liabilities $ 858,592 $ 421,355
---------- ----------
LONG-TERM DEBT (Note 3) $ 154,544 $ 191,521
---------- ----------
DEFERRED INCOME TAXES (Note 5) $ 42,200 $ 38,200
---------- ----------
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY (Note 3)
Capital stock, common, no par value; stated value
$.0625 per share; authorized 20,000,000 shares;
issued 1994 and 1993 3,174,100 shares (Note 6) $ 198,381 $ 198,381
Additional paid-in capital 840,700 840,700
Retained earnings 1,464,169 1,220,659
---------- ----------
$2,503,250 $2,259,740
---------- ----------
$3,558,586 $2,910,816
========== ==========
</TABLE>
F-3
<PAGE> 57
<TABLE>
TOP AIR MANUFACTURING, INC.
STATEMENTS OF INCOME
Years Ended May 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $5,554,182 $4,856,907 $4,650,925
Cost of goods sold 3,725,139 3,461,556 3,234,370
---------- ---------- ----------
Gross profit $1,829,043 $1,395,351 $1,416,555
---------- ---------- ----------
Operating expenses:
Selling $ 772,980 $ 728,291 $ 720,968
Provision for doubtful accounts 9,156 11,035 10,902
Other general and administrative, including
amounts paid to related parties 1994 $45,500;
1993 $35,000; 1992 $29,000 (Note 7) 589,291 533,428 543,589
---------- ---------- ----------
$1,371,427 $1,272,754 $1,275,459
---------- ---------- ----------
Operating income $ 457,616 $ 122,597 $ 141,096
---------- ---------- ----------
Financial income (expense):
Interest income, including amounts from
stockholders 1994 $1,040; 1993 $5,106;
1992 $9,491 $ 6,507 $ 14,034 $ 24,201
Interest expense, including amounts paid to
related party and former officer 1994 $2,403;
1993 $3,108; 1992 $3,820 (Note 3) (61,432) (66,085) (102,244)
---------- ---------- ----------
$ (54,925) $ (52,051) $ (78,043)
---------- ---------- ----------
Income before income taxes $ 402,691 $ 70,546 $ 63,053
Federal and state income taxes (Note 5) 159,181 14,002 15,350
---------- ---------- ----------
Net income $ 243,510 $ 56,544 $ 47,703
========== ========== ==========
Earnings per common and common equivalent
share (Note 9) $ .08 $ .02 $ .02
========== ========== ==========
See Notes to Financial Statements.
</TABLE>
F-4
<PAGE> 58
<TABLE>
TOP AIR MANUFACTURING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended May 31, 1994, 1993 and 1992
<CAPTION>
Capital Additional
Stock, Paid-In Retained
Issued Capital Earnings Total
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, May 31, 1991 $ 198,381 $ 840,700 $1,116,412 $2,155,493
Net income -- -- 47,703 47,703
--------- --------- ---------- ----------
Balance, May 31, 1992 $ 198,381 $ 840,700 $1,164,115 $2,203,196
Net income -- -- 56,544 56,544
--------- --------- ---------- ----------
Balance, May 31, 1993 $ 198,381 $ 840,700 $1,220,659 $2,259,740
Net income -- -- 243,510 243,510
--------- --------- ---------- ----------
Balance, May 31, 1994 (Note 3) $ 198,381 $ 840,700 $1,464,169 $2,503,250
========= ========= ========== ==========
See Notes to Financial Statements.
</TABLE>
F-5
<PAGE> 59
<TABLE>
TOP AIR MANUFACTURING, INC.
STATEMENTS OF CASH FLOWS
Years Ended May 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 243,510 $ 56,544 $ 47,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 135,220 128,733 137,303
Amortization 112 112 741
Deferred income taxes (5,100) (4,150) (13,150)
(Gain) loss on sale of equipment (11,466) (4,684) 462
Change in assets and liabilities:
(Increase) decrease in trade receivables (187,778) 259,716 (326,391)
(Increase) decrease in inventories (105,636) 58,629 408,054
(Increase) decrease in prepaid expenses 212 31,035 (40,106)
Decrease in income tax refund claim -- -- 100,561
Increase (decrease) in accounts payable
and accrued expenses 300,470 52,342 (287,313)
Increase (decrease) in income taxes
payable 135,126 (21,946) 25,454
----------- ----------- -----------
Net cash provided by operating
activities $ 504,670 $ 556,331 $ 53,318
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment $ 41,093 $ 16,575 $ 4,925
Purchase of property and equipment (264,197) (123,929) (70,547)
Payments received on long-term notes
receivable 28,000 16,614 27,593
Purchase of intangible asset (50,000) -- --
----------- ----------- -----------
Net cash (used in) investing
activities $ (245,104) $ (90,740) $ (38,029)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $ 2,915,000 $ 3,075,000 $ 2,963,000
Principal payments on short-term borrowings (2,915,000) (3,329,000) (2,909,000)
Proceeds from long-term borrowings -- -- 14,096
Principal payments on long-term borrowings (35,336) (46,929) (81,153)
----------- ----------- -----------
Net cash (used in) financing
activities $ (35,336) $ (300,929) $ (13,057)
----------- ----------- -----------
Increase in cash and cash
equivalents $ 224,230 $ 164,662 $ 2,232
CASH AND CASH EQUIVALENTS
Beginning 216,011 51,349 49,117
----------- ----------- -----------
Ending $ 440,241 $ 216,011 $ 51,349
=========== =========== ===========
See Notes to Financial Statements.
</TABLE>
F-6
<PAGE> 60
<TABLE>
TOP AIR MANUFACTURING, INC.
STATEMENTS OF CASH FLOWS
Years Ended May 31, 1994, 1993 and 1992
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments (receipts) for:
Interest $ 61,750 $ 69,761 $ 107,946
Income taxes $ 29,155 $ 40,098 $ (97,515)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Long-term note receivable received in payment
for sale of intangible asset (Note 4) $ 50,000
===========
See Notes to Financial Statements.
</TABLE>
F-7
<PAGE> 61
TOP AIR MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant
Accounting Policies
Nature of business:
The Company's operations consist of the design, manufacture and
sale of agricultural equipment and sprayer repair and
replacement parts to dealers located primarily in twelve midwestern
states on credit terms that the Company establishes for individual
customers.
Significant accounting policies:
Revenue recognition:
Sales of all products are recognized as goods are shipped.
Cash and cash equivalents:
For purposes of reporting cash flows, the Company considers all
money market funds and savings accounts to be cash equivalents.
Inventories:
Inventories are valued at the lower of cost (first-in, first-out
method) or market.
Property and equipment and depreciation:
Property and equipment is carried at cost. Depreciation on
property and equipment is computed by the straight-line method.
Income taxes:
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of
enactment. Reference should also be made to Note 4 regarding
a change in the method of accounting for income taxes.
Research and development:
Research and development costs are charged to operations as they
are incurred.
F-8
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS
Note 2. Composition of Inventories
<TABLE>
Inventories at May 31, 1994 and 1993 consisted of the following:
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Raw materials $ 31,491 $ 48,718
Work in process 40,720 71,827
Finished goods 1,146,774 992,804
---------- ----------
$1,218,985 $1,113,349
========== ==========
</TABLE>
<TABLE>
Note 3. Pledged Assets and Related Debt
<CAPTION>
Amount Owed
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
The Company has a line of credit agreement with a bank
which expires October 1, 1994, under which they may
borrow up to $3,000,000 in current notes payable based
on a percentage of inventory and trade receivables.
Based on the levels of inventory and trade receivables,
approximately $1,268,000 could be borrowed under this
agreement on May 31, 1994. The interest rate on
advances under this agreement is .5% above the bank's
prime rate (current effective rate 7 3/4%). (a) $ -- $ --
========== ==========
</TABLE>
<TABLE>
Long-term debt at May 31, 1994 and 1993 consisted of the following:
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Note payable, bank, due in monthly installments of $3,450,
including interest at .75% over the bank's prime rate
(current effective rate 8%), through September 28, 2000.(a) $ 170,357 $ 198,037
Contract payable, former officer, due in annual installments
of $7,000, plus interest at 10%, through January 1, 1997,
collateralized by a warehouse with a depreciated cost at May
31, 1994 and 1993 of $71,337 and $74,252, respectively. 20,000 27,000
Notes payable, other -- 656
---------- ----------
$ 190,357 $ 225,693
Less current maturities 35,813 34,172
---------- ----------
$ 154,544 $ 191,521
========== ==========
</TABLE>
(a) These borrowings are collateralized by substantially all of the
assets of the Company except land and buildings. The agreements
contain various restrictive covenants including, among others, ones
which prohibit the payment of dividends without the bank's written
consent and require the Company to maintain certain amounts of
working capital and equity and financial ratios. All covenants have
been complied with or waived at May 31, 1994.
<TABLE>
The following is a schedule by years of the maturities of the long-
term debt as of May 31, 1994:
<S> <C>
Year ending May 31:
1995 $ 35,813
1996 38,204
1997 39,794
1998 36,599
1999 39,947
----------
$ 190,357
==========
</TABLE>
F-9
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS
Note 4. Notes Receivable
<TABLE>
Notes receivable as of May 31, 1994 consist of the following:
<S> <C>
8% note, $15,000 to be received June 1994 and
$3,310, including interest, receivable quarterly
from February 1995 through November 1997 $ 50,000
Stockholder, noninterest bearing, to be received
$1,500 quarterly through November 2001 43,672
--------
$ 93,672
Less current portion 26,271
--------
$ 67,401
========
</TABLE>
Note 5. Accounting Change and Income Taxes
Effective June 1, 1993, the Company adopted FASB Statement No. 109,
Accounting for Income Taxes. The adoption of Statement 109 changes
the Company's method of accounting for income taxes from the
deferred method to the liability method. Under the deferred method,
the Company deferred the past effects of timing differences between
financial reporting and taxable income. As explained in Note 1, the
liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary
differences between the reported amounts of assets and liabilities
and their tax bases. The cumulative effect of the accounting change
was not material.
<TABLE>
Net deferred tax liabilities consist of the following components as
of May 31, 1994:
<S> <C>
Deferred tax assets:
Allowance for doubtful notes $ 16,450
Inventory allowances 3,525
Warranty reserve 525
--------
$ 20,500
Deferred tax liabilities, equipment 42,200
--------
$ 21,700
========
</TABLE>
<TABLE>
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheet as of May 31, 1994 as follows:
<S> <C>
Current assets $(20,500)
Noncurrent liabilities 42,200
--------
$ 21,700
========
</TABLE>
<TABLE>
Income tax expense is made up of the following components:
<CAPTION>
Year Ended May 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense:
Federal $ 150,237 $ 15,000 $ 24,500
State 14,044 3,152 4,000
---------- ---------- ----------
$ 164,281 $ 18,152 $ 28,500
Deferred tax expense (5,100) (4,150) (13,150)
---------- ---------- ----------
$ 159,181 $ 14,002 $ 15,350
========== ========== ==========
</TABLE>
F-10
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS
<TABLE>
Total reported tax expense applicable to the Company's operations
varies from the amount that would have resulted by applying the
federal income tax rate (1994 35%; 1993 and 1992 34%) to income
before income taxes for the following reasons:
<CAPTION>
Year Ended May 31,
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Income tax expense at statutory
federal income tax rate $ 140,942 $ 20,926 $ 21,438
State tax expense, net of federal
income tax benefit 9,129 2,554 2,640
Benefit of income taxed at lower
rates (3,350) (10,540) (10,675)
Other 12,460 1,062 1,947
---------- ---------- ----------
$ 159,181 $ 14,002 $ 15,350
========== ========== ==========
</TABLE>
Note 6. Stock Option Plans
The Company has a stock option plan adopted in 1993 which provides
for the issuance of a maximum of 250,000 shares of common stock to
officers, directors and key employees at a price per share of not
less than 100% of the market price at the date of grant. During the
years ended May 31, 1994 and 1993, options were granted under the
plan totaling 41,000 and 39,000 shares, respectively, at option
prices of $.8438 and $.5938, respectively. During the year ended
May 31, 1994, options for 1,000 shares were cancelled, resulting in
options for 38,000 shares remaining from those issued during the
year ended May 31, 1993. The options granted under this plan become
exercisable over three years. Options exercisable were 12,665 and
none at May 31, 1994 and 1993, respectively. None of the options
granted under the plan have been exercised as of May 31, 1994.
The Company had an incentive stock option plan adopted in 1983 which
expired during the year ended May 31, 1993, which provided for the
issuance of a maximum of 500,000 shares of common stock to officers
and key employees at price per share of not less than 100% of the
market price at the date of grant. Options granted and exercisable
under this plan at May 31, 1994 and 1993 aggregate 2,000 and 14,950
shares, respectively. These options were granted at prices ranging
from $.625 to $.8125 per share and expire at various dates through
January 1996.
Note 7. Research and Development
Research and development cost included in the income statements as
part of general and administrative expenses totaled $150,242, $90,846
and $85,028 for the years ended May 31, 1994, 1993 and 1992,
respectively.
F-11
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS
Note 8. Employee Benefit Plan
The Company has a 401(k) defined contribution plan covering
substantially all employees. The plan provides for a matching
employer contribution based on the employee's contributions up to
10% of compensation. Additional discretionary contributions to the
plan may also be made. Employer contributions for the years ended
May 31, 1994, 1993 and 1992 were $15,519, $15,221 and $6,700,
respectively.
Note 9. Earnings Per Common and
Common Equivalent Shares
Earnings per common and common equivalent shares, assuming no
dilution, have been computed on the weighted average number of
common shares outstanding during the period using the treasury stock
method of accounting for the dilutive common equivalent shares
discussed in Note 5. The weighted average number of shares of
common stock outstanding for the years ended May 31, 1994, 1993 and
1992 were 3,195,054, 3,177,614 and 3,178,830, respectively.
Earnings per common and common equivalent shares, assuming full
dilution, for the years ended May 31, 1994, 1993 and 1992 are the
same as the earnings per common and common equivalent shares,
assuming no dilution.
F-12
<PAGE> 66
<TABLE>
TOP AIR MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
<CAPTION>
ASSETS FEBRUARY 28, MAY 31,
1995 1994<F*>
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 50 $ 440,241
Trade receivables, net of
allowance for doubtful
accounts February 28,
1995 $56,000; May 31, 1994
$47,000 2,938,672 1,069,360
Inventories (Note 2) 2,033,595 1,218,985
Other current assets 108,433 95,924
---------- ----------
Total Current Assets $5,080,750 $2,824,510
---------- ----------
LONG TERM RECEIVABLE AND OTHER ASSETS
Notes receivable, net of current
portion $ 56,092 $ 67,401
Other assets 20,491 1,144
---------- ----------
$ 76,583 $ 68,545
---------- ----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation February 28,
1995 $793,419; May 31, 1994
$773,595 $ 801,163 $ 665,531
---------- ----------
$5,958,496 $3,558,586
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $2,008,025 $ 35,813
Other liabilities and accrued
items 1,089,858 822,779
---------- ----------
Total current Liabilities $3,097,883 $ 858,592
---------- ----------
LONG-TERM DEBT $ 286,504 $ 154,544
---------- ----------
DEFERRED INCOME TAX CREDITS $ 42,200 $ 42,200
---------- ----------
STOCKHOLDERS' EQUITY
Common stock $ 198,402 $ 198,381
Additional paid-in capital 840,877 840,700
Retained earnings 1,492,630 1,464,169
---------- ----------
$2,531,909 $2,503,250
---------- ----------
$5,958,496 $3,558,586
========== ==========
<FN>
<F*>Condensed from Audited Financial Statements.
See notes to Condensed Financial Statements.
</TABLE>
F-13
<PAGE> 67
<TABLE>
TOP AIR MANUFACTURING, INC
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Nine Months Ended February 28,
Net Sales 1995 1994
------------ -------------
<S> <C> <C>
$3,250,605 $2,911,617
---------- ----------
Cost and Expenses
Cost of goods sold $2,226,950 $2,027,920
Selling and administrative
expenses 827,310 771,600
Research and development
expenses 117,293 97,716
Interest expense 56,901 32,245
---------- ----------
$3,228,454 $2,929,481
---------- ----------
$ 22,151 $ (17,864)
Other income 25,010 21,430
---------- ----------
Income before
income taxes $ 47,161 $ 3,566
Income taxes 18,700 1,600
---------- ----------
Net Income $ 28,461 $ 1,966
========== ==========
Earnings per common share $ .01 $ .00
========== ==========
Weighted Average Number of Shares 3,206,854 3,189,668
========== ==========
See Notes to Condensed Financial Statements.
</TABLE>
F-14
<PAGE> 68
<TABLE>
TOP AIR MANUFACTURING, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Nine months ended February 28, 1995 and 1994.
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used in) operating activities $(2,310,581) $(1,532,280)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of equipment $ 54,650 $ 32,100
Purchase of property and equipment (289,809) (266,479)
Payments received on long-term
notes receivable 20,610 28,000
Other (19,431) --
----------- -----------
Net cash (used in) investing activities $ (233,980) $ (206,379)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings $ 2,328,000 $ 1,767,000
Principal payments on short-term
borrowings (388,000) (210,000)
Proceeds from long-term borrowings 360,000 --
Net proceeds from issuance of common
stock February 28, 1995 333 shares;
February 28, 1994 none 198 --
Principal payments on long-term
borrowings (195,828) (28,081)
----------- -----------
Net cash provided by
financing activities $ 2,104,370 $ 1,528,919
----------- -----------
(Decrease) in Cash and Cash
Equivalents $ (440,191) $ (209,740)
CASH AND CASH EQUIVALENTS
Beginning 440,241 216,011
----------- -----------
Ending $ 50 $ 6,271
=========== ===========
See Notes to Condensed Financial Statements.
</TABLE>
F-15
<PAGE> 69
TOP AIR MANUFACTURING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Condensed Financial Statements
The condensed balance sheet as of February 28, 1995 and the condensed
statements of operations for the nine months ended February 28, 1995 and
1994 and the condensed statements of cash flows for the nine months
ended February 28, 1995 and 1994, 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 cash flows at February
28, 1995 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 principals have been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's May
31, 1994 Annual report to Shareholders. The results of operations for
the periods ended February 28, 1995 and 1994 are not necessarily
indicative of the operating results for the full year.
Note 2. Inventories
<TABLE>
Inventories consist of the following:
<CAPTION>
February 28, May 31,
1995 1994
------------ ----------
<S> <C> <C>
Finished Goods $1,557,042 $1,146,774
Work in Process 24,697 40,720
Raw Materials and Supplies 451,856 31,491
---------- ----------
$2,033,595 $1,218,985
========== ==========
</TABLE>
F-16
<PAGE> 70
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Clay Holding, Inc.
Cedar Falls, Iowa
We have audited the accompanying consolidated balance sheet of
Clay Holding, Inc. and subsidiaries as of December 31, 1994 and
the related consolidated statements of income, stockholders'
equity, and cash flows for the years ended December 31, 1994 and
1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Clay Holding, Inc. and subsidiaries as of December
31, 1994 and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1993, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 12 to the financial statements,
the Company has suffered recurring losses from operations. This
raises substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these
matters are also described in Note 12. The financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ McGladrey & Pullen, LLP
Waterloo, Iowa
April 11, 1995
F-17
<PAGE> 71
<TABLE>
CLAY HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994
<S> <C> <C>
ASSETS (NOTE 5)
- ------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 128,278
Trade receivables, less allowance for doubtful
accounts of $70,000 595,601
Current maturities of note receivable (Note 10) 5,429
Inventories (Note 2) 1,040,685
Prepaid expenses 98,090
------------
TOTAL CURRENT ASSETS 1,868,083
Long-Term Note Receivable, less current maturities (Note 10) 137,014
Property and Equipment
Land $ 3,932
Buildings 54,880
Machinery and equipment 1,822,199
-------------
1,881,011
Less accumulated depreciation 1,587,900 293,111
-------------
Intangibles, principally goodwill, less
accumulated amortization of $60,735 686,321
Other Assets 10,419
------------
$2,994,948
============
See Notes to Financial Statements.
F-18
<PAGE> 72
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
Current Liabilities
Notes payable (Note 5) $ 753,017
Current maturities of long-term debt (Note 5) 856,875
Accounts payable 593,314
Accrued expenses 508,265
------------
TOTAL CURRENT LIABILITIES 2,711,471
Long-Term Debt, less current maturities (Note 5) 116,355
Deferred Gain (Note 10) 111,263
Commitments and Contingencies (Notes 3, 7, 9 and 13)
Stockholders' Equity
Capital stock, common, $10 par value; authorized
1,000,000 shares; issued 114,720 shares $ 1,147,200
Retained earnings 1,161,903
-------------
2,309,103
Less:
Cost of 24,681 shares of common
stock reacquired for the treasury (529,373)
Employee stock ownership plan debt guarantee (Note 7) (1,723,871) 55,859
----------------------------
$2,994,948
============
</TABLE>
F-19
<PAGE> 73
<TABLE>
CLAY HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 7,788,916 $ 6,381,591
Cost of goods sold 5,945,352 4,125,347
----------------------------
GROSS PROFIT 1,843,564 2,256,244
----------------------------
Operating expenses:
Material control 281,434 269,107
Selling 1,507,861 1,622,531
Engineering 149,048 153,884
Administrative 1,102,889 882,542
Employee Stock Ownership Plan contributions (Note 7) 85,345 85,345
----------------------------
3,126,577 3,013,409
----------------------------
OPERATING (LOSS) (1,283,013) (757,165)
----------------------------
Financial income (expense):
Interest income 33,014 37,074
Interest expense (163,206) (53,276)
Other 273 7,796
----------------------------
(129,919) (8,406)
----------------------------
(1,412,932) (765,571)
----------------------------
Gain on sale of property and equipment - 154,566
----------------------------
(LOSS) BEFORE INCOME TAXES (1,412,932) (611,005)
Federal and state income taxes (Note 6) 3,561 -
----------------------------
NET (LOSS) (NOTE 2) $(1,416,493) $(611,005)
============================
(Loss) per common share $ (15.47) $ (6.41)
============================
Weighted average number of shares outstanding 91,583 95,353
============================
See Notes to Financial Statements
</TABLE>
F-20
<PAGE> 74
<TABLE>
CLAY HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Capital ESOP
Stock, Retained Treasury Debt
Common Earnings Stock Guarantee Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1992 $ 1,147,200 $ 3,189,401 $ (442,187) $(1,894,561) $ 1,999,853
Net (loss) - (611,005) - - (611,005)
Reduction in ESOP
debt guarantee
(Note 7) - - - 85,345 85,345
Purchase of 4,168
shares of common
stock for the
treasury - - (63,614) - (63,614)
-------------------------------------------------------------------------
Balance,
December 31, 1993 1,147,200 2,578,396 (505,801) (1,809,216) 1,410,579
Net (loss) - (1,416,493) - - (1,416,493)
Reduction in ESOP
debt guarantee
(Note 7) - - - 85,345 85,345
Purchase of 1,684
shares of common
stock for the
treasury - - (23,572) - (23,572)
-------------------------------------------------------------------------
Balance,
December 31, 1994 $ 1,147,200 $ 1,161,903 $ (529,373) $(1,723,871) $ 55,859
=========================================================================
See Notes to Financial Statements
</TABLE>
F-21
<PAGE> 75
<TABLE>
CLAY HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net (loss) $(1,416,493) $ (611,005)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation 156,501 118,240
Amortization 47,091 13,644
Amortization of deferred gain (14,695) -
(Gain) on sale of property and equipment (622) (154,566)
Changes in assets and liabilities, net of effects
from purchase of Better-Bilt, Inc. assets (Note 4):
(Increase) Decrease in:
Trade receivables 250,363 (379,462)
Inventories 584,548 239,798
Prepaid expenses 72,058 (119,989)
Increase in:
Accounts payable 63,471 234,597
Accrued expenses 108,645 21,231
----------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (149,133) (637,512)
----------------------------
Cash Flows from Investing Activities
Decrease in restricted cash 118,923 81,077
Principal payments received on notes receivable 2,557 -
Proceeds from sale of property and equipment 7,378 158,294
Purchase of property and equipment (96,253) (97,074)
Purchase of certain assets of Better-Bilt, Inc. (Note 4) - (1,547,056)
Other (10,419) -
----------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 22,186 (1,404,759)
----------------------------
Cash Flows from Financing Activities
Proceeds from short term borrowings 200,000 250,000
Principal payments on short term borrowings (181,983) (494,000)
Proceeds from long term borrowings - 1,615,000
Principal payments on long term borrowings (129,887) (26,883)
Purchase of common stock for the treasury (23,572) (63,614)
Reduction of Employee Stock Ownership Plan Debt guarantee 85,345 85,345
----------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (50,097) 1,365,848
----------------------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (177,044) (676,423)
Cash and Cash Equivalents
Beginning 305,322 981,745
----------------------------
Ending $ 128,278 $ 305,322
============================
</TABLE>
F-22
<PAGE> 76
<TABLE>
CLAY HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1993
<CAPTION>
1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash payments for:
Interest $ 156,843 $ 42,515
Income taxes 1,301 865
Supplemental Schedule of Noncash Investing and
Financing Activities
Note receivable from sale of property and equipment (Note 10) $ 145,000
=============
Deferred gain on sale of property and equipment (Note 10) $ 125,958
=============
Acquisition of certain assets of Better-Bilt, Inc. (Note 4):
Cash purchase price component $ 1,547,056
=============
Inventory acquired $ 750,000
Property and equipment 50,000
Intangibles 747,056
-------------
$ 1,547,056
=============
See Notes to Financial Statements.
</TABLE>
F-23
<PAGE> 77
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: The Company designs, manufactures, and
- -------------------
distributes livestock equipment and other agricultural related
products.
The Company grants credits on an unsecured basis to its customers
on credit terms established for individual customers located
throughout the United States and Canada. the largest
concentration of credit risk is with dealers of agricultural
related products which comprise a large portion of the Company's
customer base.
Significant accounting policies:
- --------------------------------
Principles of consolidation: The consolidated financial
----------------------------
statements include the accounts of the Company and its
subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Cash and cash equivalents: For purposes of reporting cash
--------------------------
flows, the Company considers all money market funds and highly
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Inventories: Inventories are valued at the lower of cost
------------
(last-in, first-out method) or market since 1971.
Property and equipment: Property and equipment is carried at
-----------------------
cost. Depreciation is computed by accelerated methods over the
estimated useful lives of the assets.
Intangibles: Intangibles, principally goodwill, are carried
------------
at amortized cost. Amortization of goodwill is computed by the
straight-line method over a period of fifteen years.
Income taxes: Deferred taxes are provided on a liability
-------------
method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities
and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Estimated warranty claims: The Company sells its products
--------------------------
with a warranty that provides for repairs or replacements of most
defective parts for a one year period after the sale with warranty
periods of 5 years and 10 years on selected parts. At the time of
sale, the Company accrues an estimate of the cost of providing the
warranty based on prior experience. The estimated warranty
liability totaled $60,000 at December 31, 1994 and is included in
accrued expenses.
F-24
<PAGE> 78
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. INVESTORIES
<TABLE>
The composition of inventories as of December 31, 1994 is as follows:
<S> <C>
Inventories (on a FIFO basis):
Materials, parts and finished products $ 2,265,515
Work in process 58,326
-------------
2,323,841
Less allowance to adjust the carrying value of inventories to
last-in, first-out (LIFO) basis 1,283,156
-------------
Inventories at LIFO $ 1,040,685
=============
</TABLE>
Reductions of inventory quantities in 1994 and 1993 resulted in
liquidations of LIFO inventory quantities carried at costs
prevailing in prior years which were lower than current costs.
The effect of these reductions was to decrease the net (loss) by
approximately $49,000 and $101,000 in 1994 and 1993, respectively.
NOTE 3. SELF INSURANCE AND LAWSUITS FILED
The Company elected to be self-insured for workmen's compensation
liabilities until it obtained workmen's compensation insurance
coverage effective February 1992.
Since October 1984, the Company has also been self-insured against
product liability claims. However, effective February 1992, the
company obtained product liability insurance coverage. The
product liability coverage has a limit of $1,000,000 with a
deductible amount of $100,000 per occurrence.
The Company remains subject to certain legal claims made and
occurring before the date it obtained product liability and
workmen's compensation insurance. The ultimate liability that
could result from these matters cannot be presently determined.
The Company has general liability insurance coverage limited to
$1,000,000 subject to a deductible amount of $100,000 per
occurrence. Subsequent to year-end the Company has been named as
a defendant in a lawsuit claiming unspecified damages for injuries
occurring on the Company's premises. The case is in the discovery
stages, and the extent of liability and damages have not yet been
determined.
NOTE 4. BUSINESS COMBINATION
As of the close of business, October 15, 1993, the Company
purchased certain assets relating to the Better-Bilt product line
from Waste Controls, Inc. Production of Better-Bilt products
since the acquisition date have occurred at the Company's Cedar
Falls location and is included in the Company's results of
operations.
F-25
<PAGE> 79
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. PLEDGED ASSETS AND RELATED DEBT
<TABLE>
<S> <C>
Current notes payable:
The Company has a revolving line of credit agreement with a bank which allows
the Company to borrow an amount equal to various percentages of trade
receivables and inventory up to a maximum amount of $500,000. Borrowings
under this agreement will bear interest at 2.25% above the Wall Street Journal's
national prime lending rate (effective rate of 10.75% at December 31, 1994) and
are due March 15, 1995. This note is collateralized by substantially all assets
of the Company. (See Note 12) $ 450,000
Note payable, bank, due in quarterly installments of $60,625, including interest at
2.25% above the Wall Street Journal's national prime lending rate (effective
rate is 10.75% at December 31, 1994) to March 15, 1995, collateralized
by substantially all assets of the Company. (See Note 12) 303,017 <F*>
------------
$ 753,017
============
A summary of long-term debt follows:
Note payable, bank, due in monthly installments of $14,783, including interest at
2.25% above the Wall Street Journal's national prime lending rate (effective rate
of 10.75% at December 31, 1994), to October 15, 2000, collateralized by
substantially all assets of the Company. $ 824,580 <F*>
Note payable, Iowa Department of Economic Development Committee, due in
annual installments of $12,857 to September 30, 2000, collateralized by
inventory and trade receivables. The note is non interest bearing. 77,144
Note payable, Black Hawk County Economic Development Committee, due in
monthly installments of $967, including interest at 6%, to May 11, 1998,
collateralized by substantially all assets of the Company. 35,753
Note payable, City of Cedar Falls, due in monthly installments of $967, including
interest at 6%, to May 15, 1998, collateralized by substantially all assets of the
Company. 35,753
------------
973,230
Less current maturities 856,875
------------
Long-term portion $ 116,355
============
<FN>
<F*> In connection with this debt, the Company has agreed not to pay
any dividends, to maintain certain levels of net worth, current
asset to current liability and debt to net worth ratios. The
Company was not in compliance with the covenants at December 31,
1994, and the bank has not waived these violations and therefore,
the related long-term debt has been classified as current. (See
Note 12).
</TABLE>
F-26
<PAGE> 80
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
Aggregate maturities required on long-term debt are as follows:
<CAPTION>
Year ending December 31:
<S> <C>
1995 $ 856,875
1996 33,493
1997 34,767
1998 22,379
1999 12,857
Later years 12,859
------------
$ 973,230
============
</TABLE>
NOTE 6. INCOME TAX MATTERS
<TABLE>
The deferred tax assets and liabilities consist of the following
components as of December 31, 1994:
<S> <C>
Deferred tax assets:
Accrued vacations $ 26,000
Allowance for doubtful accounts 18,000
Allowance for obsolete inventory 46,000
Deferred gain on sale of property 28,000
Net operating loss carryovers 640,000
------------
758,000
Less valuation allowance 758,000
------------
$ -
============
</TABLE>
The Company has recorded a valuation allowance of $758,000 on net
deferred tax assets to reduce the total to an amount that
management believes will be ultimately realized. Realization of
deferred tax assets is dependent upon sufficient future taxable
income during the period the deductible temporary differences and
carryforwards are expected to be available to reduce taxable
income.
<TABLE>
Net operating loss carryover for tax purposes as of December 31,
1994 have the following expiration dates:
<CAPTION>
Expiration
Date Amount
------------ -------------
<S> <C>
2006 $ 440,000
2007 435,000
2008 641,000
2009 1,045,000
-------------
$ 2,561,000
=============
</TABLE>
F-27
<PAGE> 81
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
Income tax expense (credits) for the year ended December 31, 1994
and 1993, consists of the following:
<CAPTION>
1994 1993
--------------------------------
<S> <C> <C>
Current $ 3,561 $ -
Deferred - -
--------------------------------
$ 3,561 $ -
================================
</TABLE>
<TABLE>
Reconciliation of income tax expense (credits) computed at the
statutory federal income tax rate to the Company's income tax
expense (credits) for the years ended December 31, 1994 and 1993
are as follows:
<CAPTION>
1994 1993
--------------------------
<S> <C> <C>
Computed "expected" tax expense (credits): $(494,526) $(213,852)
Increase (decrease) resulting from:
Lower bracket rates 141,300 61,100
Deferred tax valuation allowance 336,000 171,000
State income taxes net of federal 3,561 -
Other 17,226 (18,248)
--------------------------
$ 3,561 $ -
==========================
</TABLE>
NOTE 7. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
In 1984, Clay Equipment Corporation established an ESOP which
covers substantially all employees. The primary purpose of the
ESOP was to enable Company employees to acquire all outstanding
common stock of Clay Holding, Inc. The ESOP borrowed $2,475,000
from Clay Holding, Inc. to purchase 100% of its outstanding
common stock. The note requires annual principal payments of
$85,345, plus interest at 9%, until the debt is paid in full.
The Company thereby effectively obligated itself to contribute to
the ESOP amounts sufficient to repay the loan. The future
obligation of $1,723,871 has been reflected in the consolidated
balance sheet as a reduction of stockholders' equity.
The Company has a commitment to purchase ESOP shares, owned by a
retiring employee, at the fair value as determined by an
independent appraiser as of the most recent fiscal year end. The
Company's commitment to purchase such shares and the timing of
the purchases is determined by the retiring employee in
accordance with the ESOP provisions. The shares purchased for
the years ended December 31, 1994 and 1993 were 1,684 and 4,168,
respectively.
The contributions to the ESOP for the years ended December 31,
1994 and 1993 were $240,492 and $248,174, respectively. Of these
contributions, $155,147 and $162,829, represented interest
expense for the years ended December 31, 1994 and 1993,
respectively. This interest expense is ultimately recorded by
Clay Holding, Inc., as interest income, accordingly such amounts
are eliminated in consolidation.
F-28
<PAGE> 82
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8. 401(K) PLAN
The Company maintains a 401(k) defined contribution plan covering
substantially all of its employees. The Plan provides for an
annual employer contribution percentage match as determined by
the Company's Board of Directors. For the years ended December
31, 1994 and 1993 there was no matching contributions by the
Company.
<TABLE>
NOTE 9. OPERATING LEASES
The Company leases a warehouse facility, certain equipment and
autos under operating leases. Rent expense under the operating
leases for the years ended December 31, 1994 and 1993 was
approximately $78,100 and $40,500, respectively. Future rental
payments for the years ending December 31 are approximately:
<S> <C>
1995 $ 83,000
1996 65,000
1997 42,000
1998 30,000
1999 12,000
-----------
$ 232,000
===========
</TABLE>
<TABLE>
NOTE 10. SALE AND LEASEBACK
During 1994, the Company sold one of its warehouse facilities for
$149,786, net of selling expenses, realizing a gain of $125,958.
In connection with the sale, the Company entered into an
agreement to lease back a portion of the building for an initial
term of 5 years. The gain resulting from the sale has been
recorded as deferred income and is being amortized over the lease
term. Included as a deferred item in noncurrent liabilities is
the unamortized balance of $111,263 at December 31, 1994. In
connection with the sale, the Company has a note receivable with
a December 31, 1994 balance of $142,443 from the buyer, bearing
interest at 8%, due in monthly installments of $1,386 through
June 2001, at which time the remaining principal shall be due.
Maturities of the note receivable are as follows:
<S> <C>
1995 $ 5,429
1996 5,880
1997 6,368
1998 6,896
1999 7,469
Later years 110,401
-----------
$ 142,443
===========
</TABLE>
F-29
<PAGE> 83
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. CLAY HOLDING, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
Condensed Balance Sheet
December 31, 1994
<S> <C>
ASSETS
- ------------------------------------------------------------------------------------------
Cash and cash equivalents $ 1,290
Receivables from subsidiaries:
Clay Enterprises, Inc. 17,782
Clay Equipment Corporation 1,679,335
-------------
$ 1,698,407
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deficit equity in subsidiaries:
Clay Enterprises, Inc. $ 17,707
Clay Equipment Corporation 1,624,841
-------------
1,642,548
-------------
Stockholders' Equity
Capital stock, common 1,147,200
Retained earnings 1,161,903
-------------
2,309,103
Less:
Cost of common stock reacquired for the treasury (529,373)
Employee stock ownership plan receivable (1,723,871)
-------------
55,859
-------------
$ 1,698,407
=============
</TABLE>
<TABLE>
Condensed Statements of Income
Years Ended December 31, 1994 and 1993
1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income, Clay Equipment Corporation $ 270,230 $ 174,860
Equity in net (loss) of subsidiaries:
Clay Enterprises, Inc.
Clay Equipment Corporation (1,686,893) (785,787)
Other income (expenses) 170 (78)
----------------------------
Net (loss) (1,416,493) (611,005)
============================
</TABLE>
F-30
<PAGE> 84
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. MANAGEMENT'S PLANS
The Company has incurred significant operating losses for the
last two years and as of December 31, 1994, the Company's total
equity was approximately $56,000. The Company is not in
compliance with the covenants required by the loan agreements
with its primary lender and the bank has refused to waive those
violations. Further, the bank has refused to renew the Company's
revolving line of credit agreement, which expired March 15, 1995.
The bank has not formally demanded payment on these obligations.
With a limited amount of equity relative to its debt and
substantial on-going operating losses, the Company needs to take
action in order to remain viable. Those options include
increasing sales, improving gross profits and reducing operating
expenses in order to generate profit and cash flow, selling
certain assets in order to generate sufficient cash to remain
operating for an indefinite period of time, securing additional
equity capital, or pursuing a possible sale of the business.
Management has determined that its most feasible option is
pursuing the sale of the business. As mentioned in Note 13 of
the Notes to Financial Statements, the Company has entered into
an agreement to sell substantially all of the business assets of
Clay Equipment Corporation (Clay Equipment) to Top Air
Manufacturing, Inc. (Top Air) subject to approval by ESOP
participants.
Management anticipates the sale to Top Air will be consummated by
June 30, 1995. Should the sale not be consummated, management
plans to seek other buyers. Management also plans to begin
restructuring the Company's operations to restore profitability.
These plans include discontinuing certain product lines with low
margins and other product lines with low volumes. In addition,
the Company would move to a more efficient manufacturing facility
to improve gross profit margins, restructure its distribution
system to reduce selling expenses, and attempt to reduce other
operating expenses. Proceeds from the condemnation of its
building, as discussed in Note 13, would be used to retire bank
debt and management would seek to acquire new sources of
financing.
NOTE 13. SUBSEQUENT EVENTS
Subsequent to December 31, 1994, the Company reached a tentative
agreement with the City of Cedar Falls regarding condemnation of
the Company's manufacturing facilities. The City will acquire
Clay's existing facility through its power of eminent domain for
construction of a new bridge and possible construction of a flood
protection dike. Under the terms of the agreement, the City and
Iowa Department of Transportation have offered a sum of $631,000
for Clay's land and building. The agreement is contingent upon
an environmental study, the results of which must be satisfactory
to the City of Cedar Falls. To the extent that clean-up or
other costs would be incurred, the price to be paid by the City
may be reduced.
F-31
<PAGE> 85
CLAY HOLDING, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
In a related matter, the City of Cedar Falls has agreed to
construct a new manufacturing facility for Clay within the City's
industrial park. Under the terms of this agreement, the City
will construct the new facility, at a cost of approximately
$2,000,000, with a $1,600,000 grant from the Federal Economic
Development Association and $400,000 in matching City funds. The
City will lease the facility to Clay for an initial term of ten
years with a five year renewal option. The lease agreement will
require annual lease payments of approximately $200,000 and will
contain a purchase option at the end of the 15 year lease.
On April 11, 1995 the Company entered into an agreement with Top
Air under which Top Air will acquire substantially all of the
business assets of Clay Equipment, including the proceeds from
the condemnation aware discussed above, and assume certain
liabilities, in exchange for Top Air common stock. The number of
Top Air shares to be received will be equal to the lesser of (i)
750,000 and (ii) that number of shares having an aggregate market
value as defined in the agreement of $1,000,000, in either case
subject to increase by that number of shares having a market
value equal to one-half the amount by which the award received by
Clay Equipment in connection with the pending condemnation of its
manufacturing facility (exclusive of relocation expenses) exceeds
$500,000. It is also anticipated that, as a result of the sale,
Clay Equipment will cease its business operations and be merged
into its parent company.
The sale to Top Air will be dependent upon certain conditions,
including approval of all of the Clay ESOP participants, Top
Air's satisfaction with the physical, operating and financial
condition of the assets and business of Clay, and agreement by
appropriate government authorities of the condemnation award
discussed above in an amount not less than $500,000.
F-32
<PAGE> 86
ANNEX A
-------
IOWA BUSINESS CORPORATION ACT
DIVISION XIII
DISSENTERS' RIGHTS
PART A
490.1301 DEFINITIONS FOR DIVISION XIII.--In this division:
1. "Beneficial shareholder" means the person who is a
beneficial owner of shares held by a nominee as the record
shareholder.
2. "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to
dissent from corporate action under section 490.1302 and who
exercises that right when and in the manner required by sections
490.1320 through 490.1328.
4. "Fair value", with respect to a dissenter's shares, means
the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable.
5. "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans or,
if none, at a rate that is fair and equitable under all the
circumstances.
6. "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights granted by
a nominee certificate on file with a corporation.
7. "Shareholder" means the record shareholder or the
beneficial shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT.--1. A shareholder is
entitled to dissent from, and obtain payment of the fair value of
the shareholder's shares in the event of, any of the following
corporate actions:
a. Consummation of a plan of merger to which the corporation
is a party if either of the following apply:
(1) Shareholder approval is required for the merger by
section 490.1103 or the articles of incorporation and the
shareholder is entitled to vote on the merger.
(2) The corporation is a subsidiary that is merged with its
parent under section 490.1104.
A-1
<PAGE> 87
b. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan.
c. Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in
the usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or a
sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale.
d. An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it does any or all of the following:
(1) Alters or abolishes a preferential right of the shares.
(2) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares.
(3) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights.
(5) Reduces the number of shares owned by the shareholder to
a fraction of a share if the fractional share so created is to be
acquired for cash under section 490.604.
(6) Extends, for the first time after being governed by this
chapter, the period of duration of a corporation organized under
chapter 491 or 496A and existing for a period of years on the day
preceding the date the corporation is first governed by this
chapter.
e. Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
2. A shareholder entitled to dissent and obtain payment for
the shareholder's shares under this chapter is not entitled to
challenge the corporate action creating the shareholder's
entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--1. A
record shareholder may assert dissenters' rights as to fewer than
all the shares registered in that shareholder's name only if the
shareholder dissents with respect to all shares beneficially owned
by any one person and notifies the corporation in writing of the
name and address of each person on whose behalf the shareholder
asserts dissenters' rights. The rights of a partial dissenter under
this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were
registered in the names of different shareholders.
2. A beneficial shareholder may assert dissenters' rights as
to shares held on the shareholder's behalf only if the shareholder
does both of the following:
A-2
<PAGE> 88
a. Submits to the corporation the record shareholder's
written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights.
b. Does so with respect to all shares of which the
shareholder is the beneficial shareholder or over which that
beneficial shareholder has power to direct the vote.
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS.--1. If proposed
corporate action creating dissenters' rights under section 490.1302
is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to
assert dissenters' rights under this part and be accompanied by a
copy of this part.
2. If corporate action creating dissenters' rights under
section 490.1302 is taken without a vote of shareholders, the
corporation shall notify in writing all shareholders entitled to
assert dissenters' rights that the action was taken and send them
the dissenters' notice described in section 490.1322.
490.1321 NOTICE OF INTENT TO DEMAND PAYMENT.--1. If proposed
corporate action creating dissenters' rights under section 490.1302
is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights must do all of the
following:
a. Deliver to the corporation before the vote is taken
written notice of the shareholder's intent to demand payment for
the shareholder's shares if the proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of
the proposed action.
2. A shareholder who does not satisfy the requirements of
subsection l, is not entitled to payment for the shareholder's
shares under this part.
490.1322 DISSENTERS' NOTICE.--1. If proposed corporate
action creating dissenters' rights under section 490.1302 is
authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 490.1321.
2. The dissenters' notice must be sent no later than ten
days after the proposed corporate action is authorized at a
shareholders' meeting, or, if the corporate action is taken without
a vote of the shareholders, no later than ten days after the
corporate action is taken, and must do all of the following:
a. State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand
is received.
c. Supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action and requires that the
person asserting dissenters' rights certify whether or not the
person acquired beneficial ownership of the shares before that
date.
A-3
<PAGE> 89
d. Set a date by which the corporation must receive the
payment demand, which date shall not be fewer than thirty nor more
than sixty days after the date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division.
490.1323 DUTY TO DEMAND PAYMENT.--1. A shareholder sent a
dissenter's notice described in section 490.1322 must demand
payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in
the dissenter's notice pursuant to section 490.1322, subsection 2,
paragraph "c", and deposit the shareholder's certificates in
accordance with the terms of the notice.
2. The shareholder who demands payment and deposits the
shareholder's shares under subsection 1 retains all other rights of
a shareholder until these rights are canceled or modified by the
taking of the proposed corporate action.
3. A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date
set in the dissenters' notice, is not entitled to payment for the
shareholder's shares under this division.
490.1324 SHARE RESTRICTIONS.--1. The corporation may
restrict the transfer of uncertificated shares from the date the
demand for their payment is received until the proposed corporate
action is taken or the restrictions released under section
490.1326.
2. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the
proposed corporate action.
490.1325 PAYMENT.--1. Except as provided in section
490.1327, at the time the proposed corporate action is taken, or
upon receipt of a payment demand, whichever occurs later, the
corporation shall pay each dissenter who complied with section
490.1323 the amount the corporation estimates to be the fair value
of the dissenter's shares, plus accrued interest.
2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen months before the date of
payment, an income statement for that year, a statement of changes
in shareholders' equity for that year, and the latest available
interim financial statements, if any.
b. A statement of the corporation's estimate of the fair
value of the shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's right to demand payment
under section 490.1328.
e. A copy of this division.
490.1326 FAILURE TO TAKE ACTION.--1. If the corporation does
not take the proposed action within sixty days after the date set
for demanding payment and de positing share
A-4
<PAGE> 90
certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated
shares.
2. If after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action,
it must send a new dissenters' notice under section 490.1322 as if
the corporate action was taken without a vote of the shareholders
and repeat the payment demand procedure.
490.1327 AFTER-ACQUIRED SHARES.--1. A corporation may elect
to withhold payment required by section 490.1325 from a dissenter
unless the dissenter was the beneficial owner of the shares before
the date set forth in the dissenters' notice as the date of the
first announcement to news media or to shareholders of the terms of
the proposed corporate action.
2. To the extent the corporation elects to withhold payment
under subsection 1, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest,
and shall pay this amount to each dissenter who agrees to accept it
in full satisfaction of the dissenter's demand. The corporation
shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand
payment under section 490.1328.
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OR OFFER.--1. A dissenter may notify the corporation in writing of
the dissenter's own estimate of the fair value of the dissenter's
shares and amount of interest due, and demand payment of the
dissenter's estimate, less any payment under section 490.1325, or
reject the corporation's offer under section 490.1327 and demand
payment of the fair value of the dissenter's shares and interest
due, if any of the following apply:
a. The dissenter believes that the amount paid under section
490.1325 or offered under section 490.1327 is less than the fair
value of the dissenter's shares or that the interest due is
incorrectly calculated.
b. The corporation fails to make payment under section
490.1325 within sixty days after the date set for demanding
payment.
c. The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within sixty
days after the date set for demanding payment.
2. A dissenter waives the dissenter's right to demand
payment under this section unless the dissenter notifies the
corporation of the dissenter's demand in writing under subsection
1 within thirty days after the corporation made or offered payment
for the dissenter's shares.
PART C
490.1330 COURT ACTION.--1. If a demand for payment under
section 490.1328 remains unsettled, the corporation shall commence
a proceeding within sixty days after receiving the payment demand
and petition the court to determine the fair value of the shares
and accrued interest. if the corporation does not commence the
proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
A-5
<PAGE> 91
2. The corporation shall commence the proceeding in the
district court of the county where a corporation's principal office
or, if none in this state, its registered office is located. If
the corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the
county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the
foreign corporation was located.
3. The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to
the proceeding as in an action against their shares and all parties
must be served with a copy of the petition. Nonresidents may be
served by registered or certified mail or by publication as
provided by law.
4. The jurisdiction of the court in which the proceeding is
commenced under subsection 2 is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence
and recommend decision on the question of fair value. The
appraisers have the powers described in the order appointing them,
or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter made a party to the proceeding is entitled
to judgment for either of the following:
a. The amount, if any, by which the court finds the fair
value of the dissenter's shares, plus interest, exceeds the amount
paid by the corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under section 490.1327.
490.1331 COURT COSTS AND COUNSEL FEES.--1. The court in an
appraisal proceeding commenced under section 490.1330 shall
determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The
court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters,
in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under section 490.1328.
2. The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the
court finds equitable, for either of the following:
a. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously,
or not in good faith with respect to the rights provided by this
chapter.
3. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be
assessed against the corporation, the court may award to these
counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
A-6
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Iowa Business Corporation Act ("IBCA") provides that a
corporation may indemnify any of its directors and officers against
liability incurred in connection with a proceeding if: (a) such
person acted in good faith; (b) in the case of conduct in an
official capacity, the person reasonably believed such conduct was
in the corporation's best interests; (c) in all other cases, such
person reasonably believed that such conduct was not opposed to the
best interests of the corporation; and (d) in the case of any
criminal proceeding, such person had no reasonable cause to believe
his or her conduct was unlawful. In actions brought by or in the
right of the corporation, however, the IBCA provides that no
indemnification may be made if the director was judged liable to
the corporation. The IBCA also provides that in connection with
any proceeding charging personal benefit to a director no
indemnification may be made if such director was adjudged liable on
the basis that personal benefit was improperly received by the
director. The termination of a proceeding by judgment, order,
settlement conviction, or upon a plea of nolo contendere or its
equivalent is not, of itself, determinative that the director did
not meet the standard of conduct described above. Any
indemnification under the IBCA in connection with a proceeding by
or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Notwithstanding the foregoing, the IBCA provides that a court of
competent jurisdiction, upon application, may order that an officer
or director be indemnified for reasonable expenses, if, in
consideration of all relevant circumstances, the court determines
that such individual is fairly and reasonable entitled to
indemnification, notwithstanding the fact that (i) he breached the
standard of conduct required of him; or (ii) he (a) was adjudged
liable to the corporation in a proceeding by or in right of the
corporation or (b) he was adjudged liable on the basis that
personal benefit was improperly received by him; provided that if
he was so judged liable his indemnification is limited to
reasonable expenses incurred.
The Amended and Restated Articles of Incorporation of the
Registrant permit the Registrant to indemnify directors of the
Registrant to the fullest extent permitted by law and authorizes
the Registrant, by action of its board of directors, to provide
indemnification to such of the officers, employees and agents of
the Registrant to such extent and to such effect as the board of
directors determines to be appropriate and authorized by applicable
law.
The bylaws of the corporation provide for mandatory
indemnification of each individual who is or was a director of the
Registrant to the fullest extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
See Exhibit Index.
(b) Financial Statement Schedules.
None
II-1
<PAGE> 93
ITEM 22. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of Top Air pursuant to the foregoing
provisions, or otherwise, Top Air has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by Top Air of expenses incurred or paid by
a director, officer or controlling person of Top Air in the
successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with
the securities being registered, Top Air will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(2) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
II-2
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Parkersburg, State of Iowa, on May 5, 1995.
TOP AIR MANUFACTURING, INC.
By: /s/ Steven R. Lind
-----------------------------------------
Steven R. Lind
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby severally
constitutes and appoints STEVEN R. LIND and S. LEE KLING or either
of them singly, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this
Registration Statement on Form S-4, and to file the same, with all
exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their
substitute may lawfully do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ S. Lee Kling Director and Chairman of the Board May 5, 1995
- -----------------------------
S. Lee Kling
/s/ Steven R. Lind Director, President and Chief May 5, 1995
- ----------------------------- Executive Officer
Steven R. Lind (principal executive officer)
/s/ Steven F. Bahlmann Secretary and Treasurer May 5, 1995
- ----------------------------- (principal financial officer)
Steven F. Bahlmann
/s/ Wayne C. Dudley Director May 5, 1995
- -----------------------------
Wayne C. Dudley
/s/ Dennis W. Dudley Director May 5, 1995
- -----------------------------
Dennis W. Dudley
/s/ Franklin A. Jacobs Director May 5, 1995
- -----------------------------
Franklin A. Jacobs
Director May --, 1995
- -----------------------------
Robert S. Freeman
Director May --, 1995
- -----------------------------
Sanford W. Weiss
</TABLE>
II-3
<PAGE> 95
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description
- ------- -----------
<C> <S>
<F*>3(a) Amended and restated Articles of Incorporation of
the Registrant, filed as Exhibit 3(c) to Top Air's
Annual Report on Form 10-K for fiscal year 1991
(the "1991 Form 10-K").
<F*>3(b) Amended and Restated By-laws of the Registrant,
filed as Exhibit 3(d) to the 1991 Form 10-K.
<F*>3(c) Amendments to the Amended and Restated By-laws,
effective October 21, 1992, filed as Exhibit 3(c)
to Top Air's Annual Report on Form 10-KSB for
fiscal year 1993 (the "1993 Form 10-KSB").
<F*>4(a) Promissory note dated September 28, 1990, between
Top Air and Merchants National Bank, filed as
Exhibit 4(a) to the 1991 Form 10-K.
<F*>4(b) Variable balance promissory note dated October 1,
1993, between Top Air and Firstar Bank Cedar
Rapids, N.A.
<F*>4(c) Credit and Security Agreement originally dated
November 10, 1989, between Top Air and Merchants
National Bank, filed as Exhibit 4(c) to the 1991
Form 10-K.
<F*>4(d) Amendment to Note between Top Air and Firstar Bank
Cedar Rapids, N.A., dated January 28, 1992, filed
as Exhibit 4(d) to Top Air's Annual Report on Form
10-K for fiscal year 1992 (the "1992 Form 10-K").
<F*>4(e) Sixth Amendment to Credit and Security Agreement
between Top Air and Firstar Bank Cedar Rapids,
N.A., dated October 1, 1993.
5 Opinion of Gallop, Johnson & Neuman, L.C.
8(a) Opinion of Simmons, Perrine, Albright & Ellwood,
P.L.C., special counsel to Clay Holding, regarding
the termination of the ESOP and the distribution by
the ESOP of the Top Air Shares and other assets to
the ESOP Participants.
<F*>9 Amended and Restated Voting Trust Agreement by and
among Robert J. Freeman and Dennis W. Dudley and
their successors, dated September 15, 1992, filed
as Exhibit 9 to the 1993 Form 10-KSB.
<F*>10(a) Land contract between Top Air and Wayne C. Dudley
dated December 20, 1988, filed as Exhibit D to Top
Air's Annual Report on Form 10-K for fiscal year
1989 (the "1989 Form 10-K").
<F*>10(b) Promissory note dated January 1, 1991, between Top
Air and Wayne C. Dudley (the "Dudley Note"), filed
as Exhibit 10(b) to the 1991 Form 10-K.
<PAGE> 96
<F*>10(c) Letter amendment, dated August 5, 1994, to the
Dudley Note, filed as Exhibit 10(c) to Top Air's
Annual Report on Form 10-KSB for fiscal year 1994
(the "1994 Form 10-KSB").
<F*>10(d) 1993 Stock Option Plan adopted by the Board of
Directors November 6, 1992, filed as Exhibit 10(c)
to Top Air's 1993 Form 10-KSB.
<F*>10(e) Summary Plan description for 401(k) plan adopted by
the Top Air Board on October 22, 1991, filed as
Exhibit 28(b) to the 1992 Form 10-K.
10(f) Commitment letter of Norwest Bank Iowa, N.A. to Top
Air dated February 28, 1995.
10(g) Asset Purchase Agreement dated as of April 11, 1995
among Clay Equipment Corporation, Clay Holding,
Inc., and Top Air Manufacturing, Inc.
10(h) Amendment to Purchase Agreement dated as of May 5,
1995.
10(i) Lease Agreement between the City of Cedar Falls,
Iowa and Clay Equipment Corporation (to be assigned
to Top Air) regarding the construction of the New
Facility and the lease thereof to Clay Equipment.
10(j) Form of Escrow Agreement with respect to the Hold-
Back Stock.
<F*>11 Statement re computation of per share earnings.
23(a) Consent of McGladrey & Pullen, LLP, independent
auditors, with respect to the Top Air audited
financial statements.
23(b) Consent of McGladrey & Pullen, LLP, independent
auditors, with respect to the Clay Holding audited
consolidated financial statements.
23(c) Consent of Gallop, Johnson & Neuman, L.C. (included
in Exhibit 5).
23(d) Consent of Simmons, Perrine, Albright & Ellwood,
P.L.C., included in Exhibit 8(a)).
24 Power of Attorney (set forth on signature page).
99(a) Form of Notice of Clay Holding Special Meeting.
99(b) Form of letter to shareholders of Clay Holding to
accompany Prospectus/Information Statement.
- -------------------------------
<FN>
<F*> Incorporated by reference to the indicated documents, or parts
thereof, previously filed with the Commission.
</TABLE>
<PAGE> 1
Exhibit 5
[Gallop, Johnson & Neuman, L.C. Letterhead]
May 9, 1995
Board of Directors
Top Air Manufacturing, Inc.
406 Highway 20
Parkersburg, Iowa 50665
Re: Top Air Manufacturing, Inc.
Registration Statement on Form S-4
----------------------------------
Gentlemen:
We have acted as counsel for Top Air Manufacturing, Inc., an
Iowa corporation (hereinafter called the "Company"), in connection
with various legal matters related to the filing of a Registration
Statement on Form S-4 (the "Registration Statement") under the
Securities Act of 1933, as amended, covering 850,000 shares of
common stock of the Company, without par value (the "Common
Stock"), which will be delivered by the Company in exchange for
substantially all of the assets of Clay Equipment Corporation (Clay
Equipment") and the assumption by the Company of certain
liabilities of Clay Equipment.
We have examined such corporate records of the Company, such
laws and such other information as we have deemed relevant,
including the Company's Amended and Restated Articles of
Incorporation, By-Laws, resolutions adopted by the Board of
Directors of the Company relating to such offering and certificates
received from state officials and from officers of the Company. In
delivering this opinion, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as
originals, the conformity to the originals of all documents
submitted to us as certified, photostatic or conformed copies and
the correctness of statements submitted to us by officers of the
Company.
Based solely on the foregoing, the undersigned is of the
opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Iowa.
2. The Common Stock being delivered by the Company, if
delivered in the manner described in the Registration Statement,
will be validly issued and outstanding and will be fully paid and
non-assessable.
<PAGE> 2
Board of Directors
May 9, 1995
Page 2
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the
Registration Statement. We also consent to your filing of copies
of this opinion as an exhibit to the Registration Statement with
agencies of such states as you deem necessary in the course of
complying with the laws of such states regarding the issuance of
the Common Stock being sold.
Very truly yours,
/s/ Gallop, Johnson & Neuman, L.C.
GALLOP, JOHNSON & NEUMAN, L.C.
<PAGE> 1
Exhibit 8(a)
[Simmons, Perrine, Albright & Ellwood, P.L.C. letterhead]
May 8, 1995
The Board of Directors
Clay Holding, Inc.
101 Lincoln Street
Cedar Falls, Iowa 50613
Ladies and Gentlemen:
RE: Clay Holding, Inc. Employee
Stock Purchase Plan
We have acted as special counsel to Clay Holding, Inc. ("Clay
----
Holding") and its wholly-owned subsidiary, Clay Equipment
- -------
Corporation ("Clay Equipment") in connection with the contemplated
--------------
amendment to the Clay Holding, Inc. Employee Stock Ownership Plan
("ESOP") and the termination thereof, in accordance with and
----
pursuant to Sections 11.01 and 11.02, respectively, of that certain
Asset Purchase Agreement dated April 11, 1995 among Clay Equipment,
Clay Holding and Top Air Manufacturing, Inc. (the "Purchase
--------
Agreement"). Unless otherwise indicated, defined terms used herein
- ---------
shall have the same meanings as ascribed to them in the Purchase
Agreement.
In rendering the opinions expressed herein, we have examined
the "ESOP Trust" (defined below), the latest IRS determination
letter for the ESOP dated February 15, 1995, records, resolutions,
schedules, analyses and other documents as deemed appropriate by
us, including a proposed draft of a Form 5310 and attachments
thereto to be submitted to the Internal Revenue Service ("IRS") for
---
the issuance of a determination as to the matters being opined upon
herein, and have relied upon written certificates of the officers
of Clay Holding and/or Clay Equipment as to certain factual
matters. Based on the foregoing, we are of the opinion that:
1. The ESOP is a qualified stock bonus plan meeting the
requirements of Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). The trust created
----
under the ESOP document (the "ESOP Trust") is a tax-
----------
exempt trust under the provisions of Section 501(a) of
the Code.
2. The ESOP satisfies the requirements for an "employee
stock ownership plan" set forth in Section 4975(e)(7) of
the Code.
<PAGE> 2
The Board of Directors
Clay Holding, Inc.
May 8, 1995
Page -2-
3. Neither the consummation of the Transaction nor the
contemplated amendment or termination of the ESOP will
adversely affect the qualification of the ESOP or the
tax-exempt status of the ESOP Trust under Sections
401(a), 501(a), and 4975(e) of the Code.
4. Distributions from the ESOP to Plan Participants
following the termination thereof will be subject to
federal income taxation to such Plan Participants under
Section 402(a) of the Code, except to the extent that any
such distribution is rolled over pursuant to the
provisions of Section 402(c) of the Code. However, such
distributions will be subject to federal income tax
withholding under Section 3405(c)(1) to the extent not
directly rolled over to an eligible retirement plan as
defined in Section 402(c)(8)(B) of the Code.
Our opinion is based upon existing law and currently
applicable Treasury Department regulations promulgated or proposed
under the Code, current published administrative positions of the
IRS contained in Revenue Rulings, Revenue Procedures, and Private
Letter Rulings and judicial decisions, all of which are subject to
change either prospectively or retroactively.
The information set forth herein is as of the date hereof. We
assume no obligation to advise you of changes which may thereafter
be brought to our attention. To the extent the opinions expressed
above are based on any factual matters, we have relied upon
information provided us by Clay Holding or Clay Equipment with
respect to which we have made no independent investigation unless
otherwise noted. We do not opine with respect to any law,
regulation, rule or governmental policy which may be enacted or
adopted after the date hereof, nor assume any responsibility to
advise you of subsequent changes in our opinions. We give no
opinion on any matter not specifically set forth in this letter and
we give no opinion on the fairness of the transactions contemplated
by the Purchase Agreement.
The foregoing opinions represent our best judgment of the
likely outcome of those issues if challenged and litigated. With
respect to some of such issues, existing precedents provide very
little guidance because the resolution of such issues will be
determined based upon the facts and circumstances peculiar to the
matter. Therefore, while the opinions and views expressed in this
letter are based upon our best interpretations of existing sources
of law and the factual situations, no assurance can be given that
such interpretations would be followed by the IRS or the courts if
<PAGE> 3
The Board of Directors
Clay Holding, Inc.
May 8, 1995
Page -3-
they became the subject of administrative or judicial proceedings
or that the position of counsel as set forth in the opinions
expressed herein will not be challenged by the IRS.
We consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 to be filed by Top Air
Manufacturing, Inc. covering the Shares to be issued by it in
connection with the Transaction and to the use of our name in such
Registration Statement, and all amendments thereto. We also
consent to the filing of copies of this opinion with the
appropriate agencies of such states as deemed necessary in the
course of complying with the laws of such states regarding such
issuance of the Shares.
We consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 to be filed by Top Air
Manufacturing, Inc. covering the Shares to be issued by it in
connection with the Transaction and to the use of our name in such
Registration Statement, and all amendments thereto. We also
consent to the filing of copies of this opinion with the
appropriate agencies of such states as deemed necessary in the
course of complying with the laws of such states regarding such
issuance of the Shares.
Except as permitted in the preceding paragraph, this opinion
is not be quoted in whole or in part or otherwise referred to in
any of the parties' financial statements or other public releases,
nor is it to be filed with any governmental agency or other person
without the prior written consent of this firm, and this letter may
not be relied upon by any other person or for any other purposes
whatsoever.
Very truly yours,
SIMMONS, PERRINE, ALBRIGHT &
ELLWOOD, P.L.C.
By /s/ Dean R. Einck
---------------------------------
Dean R. Einck, A Member
<PAGE> 1
Exhibit 10(f)
NORWEST BANKS STATIONERY
February 28, 1995
Steve Lind, President
Top Air Manufacturing, Inc.
Highway 20
Parkersburg, IA 50665
Dear Steve:
Per our discussions, our bank is happy to provide you with the
following commitment which includes financing for your existing
term loan, the acquisition of the Clay Equipment assets, and a
revolving line of credit. Two copies of this commitment letter are
included allowing you to accept the terms by signing where
indicated.
Terms for the proposed loans to Top Air Manufacturing, Inc. would
be as follows:
A1. $1,500,000 term loan due 5 years from closing date, amortized
over 10 years with monthly principal and interest payments.
Priced at 1/2% over Norwest Bank's base rate, floating. This
would equate to a current rate of 9.5%.
Collateral would be a blanket security agreement on all assets
of Top Air Manufacturing to include assets purchased from Clay
Equipment. In addition, the loan would be secured by a first
mortgage on the two parcels of real estate in Parkersburg
currently used by Top Air for manufacturing and warehousing.
The purpose of this loan is the refinancing of existing
equipment debt owed to Norwest by Top Air Manufacturing, and
refinancing of liabilities of Clay Equipment as part of the
acquisition.
A2. $500,000 term loan due 5/31/97. A principal payment of
$250,000 will be due on 5/31/96 with the balance due at
maturity. Interest collected monthly, priced at 1/2% over
Norwest Bank's base rate, floating. This equates to a current
rate of 9.5%.
The purpose of this loan is also to finance the Clay Equipment
acquisition, specifically to cover the amount of the
acquisition that will be repaid by condemnation proceeds Clay
is to receive from the City of Cedar Falls.
<PAGE> 2
A3. $3,000,000 revolving line of credit due 10/1/95. Interest
payable monthly, priced at Norwest Bank Iowa's base rate,
floating. This equates to a current rate of 9.0%.
Collateral will be a blanket security agreement on all assets
of Top Air Manufacturing including assets purchased from Clay
Equipment.
Purpose is to fund inventory and accounts receivable. A
borrowing base would be utilized allowing borrowings no
greater than the total of 50% of inventory and 75% of eligible
accounts receivable. Eligible accounts receivable are defined
as those accounts with an aging of 90 days or less from due
date.
The three notes outlined above will be governed by a loan
agreement which will include the following terms:
A. Minimum Working Capital. The Borrower will maintain at
all times an excess of current assets over current
liabilities of not less than $1,750,000.
B. Minimum Tangible Net Worth. The Borrower will maintain
a tangible net worth of not less than $2,500,000 at
fiscal year end.
C. Capital Expenditures. The borrower will not make any
expenditures for fixed or capital assets which would
cause the aggregate of all such expenditures made by the
Borrower to exceed $250,000 during any fiscal year of the
borrower without written consent of Norwest Bank.
Approval of the expenditures for the Clay acquisition is
hereby given.
D. Current Ratio. For fiscal year end May 31, 1995,
Borrower will have a ratio of current assets to current
liabilities not less than 1.9-1. The Borrower will
maintain after that date, a ratio of current assets to
current liabilities not less than 2.0 to 1.0 at each FYE.
E. Leverage Ratio. For fiscal year end May 31, 1995,
Borrower will have a ratio of total liabilities to
Tangible Net Worth of not greater than 1.3 to 1.0. The
Borrower will maintain after that date at all times a
ratio of total liabilities to Tangible Net Worth of not
greater than 1.25 to 1.0 at each FYE.
F. Cleanup Requirement. For a period of 30 consecutive days
each year, the Company will have no outstandings on the
line of credit.
G. Financial Statements. Monthly internally prepared
balance sheet and income statement within 30 days of
month end. Annual audited statements prepared by a
certified public accountant within 120 days of FYE.
<PAGE> 3
H. All condemnation proceeds received by Clay/Top Air will
be applied 100% to principal on first note A2 then note
A1. 100% of the proceeds received from the sale of
Parkersburg real estate will be applied in the same
fashion.
I. Beginning May 31, 1997 and each year thereafter, the
Company will be required to apply up to 50% of "free
operating cash flow" to note A2 and then to note A1. The
annual maximum requirement for pay down will be the
amount needed to bring the term debt to the equivalent of
a seven year amortization assuming an original balance of
$1,500,000.
Free operating cash flow is defined as follows: Net cash
from operating activities minus capital expenditures, per
GAAP standards.
J. Borrower is to maintain all deposit accounts at Norwest
Bank, Cedar Valley as part of this loan agreement.
Steve, I believe this commitment meets the financing needs of Top
Air Manufacturing and I hope you find it acceptable. On behalf of
Norwest, thank you for your existing business and the opportunity
to provide additional financing to you. I enjoy working with you
and look forward to your response. Please call me with any
questions.
Sincerely,
/s/Cathy A. Rottinghaus
Cathy A. Rottinghaus
Assistant Vice President
Accepted By:
Top Air Manufacturing, Inc.
/s/Steven R. Lind 3-1-95
- -------------------------------------- -----------------------
Steven Lind, President Date
<PAGE> 1
Exhibit 10(g)
ASSET PURCHASE AGREEMENT
Among
CLAY EQUIPMENT CORPORATION
as Seller
CLAY HOLDING, INC.
as the Sole Shareholder of Seller
and
TOP AIR MANUFACTURING, INC.
as Purchaser
April 11, 1995
<PAGE> 2
<TABLE>
Table of Contents
-----------------
<CAPTION>
Page
----
<S> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
II. TRANSFER OF ASSETS. . . . . . . . . . . . . . . . . . . 7
2.01 Transfer of Assets. . . . . . . . . . . . . . . 7
2.02 Transfer of Top Air Shares. . . . . . . . . . . 7
2.03 Assumption of Liabilities . . . . . . . . . . . 7
2.04 Transactions at Closing . . . . . . . . . . . . 9
III. ADJUSTMENT; HOLD BACK . . . . . . . . . . . . . . . . . 10
3.01 Preclosing Adjustment . . . . . . . . . . . . . 10
3.02 Hold Back . . . . . . . . . . . . . . . . . . . 10
IV. WARRANTIES AND REPRESENTATIONS OF CLAY COMPANIES. . . . 10
4.01 Organization and Standing of Clay
Equipment . . . . . . . . . . . . . . . . . . . 10
4.02 Organization and Standing of Clay Holding . . . 10
4.03 Authority . . . . . . . . . . . . . . . . . . . 10
4.04 Good Title and Condition of Assets. . . . . . . 11
4.05 Financial Statements. . . . . . . . . . . . . . 11
4.06 Absence of Changes. . . . . . . . . . . . . . . 12
4.07 Payment of All Debts and Liabilities. . . . . . 13
4.08 No Conflicting Agreements or Orders . . . . . . 13
4.09 Compliance. . . . . . . . . . . . . . . . . . . 13
4.10 Litigation. . . . . . . . . . . . . . . . . . . 14
4.11 Condition of Clay Equipment . . . . . . . . . . 14
4.12 Employment Agreements . . . . . . . . . . . . . 14
4.13 Labor Relations . . . . . . . . . . . . . . . . 14
4.14 Taxes . . . . . . . . . . . . . . . . . . . . . 15
4.15 Name of Company . . . . . . . . . . . . . . . . 15
4.16 Inventory . . . . . . . . . . . . . . . . . . . 15
4.17 Leases. . . . . . . . . . . . . . . . . . . . . 16
4.18 Insurance . . . . . . . . . . . . . . . . . . . 16
4.19 Other Contracts . . . . . . . . . . . . . . . . 16
4.20 Documents . . . . . . . . . . . . . . . . . . . 16
4.21 Suppliers . . . . . . . . . . . . . . . . . . . 17
4.22 Real Property . . . . . . . . . . . . . . . . . 17
4.23 Customers; Accounts Receivable. . . . . . . . . 17
4.24 ERISA . . . . . . . . . . . . . . . . . . . . . 17
4.25 Environmental . . . . . . . . . . . . . . . . . 21
4.26 ESOP Participant. . . . . . . . . . . . . . . . 22
4.27 No Misrepresentation. . . . . . . . . . . . . . 22
V. REPRESENTATIONS AND WARRANTIES OF TOP AIR . . . . . . . 22
5.01 Organization and Standing of Top Air. . . . . . 22
5.02 Binding Agreement . . . . . . . . . . . . . . . 22
5.03 Agreement Within Authority. . . . . . . . . . . 23
5.04 No Conflicting Agreements or Orders . . . . . . 23
-i-
<PAGE> 3
5.05 Corporate Action. . . . . . . . . . . . . . . . 23
5.06 No Conflict . . . . . . . . . . . . . . . . . . 23
5.07 No Misrepresentation. . . . . . . . . . . . . . 23
5.08 Shares Validly Issued . . . . . . . . . . . . . 23
VI. COVENANTS OF TOP AIR. . . . . . . . . . . . . . . . . . 23
6.01 Information . . . . . . . . . . . . . . . . . . 23
6.02 Satisfaction of Assumed Liabilities . . . . . . 24
6.03 Recognition of Collective Bargaining Unit . . . 24
6.04 Credit for Prior Service. . . . . . . . . . . . 24
6.05 Rollover of 401(k) Accounts . . . . . . . . . . 24
VII. COVENANTS OF CLAY COMPANIES PENDING CLOSING . . . . . . 24
7.01 Access to Information . . . . . . . . . . . . . 24
7.02 Maintain Properties . . . . . . . . . . . . . . 25
7.03 Maintain Organization . . . . . . . . . . . . . 25
7.04 Regular Course of Business. . . . . . . . . . . 25
7.05 Insurance . . . . . . . . . . . . . . . . . . . 25
7.06 Employees . . . . . . . . . . . . . . . . . . . 25
7.07 Business Changes. . . . . . . . . . . . . . . . 25
7.08 Consents. . . . . . . . . . . . . . . . . . . . 25
7.09 Environmental Audit . . . . . . . . . . . . . . 26
VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF TOP AIR. . . . . 26
8.01 No Adverse Change . . . . . . . . . . . . . . . 26
8.02 Representations, Warranties and Agreements
of Clay Equipment . . . . . . . . . . . . . . . 26
8.03 Opinion of Counsel. . . . . . . . . . . . . . . 26
8.04 Absence of Litigation . . . . . . . . . . . . . 27
8.05 Corporate Approval. . . . . . . . . . . . . . . 27
8.06 Consents. . . . . . . . . . . . . . . . . . . . 27
8.07 Officers' Certificate . . . . . . . . . . . . . 27
8.08 Approval of Documents . . . . . . . . . . . . . 27
8.09 Casualty Loss . . . . . . . . . . . . . . . . . 27
8.10 Satisfactory Review of Clay Equipment's
Business and the Assets; Inspections. . . . . . 28
8.11 Dissenters' Rights. . . . . . . . . . . . . . . 28
8.12 Temporary Lease of Real Property. . . . . . . . 28
8.13 Evidence of Condemnation Award. . . . . . . . . 28
8.14 Evidence of New Plant Lease . . . . . . . . . . 28
8.15 Refinancing of Lender Debt. . . . . . . . . . . 28
8.16 Minimum Equity. . . . . . . . . . . . . . . . . 28
8.17 Environmental Audit . . . . . . . . . . . . . . 28
8.18 Approval by ESOP Trustee. . . . . . . . . . . . 28
8.19 Roll-Over of Shares . . . . . . . . . . . . . . 29
8.20 Accountants' Letter . . . . . . . . . . . . . . 29
IX. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLAY
EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . 29
9.01 Representations, Warranties and Agreements
of Top Air. . . . . . . . . . . . . . . . . . . 29
9.02 Opinion of Counsel. . . . . . . . . . . . . . . 29
-ii-
<PAGE> 4
9.03 Performance of Assumed Liabilities. . . . . . . 29
9.04 Corporate Approval. . . . . . . . . . . . . . . 29
9.05 Consents. . . . . . . . . . . . . . . . . . . . 29
9.06 Top Air's Certificate . . . . . . . . . . . . . 30
9.07 Approval of Documents . . . . . . . . . . . . . 30
9.08 Approval by ESOP Trustee. . . . . . . . . . . . 30
9.09 Registration of Shares. . . . . . . . . . . . . 30
X. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 30
10.01 Indemnification of Top Air by the Clay
Companies . . . . . . . . . . . . . . . . . . . 30
10.02 Indemnification of Clay Equipment by Top
Air . . . . . . . . . . . . . . . . . . . . . . 32
10.03 Notice to Indemnifying Party. . . . . . . . . . 32
XI. AMENDMENT AND TERMINATION OF THE ESOP.. . . . . . . . . 33
11.01 Amendment to ESOP . . . . . . . . . . . . . . . 33
11.02 Termination of the ESOP . . . . . . . . . . . . 33
XII. SPECIAL MEETING OF STOCKHOLDERS.. . . . . . . . . . . . 33
12.01 Preparation of Proxy Materials. . . . . . . . . 33
12.02 The Holding of the Special Meeting. . . . . . . 34
XIII. REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . 34
13.01 Preparation and Filing of Registration
Statement . . . . . . . . . . . . . . . . . . . 34
13.02 Blue Sky Requirements . . . . . . . . . . . . . 34
XIX. CLOSING AND RISK OF LOSS. . . . . . . . . . . . . . . 34
14.01 Place and Time. . . . . . . . . . . . . . . . . 34
14.02 Risk of Loss. . . . . . . . . . . . . . . . . . 34
14.03 Simultaneous Performance. . . . . . . . . . . . 34
14.04 Transfer of Possession. . . . . . . . . . . . . 34
XV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 34
15.01 No Commission . . . . . . . . . . . . . . . . . 34
15.02 Survival of Representations and Warranties. . . 35
15.03 Change of Name. . . . . . . . . . . . . . . . . 35
15.04 Incorporation of Schedules. . . . . . . . . . . 35
15.05 Further Assurances. . . . . . . . . . . . . . . 35
15.06 No Assumption of Clay Equipment's
Liabilities . . . . . . . . . . . . . . . . . . 35
15.07 Transfer Taxes. . . . . . . . . . . . . . . . . 35
15.08 Notices . . . . . . . . . . . . . . . . . . . . 35
15.09 Entire Agreement. . . . . . . . . . . . . . . . 36
15.10 Designation of Top Air as Agent . . . . . . . . 36
15.11 Binding Effect. . . . . . . . . . . . . . . . . 36
15.12 Third Parties . . . . . . . . . . . . . . . . . 37
15.13 Expenses of the Parties . . . . . . . . . . . . 37
15.14 Counterparts. . . . . . . . . . . . . . . . . . 37
15.15 Iowa Law to Govern. . . . . . . . . . . . . . . 37
15.16 Headings. . . . . . . . . . . . . . . . . . . . 37
-iii-
<PAGE> 5
15.17 Publicity . . . . . . . . . . . . . . . . . . . 37
15.18 Mail and Communications . . . . . . . . . . . . 37
15.19 Allocation of Purchase Price. . . . . . . . . . 37
15.20 Review of Closing Balance Sheet . . . . . . . . 38
15.21 Acquisition Subsidiary. . . . . . . . . . . . . 38
</TABLE>
-iv-
<PAGE> 6
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (the "Agreement") is made as of
the 11th day of April, 1995, by and among TOP AIR MANUFACTURING,
INC., an Iowa corporation ("Top Air"), CLAY EQUIPMENT CORPORATION,
an Iowa corporation ("Clay Equipment") and Clay Holding, Inc., an
Iowa corporation ("Clay Holding").
WHEREAS, Clay Equipment owns all of the assets, rights and
property necessary for, and operates a business which is engaged
in, the design, manufacture, sale and distribution of certain
livestock equipment and other agricultural products (the
"Business"); and
WHEREAS, the directors of Clay Equipment and Clay Holding and
the sole shareholder of Clay Equipment have authorized and approved
this Agreement and have determined that it is in the best interests
of Clay Equipment and Clay Holding to transfer the Transferred
Assets to Top Air, in exchange for the Shares and the assumption by
Top Air of the Assumed Liabilities as provided for herein, all upon
the terms and conditions and subject to the provisions of this
Agreement; and
WHEREAS, the directors of Clay Holding have recommended that
the sole stockholder of Clay Holding approve the Transaction, and
have directed that Transaction provided for herein be submitted to
the ESOP, as the sole stockholder of Clay Holding, and the Plan
Participants, to whom shares of employee securities held by the
ESOP have been allocated, for such approval.
NOW, THEREFORE, in consideration of the premises and of the
agreements and provisions set forth herein, and subject to the
conditions herein contained, it is mutually agreed as follows:
I. DEFINITIONS.
-----------
For purposes of this Agreement, the following words and
phrases have the following meanings:
1.01 "Accounting Firm" means the firm of McGladrey & Pullen,
LLP, Waterloo, Iowa.
1.02 "Arbitrator" means the firm of independent certified
auditors, other than the Accounting Firm, selected by the
Accounting Firm to review the Closing Balance Sheet and issue its
report pursuant to Section 15.20.
1.03 "Accounts Receivables Schedule" is defined in Section
4.23.
1.04 "Assigned Contracts" means all of Clay Equipment's
contracts, leases and other agreements, a true copy of each of
which has been attached hereto by Clay Equipment in Schedule 1.04,
-------------
<PAGE> 7
which Assigned Contracts will be assigned by Clay Equipment to Top
Air at the Closing, and the performance of which shall be assumed
by Top Air at the Closing, but shall not include the Union
Contract.
1.05 "Assumed Liabilities" means all liabilities and
obligations of Clay Equipment in respect of the Business, including
account payables, existing as of the close of business on December
31, 1994, but only if and to the extent that the same are accrued
or reserved for on the 1994 Balance Sheet and remain unpaid and
undischarged on the Closing Date, and all other liabilities and
obligations of Clay Equipment arising in the regular and ordinary
course of the Business from the period commencing January 1, 1995
through the Closing Date, to the extent that the same remain unpaid
and undischarged on the Closing Date and are accrued or reserved
for on the Closing Balance Sheet, excluding however, those
liabilities and obligations referred to in Section 2.03 or as
otherwise provided herein.
1.06 "Assets" means all of the rights of Clay Equipment and
all of the right, title and interest of Clay Equipment in and to
the property, real, personal and mixed, tangible or intangible, of
whatever kind or character and wherever located, which Assets shall
include (but not be limited to) the following:
(a) All cash or cash equivalents in transit, in hand or
in bank accounts;
(b) All inventory, stock in trade, merchandise, goods,
supplies and other products owned by Clay Equipment or
otherwise under the control of Clay Equipment as of the
Closing Date, including the rights and payment obligations of
Clay Equipment under the orders for the purchase of goods set
forth in Schedule 1.06(b), complete copies of which have been
----------------
provided to Top Air by Clay Equipment, but not including any
commitment of Clay Equipment for the purchase of goods which
is not set forth in Schedule 1.06(b);
----------------
(c) The Closing Accounts Receivable;
(d) All machinery, equipment, tools, vehicles,
furniture, fixtures, goods and other items of tangible
personal property owned by Clay Equipment set forth and
described in Schedule 1.06(d);
----------------
(e) All land, structures, improvements, including the
Real Property and fixtures, and all water lines, rights of
way, uses and easements;
(f) All technologies, methods, formulations, data bases,
trade secrets, know-how, inventions and intangible property
rights, including the name and all other trade names;
2
<PAGE> 8
(g) All contract rights, including the Assigned
Contracts, but excluding the Union Contract;
(h) All rights, privileges, claims, demands and choses
in action, including, without limitation, the proceeds of the
Condemnation Award, the Relocation Expense Award and all
rights under express or implied warranties; and
(i) All records, files, books of account, customer and
supplier lists and other books and records of Clay Equipment
relating to the Business, including those relating to the
Transferred Assets and Assumed Liabilities.
1.07 "Balance Sheet Date" means the last day of the calendar
month immediately preceding the Closing Date.
1.08 "City" means the City of Cedar Falls, Iowa.
1.09 "Clay Companies" means, collectively, Clay Equipment and
Clay Holding.
1.10 "Condemnation Award" means the amount awarded to Clay
Equipment in connection with the Condemnation Proceeding, excluding
amounts attributable to the Relocation Expense Award.
1.11 "Condemnation Proceeding" means the proceeding of the
City or other appropriate governmental authority to take, condemn
or partially take or condemn the Real Property for a public use,
and the related relocation of the current facility being operated
by Clay Equipment to the New Facility.
1.12 "Closing" means the consummation of the Transaction
contemplated by this Agreement.
1.13 "Closing Accounts Receivable" is defined in Section
4.23.
1.14 "Closing Balance Sheet" means the consolidated balance
sheet of the Clay Companies as of the Balance Sheet Date.
1.15 "Closing Customer List" is defined in Section 4.23.
1.16 "Closing Date" means 10:00 a.m. on May 31, 1995, or such
other date and time as are mutually agreed upon in writing by Top
Air and the Clay Companies; provided, however, that if all of the
-------- -------
conditions to Closing have not been met, then Top Air shall have
the option to extend the Closing Date once, to a date not later
than December 31, 1995.
1.17 "Code" means the Internal Revenue Code of 1986, as
amended.
3
<PAGE> 9
1.18 "Closing Inventory Count" means a physical count and
valuation to be taken by Top Air and Clay Equipment, of the
inventory of goods and supplies included in the Transferred Assets,
determined in accordance with the provisions of Section 4.16 as of
the Balance Sheet Date and included in the Closing Balance Sheet.
1.19 "Customer List" is defined in Section 4.23.
1.20 "Distribution" means the series of transactions
culminating in the distribution of the Shares to the Plan
Participants consisting of: (i) the distribution by Top Air,
pursuant to Section 2.02, to Clay Holding; (ii) the distribution of
such Shares by Clay Holding to the ESOP; and (iii) the distribution
of the Shares to the Plan Participants in accordance with Section
11.01(a).
1.21 "Environmental Laws and Regulations" means all
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in
any Laws relating to pollution, nuisance, or the environment
including, without, (i) the Federal Clean Air Act, 42 U.S.C.
Sections 7401 et sec.; (ii) the Comprehensive Environmental
-- ---
Response, Compensation, and Liability Act, 42 U.S.C. Sections 9601
et sec.; (iii) the Federal Emergency Planning and Community Right-
- -- ---
to-Know Act, 42 U.S.C. Sections 1101 et sec.; (iv) the Federal
-- ---
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136
et sec.; (v) the Federal Water Pollution Control Act, 33 U.S.C.
- -- ---
Sections 1251 et sec.; (vi) the Solid Waste Disposal Act, 42
-- ---
8.S.C. Sections 6901 et sec.; (vii) the Toxic Substances Control
-- ---
Act, 15 U.S.C. Sections 2601 et sec.; (viii) Laws relating in
-- ---
whole or part to emissions, discharges, releases, or threatened
releases of any Hazardous Material; and (ix) Laws relating in whole
or part to the manufacture, processing, distribution, use,
coverage, disposal, transportation, storage or handling of any
Hazardous Material.
1.22 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and the rules and regulations thereunder.
1.23 "Escrow Agent" means Norwest Bank Iowa, N.A., Cedar
Falls, Iowa.
1.24 "Escrow Agreement" means the agreement between Top Air,
Clay Equipment and the Escrow Agent, in the form attached hereto as
Schedule 1.24, pursuant to which the Hold-Back Stock shall be
- -------------
deposited at the Closing with the Escrow Agent and held by the
Escrow Agent through the expiration thereof.
1.25 "ESOP" means the Clay Holding, Inc. Employee Stock
Ownership Plan established by the Clay Holding and existing
pursuant to the ESOP Trust.
4
<PAGE> 10
1.26 "ESOP Trust" means the Second Restated Clay Holding,
Inc. Employee Stock Ownership Plan and Trust Agreement dated June
29, 1994.
1.27 "ESOP Trustee" means the trustee under the ESOP Trust.
1.28 "Excluded Assets" means the Real Property and those
other Assets listed in Schedule 1.28, which the parties hereby
-------------
expressly agree shall not be included in the Transferred Assets.
1.29 "Financial Statements" are defined in Section 4.05.
1.30 "Fixed Assets" means the fixed assets of Clay Equipment
as carried on Clay Equipment's books, with the book value thereof
to be determined for the purposes of this Agreement in accordance
with generally accepted accounting principles, consistently
applied, and consistent with Clay Equipment's past accounting
practices, including Clay Equipment's past depreciation and
amortization practices applicable thereto.
1.31 "Hazardous Materials" means any hazardous, infectious or
toxic substance, chemical, pollutant, contaminant, emission or
waste which is or becomes regulated by any local, state, federal or
foreign authority. Hazardous Materials include, without
limitation, anything which is (i) defined as a "pollutant" pursuant
to 33 U.S.C. Section 1362(6); (ii) defined as a "hazardous waste"
pursuant to 42 U.S.C. Section 6921; (iii) defined as a "regulated
substance" pursuant to 42 U.S.C. Section 6991; (iv) defined as a
"hazardous substance" pursuant to 42 U.S.C. Section 9601(14);
(v) defined as a "pollutant or contaminant" pursuant to 42 U.S.C.
Section 9601(33); (vi) petroleum; (vii) asbestos; (viii)
polychlorinated biphenyl.
1.32 "Hold-Back Stock" means that number of Shares, rounded
to the nearest whole number, which equals twenty-five percent (25%)
of the Shares being transferred by Top Air at Closing pursuant to
Section 2.02.
1.33 "Lender Debt" is defined in Section 4.04.
1.34 "Lender Liens" is defined in Section 4.04.
1.35 "Market Value" means the average of the bid and asked
prices of the Shares, on a per share basis, as reported on the
NASDAQ Small Cap Market for the trading day immediately preceding
the Closing Date.
1.36 "Minimum Stockholder's Equity" means the stockholder's
equity, as shown on the Closing Balance Sheet, of not less than
$1,250,000.
1.37 "New Facility" means the approximate 75,000 square foot
plant to be constructed upon a site of approximately 10.5 acres in
5
<PAGE> 11
the Cedar Falls Industrial Park located within the City of Cedar
Falls, Iowa.
1.38 "1994 Balance Sheet" means the consolidated balance
sheet of Clay Holding included in the financial statements of Clay
Holding at and for the year ended December 31, 1994, audited and
reported upon by the Accounting Firm.
1.39 "Non-Hold-Back Stock" means the Shares, except for the
shares of Hold-Back Stock.
1.40 "Plan Participants" means those employees of the Clay
Companies who are participants under the ESOP.
1.41 "Proxy Material" means the prospectus of Top Air and
proxy or information statement and related materials of Clay
Holding included in the Registration Statement to be mailed to the
ESOP Trustee and the Plan Participants, giving notice of the
Special Meeting, describing and disclosing the material aspects of
the Transaction to be voted on, and describing the Distribution.
1.42 "Real Property" means the real property, consisting of
approximately 10.8 acres located in Black Hawk County, City of
Cedar Falls, Iowa, as more particularly described in Schedule 4.22,
-------------
and all improvements thereon, including Clay Equipment's current
manufacturing facility and corporate offices, commonly known and
numbered as 101 Lincoln Street, Cedar Falls, Iowa.
1.43 "Registration Statement" is defined in Section 13.01.
1.44 "Relocation Expense Award" means that portion of the
Condemnation Award attributable to the relocation of the machinery,
equipment and other fixed assets from the Real Property (which
presently houses Clay Equipment's facility) to the New Facility.
1.45 "Securities Act" means the Securities Act of 1933, as
amended.
1.46 "Shares" means those shares of Top Air no par value
common stock, to be issued and delivered by Top Air pursuant to
Section 2.02, subject to the preclosing adjustment provided in
Section 3.01.
1.47 "Special Meeting" means the meeting of the stockholders
of Clay Holding called for the purpose of approving the
Transaction.
1.48 "Transaction" means the acquisition by Top Air of the
Transferred Assets in exchange for the Shares and the assumption by
Top Air of the Assumed Liabilities pursuant to this Agreement.
6
<PAGE> 12
1.49 "Transferred Assets" means all of the Assets except the
Excluded Assets.
1.50 "Union Contract" means the contract dated February 4,
1991 between Clay Equipment and Local 1728 of the International
Association of Machinists and Aerospace Workers.
II. TRANSFER OF ASSETS.
------------------
2.01 Transfer of Assets. At the Closing, and subject to the
------------------
terms, provisions and conditions of this Agreement, and in reliance
on the representations, warranties and covenants contained herein,
Clay Equipment shall transfer, convey and assign to Top Air, and
Top Air shall acquire, the Transferred Assets in exchange for the
Shares (subject to Section 3.02) and the assumption by Top Air of
the Assumed Liabilities.
2.02 Transfer of Top Air Shares. At the Closing, Top Air
--------------------------
shall deliver to Clay Holding and to the Escrow Agent certificates
representing the lesser of (a) 750,000 Shares, or (b) that number
of Shares (rounded to the nearest full share), having an aggregate
Market Value at Closing of One Million Dollars ($1,000,000). Such
certificates shall be issued in the name of Clay Holding, Top Air
having been advised by Clay Equipment that in furtherance of the
Distribution, Clay Equipment has authorized the distribution of the
Shares, as received, to its sole stockholder, Clay Holding. The
certificate(s) representing the Non-Hold-Back Stock will be
delivered directly to Clay Holding, and the certificate(s)
representing the Hold-Back Stock will be delivered to the Escrow
Agent pursuant to Sections 2.04(c) and 3.02.
2.03 Assumption of Liabilities. At the Closing, Top Air
-------------------------
shall assume and agree to pay, discharge or perform, as
appropriate, the Assumed Liabilities of Clay Equipment. Such
agreement by Top Air shall be evidenced by the Assumption Agreement
in the form attached hereto as Schedule 2.03. Unless otherwise
-------------
required by law, in no event shall Top Air assume or incur any
liability or obligation under this Section 2.03 or under any other
provision of the Agreement in respect of any of the following:
(a) any liabilities or obligations arising out of or in
connection with the operation of the Real Estate,
including, without limitation, any liability
arising out of a breach or violation of any
Environmental Laws, and any liability or obligation
under or in connection with any other Excluded
Asset;
(b) liabilities or obligations arising out of any
breach by Clay Equipment of any provision of any
agreement, contract, commitment or lease, including
but not limited to liabilities or obligations
7
<PAGE> 13
arising out of Clay Equipment's failure to perform
any agreement, contract, commitment or lease in
accordance with its terms prior to the Closing;
(c) any product liability or similar claim for injury
to person or property, regardless of when made or
asserted, which arises out of or is based upon any
express or implied representation, warranty,
agreement or guarantee made by Clay Equipment, or
alleged to have been made by Clay Equipment, or
which is imposed or asserted to be imposed by
operation of law, in connection with any service
performed or product sold or leased by or on behalf
of Clay Equipment on or prior to the Closing,
including without limitation any claim related to
damages or personal injury caused as a result of
any defective product, the return or replacement of
defective products or any claim seeking recovery
for consequential damage, lost revenue or income;
(d) any federal, state or local income or other tax (i)
payable with respect to the Business, Assets,
properties or operations of Clay Equipment or Clay
Holding for any period prior to the Closing Date;
or (ii) incident to or arising as a consequence of
the negotiation or consummation by Clay Equipment
and the transactions contemplated hereby;
(e) any liability or obligation arising prior to or as
a result of the Closing to any employee (including,
without limitation, any obligations to employees
under the Union Contract), agent or independent
contractor of Clay Equipment, whether or not
employed by Top Air after the Closing, or under any
benefit arrangement with respect thereto;
(f) any liability or obligation of Clay Equipment or
Clay Holding arising prior to the Closing related
to any violation of any Environmental Law, whether
or not disclosed in any Schedule hereto;
(g) any liability, damages, costs or expenses arising
from or in connection with those matters described
on Schedule 4.10;
(h) the Union Contract; or
(i) any obligation to the ESOP or to any Plan
Participant (including, without limitation, any
obligation under, arising from or in any manner
related to that certain promissory note made by the
8
<PAGE> 14
ESOP evidencing indebtedness incurred by the ESOP
and owing to Clay Equipment).
2.04 Transactions at Closing. At the Closing:
-----------------------
(a) to the extent not then performed, Clay Holding will
amend and terminate the ESOP in accordance with
Article XI hereof;
(b) Clay Equipment will deliver to Top Air full
possession of the Transferred Assets and such
bill(s) of sale, endorsements, assignments and
other good and sufficient instruments of sale,
conveyance, transfer and assignment, all containing
covenants of general warranty, in form and
substance satisfactory to Top Air (including,
without limitation, a Bill of Sale and Assignment
in the form of Schedule 2.04), as will be required
-------------
or as may be desirable in the opinion of Top Air's
counsel in order to effectively vest in Top Air
full, indefeasible, merchantable, legal, equitable
and beneficial title to the Transferred Assets with
full substitution and subrogation to all rights and
actions of warranty, free and clear of all debts,
claims, security interests, liens, encumbrances and
other title retention agreements, pledges,
assessments, covenants, restrictions and charges of
every nature, except for those shown on Schedule
--------
4.04, and will assign the Assigned Contracts to Top
----
Air;
(c) Top Air will deliver the Hold-Back Stock to the
Escrow Agent (and Clay Holding will deliver
appropriate irrevocable stock powers, fully
endorsed in blank, with respect to the Hold-Back
Stock) and will deliver the Non-Hold-Back Stock to
Clay Holding;
(d) Top Air will assume the Assumed Liabilities
pursuant to an assumption agreement in the form of
Schedule 2.04(d);
----------------
(e) Clay Holding will distribute the Non-Hold-Back
Stock to the ESOP, together with an assignment of
its rights to receive shares of Hold-Back Stock to
the extent and at such time as such shares are
distributed to Clay Holding by the Escrow Agent,
free of escrow; and
(f) the parties shall perform all of the other
obligations required to be performed by them
hereunder on or before the Closing.
9
<PAGE> 15
III. ADJUSTMENT; HOLD BACK.
---------------------
3.01 Preclosing Adjustment. The number of Shares to be
---------------------
delivered by Top Air at Closing shall be adjusted upward to reflect
one-half of the amount by which the Condemnation Award (excluding
the Relocation Expense Award) exceeds the sum of Five Hundred
Thousand Dollars ($500,000.00) based on the Market Value of the
Shares. By way of illustration only, if the Condemnation Award is
$550,000.00, and the Market Value of the Shares is $1.00 per share,
25,000 additional shares be shall delivered by Top Air at Closing
($50,000 times 1/2 divided by $1.00 per share).
3.02 Hold Back. To secure the rights of Top Air under
---------
Section 10.01 hereof, at the Closing, the shares of Hold-Back Stock
shall be deposited with the Escrow Agent, together with separate
stock powers endorsed in blank, to be held by the Escrow Agent
pursuant to the terms of the Escrow Agreement to be executed by the
parties hereto and the Escrow Agent.
IV. WARRANTIES AND REPRESENTATIONS OF CLAY COMPANIES.
------------------------------------------------
Each of the Clay Companies, jointly and severally, hereby
represent and warrant to, and covenant and agree with, Top Air as
follows:
4.01 Organization and Standing of Clay Equipment. Clay
-------------------------------------------
Equipment is a corporation duly organized, validly existing and is
in good standing with respect to the conduct of the Business under
the corporate and other laws of the State of Iowa and has all
necessary power and authority to own its assets as now owned and to
carry on its Business as now being conducted. Clay Equipment is
duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its Business or the ownership
of its property requires Clay Equipment to be so qualified.
4.02 Organization and Standing of Clay Holding. Clay
-----------------------------------------
Holding is a corporation duly organized, validly existing and is in
good standing with respect to the conduct of its business under the
corporate and other laws of the State of Iowa and has all necessary
power and authority to own its assets as now owned and to carry on
its business as now being conducted. Clay Holding is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or the ownership
of property by Clay Holding requires it to be so qualified.
4.03 Authority. Clay Equipment and Clay Holding each has
---------
full power and authority to enter into this Agreement and, subject
to the obtaining of the approval of the Transaction by the ESOP
Trustee, to consummate the transactions contemplated hereby, which
have been duly authorized by all proper and necessary corporate and
other action on the part of Clay Equipment and Clay Holding, and,
subject to the obtaining of the approval of the ESOP Trustee, no
10
<PAGE> 16
further authorization, consent or approval of Clay Equipment, its
board of directors, Clay Holding or its Board of Directors, or of
any regulatory body or third party is required as a condition to
the validity of this Agreement or to give effect to the
transactions contemplated hereby. This Agreement constitutes a
valid and binding agreement of each of the Clay Companies and is
enforceable against them in accordance with its terms.
4.04 Good Title and Condition of Assets. Except for the
----------------------------------
indebtedness of Clay Equipment to Mercantile Bank of Northern Iowa
(the "Bank Debt") pursuant to three promissory notes numbered 9006,
9007 and GP-597,782 in the respective original principal amounts of
$485,000, $450,000 and $940,000 and the indebtedness of Clay
Equipment to Black Hawk County Economic Development Committee, Inc.
(the "County Debt") in the amount of $50,000 and the indebtedness
of Clay Equipment to the City pursuant to two promissory notes in
the respective principal amounts of $50,000 and $90,000 (the "City
Debt") (the Bank Debt, the County Debt and the City Debt are
collectively referred to as the "Lender Debt"), all of which
indebtedness is secured by the Assets (the "Lender Liens"), as more
fully set forth in Schedule 4.04(a), Clay Equipment has good and
----------------
marketable title to and interest in all of the Transferred Assets.
Except for the Lender Liens and those liens shown in Schedule
--------
4.04(a), the Transferred Assets are free and clear of restrictions
- -------
on or conditions to transfer or assignment, and free and clear of
all mortgages, conditional sales agreements, liens, pledges,
charges, encumbrances, claims, security interests, easements,
covenants, conditions or restrictions. At Closing, Clay Equipment
shall convey to Top Air good and marketable title to and interests
in the Transferred Assets, free and clear of all restrictions on or
conditions to transfer or assignment, mortgages, conditional sales
agreements, liens, pledges, charges, encumbrances, claims, security
interests, easements, covenants, conditions and restrictions,
except for the those liens shown on Schedule 4.04(a). Except as
----------------
listed on Schedule 4.04(a), all of the tangible personal property
----------------
constituting a part of the Transferred Assets is in good operating
condition and repair, ordinary wear and tear excepted, and conforms
to all applicable laws, ordinances and regulations. Schedule
--------
4.04(b) sets forth the unpaid principal balance of the Bank Debt,
- -------
the County Debt and the City Debt as of March 31, 1995.
4.05 Financial Statements. The consolidated balance sheet
--------------------
of the Clay Companies at December 31, 1994 and the income and
expense statement for the year then ended, audited and reported
upon the Accounting Firm, are attached hereto as Schedule 4.05 (the
-------------
"Financial Statements"). Clay Equipment has provided and will
continue to provide Top Air with comparable financial statements
for each calendar month concluding with the financial statement for
the calendar month immediately preceding the Closing Date (the
"Operating Reports"). Except as expressly stated on Schedule 4.05,
-------------
the Financial Statements and Operating Reports have been and will
continue to be prepared in accordance with generally accepted
11
<PAGE> 17
accounting principles and practices consistently applied, are, and
will continue to be, accurate and complete, and fairly represent
and will continue to fairly represent the financial condition of
the Clay Companies and the income, expenses and results of
operations of the Clay Companies, for the time period(s) covered
thereby, and do not, and will not, omit to state or reflect any
material fact concerning the Clay Companies or the Business
required to be stated or reflected therein or necessary to make the
statements therein not misleading. Clay Equipment has no
outstanding or potential unasserted claims, contingent obligations
(whether as a guarantor, indemnitor, surety, accommodation party or
otherwise), liability for taxes or forward or long-term commitments
or obligations, except as set forth in the Financial Statements,
the Operating Statements or as set forth in the Schedules to this
Agreement.
4.06 Absence of Changes.
------------------
(a) Since December 31, 1994, there has not been
any:
(i) transaction by Clay Equipment except in the
ordinary course of business as theretofore conducted;
(ii) adverse change in the financial condition,
Assets, Business or prospects of Clay Equipment;
(iii) amendment or termination of any contract,
agreement or license to which Clay Equipment is a
party, except for the termination of contracts and
agreements in the ordinary course of business, none of
which are material, individually or in the aggregate,
to the continued conduct of the Business of Clay
Equipment as heretofore conducted;
(iv) mortgage, pledge or other encumbrance of, or the
granting of any security interest or lien with respect
to, any of the Assets; or
(v) any other event or condition of any character
that has had or in the future may have a materially
adverse affect on the financial condition, Business,
Assets or prospects of Clay Equipment or the Business
as heretofore conducted.
(b) Since December 31, 1994, Clay Equipment has not
had any customer account to which Clay Equipment had sales in
the Business in excess of $50,000 during the year then ended
which ceased doing business with Clay Equipment or advised
Clay Equipment that it intended to cease doing business with
Clay Equipment or substantially reduce the amount of business
it does or proposes to do with Clay Equipment. There are no
12
<PAGE> 18
bids currently outstanding to customers or proposed customers
of Clay Equipment.
4.07 Payment of All Debts and Liabilities. On or prior to
------------------------------------
the Closing Date, Clay Equipment shall have paid or provided for
the payment of all accounts, debts, bills and liabilities of Clay
Equipment which are or subsequent to the Closing could become a
lien or encumbrance on or result in a security interest in the
Transferred Assets or otherwise affect the use of the Transferred
Assets subsequent to the Closing.
4.08 No Conflicting Agreements or Orders. There is no
-----------------------------------
provision of the Articles of Incorporation or By-laws of Clay
Equipment or Clay Holding, or of any mortgage, indenture, lease,
contract, security agreement, document, instrument, license or
agreement binding on either of the Clay Companies or affecting
their properties, or of any federal, state or local law, rule or
regulation, which conflicts with or in any way prevents or will be
violated by the execution, delivery or carrying out of the terms of
this Agreement, the consummation of the Transaction or the
Distribution, nor will such execution, delivery or consummation
constitute a default, or an event which with the giving of notice
or the passage of time, or both, would constitute a default, under
any of the foregoing, nor be the grounds for the suspension,
revocation, impairment, forfeiture, nonrenewal or termination of
any license, permit, franchise, certificate, consent or
authorization. The execution, delivery or consummation of this
Agreement will not constitute or result in: (a) the creation or
imposition of a security interest in or any lien, charge or
encumbrance on, or give to others any interest or right in or with
respect to, any of the Transferred Assets, or (b) a complete or
partial withdrawal from any employer or multi-employer/employee
benefit plan under ERISA or any funding deficiency or lien under
ERISA or any other law, rule or regulation against the Transferred
Assets. Neither of the Clay Companies is subject to any order,
writ, injunction, decree, judgment, award, determination, direction
or demand of any court, arbitrator, or federal, state, municipal or
other governmental department, bureau, agency or instrumentality
which would be violated by the execution, delivery or carrying out
of the terms of this Agreement, or the consummation of the
Transaction or the Distribution.
4.09 Compliance. Except as set forth in Schedule 4.09, Clay
---------- -------------
Equipment has conducted its Business and maintained its properties,
including all owned real property and the real property covered by
leases, in compliance with, and is not in violation of, applicable
laws, rules, regulations and orders of federal, state and local
governments and regulatory bodies (including, without limitation,
any and all applicable building, zoning and licensing laws,
ordinances, regulations or orders affecting the location, size and
function of the Assets and all Environmental Laws). Clay Equipment
has not received any claim or notice that Clay Equipment has not
13
<PAGE> 19
complied in all respects in the operation of its Business and
related properties with such laws, rules and regulations. Clay
Equipment has all licenses, permits and consents required to be
obtained from federal, state, county or municipal authorities with
respect to the ownership or use of the Assets or the operation of
the Business or otherwise, a complete list of which is set forth in
Schedule 4.09.
- -------------
4.10 Litigation. Except as set forth in Schedule 4.10, no
---------- -------------
suit, action, decree, arbitration or legal, administrative or other
proceeding, controversy or investigation is pending or threatened
against Clay Equipment, or which otherwise might materially affect
the Business or financial condition of Clay Equipment or any of the
Assets, Clay Equipment's right to transfer the same, the possession
and use thereof or the operation by Top Air of a business similar
to that heretofore conducted by Clay Equipment. To the knowledge of
Clay Equipment, and except for the contemplated Condemnation
Proceeding and without notice to the contrary, there is no basis
for any such litigation, proceeding, controversy or investigation.
Clay Equipment is not in default with respect to any order, writ,
injunction or decree of any federal, state, local or foreign court,
department, agency or instrumentality, nor has the time period of
Clay Equipment's compliance with respect to any of the same been
extended or stayed. Clay Equipment is not presently a party to any
legal action to recover moneys due to Clay Equipment or damages
sustained by Clay Equipment.
4.11 Condition of Clay Equipment. Since December 31, 1994,
---------------------------
Clay Equipment has kept its Business and its organization intact;
has kept available the services of its principal managerial and
supervisory employees and agents; has maintained the good will of
its customers; and has conducted its Business in the same manner as
it had been conducted prior to that date.
4.12 Employment Agreements. Except as disclosed on Schedule
--------------------- --------
4.12 hereof, Clay Equipment has not entered into, and has no
- ----
obligation or liability with respect to, any employment or
consulting agreement, executive compensation plan, collective
bargaining agreement, deferred compensation agreement, bonus plan,
employee pension plan or retirement plan, employee profit sharing
plan, employee stock purchase or stock option plan, severance
agreement or any other agreement or arrangement providing for
remuneration or benefits to employees or their dependents.
4.13 Labor Relations. Clay Equipment has complied with all
---------------
applicable laws, rules and regulations relating to the employment
of labor, including those relating to wages (including overtime),
benefits (including vacation), hours, employee safety or other
conditions of employment, collective bargaining and the withholding
and payment of taxes. Clay Equipment has withheld all amounts
required by law or agreement to be withheld from the wages or
salaries of its employees, and is not liable for any arrears of
14
<PAGE> 20
wages or any tax or penalties for failure to comply with the
foregoing. Clay Equipment has paid over, and will pay over, to the
appropriate governmental agencies or depositories, at the time or
times required by law (without any extensions or stays), all
"employment taxes" and "withholding taxes." There are no labor
disputes, controversies, grievances, strikes, work slowdowns or
stoppages, nor are there any proceedings before any court,
governmental agency or arbitrator relating to such matters,
including unfair labor practice claims, existing, pending or
threatened against Clay Equipment or between Clay Equipment and any
of its employees or any union representing or claiming to represent
any such employees, and except as described in Schedule 4.10, no
-------------
discharge has occurred which forms the basis for any claim of
discrimination against Clay Equipment.
4.14 Taxes. Except as set forth in Schedule 4.14, Clay
----- -------------
Holding has filed all federal, state and local tax returns and
estimates required to be filed by Clay Holding, which returns were
filed on a consolidated basis to include Clay Equipment within the
times and in the manner prescribed by law. Clay Equipment has
delivered to Top Air true and complete copies of the federal income
tax returns of Clay Holding for the three (3) years ended December
31, 1992, 1993 and 1994 and the results of the most recent audit of
Clay Holding's tax returns, if any, by the Internal Revenue Service
and the State of Iowa. There are no pending audits with respect to
such returns. No waiver or extension of any filing or payment date
or of any statute of limitations with respect to taxes has been
requested of or given by Clay Equipment or Clay Holding. No claims
have been asserted or threatened for taxes against Clay Equipment,
Clay Holding or the Transferred Assets. Clay Equipment and/or Clay
Holding have accrued on their books and records all taxes, charges
and assessments accruing on the Assets, the Business or the
operation thereof which are presently payable. Except as set forth
in Schedule 4.14, all taxes which are due and payable or will
-------------
become due and payable by Clay Holding and by Clay Equipment prior
to the Closing Date have been, or prior to the Closing Date will
be, paid in full or fully provided for and will be paid by Clay
Equipment or Clay Holding.
4.15 Name of Company. Clay Equipment is the sole legal
---------------
owner of, and uses, those trade names listed on Schedule 4.15
-------------
(collectively, the "Names"), and the use of the Names does not
conflict with the rights of others. At Closing, Clay Equipment
will assign each of the Names to Top Air. Clay Equipment agrees to
change its name immediately following the Closing and thereafter
not to use the Name or any name similar to "Clay Equipment
Corporation," and consents and agrees to the use of such name by
Top Air or any affiliate of Top Air subsequent to the Closing.
4.16 Inventory. The inventories contained in the
---------
Transferred Assets consist of items of a quality and quantity
currently usable and saleable in the ordinary course of business.
15
<PAGE> 21
None of Clay Equipment's inventories are held by Clay Equipment on
consignment from others.
4.17 Leases. Except as set forth on Schedule 4.17, no
------ -------------
personal or real property used by Clay Equipment in connection with
the Business is held under any lease. Each of the leases
identified on Schedule 4.17 is currently in full force and effect.
-------------
Neither Clay Equipment nor, to the knowledge of Clay Equipment and
without notice to the contrary, any other party to such lease is in
default, nor to the knowledge of Clay Equipment and without notice
to the contrary has any event occurred, nor does any condition
exist, which with the giving of notice or the passage of time, or
both, would constitute a default thereunder.
4.18 Insurance. Clay Equipment has maintained and now
---------
maintains (a) "all risk" insurance on the full fair market value of
all of the Assets and on its Business, covering property damage by
fire or other casualties, and (b) adequate insurance protection
against all other liabilities, claims and risks against which it is
customary to insure. Clay Equipment has included a true and
correct copy of all such insurance policies in Schedule 4.18. All
-------------
such policies of insurance shall be in form and substance
satisfactory to Top Air with insurers reasonably recognized as
adequate by Top Air and all such policies shall be in such amounts
as may be reasonably satisfactory to Top Air.
4.19 Other Contracts. Except as listed on Schedule 4.19,
--------------- -------------
Clay Equipment is not a party to, nor is the property of Clay
Equipment bound by, any agreement not entered into in the ordinary
course of business, any indenture, mortgage, deed of trust, lease
or any other agreement between Clay Equipment and any third party
relating to the Transferred Assets or the Business of Clay
Equipment. There is no default of Clay Equipment or event that
with notice or lapse of time, or both, would constitute a default
nor, to the knowledge of Clay Equipment any default or threatened
default by any other party thereto, existing with respect to any of
such agreements. Clay Equipment has received no notice that any
party to any of such agreements intends to cancel or terminate any
of such agreements or to exercise or not exercise any options under
any of such agreements. Clay Equipment is not a party to, nor is
Clay Equipment or the Assets bound by, any agreement that is
materially adverse to the Assets or the business of Clay Equipment.
4.20 Documents. Clay Equipment has furnished to Top Air for
---------
its examination: (a) copies of all agreements, policies, leases,
and other instruments and documents listed on the Schedules
attached hereto and (b) copies of all tax receipts (including
receipts for the payment of sales taxes) for all taxes required to
be paid by Clay Equipment for three (3) years prior to the Closing
Date, each of which shall be in form and substance reasonably
acceptable to Top Air.
16
<PAGE> 22
4.21 Suppliers. Attached hereto as Schedule 4.21 is a list
--------- -------------
of the suppliers of goods and services to Clay Equipment as of the
date of this Agreement and for the year ended December 31, 1994.
4.22 Real Property. Schedule 4.22 contains a complete and
------------- -------------
accurate legal description of each parcel of real property owned by
or leased to Clay Equipment, including the Real Property. Clay
Equipment does not own or lease any real property nor use any real
property in the conduct of its Business other than the real
property described in Schedule 4.22. The use of such property in
-------------
Clay Equipment's Business as heretofore used does not violate or
encroach upon the rights of any other party.
4.23 Customers; Accounts Receivable.
------------------------------
(a) No customer of Clay Equipment accounted for
more than 10% of Clay Equipment's sales during the 12 month
period ended December 31, 1994. Clay Equipment has provided
Top Air with a list of Clay Equipment's customers (the
"Closing Customer List") and the amount of purchases of each
of them for such period.
(b) Clay Equipment has delivered to Top Air a
current aged list of unpaid accounts receivable owing to Clay
Equipment (the "Accounts Receivable Schedule"), and will
deliver to Top Air, as of the close of business on the Balance
Sheet Date (the "Closing Accounts Receivable") and as of the
Closing Date, such updates of the Accounts Receivable Schedule
and other information pertaining to the accounts receivable of
Clay Equipment, certified as correct by Clay Equipment. The
Accounts Receivable Schedule and any such updates thereto or
other related information provided to Top Air set forth or
will set forth a true and correct list of all Accounts
Receivable as of the respective dates thereof. The Accounts
Receivable are, and the Closing Accounts Receivable will be,
legal, valid and binding claims, do not reflect any goods
placed on a consignment or other basis whereby payment is
conditional, and are and will be fully collectible in the
ordinary course of business in accordance with their terms,
without litigation or other collection expenses, within 180
days of the Closing Date at the full face value thereof, and
are not subject to any counterclaim or right of set off.
4.24 ERISA.
-----
(a) List of Plans. Set forth in Schedule 4.24
------------- -------------
attached hereto is an accurate and complete list of all
employee benefit plans ("Employee Benefit Plans") within the
meaning of Section 3(3) of ERISA, whether or not any such
Employee Benefit Plans are otherwise exempt from the
provisions of ERISA, established, maintained or contributed to
or by Clay Equipment or any of its subsidiaries (including,
17
<PAGE> 23
for this purpose and for the purpose of all of the
representations in this Section 4.24, all employers (whether
or not incorporated) which by reason of common control are
treated together with Clay Equipment, any of its subsidiaries
and/or Clay Holding as a single employer within the meaning of
Section 414 of the Code.
(b) Status of Plans. Neither Clay Holding nor any
---------------
of its subsidiaries maintain or contribute to any Employee
Benefit Plan subject to ERISA which is not, or in the past has
not been, in substantial compliance with ERISA, or which has
incurred any accumulated funding deficiency within the meaning
of Section 412 or Section 418B of the Code, or which has
applied for or obtained a waiver from the Internal Revenue
Service of any minimum funding requirement under Section 412
of the Code. Clay Equipment has not incurred any liability to
the Pension Benefit Guaranty Corporation ("PBGC") in
connection with any Employee Benefit Plan covering any
employees of Clay Equipment or any such subsidiaries,
including any liability under Section 4069 of ERISA and any
penalty imposed under Section 4071 of ERISA, or ceased
operations at any facility or have withdrawn from any such
plan in a manner which could subject it to liability under
Sections 4063, 4064 or 4068(f) of ERISA, and know of no facts
or circumstances which might give rise to any liability of
Clay Equipment or any of its subsidiaries to the PBGC under
Title IV of ERISA which could reasonably be anticipated to
result in any claims being made against Top Air by the PBGC.
Neither Clay Equipment nor any of its subsidiaries have
incurred any withdrawal liability (including any contingent or
secondary withdrawal liability) within the meaning of Sections
4201 and 4204 of ERISA, to any Employee Benefit Plan which is
a "Multiemployer Plan" (as such term is defined in Section
4001(a)(3) of ERISA), and no event has occurred, and there
exists no condition or set of circumstances, which presents a
risk of the occurrence of any withdrawal from or the
partition, termination, reorganization or insolvency of any
Multiemployer Plan which could result in any liability to a
Multiemployer Plan.
Clay Equipment does not maintain any Employee Benefit
Plan which is a "Group Health Plan" (as such term is defined
in Section 162(i)(3) of the Code) that has not been
administered and operated in all material respects in
compliance with the applicable requirements of Section 601 of
ERISA and Section 162(k) of the Code and neither Clay
Equipment nor any subsidiary are subject to any liability,
including, but not limited to, additional contributions,
fines, penalties or loss of tax deduction as a result of such
administration and operation. Neither Clay Holding nor any of
its subsidiaries maintain any Employee Benefit Plan (whether
qualified or nonqualified within the meaning of Section 401(a)
18
<PAGE> 24
of the Code) providing for retiree health and/or life benefits
and having unfunded liabilities. Neither Clay Equipment nor
any of its subsidiaries maintain any Employee Benefit Plan
which is an "Employee Welfare Benefit Plan" (as such term is
defined in Section 3(l) of ERISA) and have provided any
benefit which is a "Disqualified Benefit" (as such term is
defined in Section 4976(b) of the Code) for which an excise
tax would be imposed.
(c) Contributions. Full payment has been made of
-------------
all amounts of which Clay Equipment is required to pay, under
applicable law or under any Employee Benefit Plan or any
agreement relating to any Employee Benefit Plan to which Clay
Equipment is a party, to have paid as contributions thereto as
of the last day of the most recent fiscal year of such
Employee Benefit Plan ended prior to the date hereof. Clay
Equipment has made adequate provision for reserves to meet
contributions that have not been made because they are not yet
due under the term, of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date
as of which documents have been provided.
(d) Relationship of Accrued Benefits to Pension
-------------------------------------------
Plan Assets. As of the date of this Agreement (i) neither
-----------
Clay Equipment nor Clay Holding maintains any Employee Benefit
Plans which are subject to Title IV of ERISA and which are
"Single Employer Plans" (as such term is defined in Section
4001(a)(15) of ERISA); and (ii) using actuarial assumptions
and computation methods consistent with subpart 1 of subtitle
E of Title IV of ERISA, the aggregate liabilities of Clay
Equipment and its subsidiaries to all such Employee Benefit
Plans which are Multiemployer Plans in the event of a complete
withdrawal therefrom, as of the close of the most recent
fiscal year of each Multiemployer Plan ended prior to the date
hereof, would not exceed $50,000. There has been no material
change in the financial condition of any Multiemployer Plan or
in any such actuarial assumption or computation method or in
benefits under any Multiemployer Plan as a result of
collective bargaining or otherwise since the close of each
such fiscal year which, individually or in the aggregate,
would materially increase such liability.
(e) Tax Qualification. Each Employee Benefit Plan
-----------------
intended to be qualified under section 401(a) of the Code has
been determined to be so qualified by the Internal Revenue
Service and nothing has occurred since the date of the last
such determination which resulted or is likely to result in
the revocation of such determination.
(f) Compliance with Tax Reform Act of 1986. Clay
--------------------------------------
Holding and each of its subsidiaries have adopted on a timely
19
<PAGE> 25
basis all amendments to Employee Benefit Plans which are
required by the Tax Reform Act of 1986 and all regulations
promulgated under the Code.
(g) Transactions. No "Reportable Event" (as such
------------
term is defined in Section 4043 of ERISA) for which the 30-day
notice requirement has not been waived by the PBGC has
occurred with respect to any Employee Benefit Plan and neither
Clay Equipment nor any of its subsidiaries have engaged in any
transaction with respect to the Employee Benefit Plans which
would subject it to a tax, penalty or liability for prohibited
transactions under ERISA or the Code nor have any of their
respective directors, officers or employees to the extent they
or any of them are fiduciaries with respect to such plans,
breached any of their responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA or would result in any
claim being made under or by or on behalf of any such plans by
any party with standing to make such claim.
(h) Triggering Events. Except as set forth in
-----------------
Schedule 4.24, the execution of, and consummation of the
transactions contemplated by, this Agreement do not constitute
a triggering event under any Benefit Plan, policy,
arrangement, statement, commitment or agreement, whether or
not legally enforceable, which (either alone or upon the
occurrence of any additional or subsequent event) will or may
result in any payment (whether of severance pay or otherwise),
acceleration, vesting or increase in benefits to any employee
or former employee or director of Clay Equipment or any of its
subsidiaries.
(i) Other Plans. Clay Equipment does not presently
-----------
maintain any employee benefit plan or any other foreign
pension, welfare or retirement benefit, plan other than those
listed in Schedule 4.24. Any foreign pension, welfare or
-------------
retirement benefit plans listed in Schedule 4.24 are in
-------------
compliance with applicable law.
(j) Documents. Clay Holding and Clay Equipment
---------
have delivered or caused to be delivered to Top Air and its
counsel true and complete copies of (i) all Employee Benefit
Plans as in effect, together with all amendments thereto which
will become effective at a later date, as well as the latest
Internal Revenue Service determination letter obtained with
respect to any such Employee Benefit Plan qualified under
Section 401(a) or tax-exempt under Section 501(a) of the Code
and (ii) Form 5500 for the most recent completed fiscal year
for each Employee Benefit Plan required to file such form.
20
<PAGE> 26
4.25 Environmental.
-------------
(a) The operations and activities of Clay Equipment
comply, and have in the past complied, in all respects, with
all Environmental Laws and Regulations. There are no pending
or currently proposed changes to any Environmental Laws and
Regulations which, when implemented or effective, would have
a material adverse effect on the operations of Clay Equipment
or the Business.
(b) Clay Equipment has obtained and is and has been
in full compliance with all requirements, permits, licenses
and other authorizations which are required with respect to
Clay Equipment's operations, as well as the transactions
contemplated hereby under all Environmental Laws and
Regulations. Schedule 4.25 lists each such permit, license or
-------------
other authorization. There are no other such permits,
licenses or other authorizations which are required by any
Environmental Laws and Regulations to be obtained after the
Closing.
(c) There is no civil, criminal, administrative or
other action, suit, demand, claim, hearing, notice of
violation, proceeding, investigation, notice or demand
pending, received, or, to the knowledge of Clay Equipment,
threatened against Clay Equipment relating in any way to any
Environmental Laws and Regulations except as shown in Schedule
--------
4.25.
----
(d) Except as shown in Schedule 4.25, Clay
-------------
Equipment has not caused or experienced any past or present
events, conditions, circumstances, plans or other matters
which: (i) are not in compliance with all Environmental Laws
and Regulations; (ii) may give rise to any statutory, common
law, or other legal liability, or otherwise form the basis of
any material claim, action, demand, suit, proceeding, hearing,
notice of violation or investigation based on or relating to
Hazardous Materials including, without limitation, such
matters relating to any property owned, leased or utilized by
Clay Equipment; (iii) arise from inventory of or waste from
Hazardous Materials; or (iv) arise from any off-site disposal,
release or threatened release of Hazardous Materials.
(e) No asbestos, polychlorinated biphenyls or lead-
based paints are on the Real Property or any other real
property or in any building owned, operated, leased or
utilized by Clay Equipment except as shown in Schedule 4.25.
-------------
(f) No past or present employee of Clay Equipment
has been exposed to any Hazardous Material owned, produced or
utilized except as is anticipated in the normal operation of
the Clay Equipment.
21
<PAGE> 27
(g) Except as shown in Schedule 4.25, Clay
-------------
Equipment, has not received any notice or indication from any
governmental agency or private or public entity advising it
that it is or may be responsible for any investigation or
response costs with respect to a release, threatened release
or cleanup of chemicals or materials produced by, used,
stored, treated, or resulting from any business, commercial or
industrial activities, operations or processes, including,
without limitation, any Hazardous Materials. Clay Equipment
is not aware of any facts which might give rise to such
notice.
(h) Except as shown in Schedule 4.25, no
-------------
underground tanks, piping or subsurface structures of any type
exist or have existed on any real property now or previously
owned, operated, leased or utilized by Clay Equipment.
(i) Schedule 4.25 contains a complete description
-------------
of all environmental investigations, assessments, audits,
studies, tests and related materials in possession of Clay
Equipment, or known to Clay Equipment to exist, which relate
to the current or prior operations of Clay Equipment or any
real property now or previously owned, operated or utilized by
Clay Equipment and Clay Equipment has delivered to Top Air
copies of all of the above.
4.26 ESOP Participant. Schedule 4.26 contains the name of
---------------- -------------
each Plan Participant as of the date hereof (whether or not
currently employed by either of the Clay Companies) and indicates
as to each Plan Participant the number of shares of Clay Holding
common stock allocated to such Plan Participant and the state in
which such Plan Participant resides.
4.27 No Misrepresentation. No representation or warranty
--------------------
made by either Clay Equipment or Clay Holding in this Agreement or
any Schedule hereto contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not
misleading.
V. REPRESENTATIONS AND WARRANTIES OF TOP AIR.
-----------------------------------------
Top Air hereby represents and warrants to, and covenants and
agrees with, each of the Clay Companies as follows:
5.01 Organization and Standing of Top Air. Top Air is an
------------------------------------
Iowa corporation, validly existing and in good standing under the
laws of the State of Iowa.
5.02 Binding Agreement. This Agreement constitutes, and
-----------------
each other instrument to be executed and delivered by Top Air in
accordance herewith will constitute, when executed and delivered
22
<PAGE> 28
pursuant hereto, the valid and legally binding obligations of Top
Air.
5.03 Agreement Within Authority. The execution and delivery
--------------------------
of this Agreement by Top Air, the consummation of the transactions
contemplated hereunder and the performance by Top Air of this
Agreement and the agreements and instruments which are executed and
delivered in connection herewith in accordance with each of their
terms will not (a) violate the Articles of Incorporation or Bylaws
of Top Air, or (b) violate any judgment, order, writ, injunction,
decree or demand against Top Air of any court or federal, state,
municipal or other governmental department, commission, board,
bureau, agency or instrumentality.
5.04 No Conflicting Agreements or Orders. No approval or
-----------------------------------
consent of any foreign, federal, state, county, local or other
governmental or regulatory body is required as a condition to the
validity of this Agreement or to give effect to the transactions
contemplated hereby.
5.05 Corporate Action. The execution and delivery of this
----------------
Agreement by Top Air and the performance of all acts contemplated
to be performed by it hereunder have been duly authorized by all
necessary corporate action. Top Air has duly executed and
delivered this Agreement and the agreements or instruments which
are executed in connection herewith.
5.06 No Conflict. The execution and delivery of this
-----------
Agreement and each other instrument to be executed by Top Air in
accordance herewith and the consummation of the transactions
contemplated herein by Top Air will not conflict or be inconsistent
with or result in the termination of or constitute a breach of or
default under the terms of any indenture, mortgage, deed of trust,
covenant, agreement or other instrument to which Top Air is a party
or to which its property is subject.
5.07 No Misrepresentation. No representation or warranty
--------------------
made by Top Air in this Agreement or any Exhibit or Schedule hereto
contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the
statements contained herein and therein not misleading.
5.08 Shares Validly Issued. The Shares, when issued
---------------------
pursuant to and as contemplated by the Agreement in exchange for
the Transferred Assets, will be validly issued, fully paid and
nonassessable, and free and clear of all liens, encumbrances and
restrictions, except as contemplated herein.
VI. COVENANTS OF TOP AIR.
--------------------
6.01 Information. In the event the Transaction is not
-----------
consummated for any reason, all copies of non-public proprietary
23
<PAGE> 29
documents and information provided to Top Air by Clay Equipment or
Clay Holding hereunder shall be returned to Clay Equipment by Top
Air, and Top Air shall maintain the same in confidence and shall
not disclose or utilize the same except with the consent, or for
the benefit, of Clay Equipment.
6.02 Satisfaction of Assumed Liabilities. After Closing,
-----------------------------------
Top Air shall pay, perform and discharge, and shall indemnify Clay
Equipment with respect to, the Assumed Liabilities and shall
promptly pay any amount thereof determined to be due. Top Air,
however, shall have the right to contest in good faith any of such
Assumed Liabilities, and Clay Equipment shall cooperate fully with
Top Air in connection with any such contest. In the event that Top
Air does so contest any of the Assumed Liabilities, Top Air will
bear the cost, expense and liability reasonably incurred by Clay
Equipment in connection therewith, including but not limited to
reasonable attorneys' fees.
6.03 Recognition of Collective Bargaining Unit. After
-----------------------------------------
Closing, Top Air covenants and agrees to recognize Local 1728 of
the International Association of Machinists and Aerospace Workers
as the Bargaining Agent of the same group of employees who are
presently included in the Bargaining Unit of Clay Equipment.
6.04 Credit for Prior Service. After Closing, Top Air
------------------------
covenants and agrees with respect to employees of Clay Equipment
employed by Top Air to recognize service with Clay Equipment for
purposes of participation, vesting and for all other purposes under
Top Air employee benefit plans.
6.05 Rollover of 401(k) Accounts. After Closing, Top Air
---------------------------
covenants and agrees that all employees of Clay Equipment who have
accounts in the Clay Equipment Corporation 401(k) Plan will be
given the opportunity to roll their accounts into the Top Air
Manufacturing 401(k) Plan.
VII. COVENANTS OF CLAY COMPANIES PENDING CLOSING.
-------------------------------------------
Pending Closing, each of the Clay Companies, jointly and
severally, covenant and agree as follows:
7.01 Access to Information. Top Air and its counsel,
---------------------
accountants and other representatives shall have full access during
normal business hours to all properties, books, accounts, records,
agreements and documents of or relating to the Business. Clay
Equipment shall furnish or cause to be furnished to Top Air and its
counsel, accountants and representatives all data and information
concerning the operations, finances and assets of Clay Equipment
requested by Top Air, including, without limitation, the updating
of any of the Schedules attached hereto.
24
<PAGE> 30
7.02 Maintain Properties. Clay Equipment shall maintain the
-------------------
Assets on a current basis and in customary repair, order and
condition.
7.03 Maintain Organization. Clay Equipment shall keep its
---------------------
organization intact, keep available the services of its employees
and maintain the relationship and goodwill of its customers.
7.04 Regular Course of Business. Clay Equipment shall not,
--------------------------
without the prior written consent of Top Air, purchase, sell or
otherwise dispose of any property or assets, or incur any
liability, obligation or commitment or engage in any activity or
transaction, except in the regular and customary course of
business.
7.05 Insurance. Clay Equipment shall cause its policies of
---------
insurance relating to the Business and the Assets of Clay Equipment
to continue to be kept in full force and effect and will refrain
from taking any action which impairs the continued insurability of
the Transferred Assets or the Business.
7.06 Employees. Without the prior written consent of Top
---------
Air, Clay Equipment will not, and will not agree to, enter into or
amend any representation, employment or compensation agreement or
grant any increase or change in the salaries or other compensation
or benefits payable or to become payable by Clay Equipment to any
officer, employee, sales agent or representative of Clay Equipment.
7.07 Business Changes. Clay Equipment will not do or agree
----------------
to do any of the following without the prior written consent of Top
Air:
(a) Enter into any contract, commitment or
transaction not in the usual and ordinary course of Clay
Equipment's Business as heretofore conducted;
(b) Make any material capital expenditure; or
(c) Agree to, modify, amend, cancel or terminate
any of its existing contracts or agreements.
7.08 Consents. As soon as reasonably practical after the
--------
execution and delivery of this Agreement, and in any event on or
before the Closing Date, Clay Equipment will obtain the written
consent of all persons whose consent to the execution of, and
closing of the transactions contemplated by, this Agreement is
required, in form and substance acceptable to Top Air; and Clay
Equipment will furnish Top Air original executed copies of such
consents as they are obtained.
25
<PAGE> 31
7.09 Environmental Audit.
-------------------
(a) Clay Equipment, at its sole cost, shall cause
to be performed a phase 1 environmental audit and such
additional environmental audits as indicated by the phase 1
audit as being necessary and appropriate (collectively,
"Audits") of the Business and Real Property. In the course of
the Audits, Top Air shall conduct such due diligence
inquiries, which it deems necessary to satisfy itself
regarding the environmental conditions of Clay Equipment's
operations and facilities. Clay Equipment shall allow Top Air
access to Clay Equipment's facilities, files and personnel and
will cooperate fully with Top Air in regard to Top Air's
environmental inquiries.
(b) All environmental information, data, results,
audits, studies, reports, and plans, including but not limited
to the Audits, and any drafts thereof, shall be held in
strictest confidence by the parties, their affiliates,
partners, employees, officers, directors, agents, and
contractors, and shall not be released or disclosed without
the prior written consent of Clay Equipment.
VIII. CONDITIONS PRECEDENT TO OBLIGATIONS OF TOP AIR.
----------------------------------------------
The obligations of Top Air hereunder are subject to
fulfillment (or waiver by Top Air), prior to or on the Closing
Date, of the following conditions:
8.01 No Adverse Change. There shall have been no adverse
-----------------
change in or loss or damage to the Transferred Assets or the
Business of Clay Equipment as heretofore conducted.
8.02 Representations, Warranties and Agreements of Clay
--------------------------------------------------
Equipment. The representations, warranties, covenants and
- ---------
agreements of Clay Equipment and Clay Holding herein shall be true
and not breached as of the Closing Date, with the same effect as
though such representations, warranties, covenants and agreements
had been repeated by Clay Equipment and Clay Holding as of the
Closing Date, and all of the obligations of Clay Equipment and Clay
Holding hereunder shall have been duly performed.
8.03 Opinion of Counsel. Top Air shall have received the
------------------
favorable opinion of counsel for the Clay Companies, dated as of
the Closing Date, in the form of Schedule 8.03 and otherwise in
-------------
form and substance reasonably satisfactory to Top Air and Top Air's
counsel. In rendering such opinion, counsel for the Clay Companies
may rely on written certificates of the chief executive officer or
the chief financial officer of Clay Equipment and Clay Holding and
appropriate public officials as to factual matters, provided a copy
thereof is attached to and forms a part of the opinion of counsel
26
<PAGE> 32
with the knowledge and consent of the chief executive officer or
the chief financial officer of Clay Equipment and/or Clay Holding.
8.04 Absence of Litigation. No action, suit or proceeding
---------------------
before any court or any governmental body or authority pertaining
to the Transaction or Distribution or to their consummation or to
the Assets or the Business of Clay Equipment shall have been
instituted or threatened on or before the Closing Date except as
detailed in Schedule 4.10.
-------------
8.05 Corporate Approval. The execution and delivery of this
------------------
Agreement by Clay Equipment and Clay Holding and the performance of
their respective covenants and obligations under it, shall have
been duly authorized by all necessary corporate and other action of
Clay Equipment and Clay Holding, and the ESOP Trustee shall have
approved the Transaction by voting a majority of the outstanding
shares of Clay Holding common stock in favor thereof, and Top Air
shall have received copies of all resolutions pertaining to such
authorization and approval, certified by the Secretary of Clay
Equipment, the secretary of Clay Holding and the ESOP Trustee.
8.06 Consents. All necessary agreements, approvals and
--------
consents (including, without limitation, the approval of the ESOP
Trustee) of any parties to the consummation of the Transaction and
other transactions by the Clay Companies contemplated by this
Agreement, the Distribution or otherwise pertaining to the related
matters covered by this Agreement related to the Clay Companies,
shall have been obtained by the Clay Companies and delivered to Top
Air.
8.07 Officers' Certificate. Top Air shall have received a
---------------------
certificate, dated the Closing Date, signed and verified by the
Chief Executive Officer and Chief Financial Officer of each of Clay
Equipment and Clay Holding certifying, in the form of Schedule 8.07
-------------
hereto, that the conditions specified in this Article VIII have
been fulfilled.
8.08 Approval of Documents. The form and substance of all
---------------------
certificates, instruments, opinions and other documents delivered
to Top Air under this Agreement shall be satisfactory to Top Air
and its counsel.
8.09 Casualty Loss. The Business shall not have been
-------------
curtailed or interrupted by, and the Transferred Assets shall not
have been affected by, any loss, destruction or damage due to fire
or other casualty unless, if any such destruction or damage shall
have occurred, Top Air shall have determined that such loss,
destruction or damage is not of such nature as to curtail or
interrupt the Business of Clay Equipment or determined that
available insurance proceeds are sufficient to repair or replace
any damaged or lost Transferred Assets and Clay Equipment shall
27
<PAGE> 33
have assigned the proceeds of any such insurance to Top Air, which
Clay Equipment agrees to do upon the request of Top Air.
8.10 Satisfactory Review of Clay Equipment's Business and
----------------------------------------------------
the Assets; Inspections. Top Air shall have been given access to
- -----------------------
and been permitted to review the Assets, the Business of Clay
Equipment and such other information as shall have been requested
by Top Air, and Top Air shall be satisfied, in its sole discretion,
with the physical, operating and financial condition of the Assets
and the Business of Clay Equipment.
8.11 Dissenters' Rights. No person entitled to appraisal or
------------------
dissenters' rights shall have asserted such rights.
8.12 Temporary Lease of Real Property. Clay Equipment shall
--------------------------------
have entered into a lease agreement with Top Air for the occupancy
by Top Air of the Real Property in order for Top Air to operate the
Transferred Assets pending occupancy of the New Facility.
8.13 Evidence of Condemnation Award. If not received prior
------------------------------
to Closing, Clay Equipment shall have delivered to Top Air evidence
satisfactory to Top Air of the agreement and obligation of the City
with respect to the amount and payment of the Condemnation Award in
an amount of not less than $500,000.
8.14 Evidence of New Plant Lease. Clay Equipment shall have
---------------------------
delivered to Top Air evidence satisfactory to Top Air of the
commitment of the City and/or other governmental authority to build
the New Facility and to enter into a lease of the New Facility with
Top Air, all on terms and conditions satisfactory to Top Air.
8.15 Refinancing of Lender Debt. Top Air shall have secured
--------------------------
the binding commitment of a financial institution to refinance the
Lender Debt on terms satisfactory to Top Air.
8.16 Minimum Equity. The stockholder's equity, as shown on
--------------
the Closing Balance Sheet and determined in accordance with Section
15.20, is not less than the Minimum Equity.
8.17 Environmental Audit. Top Air shall have received
-------------------
delivery of the Audits described in Section 7.09, and in its sole
and exclusive judgment, the information revealed by the Audits
satisfies Top Air that the use or condition of the Real Property or
the Assets poses no material health or safety hazard, or that the
actual or potential financial exposure for clean up or other
remedial costs would not be material, regardless of who would be
responsible for such hazards or the cleanup and other costs.
8.18 Approval by ESOP Trustee. Top Air shall have been
------------------------
advised by the ESOP Trustee to the effect that all of the matters
referred to in Section 9.08 have occurred.
28
<PAGE> 34
8.19 Roll-Over of Shares. Plan Participants entitled to the
-------------------
distribution of more than ten percent (10%) of the Shares shall
have failed to direct the ESOP Trustee as described in Section
11.01(a)(i).
8.20 Accountants' Letter. Top Air shall have obtained the
-------------------
advice in writing of the Accounting Firm that the Transaction shall
be accounted for as a purchase transaction, which advice shall not
have been withdrawn as of the Closing Date.
IX. CONDITIONS PRECEDENT TO OBLIGATIONS OF CLAY EQUIPMENT.
-----------------------------------------------------
The obligations of Clay Equipment hereunder are conditioned
upon the fulfillment (or waiver by Clay Equipment), prior to or at
the Closing Date, of the following:
9.01 Representations, Warranties and Agreements of Top Air.
-----------------------------------------------------
The representations, warranties, covenants and agreements of Top
Air contained herein shall be true and not breached at and as of
the Closing Date, with the same effect as though such
representations, warranties, covenants and agreements had been
repeated by Top Air at and as of such time, and all of the
obligations of Top Air hereunder shall have been duly performed.
9.02 Opinion of Counsel. Clay Equipment shall have received
------------------
the favorable opinion of counsel for Top Air, dated as of the
Closing Date, in the form of Schedule 9.02 and otherwise in form
-------------
and substance satisfactory to Clay Equipment and Clay Equipment's
counsel. In rendering their opinion, counsel for Top Air may rely
on written certificates of the officers of Top Air and appropriate
public officials as to factual matters, provided a copy thereof is
attached to and forms a part of the opinion of Top Air's counsel
with the knowledge and consent of such officers.
9.03 Performance of Assumed Liabilities. Top Air shall have
----------------------------------
assumed and agreed to perform the Assumed Liabilities from and
after the Closing Date, as provided in Sections 2.03, 2.04 and
6.02.
9.04 Corporate Approval. The execution and delivery of this
------------------
Agreement by Top Air and the performance of Top Air's respective
covenants and obligations under it, shall have been duly authorized
by all necessary corporate and other action of Top Air, and Clay
Equipment shall have received copies of all resolutions pertaining
to such authorization, certified by the Secretary of Top Air.
9.05 Consents. All necessary agreements and consents of any
--------
parties to the consummation of the transactions by Top Air
contemplated by this Agreement, or otherwise pertaining to the
matters covered by it, shall have been obtained by Top Air and
delivered to Clay Equipment.
29
<PAGE> 35
9.06 Top Air's Certificate. Clay Equipment shall have
---------------------
received a certificate, dated the Closing Date, signed and verified
by Top Air's chief executive officer and chief financial officer
certifying, in the form of Schedule 9.06 hereto, that the
-------------
conditions specified in this Article IX (except for Section 9.08)
have been fulfilled.
9.07 Approval of Documents. The form and substance of all
---------------------
certificates, instruments, opinions and other documents delivered
to Clay Equipment under this Agreement shall be satisfactory to
Clay Equipment and its counsel.
9.08 Approval by ESOP Trustee. Clay Equipment shall have
------------------------
been advised in writing by the ESOP Trustee that (i) the Proxy
Material was mailed to all ESOP Participants at least ten days
prior to the Special Meeting, (ii) the Special Meeting was duly
held, (iii) pursuant to the Special Meeting, the ESOP Trustee was
directed to vote in excess of a majority of the allocated shares
held by the ESOP in favor of the transactions contemplated
hereunder, (iv) the ESOP Trustee has voted a majority of the
outstanding shares of the Clay Holding common stock in favor of and
for the approval of the Transaction, and (v) as a result of the
foregoing, the Transaction has been approved by the shareholders of
Clay Holding.
9.09 Registration of Shares. The Registration Statement
----------------------
shall have been declared effective by the Securities and Exchange
Commission and no stop order shall be in effect.
X. INDEMNIFICATION
---------------
This Article sets forth the respects in which Top Air shall be
indemnified by the Clay Companies in the event Top Air shall become
obligated or liable for, or shall discharge, obligations or
liabilities of Clay Equipment and/or in the event of any
misrepresentation or breach of warranty or agreement on the part of
either of the Clay Companies hereunder, and the respects in which
Clay Equipment shall be indemnified by Top Air in the event Clay
Equipment shall become obligated for, or shall discharge, any
liabilities of Top Air in the event of any misrepresentations or
breach of warranty or agreement on the part of Top Air hereunder.
10.01 Indemnification of Top Air by the Clay Companies.
------------------------------------------------
(a) Representations, Warranties, Covenants and
------------------------------------------
Agreements. Each of the Clay Companies, jointly and
----------
severally, agree to indemnify Top Air and hold Top Air
harmless against any and all loss, liability, damage, claim,
cost and expense of any nature whatsoever, including, without
limitation, attorneys' fees, arising from or in connection
with any representation or warranty made by either of the Clay
Companies not being complete, accurate and true at the date of
30
<PAGE> 36
this Agreement and on the Closing Date or the failure by
either of the Clay Companies to fulfill and fully perform each
covenant or agreement on the part of either of the Clay
Companies under this Agreement or under any other instrument
or document executed and delivered by either of the Clay
Companies in connection with the transactions contemplated
hereby, as any of the same may be amended from time to time.
(b) Failure to Discharge Liabilities. Each of the Clay
--------------------------------
Companies, jointly and severally, agree to indemnify Top Air
and hold Top Air harmless against any and all loss, liability,
damage, claim, cost and expense of any nature whatsoever,
including, without limitation, attorneys' fees, arising from
or in connection with: (i) any transferee liability law (other
than the unemployment compensation experience rating of former
employees of either of the Clay Companies), (ii) any payment
or performance made by Top Air to any third party in order to
perform or discharge fully or partially any liability or
obligation of Clay Equipment (except for the Assumed
Liabilities), which Top Air shall have the option or be
required to do, (iii) any judgment or other circumstances
pursuant to which Top Air may be held liable or accountable
for, or the Transferred Assets to be acquired hereunder may be
charged in respect of, any liability or obligation of Clay
Equipment other than the Assumed Liabilities, (iv) the
presence of contaminants, pollutants and other harmful
substances in the premises subject to any lease or occupancy
assumed by Top Air hereunder, and (v) the noncompliance by
Clay Equipment with any Environmental Laws.
(c) Remedies Not Exclusive. The rights and remedies of
----------------------
Top Air provided for in this Article or otherwise in this
Agreement shall be deemed to be cumulative and in addition to
and not in limitation or exclusion of all other rights and
remedies, whether by terms of other provisions of this
Agreement or at law or in equity or otherwise, which may exist
on the part of Top Air by reason of any misrepresentation or
breach of warranty, covenant or agreement on the part of Clay
Equipment or Clay Holding. Such rights and remedies shall be
cumulative and may be exercised at any time or from time to
time, and any failure or delay of Top Air in exercising any
right or remedy at any time shall not constitute a waiver
thereof or restrict its subsequent enforcement or the
enforcement of any other right or remedy of Top Air. In
addition to any other rights and remedies of Top Air hereunder
or otherwise, any amounts due and payable to Top Air by reason
of the obligations of Clay Equipment and/or Clay Holding to
indemnify Top Air and hold Top Air harmless hereunder shall be
subject to a right of setoff and reduction on the part of Top
Air against any amounts due and payable by Top Air to Clay
Equipment hereunder or under any other agreement, at the
discretion and designation of Top Air, in whole or in part.
31
<PAGE> 37
10.02 Indemnification of Clay Equipment by Top Air.
--------------------------------------------
(a) Representations, Warranties, Covenants and
------------------------------------------
Agreements. Top Air agrees to indemnify Clay Equipment and
----------
hold Clay Equipment harmless against any and all loss,
liability, damage, claim, cost and expense of any nature
whatsoever, including, without limitation, attorneys' fees,
arising from or in connection with any representation or
warranty made by Top Air not being complete, accurate and true
at the date of this Agreement and on the Closing Date or the
failure by Top Air to fulfill and fully perform each covenant
or agreement on the part of Top Air under this Agreement
(including, but not limited to, Top Air's failure to discharge
the Assumed Liabilities as and when they become due) or under
any other instrument or document executed and delivered by Top
Air in connection with the transactions contemplated hereby,
as any of the same may be amended from time to time.
(b) Remedies Not Exclusive. The rights and remedies of
----------------------
Clay Equipment provided for in this Article or otherwise in
this Agreement shall be cumulative and in addition to and not
in limitation or exclusion of all other rights and remedies,
whether by the terms of other provisions of this agreement or
at law or in equity or otherwise, which may exist on the part
of Clay Equipment by reason of any misrepresentation or breach
of warranty, covenant or agreement on the part of Top Air
hereunder. Such rights or remedies may be exercised at any
time or from time to time, and any failure or delay of Clay
Equipment in exercising any right or remedy at any time shall
not constitute a waiver thereof or restrict its subsequent
enforcement or the enforcement of any other right or remedy of
Clay Equipment.
10.03 Notice to Indemnifying Party. In the event that any
----------------------------
party may be entitled to, or intends to assert a claim for,
indemnification hereunder, not later than thirty (30) days after
actual notice of any claim or the filing of any action giving rise
to such claim for indemnification, the indemnified party will, if
a claim in respect thereof is to be made against another party or
parties hereto, notify the indemnifying party or parties thereof.
In case any action is threatened or brought against any indemnified
party, and it notifies the indemnifying party or parties thereof,
the indemnifying party or parties will be entitled to participate
in or assume the defense thereof with counsel reasonably
satisfactory to such indemnified party and, after notice of its
election to assume the defense thereof, the indemnifying party or
parties will no longer be liable for any legal or other expense
subsequently incurred by the indemnified party in connection with
the defense thereof; provided, however, that the indemnified party
shall be entitled at all times to participate in the defense of any
such action at its own cost.
32
<PAGE> 38
XI. AMENDMENT AND TERMINATION OF THE ESOP.
-------------------------------------
To effect the Distribution, the Clay Companies will cause the
ESOP to be amended and, contemporaneously with the Closing, to be
terminated and, subject to Section 3.02, the Shares to be
distributed to the Plan Participants, all in accordance with this
Article XI.
11.01 Amendment to ESOP. At or prior to Closing, the Clay
-----------------
Companies will cause the ESOP to be amended so as to provide that
upon the termination thereof: (a) with respect to each Plan
Participant entitled to distribution of the ESOP assets, including
the Shares (initially consisting of the Non-Hold-Back Stock), such
Plan Participant shall either (i) direct the ESOP Trustee in
writing to distribute or "roll-over" his or her ESOP assets to an
"Eligible Retirement Plan" (as defined in Section 402(c)(8)(B) of
the Code), or (ii) make payment to the ESOP Trustee of the amount
required to be withheld for federal tax purposes in respect of the
ESOP assets being distributed to such Plan Participant (currently,
20% of the value of such ESOP assets); (b) for a period of one year
following the Closing Date, none of the Shares distributed to a
Plan Participant or his or her Eligible Retirement Plan will be
transferable or assignable without the prior written consent of Top
Air, except by operation of law, in which case such transfer or
assignment shall not affect the restrictions of this clause (b) on
such Shares in the hands of the transferee or assignee, who will
hold such Shares subject to such restrictions and the certificates
evidencing the Shares will contain an appropriate legend thereon,
and (c) such other amendments reasonably deemed necessary by Top
Air in order to carry out the intent of this Article XI.
11.02 Termination of the ESOP. On or before the Closing, the
-----------------------
Clay Companies will cause the ESOP to be terminated. In addition
to the distribution of the Non-Hold-Back Stock and other ESOP
assets, if any, pursuant to Section 11.01(a), the ESOP will assign
its rights to the Plan Participants with respect to the Hold-Back
Stock so as to require the ESOP to distribute all shares of Hold-
Back Stock in accordance with Section 11.01(a) when, and to the
extent, received by it pursuant to the Distribution.
XII. SPECIAL MEETING OF STOCKHOLDERS.
-------------------------------
In order to satisfy the condition to Closing that the
Transaction be approved by the ESOP Trustee, the Special Meeting
will be held pursuant to this Article XII.
12.01 Preparation of Proxy Materials. Promptly following the
------------------------------
execution of this Agreement, Top Air, with the assistance of the
Clay Companies, shall prepare the Proxy Materials which will
constitute the prospectus of Top Air and the proxy or information
statement of Clay Holding included in the Registration Statement.
33
<PAGE> 39
12.02 The Holding of the Special Meeting. Upon the
----------------------------------
effectiveness of the Registration Statement, Clay Holding shall
mail or cause to be mailed the Proxy Material to the ESOP Trustee
and each of the Plan Participants at least ten days prior to the
date of the Special Meeting, and shall cause the Special Meeting to
be duly held and a vote taken thereat for the approval of the
Transaction. The Board of Directors of Clay Holding shall
recommend the approval of the Transaction and shall use its best
efforts to obtain such approval. Clay Holding shall not permit any
matter to be submitted for shareholder action at the Special
Meeting, other than as contemplated hereunder, without the prior
written consent of Top Air.
XIII. REGISTRATION STATEMENT.
----------------------
13.01 Preparation and Filing of Registration Statement.
------------------------------------------------
Promptly after the execution hereof, Top Air shall prepare and file
as soon as reasonably practicable with the Securities and Exchange
Commission a Registration Statement on Form S-4 (the "Registration
Statement") for the registration of the Shares under the Securities
Act in connection with the Transaction and the Distribution.
13.02 Blue Sky Requirements. Top Air shall take any action
---------------------
required to be taken under any applicable state Blue Sky or
securities laws in connection with the issuance of the Shares and
the Distribution thereof.
XIX. CLOSING AND RISK OF LOSS.
------------------------
14.01 Place and Time. The Closing shall take place on the
--------------
Closing Date at the offices of Top Air, 406 Highway 20 and Dudley
Road, Parkersburg, Iowa 50665, or at such other place as may be
agreed upon by Top Air and Clay Equipment.
14.02 Risk of Loss. The entire risk of loss with respect to
------------
the Transferred Assets will remain on Clay Equipment until the
transactions contemplated hereby are closed.
14.03 Simultaneous Performance. None of the transactions
------------------------
described in Article II will occur unless all such transactions
occur.
14.04 Transfer of Possession. Possession of the Transferred
----------------------
Assets shall be delivered to Top Air at Closing.
XV. MISCELLANEOUS.
-------------
15.01 No Commission. All negotiations on behalf of Clay
-------------
Equipment and Top Air, respectively, relative to this Agreement and
the transactions contemplated hereby have been carried on by Clay
Equipment and Top Air directly between Clay Equipment and Top Air
and without the intervention of any third party, either as the
34
<PAGE> 40
result of any action of Clay Equipment or Top Air, or otherwise, to
the knowledge of Clay Equipment or Top Air, in such manner as to
give rise to any valid claim against Clay Equipment or Top Air for
a finders' fee, brokerage commission or other like payment.
15.02 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of Top Air and the Clay Companies,
respectively, contained herein shall survive the Closing,
regardless of any investigations made by or on behalf of or any
disclosure to Top Air or Clay Equipment, for two (2) years
following the Closing Date.
15.03 Change of Name. Immediately following the Closing,
--------------
Clay Equipment shall change its name to a name other than Clay
Equipment Corporation or any portion thereof or any name similar
thereto.
15.04 Incorporation of Schedules. The Schedules hereto shall
--------------------------
be deemed to be incorporated in and form a part of this Agreement.
15.05 Further Assurances. Each of the parties agrees to do,
------------------
execute, acknowledge and deliver, and cause to be done, executed,
acknowledged and delivered, all such further acts, assignments,
transfers, instruments, documents, deeds and assurances as shall be
required in order to carry out this Agreement and give effect
hereto.
15.06 No Assumption of Clay Equipment's Liabilities. EXCEPT
---------------------------------------------
FOR THE ASSUMED LIABILITIES, TOP AIR DOES NOT HEREBY, OR OTHERWISE,
ASSUME OR AGREE TO DISCHARGE OR PERFORM ANY LIABILITY OR OBLIGATION
OF CLAY EQUIPMENT, AND NO SUCH ASSUMPTION OF ANY LIABILITY OF CLAY
EQUIPMENT SHALL ACCRUE TO TOP AIR BY OPERATION OF LAW OR OTHERWISE.
15.07 Transfer Taxes. All sales, transfer, excise and other
--------------
taxes, if any, payable by reason of the transactions contemplated
hereunder shall be paid by Clay Equipment.
15.08 Notices. Any notice, consent, request, claim or other
-------
communication hereunder shall be in writing and shall be deemed to
have been duly given at the time of mailing by United States
Certified, Registered or Express mail, or by next business day
courier (for example, Federal Express) postage or charges prepaid,
addressed as follows:
If to Top Air:
Steven R. Lind, President
Top Air Manufacturing, Inc.
406 Highway 20
Parkersburg, Iowa 50665
35
<PAGE> 41
with a copy to:
Robert H. Wexler, Esq.
Gallop, Johnson & Neuman, L.C.
16th Floor
101 South Hanley Road
St. Louis, Missouri 63105
If to Clay Equipment:
Leonard J. Hare , President
Clay Equipment Corporation
101 Lincoln Street, Box 729
Cedar Falls, Iowa
with a copy to:
John C. Larsen, Esq.
Redfern, Mason, Dieter, Larsen & Moore
315 Clay Street
Cedar Falls, Iowa 50613
or to such other address as any party may designate by written
notice hereunder.
15.09 Entire Agreement. This Agreement embodies the entire
----------------
Agreement between the parties, and no representations, inducements,
promises or other agreements, oral or otherwise, not embodied
herein, shall be of any force or effect. This Agreement may not be
modified or terminated except in writing signed by the parties
hereto.
15.10 Designation of Top Air as Agent. Clay Equipment hereby
-------------------------------
designates and constitutes Top Air, its officers and agents, as
agents and attorneys-in-fact of Clay Equipment, with power (for the
purposes of collecting sums due to the Top Air hereunder, or for
sales made by Top Air subsequent to Closing) to sign and endorse
the name of Clay Equipment and transfer all checks, drafts, notes,
money orders and other instruments that may come into the
possession of Top Air, granting to Top Air, its officers and
agents, full power to do any and all things necessary to be done as
fully and effectively as Clay Equipment might or could do, in order
to give effect to this Agreement subsequent to the Closing, hereby
ratifying all that Top Air, its officers and agents, shall lawfully
do or cause to be done by virtue hereof. This power of attorney
shall be deemed to be coupled with an interest and shall be
irrevocable.
15.11 Binding Effect. This Agreement shall be binding upon
--------------
and inure to the benefit of the parties and their respective
successors and assigns.
36
<PAGE> 42
15.12 Third Parties. Nothing contained in this Agreement or
-------------
in any instrument or document executed by any party hereto in
connection with the transactions contemplated hereby shall create
any rights in, or be deemed to have been executed for the benefit
of, any person, firm or corporation that is not a party hereto.
15.13 Expenses of the Parties. All expenses involved in the
-----------------------
preparation, authorization and consummation of this Agreement,
including, without limitation, all fees and expenses of agents,
representatives, counsel and accountants in connection therewith,
shall be borne solely by the party who shall have incurred the
same, and no other party shall have any liability in respect
thereof.
15.14 Counterparts. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall
constitute one and the same instrument.
15.15 Iowa Law to Govern. This Agreement shall be governed
------------------
by and interpreted and enforced in accordance with the internal
laws of the State of Iowa, without regard to its conflicts of law
provisions or interpretations.
15.16 Headings. The headings in the Articles and Sections of
--------
this Agreement are inserted for convenience only and shall not
constitute a part hereof.
15.17 Publicity. Neither of the parties shall issue, or
---------
permit any of its representatives to issue, any report, statement
or release or otherwise publicly disclose any information
concerning this Agreement and the transactions contemplated hereby
or by any ancillary agreement, or consummated pursuant hereto or
thereto, without the prior written consent of the other party.
Nothing contained herein shall prevent any party to this Agreement
from furnishing any required information to any governmental entity
or complying with its legal or contractual obligations, in each
case in the opinion of counsel to such party. Top Air and Clay
Equipment shall, as soon as practicable following the execution
hereof, prepare a joint press release regarding this transaction to
be delivered to the news media.
15.18 Mail and Communications. After the Closing, each party
-----------------------
will promptly deliver to the other party the original of any mail
or other communication received by that party but pertaining to the
business of the other party.
15.19 Allocation of Purchase Price. The Purchase Price shall
----------------------------
be allocated among the Assets in accordance with the provisions of
Schedule 15.19 attached hereto. Each party agrees that it will
- --------------
file IRS Form 8594, reporting the allocation of the Purchase Price
to the Internal Revenue Service ("IRS") in accordance with Schedule
--------
37
<PAGE> 43
15.19, and will not take any position that varies from or is
- -----
inconsistent with such allocation in any other filing made by such
party with the IRS or any other governmental entity.
15.20 Review of Closing Balance Sheet. In order to determine
-------------------------------
whether or not the Minimum Stockholders Equity has been met, not
later than ten days following the Balance Sheet Date, the Clay
Companies shall prepare the Closing Balance Sheet and the related
statements of income for the period from January 1, 1995 to the
Balance Sheet Date in accordance with generally accepted accounting
principles, consistently applied, except that the Closing Inventory
shall be determined on a FIFO basis, and the effect of the
Condemnation Award and the Relocation Expense Award shall not be
considered. In preparing such Closing Balance Sheet and related
financial statements, the Clay Companies shall consult with Top Air
and shall permit Top Air to participate in and review the
preparation thereof, including all work papers, schedules and
calculations related thereto, prior to the issuance thereof. Top
Air shall commence its review of said work papers, schedules and
calculations as soon as practicable. Any dispute which may arise
between the Clay Companies on the one hand and Top Air on the other
hand as to such financial statements shall be resolved in the
following manner:
(a) Top Air, if it disputes the financial statements,
shall notify Clay Equipment in writing within ten days after
its receipt of such financial statements that Top Air disputes
the financial statements, specifying in reasonable detail the
nature of the dispute;
(b) During the five day period following the date of
such notice, the Clay Companies and Top Air shall attempt to
resolve such dispute and determine the appropriateness of the
financial statements; and
(c) If at the end of such five day period, the parties
shall have failed to reach an agreement with respect to such
dispute, the matter shall be referred to an Arbitrator
selected by the Accounting Firm. The Arbitrator shall issue
its report as to the financial statements within ten days
after such dispute is referred to the Arbitrator. Each of the
parties shall bear all costs and expenses incurred by it in
connection with such arbitration except for the fees and
expenses of the Arbitrator which shall be borne equally by the
Clay Companies on the one hand and Top Air, on the other hand.
This provision for arbitration shall be specifically
enforceable by the parties and the decision of the Arbitrator
in accordance with the provisions hereof shall be final and
binding and there shall be no right of appeal therefrom.
15.21 Acquisition Subsidiary. Top Air may, in its sole
----------------------
discretion, establish a subsidiary wholly owned by Top Air for the
38
<PAGE> 44
purpose of acquiring the Transferred Assets and assuming the
Assumed Liabilities and, if such subsidiary is so established, all
references to Top Air hereunder, where applicable, shall be deemed
to be reference to such subsidiary; provided, however, that nothing
-------- -------
contained in this Section 15.21 shall affect the indemnification
obligations of Top Air set forth in Section 10.02.
39
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first set forth above.
TOP AIR MANUFACTURING, INC.,
an Iowa corporation
By: /s/Steve R. Lind
-------------------------------------
Title: President & CEO
----------------------------------
CLAY EQUIPMENT CORPORATION,
an Iowa corporation
By: /s/Leonard J. Hare
-------------------------------------
Title: CEO
----------------------------------
CLAY HOLDING, INC.,
an Iowa corporation
By: /s/Leonard J. Hare
-------------------------------------
Title: CEO
----------------------------------
40
<PAGE> 1
Exhibit 10(h)
AMENDMENT TO ASSET PURCHASE AGREEMENT
Among
CLAY EQUIPMENT CORPORATION, CLAY HOLDING, INC.,
and
TOP AIR MANUFACTURING, INC.
THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT ("Amendment")
is made as of the 5th day of May, 1995, by and among TOP AIR
MANUFACTURING, INC., an Iowa corporation ("Top Air"), CLAY
EQUIPMENT CORPORATION, an Iowa corporation ("Clay Equipment") and
Clay Holding, Inc., an Iowa corporation ("Clay Holding").
WHEREAS, Top Air, Clay Equipment, and Clay Holding have
entered into an Asset Purchase Agreement dated as of April 11, 1995
(the "Agreement") whereby substantially all of the assets of Clay
Equipment, except for certain real estate and incidental property,
will be transferred to Top Air in exchange for the assumption by
Top Air of certain liabilities of Clay Equipment and the issuance
by Top Air to Clay Holding of common stock; and
WHEREAS, in order to reflect the intent of the parties that
the Transaction constitute a reorganization under Section
368(a)(1)(C) of the Code, and to make certain other revisions to
the Agreement, the parties to the Agreement wish to amend the
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
agreements and provisions set forth herein, and subject to the
conditions herein contained, it is mutually agreed as follows:
1. Capitalized Terms. All capitalized terms used herein but
-----------------
not defined herein shall have the meanings set forth in the
Agreement.
2. Assumed Liabilities. An additional sentence, to consti-
-------------------
tute the last sentence of Section 1.05 of the Agreement, shall be
added to such Section 1.05, which last sentence shall read as
follows:
"Notwithstanding the foregoing, in no event shall any
indebtedness owing by Clay Equipment to Clay Holding or
to any affiliate of Clay Equipment or Clay Holding
(collectively, "Intercompany Indebtedness") be assumed by
Top Air."
3. Closing Date. Section 1.16 of the Agreement is hereby
------------
deleted in its entirety and replaced with the following:
<PAGE> 2
"1.16 'Closing Date' means 10:00 a.m. on June 30,
or such sooner date following the fulfillment of all the
conditions to closing, as shall be directed by Top Air;
provided, however, that if all of the conditions to
-------- -------
Closing have not been met, then Top Air shall have the
option to extend the Closing Date once, to a date not
later than December 31, 1995."
4. NASDAQ Delisting. In order to reflect the delisting of
----------------
the common stock, without par value, of Top Air from the NASDAQ
Small-Cap Market effective April 13, 1995, Section 1.35 of the
Agreement is hereby amended by the substitution of the term "NASDAQ
Bulletin Board" for the term "NASDAQ Small-Cap Market."
5. Intercompany Indebtedness. A new paragraph, to be num-
-------------------------
bered as (j) shall be added to Section 2.03, which new paragraph
(j) shall read as follows:
"Any Intercompany Indebtedness."
To conform Section 2.03 with the new paragraph (j), the word "or"
following the phrase "the Union Contract," set forth in paragraph
(h) of such Section 2.03 is hereby deleted, and the period at the
end of paragraph (i) of such Section 2.03 is hereby changed to a
semi-colon.
6. Restriction on Transfer of Shares. A new Section 2.05 is
---------------------------------
hereby added to the Agreement which new Section 2.05 shall read in
its entirety as follows:
"2.05 Restriction on Transferability of Shares. The
Shares to be issued by Top Air pursuant to Section 2.02
shall not be transferable or assignable without the prior
written consent of Top Air, except in connection with the
Distribution or by operation of law. No permitted
transfer hereunder shall affect shall restriction on the
transferability or assignability of the Shares, and those
transferees, assignees or distributees who receive Shares
will hold such Shares subject to such restrictions. All
certificates evidencing Shares shall bear a legend
thereon describing the restriction on the transferability
thereof pursuant to this Section 2.05."
7. Tax-Free Nature of Transaction. A new Section 2.06 is
------------------------------
hereby added to the Agreement, which new Section 2.06 shall read in
its entirety as follows:
"2.06 Plan of Reorganization. Consistent with their
----------------------
intention that the Transaction qualify as a tax-free
reorganization under Section 368(a)(1)(C) of the Code,
the parties hereto agree that this Agreement, together
with the resolutions adopted in connection herewith by
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<PAGE> 3
the Boards of Directors of Top Air and Clay Equipment,
shall constitute the Plan of Reorganization of Top Air
and Clay Equipment."
8. Technical Correction. Solely to eliminate a possible
--------------------
ambiguity, and not to reflect any substantive change in the
Agreement, Section 8.19 is hereby deleted in its entirety and
replaced with the following:
"Plan Participants entitled to the distribution of
at least ninety percent (90%) of the Shares shall have
directed the ESOP Trustee as described in Section 11.01
(a)(i)."
9. Elimination of an ESOP Amendment Requirement. Section
--------------------------------------------
11.01 of the Agreement is hereby amended by deleting clause (b)
thereof in its entirety, whereupon the current clause (c) of
Section 11.01 of the Agreement shall be renumbered and referred to
as clause (b).
10. Entire Agreement. Section 15.09 of the Agreement shall
----------------
be amended by inserting the following after the word "Agreement" in
its first line with "as amended by the First Amendment hereto, ".
Every reference to the Agreement made therein shall be deemed to
include this Amendment.
11. No Allocation. In light of the intended tax-free nature
-------------
of the Transaction, Section 15.19, "Allocation of Purchase Price,"
----------------------------
shall be and hereby is deleted from the Agreement in its entirety.
12. Ratification of Agreement. Except as expressly stated
-------------------------
herein, all of the provisions of the Agreement shall be unchanged
and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first set forth above.
TOP AIR MANUFACTURING, INC.,
an Iowa corporation
By: /s/ Steven R. Lind
---------------------------------------
Steven R. Lind, President and
Chief Executive Officer
-3-
<PAGE> 4
CLAY EQUIPMENT CORPORATION,
an Iowa corporation
By: /s/ Leonard J. Hare
---------------------------------------
Leonard J. Hare, President and
Chief Executive Officer
CLAY HOLDING, INC.,
an Iowa corporation
By: /s/ Leonard J. Hare
---------------------------------------
Leonard J. Hare, President and
Chief Executive Officer
-4-
<PAGE> 1
Exhibit 10(i)
4/5/95
INDUSTRIAL LEASE AND OPTION
This Lease, is executed this 17th day of April, 1995, by and
between the City of Cedar Falls, Iowa, LESSOR, and Clay Equipment
Corporation, an Iowa corporation, with its principal office at 101
Lincoln Street, Cedar Falls 50613, LESSEE,
WITNESSETH:
WHEREAS, Lessor is the owner of the real property hereinafter
described and has the lawful authority to lease the same for the
purposes hereinafter described; and
WHEREAS, Lessor is a corporation organized and existing under the
laws of the State of Iowa, and as such is empowered to promote and
solicit industrial and economic development projects as authorized and
to make and execute leases, contracts and other instruments necessary
or convenient for the exercise of its powers and purposes to acquire,
whether by purchase, lease or otherwise, and to improve, maintain,
equip and furnish one or more projects, including real and personal
property deemed necessary in connection therewith, and to lease to
others any of its projects and to charge and collect rent therefore;
and
WHEREAS, to finance a portion of this project hereinafter
described, consisting of the hereinafter described real estate and a
facility for the conduct of manufacturing operations, including the
acquisition and construction of the facility, to be located on Lots 2
and 3, Cedar Falls Industrial Park, Phase VI, (the "Project"), the
United States Department of Commerce Economic Development
Administration (the "EDA") has authorized a Grant for Flood Relief
Project Award No. 05-19-61126 (the "EDA Grant") to Lessor; and
WHEREAS, pursuant to said Grant and the above powers, Lessor is
authorized to enter into this Lease with Lessee, subject to the
approval of the terms thereof by the EPA; and
WHEREAS, pursuant to the foregoing recitals, Lessor and Lessee now
enter into this Industrial Lease and Option;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, covenants and agreements herein contained, LESSOR AND
LESSEE HEREBY REPRESENT, COVENANT AND AGREE AS FOLLOWS:
<PAGE> 2
1. Lease of Premises. Lessor does hereby lease and demise to
Lessee and Lessee does hereby hire and take as Lessee upon and subject
to the terms and conditions herein set forth the tract of real property
hereinafter described, together with all improvements and appurtenances
thereto, located in Cedar Falls, Black Hawk County, Iowa, (hereinafter
the "premises" or the "project"), to-wit:
Lots 2 and 3, Cedar Falls Industrial Park, Phase VI in the
City of Cedar Falls, Black Hawk County, Iowa.
2. Term of Lease. (a) The initial term of the Lease (the
"Lease Term") shall be a period of ten (10) years, commencing on the
first day of the first month following completion of the improvements
by the contractor, acceptance thereof by Lessor, and delivery of the
premises to Lessee, and terminating on the last day of the one hundred
twentieth (120th) month thereafter, both dates inclusive; subject to
(1) the limited right of termination by Lessor and other remedies for
default as provided in Paragraph 7 hereof, and (2) the option for
Lessee to renew this Lease for an additional period as provided in
Paragraph 2(b) below.
(b) The Lease Term may be renewed and extended by
Lessor, at its option and subject to the review and approval by the
United States Department of Commerce, Economic Development
Administration (the "EDA"), as provided in the Special Terms and
Conditions of the EDA Grant, for an additional period of five years.
Lessor will not unreasonably withhold the lease extension option to
Lessee. The rental amount for months one hundred twenty-one (121)
through one hundred eighty (180) shall be no less than the current
lease amount provided in Paragraph 3(a)(A) hereof nor shall it increase
more than three percent (3%).
Lessor shall exercise such option to renew the Lease Term unless Lessee
is in default and has failed to cure such default as provided in
Paragraph 7 hereof by the time of expiration of the Lease Term. If
Lessor intends not to renew the Lease, Lessor shall give not less than
180 days' prior written notice to Lessee of its intention not to so
renew.
(c) Lessee will have the option to purchase said
property upon expiration of the lease extension referenced in Paragraph
2(b) subject to those conditions provided in Paragraph 6 hereof.
3. Rental Amounts. (a) Lessee shall pay Lessor, as a rental
fee the aggregate of the following amounts commencing on the first day
of the first month following the issuance of an Occupancy Permit by
City:
(A) Monthly Lease Payments at the rate of sixteen thousand
seven hundred twenty-two dollars and no cents ($16,722.00) during the
initial one hundred twenty (120) months of the term of the Lease.
-2-
<PAGE> 3
(B) If the Lease Term is renewed by Lessor as provided in
Paragraph 2(b) hereof, lease payments for months one hundred twenty-one
(121) through one hundred eighty (180) shall be no less than the
current lease amount provided in Paragraph 3(a)(A) hereof nor shall it
increase more than three percent (3%).
(2) A late payment penalty of three percent (3%) of the
applicable Monthly Lease Payment as stated above in the event such
Payment is not made by Lessee within five days after the due date
thereof.
(3) All other payments of whatever nature which Lessee has
agreed to pay or assume hereunder.
(b) The obligations of Lessee to make the foregoing
Lease Payments on or before the date the same become due and to perform
all of its other obligations, covenants and agreements hereunder shall
be absolute and unconditional, without notice or demand, and without
abatement, deduction, set-off, counterclaim, recoupment or defense or
any right of termination or cancellation arising, and, except as may be
otherwise expressly provided herein, notwithstanding any damage to or
loss, theft or destruction of the Project or any part thereof, any
failure of consideration or frustration of commercial purpose, or any
change in Lessor's legal organization or status.
(c) Nothing in this Lease shall be construed to release
Lessor from the performance of any agreement on its part herein
contained or as a waiver by Lessee of any rights or claims which Lessee
may have against Lessor under this Lease or otherwise, but any recovery
upon such rights and claims shall be had from Lessor separately, it
being the intent of this Lease that Lessee shall be unconditionally and
absolutely obligated to perform fully all of its obligations,
agreements and covenants under this Lease (including the obligation to
make Lease Payments). Lessee may, however, at its own cost and expense
and in its own name or in the name of Lessor, prosecute or defend any
action or proceeding or take any other action involving third persons
which Lessee deems reasonably necessary in order to secure or protect
its right of possession, occupancy and use of the Project, and in such
event Lessor hereby agrees to cooperate fully with Lessee and to take
all action necessary to effect the substitution of Lessee for Lessor in
any such action or proceeding if Lessee shall so request.
4. Lessor's Covenants. Lessor covenants and agrees:
(a) That Lessor owns the premises and has good and
legal right to lease said premises to Lessee and that Lessor will put
Lessee in possession thereof, and, so long as Lessee pays the Lease
Payments and Additional Payments hereby reserved and observes and
performs the several covenants, stipulations and agreements provided on
Lessee's part, Lessee shall peaceably hold and enjoy the demised
premises during the term hereof without any interruption by Lessor or
by any person rightfully claiming under Lessor;
-3-
<PAGE> 4
(b) That Lessee may, at its sole cost and expense, make
other such additions, changes and alterations in and to any part of the
premises as Lessee from time to time may deem necessary or advisable,
subject to the express conditions set forth in Paragraph 5 hereof;
(c) That Lessee, notwithstanding the provisions of
Paragraph 5(e) hereof, shall have the right to contest any mechanic's
or other similar lien filed against or upon the described premises if
within the 30-day period referred to in said Paragraph 5(e) hereof it
notifies Lessor in writing of its intention to do so and, if requested
by Lessor, deposits with Lessor a bond (or other reasonably acceptable
security) in favor of Lessor, with a surety company reasonably
acceptable to Lessor as surety, in the penal sum of at least the amount
of the lien claim so contested plus an additional amount equal to
interest thereon for six months at the current statutory rate of
interest, indemnifying and protecting Lessor from and against any
liability, loss, damage, cost and expense of whatever kind or nature
growing out of or in any way connected with said asserted lien in the
contesting thereof, but all on the condition that Lessee diligently
prosecute such contest, at all times effectively stay or prevent any
official or judicial sale of the premises, or any part thereof or
interest therein, under execution or otherwise, and pay or otherwise
satisfy any final judgment adjudging or enforcing such contested lien
claim and thereafter promptly procure record release or satisfaction
thereof;
(d) That any part of the structure and any fixtures
paid from funds of Lessor shall remain the property of Lessor. Lessee
shall have the right to remove from the premises any and all machinery,
equipment and fixtures owned by or paid for by Lessee, provided,
however, that Lessee shall repair any physical damage to Lessor's
property caused by the removal of any such machinery, equipment or
fixtures;
(e) That Lessee shall have the right, in its or
Lessor's name, to contest the validity or amount of any imposition, as
defined in Paragraph 5(o) hereof, which Lessee is required to bear, pay
and discharge pursuant to the terms of this Lease, by appropriate legal
proceedings instituted, at least ten (10) days before the imposition
complained of becomes delinquent, but only if and provided that Lessee,
before instituting any such contest, gives Lessor written notice of its
intention so to do and, if requested in writing by Lessor, deposits
with Lessor a bond (or other reasonably acceptable security) in favor
of Lessor, with a surety company reasonably acceptable to Lessor as
surety, in a penal sum of at least the amount of the imposition so
contested plus an additional amount equal to interest thereon for six
months at the current statutory rate of interest, conditioned upon the
payment, if so adjudged, of the contested imposition, together with all
interest and penalties accruing thereon and costs of suit, if any, and
provided further that Lessee diligently prosecutes any such contest, at
all times effectively stays or prevents any official or judicial sale
therefore, under execution or otherwise, and promptly pays any final
judgment enforcing the imposition so contested, and thereafter promptly
secures record release or satisfaction
-4-
<PAGE> 5
thereof; and provided further that Lessee hold Lessor whole and
harmless from any costs and expenses Lessor may incur related to any
such contest;
(f) That Lessor is authorized to (i) enter into this
Lease and perform its obligations hereunder, and (ii) grant Lessee the
option to purchase the premises as set forth herein;
(g) That Lessor will not transfer or encumber the
premises or impose any new restrictions on the premises without
Lessee's prior written consent; and
(h) That Lessor will construct the building and
improvements on the premises in accordance with the plans,
specifications and standards necessary for Lessee to continue its
operations, and approved by Lessee and the EDA.
(i) To bear, pay and discharge, before the delinquency
thereof, all taxes and assessments, general and special, if any, which
may be lawfully taxed, charged, levied, assessed or imposed upon or
against or be payable for or in respect of the demised premises, or any
part thereof, or any improvements at any time thereon or Lessee's
interest therein or under this Lease, including any new lawful taxes
and assessments not of the kind enumerated above to the extent that the
same are lawfully made, levied or assessed in lieu of or in addition to
taxes or assessments now or heretofore customarily levied against said
premises or against comparable real property in general, and further
including all water and sewer charges, assessments, and other
governmental charges and impositions whatsoever, foreseen or
unforeseen.
5. Lessee's Covenants. Lessee covenants and agrees:
(a) To pay the Lease Payments at the time and in the
manner herein provided to Lessor or Lessor's order at such place as may
from time to time be reasonably designated by Lessor;
(b) To assume full responsibility for all maintenance,
upkeep, repair, replacement and improvement of any and all buildings,
improvements, machinery, equipment, fixtures and appurtenances of any
type now or hereafter located upon said property, and for the care and
maintenance of all exterior and unimproved portions thereof: and to
hold Lessor harmless from any responsibility or liability therefore of
any type whatsoever;
(c) To make no additions, changes or alterations in and
to any part of the premises, and improvements thereon, which will
adversely affect the structural strength of any part of the same or
which would change the character of said premises and improvements so
that the premises would not constitute a "facility" as defined in Iowa
law. All additions, changes and alterations made by Lessee, upon said
conditions, shall (i) be made in a workmanlike manner and in strict
compliance with all laws and ordinances applicable thereto, (ii) when
commenced, be prosecuted to completion with
-5-
<PAGE> 6
due diligence, and (iii) when completed, be deemed a part of the
premises; provided, however, that additions of machinery, equipment and
fixtures to the premises by Lessee, the cost of which is financed
totally by funds of Lessee independent of any nonfinancing therefore
now or hereafter provided by Lessor, and not constituting repairs,
renewals or replacements of items owned by Lessor at the time of
execution of this lease;
(d) Not do or permit others under its control to do any
work in or about the premises or related to the repair, rebuilding,
restoration, replacement, alteration of or addition to the premises, or
any part thereof, unless Lessee shall have first procured and paid for
all requisite municipal and other governmental permits and
authorizations. All such work shall be done in good and workmanlike
manner and in compliance with all applicable building, zoning and other
laws, ordinances, governmental regulations and requirements, and in
accordance with the requirements, rules and regulations of all insurers
under the policies required to be carried hereby;
(e) Not do or suffer anything to be done whereby the
premises, or any part thereof, may be encumbered by any mechanic's or
other similar lien, and if, whenever and as often as any mechanic's or
other similar lien is filed against the premises, or any part thereof,
purporting to be for or on account of any labor done or materials or
services furnished in connection with any work in, on or about the
premises done by, for, or under the authority of Lessee, Lessee shall
discharge the same of record within thirty (30) days after the date of
filing or provide security therefore which is reasonably acceptable to
Lessor. Lessee hereby acknowledges and gives notice to all other
parties that Lessor does not authorize or consent to and shall not be
liable for any labor or materials furnished Lessee or anyone claiming
by, through, or under Lessee upon credit, and that no mechanic's or
other similar lien for any such labor, services or materials shall
attach to or affect the reversionary or other estate of Lessor in and
to the premises or any part thereof;
(f) If at any time during the term of this Lease the
demised premises or any part thereof is damaged or destroyed by fire or
other casualty, to proceed with due diligence to repair, restore,
rebuild or replace said damaged or destroyed portion thereof to as good
condition as it was in immediately prior to such damage and
destruction, subject to such alterations as Lessee may elect to make as
otherwise permitted herein. Before commencing the work of repairing,
restoring, rebuilding or replacing the improvements as above provided,
there shall be delivered to Lessor performance and labor and material
payment bonds with respect to such work and in the full amount of the
contract covering such work made by the person which contracts to do
such work as principal and a surety company or companies reasonably
satisfactory to Lessor as surety and in form satisfactory to Lessor.
Said bonds shall name Lessor and Lessee as joint obligees. In the
event that any such damage or destruction occurs, all of the insurance
monies collected or payable on account of such damage or destruction on
or under the policy or policies of insurance maintained by Lessee
pursuant to the requirements hereof shall be payable jointly to Lessor
and
-6-
<PAGE> 7
Lessee as their interests appear, and thereafter endorsed by such other
parties to Lessee and to the person or persons performing such work or
providing materials therefore upon receipt by Lessor, from time to
time, of certificates signed by both Lessee and an architect or
engineer selected by Lessee and reasonably approved in writing by
Lessor (i) requesting payment of a specified amount of such funds and
directing to whom such amount shall be paid; (ii) stating that the
amount requested either has been paid by Lessee or is justly due to
contractors or other persons who have performed the work or provided
necessary materials in the repair and rebuilding of the premises and
improvements, and briefly describing such work and materials, and
stating that the requested amount does not exceed the fair value of
such work or materials; (iii) stating that, except for the amounts if
any stated in said certificate, there are no outstanding indebtedness
which are then due and payable for labor, wages, materials, supplies or
services in connection with the repair or rebuilding of the damaged
improvements which, if unpaid, might become the basis of a mechanic's
or other similar lien upon the premises or any part thereof; and (iv)
stating that no part of the several amounts paid or due, as stated in
said certificate, has been or is being made the basis for the
withdrawal of any monies in any previous or then pending application
pursuant to this Paragraph. All insurance monies not required to be
used for such purposes shall, upon receipt by Lessor of a certificate
by said architect or engineer that the work has been completed and that
no liens exist, become the property of Lessee. If the insurance monies
so collected by the Lessee are insufficient in amount to pay in full
the cost of all repairs, restorations, rebuilding and replacements of
said damaged or destroyed improvements, Lessee shall provide and
furnish all other monies necessary to complete fully all such repairs,
restorations, rebuilding and replacements;
(g) Anything in this Lease to the contrary
notwithstanding, that Lessor shall have the right at any time and from
time to time to withhold payment of endorsement of all or any part of
the insurance monies to Lessee, as generally provided in Paragraph 5(f)
hereof, in the event (i) Lessee is then in default in the payment of
rent or other charges as provided herein, (ii) Lessor has given notice
to Lessee of any other default on Lessee's part under this Lease, or
(iii) an act of default as described in Paragraph 7 hereof has
occurred. In the event Lessee shall cure the defaults specified above
or such defaults cease to exist, Lessor shall make such payments from
the insurance monies to Lessee in accordance with the provisions of
this Lease; provided, however, that if this Lease is terminated or
Lessor otherwise re-enters and takes possession of the premises without
terminating this Lease under the provisions of Paragraph 7 hereof,
Lessor may itself use such insurance monies for the payment of the
reasonable and necessary charges of such persons providing work and
materials for the repairs, restoration, rebuilding and replacements of
the damaged improvements;
(h) That the real property and all buildings,
improvements and fixtures located thereon at the time of execution of
this Lease, and all work and materials on the buildings and
improvements, and anything under this Lease which becomes, is deemed to
be, or constitutes a part of said premises and the manufacturing
facility
-7-
<PAGE> 8
thereon, and said manufacturing facility as repaired, rebuilt,
rearranged, restored or replaced by Lessee under the provisions of this
Lease, except as otherwise specifically provided herein, shall be and
remain or become immediately when erected or installed, as the case may
be, the absolute property of Lessor to the same extent as if the same
had been erected or installed prior to the execution of this Lease,
subject only to the express provisions of this Lease and as otherwise
noted in Paragraph 4(b), provided that no machinery or equipment or
other non-fixture personal effects of the Lessee purchased and
installed on the premises by Lessee and no part of which is paid for
from funds of Lessor or from the EDA Grant shall be deemed part of the
premises;
(i) To keep and preserve the demised premises free from
nuisance and not permit the use of the same or any part thereof for
other than industrial or manufacturing purposes as described herein for
the Project; and not permit the same to be used for any purpose
forbidden by law, ordinance or regulation, or for any purpose which
would be in violation of the Special Terms and Conditions or the
General Terms and Conditions of the said EDA Grant, including the
governmental regulations referred to therein, all of which terms and
conditions are hereby incorporated by reference;
(j) To pay all utility charges incurred in respect of
the premises and Lessee's occupation thereof, and if not paid in due
time and if paid by Lessor at Lessor's sole option, to reimburse Lessor
for such amounts paid, including late charges, plus interest thereon at
the highest lawful rate in the State of Iowa.
(k) Not to sublet or assign Lessee's interest or any
part thereof in this Lease or the demised premises without the prior
written consent of Lessor, which said consent shall not be unreasonably
withheld; and not to alienate or permit to be alienated its interest in
the demised premises (which shall be deemed to include but not limited
to the sale, lease, rent, option or mortgage thereof, provided,
however, that Lessee shall have the absolute right to assign Lessee's
interest in the lease to any corporation or other entity in connection
with any acquisition of substantially all of the assets of Lessee,
acquisition of 80% or more of the stock of Lessee or in connection with
any merger involving Lessee; subject to approval by the United States
Department of Commerce Economic Development Administration; which
consent shall not be unreasonably withheld;
(l) Not to allow trash, refuse, waste material or
garbage to accumulate or remain on the premises and to deposit the same
in appropriate containers and arrange for the removal thereof
periodically as required by law or ordinance;
(m) Not to initiate any proceedings of any kind
whatsoever to dissolve or liquidate Lessee or its corporate status
without securing the prior written consent thereto of Lessor;
-8-
<PAGE> 9
(n) To permit Lessor or Lessor's agents to enter the
premises at any reasonable time after giving reasonable notice during
normal business hours for the purpose of inspection for conformity to
the express requirements of this Lease or making repairs to the
premises or to show to prospective purchasers or tenants, subject to
the express conditions hereof, and at other times upon reasonable
notice to lessee;
(o) To maintain at all times during the term of this
Lease public liability insurance (including coverage for all losses
whatsoever arising from the ownership, maintenance, operation or use of
any automobile, truck or other motor vehicle), under which Lessor shall
be named as an additional insured, properly protecting and indemnifying
Lessor in an amount not less that $500,000 for injury, including death,
to any one person, not less than $1,000,000 for personal injuries,
including death, in any one accident or occurrence, and not less than
$500,000 for property damage in any one accident or occurrence. Said
policy or policies of insurance shall contain a provision that such
insurance may not be cancelled by the issuer thereof with not less than
thirty (30) days' advance written notice to Lessor and Lessee. Such
policy or policies or copies or certificates thereof shall be furnished
to Lessor on a current basis at all times during the term of this
Lease;
(p) To keep the demised premises, and all buildings and
improvements thereon, insured against loss or damage by fire, lightning
and all other risks covered by the extended coverage insurance
endorsement then in use in the State of Iowa in an amount equal to the
full insurable value thereof, with such insurance company or companies
authorized to do business in the State of Iowa as may be selected by
Lessee and reasonably approved in writing by Lessor, and against loss
or damage by water risks as and when and in such amounts as such
insurance is obtainable and generally carried by owners of industrial
and manufacturing plants in Iowa. The term "full insurable value"
shall mean, to the maximum extent possible, the full actual replacement
cost of all improvements on the premises. At all times during the term
of this Lease, originals or copies of certificates of the policies
provided for in this Paragraph, each bearing notations evidencing
payment of the premiums or other evidence of such payment satisfactory
to Lessor, shall be delivered by Lessee to Lessor. All policies of
such insurance, and all renewals thereof, shall name Lessor and Lessee
as insureds as their respective interests may appear and shall contain
a provision that such insurance may not be cancelled by the insurer
thereof without at least thirty (30) days' written notice to Lessor and
Lessee. The proceeds of any such policies shall be used an applied in
the manner and to satisfy the various obligations set forth in this
Lease;
(q) That this Lease is intended to be a net lease and
that the payment of Lease Payments as provided herein is in addition to
all other obligations imposed herein upon Lessee;
(r) If default be made in the payment of Lease Payments
or any part thereof or of any other payment required to be made to
Lessor by the terms hereof, on
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<PAGE> 10
the date due, and after the expiration of all applicable cure periods,
or if this Lease is terminated by any method herein provided, to quit
and surrender to Lessor or Lessor's agents peaceful possession of the
premises upon demand for possession for nonpayment of Lease Payments as
aforesaid or upon the effective date of termination after notice
thereof, whichever is applicable; and in the event of Lessee's failure
to surrender possession as aforesaid, or if the premises become vacant
during the term of this Lease, then Lessor may at any time thereafter
resume possession thereof by any lawful means, and remove Lessee and
Lessee's effects by self-help or proceedings for possession or unlawful
detainer, or otherwise, and in any such event Lessee shall pay all
costs and attorneys' fees incurred by Lessor in regaining possession
and/or asserting Lessor's rights under this Lease; and
(s) At the termination of this Lease, by whatever
method herein provided, to surrender peaceful possession of said
premises in as good condition as the same were received, usual wear and
tear and providential destruction excepted.
6. Option to Purchase. Lessor hereby grants to Lessee the
limited right to purchase the Project and the above described property
and appurtenances at any time prior to the expiration of one month
after the expiration of the original Lease Term plus the five (5) year
renewal of said lease, upon the terms and conditions hereinafter set
forth:
(a) The purchase price for said Project shall be ONE
MILLION TWO HUNDRED EIGHTY-FIVE THOUSAND NINE HUNDRED FIFTY-FIVE
DOLLARS AND NO CENTS ($1,285,955.00); plus (1) any other sums or
expenses of any type in connection with said property which have or had
accrued to the account of Lessee or were otherwise properly payable by
Lessee according to the terms of this Lease but were for any reason
paid by Lessor; plus (2) the total of all reasonable costs and expenses
incurred or to be incurred by Lessor in the closing of such sale to
Lessee, excluding Lessor's legal fees, but including but not limited to
the cost of all title examinations and title insurance and other
reasonable and necessary closing expenses. Said total sum, determined
as provided in this Paragraph, shall be paid in full and in cash or by
cashier's check on the date of closing of said purchase.
(b) This option shall be in effect for the term of this
Lease, including any renewal or extension thereof, and for one month
thereafter. Notice of election by Lessee to exercise this option shall
be in writing delivered or mailed as provided in Paragraph 8 hereof so
to reach Lessor prior to the time of expiration of this option. As
long as notice of exercise is given prior to expiration of the option,
closing may occur after said expiration.
(c) In the event this option is so exercised by Lessee,
Lessor shall, within thirty (30) days thereafter, provide to Lessee a
commitment for the issuance of title insurance, certified to the date
of Lessee's said notice, showing marketable title
-10-
<PAGE> 11
to the premises to be vested in Lessor, according to the Title
Examination Standards of the Iowa Bar, free and clear of all liens and
encumbrances of record, except any encumbrances which may be satisfied
in full by Lessor on or before the date of closing, and except for the
special exceptions, if any, noted in Paragraph 1 of this Lease, and
except for any lien or encumbrance placed or suffered to be placed upon
the premises by Lessee after the date of this Lease, and except for any
other lien or encumbrance otherwise permitted or required according to
the terms of this Lease, and except for the lien for any taxes thereon
which may attach or may have attached after the date of this Lease.
Lessee shall thereafter have a period of fifteen (15) days to examine
said commitment and to determine if defects are noted therein in the
title of Lessor. If defects are found to exist in the title of Lessor
which prevent absolute compliance with the requirements of this
Paragraph, then Lessor shall at Lessor's expense obtain the removal or
correction of any such noted defect, if the same can be done within six
months after being so noted. If defects of title are noted which are
not capable of correction or removal within such six month period, then
Lessee shall have the option of avoiding the obligation to purchase, or
of completing the purchase of said premises, with reduction in the
price therefore by an amount sufficient to remedy such defect in title
or to compensate Lessee for the reduction in value of the premises
attributable to such defect, as Lessee may determine.
(d) The property shall be conveyed by special corporate
warranty deed, properly executed and acknowledged by officials of
Lessor and delivered to Lessee, free and clear of all liens and
encumbrances except as provided herein.
(e) In the event of exercise of this option by Lessee,
the sale and conveyance of said property shall be closed at the office
of Lessor in Cedar Falls, Iowa, on the tenth business day immediately
following expiration of the time granted to Lessee for examination of
said commitment, or on the tenth business day immediately following the
correction of noted defects of title by Lessor, or upon the tenth
business day immediately following Lessee's notification to Lessor or
Lessee's intention to waive any noted defects in title, as the case may
be. At the time of closing, all papers, documents and final payments
provided herein shall be exchanged between the parties. Lessee shall
at said time be given full and absolute possession of said premises,
without further interference or claim of Lessor or any person claiming
through Lessor.
(f) If this Option is not exercised by notice in
writing as provided above prior to midnight on the appropriate day of
expiration of the same, said Option shall be of no further force or
effect, and the consideration paid therefore shall be retained by
Lessor. Proof of expiration of this Option without exercise by Lessee
may be made by recording of Lessor's affidavit, reciting the failure of
Lessee to exercise said Option and to complete the purchase of said
property in the manner provided herein and further reciting the
expiration of said Option, and by recording of the receipt issued by
the United States Postal Service as proof of mailing by certified mail
of a copy of such affidavit at least ten days prior to the date of
recording the same. Proof of actual receipt of such affidavit by
Lessee shall not be required.
-11-
<PAGE> 12
7. Events of Default. (a) If any one or more of the following
events shall occur and be continuing, it is hereby defined as and
declared to be and to constitute an Event of Default of "default"
hereunder:
(1) Default in the due and punctual payment of any
Lease Payment by Lessee pursuant to Paragraph 3 hereof, including
applicable late payment penalty or penalties, which default shall
continue for five (5) days after Lessor has given Lessee written notice
specifying such nonpayment; or
(2) Default in the due observance or performance of any
other covenant, agreement, obligation or provision of this Lease, or
for the applicable provisions of the Special Terms and Conditions or
General Terms and Conditions of said EDA Grant, on Lessee's part to be
observed or performed, and such default shall continue for 60 days
after Lessor has given Lessee written notice specifying such default or
such longer period as shall be reasonably required to cure such
default; provided that (1) Lessee has commenced such cure within said
60-day period, and (2) Lessee diligently prosecutes such cure to
completion; or
(3) Lessee shall (i) admit in writing its inability to
pay its debts as they become due; or (ii) file a petition in bankruptcy
or for reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the Bankruptcy Code as
now or in the future amended or any other similar present or future
Federal or State statute or regulation, or file a pleading asking for
such relief; or (iii) make an assignment for the benefit of its
creditors; or (iv) consent to the appointment of a trustee, receiver or
liquidator for all or a major portion of its property or shall fail to
have vacated or set aside the appointment of any trustee, receiver or
liquidator which was made without Lessee's consent or acquiescence; or
(v) be finally adjudicated as bankrupt or insolvent under any Federal
or State law; or (vi) be subject to any proceedings, or suffer the
entry of a final and nonappealable court order, under any Federal or
State law, appointing a trustee, receiver or liquidator for all or a
major part of its property or ordering the winding-up or liquidation of
its affairs, or approving a petition filed against it under the United
States Bankruptcy Code, as now or in the future amended, which order or
proceeding, if not the subject of Lessee's consent, shall not be
dismissed, vacated, denied, set aside or stayed within 60 days after
the day of entry or commencement; or (vii) suffer a writ or warrant of
attachment or any similar process to be issued by any court against all
or any substantial portion of its property, and such writ or warrant of
attachment or any similar process is not contested, stayed or released
within 60 days after the final entry, or levy after any contest if
finally adjudicated or any stay is vacated or set aside; or
(4) Lessee shall vacate or abandon the Project; or
-12-
<PAGE> 13
(5) Violation of any provision, or commission or
omission of any act which causes or constitutes a violation of any
provision, of the Special Terms and Conditions or General Terms and
Conditions of said EDA Grant, if not timely cured to the satisfaction
of the EPA.
(b) If any Event of Default specified in Paragraph 7(a)
hereof shall have occurred and be continuing, then Lessor may, at
Lessor's election, then or at any time thereafter, and while such
default shall continue, take any one or more of the following actions:
(1) Cause all Lease Payments for the remainder of the
Lease Term to become due and payable; or
(2) Give Lessee written notice of intention to
terminate this Lease on a date specified in such notice, which date
shall not be earlier than 30 days after such notice is given, and if
all defaults have not then been cured, on the date so specified,
Lessee's rights to possession of the Project shall cease and this Lease
shall thereupon be terminated, and Lessor may reenter and take
possession of the Project; or
(3) Without terminating this Lease, reenter the Project
or take possession thereof pursuant to legal proceedings or pursuant to
any right of self-help or notice provided for by law, and having
elected to reenter or take possession of the Project without
terminating this Lease, Lessor shall use reasonable diligence to relet
the Project, or parts thereof, for such term or terms and at such
rental and upon such other provisions and conditions as Lessor may deem
advisable, with the right to make alterations and repairs to the
Project, and no such reentry or taking of possessing of the Project by
Lessor shall be construed as an election on Lessor's part to terminate
this Lease, and no such reentry or taking of possession by Lessor shall
relieve Lessee of its obligation to pay Lease Payments or Additional
Payments (at the time or times provided herein), or of any of its other
obligations hereunder, all of which shall survive such reentry or
taking of possession, and Lessee shall continue to pay the Lease
Payments specified herein until the end of the Lease Term, whether or
not the Project shall have been relet, less the net proceeds, if any,
of any reletting of the Project after deducting of all of Lessor's
reasonable expenses of or in connection with such reletting, including
without limitation all repossession costs, brokerage commissions, legal
expenses, expenses of employees, alteration costs and expenses of
preparation for reletting.
Having elected to reenter or take possession of the Project
without terminating this Lease, Lessor may, by notice to Lessee given
at any time thereafter while Lessee is in default in the payment of
Lease Payments or in the performance of any other obligation hereunder,
elect to terminate this Lease on a date to be specified in such notice,
which date shall be not earlier than 30 days after reentry under
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<PAGE> 14
Subparagraph (b)(3) above, and if all defaults shall not have then been
cured, on the date so specified this Lease shall thereupon be
terminated. If in accordance with any of the foregoing provisions of
this Paragraph 7 Lessor shall have the right to elect to reenter and
take possession of the Project, Lessor may enter and expel Lessee and
those claiming through or under Lessee and remove the property and
effects of both either (forcibly if necessary) without being guilty of
any manner of trespass and without prejudice to any remedies for
arrears of rent or for preceding breach of covenant. Lessor may take
whatever action at law or in equity which may appear necessary or
desirable to collect rent then due and thereafter to become due, or to
enforce performance and observance of any obligation, agreement or
covenant of Lessee hereunder.
Notwithstanding any of the foregoing, if Lessor elects to
reenter or take possession of the Project and relet the same, in such
reletting Lessor shall not adversely affect any grant or loan made to
Lessor, the City of Cedar Falls, Iowa, by the United States Department
of Commerce Economic Development Administration, by Flood Relief
Project Award No. 05-19-61126.
(c) Lessee covenants and agrees with Lessor that
Lessee's obligations hereunder shall survive the cancellation and
termination of this Lease, for any cause, and that Lessee shall
continue to make the Lease Payments required hereunder and perform all
other obligations specified herein, all at the time or times provided
herein; provided, however, that upon the payment of all Lease Payments
required hereunder, Lessee's obligations under this Lease shall
thereupon cease and terminate in full.
(d) The rights and remedies reserved by Lessor and
Lessee hereunder and those provided by law shall be construed as
cumulative and continuing rights. No one of them shall be exhausted by
the exercise thereof on one or more occasions. Lessor and Lessee shall
each be entitled to specific performance and injunctive or other
equitable relief for any breach or threatened breach of any of the
provisions hereof, notwithstanding availability of an adequate remedy
at law, and each party hereby waives the right to raise such defense in
any proceeding in equity.
(e) No waiver of any breach of any covenant or
agreement herein contained shall operate as a waiver of any subsequent
breach of the same covenant or agreement or as a waiver of any breach
of any other covenant or agreement, and in case of a breach by Lessee
of any covenant, agreement or undertaking by Lessee, Lessor may
nevertheless accept from Lessee any payment or payments hereunder
without in any way waiving Lessor's right to exercise any of its rights
and remedies as provided herein with respect to any such default or
defaults of Lessee which were in existence at the time when such
payment or payments were accepted by Lessor.
(f) In the event either party should default under any
of the provisions hereof and the other party should employ attorneys or
incur other expenses for the
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<PAGE> 15
collection of the Lease Payments or the enforcement of performance of
any obligation or agreement on the part of the defaulting party, the
defaulting party will on demand pay to the non-defaulting party the
reasonable fee of such attorneys and such other expenses so incurred.
(g) If Lessee shall fail to make any payment or to keep
or perform any of its obligations as provided herein, then Lessor may
(but shall not be obligated so to do) upon the continuance of such
failure on Lessee's part for 60 days after notice of such failure is
given Lessee by Lessor, and without waiving or releasing Lessee from
any obligation hereunder, as an additional but not exclusive remedy,
make any such payment or perform any such obligation, and all sums so
paid by Lessor and all necessary incidental costs and expenses incurred
by Lessor in performing such obligations shall be deemed Additional
Payments and shall be paid be Lessee to Lessor on demand, and if not so
paid by Lessee, Lessor shall have the same rights and remedies provided
for in Paragraph 7(b) hereof in the case of default by Lessee in the
payment of Lease Payments.
8. Administrative and Compliance Requirements.
(a) The Lessee shall maintain books, records, documents
and other evidence pertaining to all costs and expenses incurred and
revenues acquired under this Agreement.
(b) Audit and Inspection. At any time during normal
business hours and as frequently as is deemed necessary, the Lessee
shall make available to the Lessor and the Economic Development
Administration or their agents for their examination, all of its
records pertaining to all matters covered by this Agreement and permit
these agencies to audit, examine, make excerpts, or transcripts from
such records, contract, invoices, payrolls, personnel records,
conditions of employment, and all other matters covered by this
Agreement.
(c) Retention of Records. All records in the
possession of the Lessee pertaining to this Agreement shall be retained
by the Borrower for a period of three (3) years beginning with the date
upon which this Agreement is issued. All records shall be retained
beyond the three year period if audit findings have not been resolved
within that period or if other disputes have not been resolved.
(d) Civil Rights Provision. Lessee will comply with
all applicable Civil Rights provisions.
9. Mutual Covenants. It is mutually agreed:
(a) That any notice provided for herein may be given to
the party entitled thereto by personal service or by certified mail
addressed as follows:
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<PAGE> 16
To Lessor: To Lessee:
Mayor Chief Executive Officer
City of Cedar Falls Clay Equipment Corporation
220 Clay Street ---- Savannah Park Road
Cedar Falls, Iowa 50613 Cedar Falls, Iowa 50613
and
(b) That this Lease shall be binding upon the parties
hereto and their successors and assigns, subject to the restrictions
herein contained as to subletting or assignment by Lessee;
(c) That the terms and conditions of this Lease,
including but not limited to the Lease Term, the Monthly Lease
Payments, and the option to purchase the premises, are subject to the
review and approval by the EDA, as provided in the Special Terms and
Conditions of the EDA Grant; and that, as of the initiation of the
Lease, there are in effect in the locality where the project is
situated leases for 10 years at the initial rental rate stated in
Paragraph 3(a)(A) hereof; and
(d) That the parties shall execute and acknowledge a
Memorandum of Lease, stating the existence of this Lease, the purchase
option, and the description of the leased premises, and shall record
the same in the office of the Recorder of Deeds for Black Hawk County,
Iowa.
IN WITNESS WHEREOF, the parties have caused this Lease to be
executed in duplicate by their respective officers as of the day and
year first above written.
LESSOR: LESSEE:
By: /s/Ed Stachovic By: /s/Leonard J. Hare
---------------------------- -----------------------------
Mayor Chief Executive Officer
Attest: Attest:
/s/Gary L. Hesse /s/James Rhoads
- --------------------------------- ----------------------------------
City Clerk Secretary
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<PAGE> 17
APPROVAL BY EDA
The foregoing Industrial Lease and Option, and the terms and conditions
thereof, is hereby approved by the United States Department of Commerce
Economic Development Administration, as of this 19th day of April,
1995.
UNITED STATES DEPARTMENT OF
COMMERCE, ECONOMIC DEVELOPMENT
ADMINISTRATION
By: /s/Charles Lee
----------------------------
for Regional Director
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<PAGE> 18
4/5/95
AGREEMENT
THIS AGREEMENT is made between the City of Cedar Falls,
Iowa, ("City") and Clay Equipment Corporation, an Iowa corporation
("Clay"), in connection with a certain Industrial Lease and Option
entered into between the City and Clay contemporaneously herewith.
IN CONSIDERATION of Clay's execution and performance of the
Industrial Lease and Option and to create an incentive therefore, the
parties agree as follows:
1. The City shall make a series of development incentive
payments to Clay upon the conditions set forth in Paragraph 2 of this
Agreement on June 1st of each year of the term of the Industrial Lease
and Option Agreement referred to above. The amount of each such
payment shall be equal to the amount actually assessed to and paid by
Clay as property tax on machinery and equipment installed in the
premises described in the Industrial Lease, but shall not exceed the
amount of $40,000 in any fiscal year.
2. No such payment shall be owing from the City to Clay in
any year unless Clay shall then be in full compliance with each of the
following conditions precedent to-wit:
(a) Clay and the City shall have executed the
Industrial Lease Agreement, entered into and remaining in continuous
occupancy of the premises in the conduct of its business operations,
and shall not be in substantial breach of the Industrial Lease
Agreement.
(b) As of May 1st of each year, commencing with May 1,
19---, Clay shall provide the City satisfactory proof of having been
lawfully assessed local property taxes for machinery and equipment
installed in the premises and having paid such property taxes in full
for the prior fiscal year.
3. The terms of this Agreement shall extend through the
additional five year term of the Industrial Lease in the event that the
option to renew is exercised by the City under Paragraph 2(b) thereof
including the obligation to pay Clay after the term expires for
obligations accrued during the term.
<PAGE> 19
4. This Agreement shall be binding upon the successors and
assigns of the parties.
Executed this 17th day of April, 1995.
LESSOR: LESSEE:
CITY OF CEDAR FALLS CLAY EQUIPMENT CORPORATION, an
Iowa Corporation
By: /s/Ed Stachovic By: /s/Leonard J. Hare
---------------------------- -----------------------------
Mayor Chief Executive Officer
Attest: Attest:
/s/Gary L. Hesse /s/James Rhoads
- --------------------------------- ----------------------------------
City Clerk Secretary
-2-
<PAGE> 1
Exhibit 10(j)
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT (the "Escrow Agreement") is made and
entered into as of the ----- day of ------------, 1995, by and
among Top Air Manufacturing, Inc., an Iowa corporation ("Top Air"),
Clay Equipment Corporation, an Iowa corporation ("Clay Equipment"),
and Norwest Bank Iowa, N.A., a national banking association (the
"Escrow Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Section 3.02 of that certain Asset Purchase Agreement
dated April 11, 1995 by and among Top Air, Clay Equipment and Clay
Holding, Inc. ("Clay Holding"), as amended by amendatory agreement
dated as of May 5, 1995 (collectively, the "Purchase Agreement"),
a copy of which has previously been delivered to the Escrow Agent,
provides that Top Air and Clay Equipment shall enter into an escrow
agreement with an escrow agent and deposit the shares of "Hold-Back
Stock" (as defined in the Purchase Agreement) into the escrow
account established thereunder as security for the indemnification
obligations of Clay Equipment under Section 10.01 of the Agreement;
and
WHEREAS, the Escrow Agent is willing to act as escrow agent
under this Escrow Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
1. Appointment of Escrow Agent.
---------------------------
Top Air and Clay Equipment hereby appoint Norwest Bank
Iowa, N.A. as escrow agent (the "Escrow Agent") to receive, hold
and distribute the Hold-Back Stock deposited with the Escrow Agent
hereunder in accordance with this Escrow Agreement. The Escrow
Agent hereby accepts such appointment, all subject to and upon the
terms and conditions set forth herein.
2. General Intention.
-----------------
It is the parties' intention that the Escrow Agent shall
receive, hold and distribute the Hold-Back Stock in accordance with
the express provisions of this Escrow Agreement, and, except as
specifically set forth herein, shall not make, be required to make
or be liable in any manner for its failure to make, any
determination under the Purchase Agreement or any other agreement,
including without limitation any determination of whether Top Air
or Clay Equipment have complied with the terms of the Purchase
Agreement or whether either Top Air or Clay Equipment is entitled
to the delivery of any shares of the Hold-Back Stock or to any
other right or remedy under the Purchase Agreement.
<PAGE> 2
3. Specific Provisions.
-------------------
(a) Simultaneously with the execution of this Escrow
Agreement, Top Air will deposit with the Escrow Agent the Hold-Back
Stock to be held by the Escrow Agent pursuant to the terms of this
Escrow Agreement. The Escrow Agent, by execution of this Escrow
Agreement, acknowledges receipt of the Hold-Back Stock.
(b) If and whenever, prior to the second anniversary
date of the date hereof (the "Expiration Date"), Top Air shall
claim a right to indemnification pursuant to Section 10.01 of the
Purchase Agreement, then Top Air shall notify the Escrow Agent and
Clay Equipment, in writing, by registered or certified mail,
postage prepaid. Such notice shall state the basis for such claim
and the nature of the liability, loss, damage, cost or expense
incurred by, or imposed upon Top Air on account thereof. If such
liability, loss, damage, cost or expense is liquidated in amount,
the notice shall so state and such amount shall be deemed the
amount of the particular claim of Top Air against the shares of
Hold-Back Stock then being held by the Escrow Agent hereunder (the
"Escrow Fund"). If the amount is not liquidated, the notice shall
so state and, in such event, a claim shall be deemed asserted
against the Escrow Fund on behalf of Top Air, to be held hereunder
pending the determination of the amount hereof.
(c) If Clay Equipment shall not, within ten (10) days
after the mailing of such notice, advise the Escrow Agent and Top
Air, in writing, that it denies the right of Top Air to indemnity
in respect of such claim, the Escrow Agent is, at the end of such
period, authorized to deem such claim admitted to the extent the
amount is liquidated, and to the extent such claim becomes
liquidated; provided, that, with respect to unliquidated claims,
-------- ----
upon the determination of the amount of such claim, Top Air shall
give written notice of such amount to the Escrow Agent and Clay
Equipment, whereupon Clay Equipment shall have ten (10) days from
the giving of such notice to notify the Escrow Agent of any dispute
it may have with respect to the amount of such claim.
(d) If Clay Equipment shall notify the Escrow Agent and
Top Air, in writing, that it disputes any claim made by Top Air
against the Escrow Fund or the amount thereof, the parties hereto
shall endeavor to settle and compromise said claim or the amount
thereof, and if unable to agree on any settlement or compromise,
such claim of liability shall be settled by litigation brought in
a court of competent jurisdiction. Any liability established by
reason of such settlement, compromise or litigation shall be paid
and satisfied from the Escrow Fund.
(e) Notwithstanding any other provisions of this Escrow
Agreement, Top Air shall be entitled to make claims against the
Escrow Fund until the Expiration Date.
2
<PAGE> 3
4. Escrow Agent.
------------
The Escrow Agent has been induced to accept its duties
under this Escrow Agreement by the following terms, conditions,
agreements and representations of Top Air and Clay Equipment:
(a) The Escrow Agent shall not be liable to Top Air or
Clay Equipment, or any of them, or any of their successors,
representatives, heirs and assigns, for any action or failure to
act by the Escrow Agent hereunder, except for the Escrow Agent's
own gross negligence or willful misconduct. Top Air and Clay
Equipment shall jointly and severally indemnify and hold harmless
the Escrow Agent and any successor, representative, employee or
agent of the Escrow Agent, from and against any and all losses,
liabilities, claims, actions, damages and expenses, including
reasonable attorney's fees and disbursements, arising out of or in
connection with this Escrow Agreement, except for claims against
the Escrow Agent based upon such gross negligence or willful
misconduct that are successfully asserted against the Escrow Agent.
(b) In the event of any disagreement between Top Air and
Clay Equipment resulting in adverse claims or demands being made in
connection with the Escrow Agreement, or in the event that the
Escrow Agent in good faith is in doubt as to what action it should
take hereunder, the Escrow Agent shall be entitled to hold the
Escrow Account until the Escrow Agent shall have received (i) a
final non-appealable order of a court of competent jurisdiction
directing delivery of the Escrow Fund or (ii) written instructions
executed by Top Air and Clay Equipment directing delivery of the
Escrow Fund, in which event the Escrow Agent shall disburse the
Escrow Fund in accordance with such order or agreement.
(c) The Escrow Agent shall be entitled to rely upon any
order, judgment, certification, demand, notice, instrument or other
writing delivered to it hereunder without being required to
determine the authenticity or the correctness of any fact stated
therein or the propriety or validity of the service thereof. The
Escrow Agent may act in reliance upon any instrument or signature
believed by it to be genuine and may assume that any person
purporting to give any notice or receipt or advice or make any
statement or execute any document in connection with the provisions
hereof has been duly authorized to do so.
(d) This Escrow Agreement expressly sets forth all the
duties of the Escrow Agent with respect to any and all matters
pertinent hereto. The Escrow Agent shall not be bound by the
provisions of any other agreement, including, without limitation,
the Purchase Agreement.
(e) The Escrow Agent shall not be under any duty to give
the Escrow Fund held by it hereunder any greater degree of care
than it gives its own similar property.
3
<PAGE> 4
5. Ownership of Escrow and Shares.
------------------------------
Pursuant to and in furtherance of the "Distribution" (as
defined in the Purchase Agreement), the shares of Hold-Back Stock
being held hereunder will be issued to, and in the name of, a
third-party designated by Clay Equipment (the "Record Owner"), as
the record holder thereof for the benefit of the "ESOP
Participants" (as defined in the Purchase Agreement). Such ESOP
Participants, as beneficial holders, shall have all of the rights
of a shareholder with respect to the Hold-Back Stock, including the
right to vote such shares; provided, however, that all of the
-------- -------
shares of Hold-Back Stock shall be subject to the provisions
hereof, including the provisions with respect to the retransfer of
any shares pursuant to paragraph 6 hereof. Except as expressly
permitted hereunder, none of the shares of Hold-Back Stock shall be
sold, exchanged, transferred, pledged, hypothecated or otherwise
disposed of by the Record Owner or any beneficial owner thereof at
any time during the term of this Escrow Agreement.
6. Distribution and Termination.
----------------------------
(a) Upon the determination of the amount of any claim of
Top Air for which it is entitled to indemnification pursuant to
Section 10.01 of the Purchase Agreement, the Escrow Agent shall
deliver to Top Air that number of shares of the Hold-Back Stock
(rounded up to the nearest whole number), together with a related
stock power endorsed in blank, the value of which equals the amount
of the claim successfully established by Top Air pursuant to
paragraph 3 hereof. The value of the shares of Hold-Back Stock
shall be determined by reference to the "Market Value" (as
hereinafter defined) thereof on the date of such delivery.
(b) This Escrow Agreement shall terminate upon the date
upon which all claims of Top Air pursuant to Section 10.01 of the
Purchase Agreement which shall have been made by Top Air prior to
the Expiration Date shall have been settled or otherwise disposed
of.
(c) Upon such termination, and after satisfying all
delivery requirements of subparagraph (a) of this paragraph 6 to
Top Air, the Escrow Agent shall distribute the remaining Hold-Back
Stock, if any, to the Record Holder, or to the ESOP Participants as
instructed by the Record Holder.
(d) "Market Value" means the average of the bid and
asked prices of the shares of Top Air common stock, on a per share
basis, as reported on the NASDAQ Small-Cap Market (or on such other
market on which such bid and asked prices are reported or quoted)
for the trading day immediately preceding the date on which shares
of Hold-Back Stock are delivered to Top Air pursuant to paragraph
3.
4
<PAGE> 5
7. Notices.
-------
Any notices, objections or other communications required
or permitted hereunder shall be in writing and shall, except as set
forth elsewhere in this Escrow Agreement, be deemed to have been
duly given when delivered by hand; or when telecopied, receipt
confirmed; or when mailed by first-class, certified mail, postage
prepaid, to Top Air, Clay Equipment and the Escrow Agent at the
following addresses:
If to Top Air:
Top Air Manufacturing, Inc.
Steven R. Lind, President
406 Highway 20
Parkersburg, Iowa 50665
Telecopy No.: (319) 346-1527
with a copy to:
Robert H. Wexler, Esq.
Gallop, Johnson & Neuman, L.C.
101 South Hanley
St. Louis, Missouri 63105
Telecopy No.: (314) 862-1219
If to Clay Equipment:
Clay Equipment Corporation
101 Lincoln Street, Box 729
Cedar Falls, Iowa 50613
Attention: Leonard J. Hare
Telecopy No.: -----------------------------
With a copy to:
John C. Larsen, Esq.
Redfern, Mason, Dicter, Larsen & Moore
315 Clay Street
Cedar Falls, Iowa 50613
Telecopy No.: (319) 277-3531
If to Escrow Agent:
Norwest Bank Iowa, N.A.
--------------------------------------------
--------------------------------------------
Attention:----------------------------------
Telecopy No.: ------------------------------
5
<PAGE> 6
Notices or communications so given shall be deemed to have been
given on the date so delivered, deposited in the United States mail
or sent via telecopier; provided, however, that no notice or
-------- -------
communication given to the Escrow Agent shall be deemed effective
until actually received by the Escrow Agent. Any address or
telecopy number set forth above may be changed by notice given
pursuant to this paragraph 7.
8. Miscellaneous.
-------------
(a) Any provision of this Escrow Agreement which may be
determined by a final judgment to be prohibited or unenforceable
shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof. It is expressly understood, however, that the parties
hereto intend each and every provision of this Escrow Agreement to
be valid and enforceable and hereby knowingly waive all rights to
object to any provisions of this Escrow Agreement.
(b) The Escrow Agreement shall be binding upon and inure
solely to the benefit of the parties hereto and their respective
representatives, heirs, successors and assigns. No party may
assign any of its rights or obligations under this Escrow Agreement
without the written consent of the other parties. This Escrow
Agreement shall be construed in accordance with and governed by the
internal law of the State of Iowa.
(c) This Escrow Agreement may only be modified or
terminated by a writing signed by Top Air, Clay Equipment and
Escrow Agent, and no waiver hereunder shall be effective unless in
a writing signed by or on behalf of the party to be charged.
(d) Top Air shall pay or reimburse the Escrow Agent upon
request for all reasonable expenses, including reasonable
attorney's fees, incurred by the Escrow Agent in performance of its
duties under this Escrow Agreement.
(e) This Escrow Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one
and the same instrument, and any of the parties hereto may execute
this Escrow Agreement by signing any such counterpart.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Escrow Agreement as of the day and year first above written.
"Top Air"
TOP AIR MANUFACTURING, INC.
By: -------------------------------------
Title: ----------------------------------
"Clay Equipment"
CLAY EQUIPMENT CORPORATION
By: -------------------------------------
Title: ----------------------------------
"Escrow Agent"
----------------------------------
By: -------------------------------------
Title: ----------------------------------
7
<PAGE> 1
Exhibit 23(a)
[McGladrey & Pullen, LLP Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement of
our report, dated July 6, 1994, relating to the financial
statements of Top Air Manufacturing, Inc., and to the reference to
our Firm under the caption "Experts" in the Propsectus.
/s/ McGladrey & Pullen, LLP
Waterloo, Iowa
May 9, 1995
<PAGE> 1
Exhibit 23(b)
[McGladrey & Pullen, LLP Letterhead]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement of
our report, dated April 11, 1995, relating to the consolidated
financial statements of Clay Holding, Inc. and subsidiaries, and to
the reference to our Firm under the caption "Experts" in the
Propsectus.
/s/McGladrey & Pullen, LLP
Waterloo, Iowa
May 9, 1995
<PAGE> 1
Exhibit 99(a)
CLAY HOLDING, INC.
101 LINCOLN STREET, BOX 729
CEDAR FALLS, IOWA 50613
NOTICE OF SPECIAL MEETING
TO BE HELD
JUNE 26, 1995
TO THE STOCKHOLDER
AND ESOP PARTICIPANTS:
Notice is hereby given that a Special Meeting of Stockholders
of Clay Holding, Inc. ("Clay Holding") will be held at the offices
of Clay Holding, 101 Lincoln Street, Cedar Falls, Iowa 50613 on
June 26, 1995, at 9:00 a.m. local time, for the purpose of
considering and acting upon a proposal to approve the Asset
Purchase Agreement dated as of April 11, 1995, as amended
(collectively, the "Purchase Agreement") pursuant to which
substantially all of the assets of Clay Equipment Corporation
("Clay Equipment") will be transferred to Top Air Manufacturing,
Inc. ("Top Air") or its wholly-owned subsidiary in exchange for the
assumption by Top Air of certain liabilities of Clay Equipment and
the delivery to Clay Equipment, for ultimate distribution to
participants in the Clay Holding, Inc. Employee Stock Ownership
Plan (the "ESOP"), the lesser of (i) 750,000 shares of Top Air
common stock, and (ii) that number of such shares having a market
value of $1,000,000, in either case subject to adjustment.
The Board of Directors has fixed the close of business on May
15, 1995, as the record date for determining those stockholders
entitled to receive notice of, and to vote at, the Special Meeting
or any adjournment thereof. Participants in the ESOP as of that
date will be entitled to direct the ESOP Trustee regarding the
voting of shares of Clay Holding allocated to the account of each
of them.
If the ESOP Trustee votes a majority of the shares of Clay
Holding common stock held by the ESOP to approve the Purchase
Agreement and the transactions contemplated thereby are
consummated, any participant who (1) prior to the beginning of the
Special Meeting delivers to Clay Holding a written demand for
payment of the fair value of the Clay Holdings shares held for such
participant's account, together with a consent to such demand
signed by the ESOP Trustee, and (2) does not direct the ESOP
Trustee to vote his or her allocated shares to approve the Purchase
Agreement shall be entitled to have the fair value of such shares
appraised under the applicable provisions of the Iowa Business
Corporation Act, as set forth in Exhibit A to the
Prospectus/Information Statement accompanying this Notice. For
further discussion, see "RIGHT OF DISSENTING STOCKHOLDERS" in the
accompanying Prospectus/Information Statement.
By Order of the Board of Directors
------------------------------------------------------
Leonard J. Hare, President and Chief Executive Officer
Cedar Falls, Iowa
- -----------------, 1995
<PAGE> 1
Exhibit 99(b)
CLAY HOLDING, INC.
101 LINCOLN STREET, BOX 729
CEDAR FALLS, IOWA 50613
-----------, 1995
Dear Stockholder and Participant
in the Clay Holding, Inc.
Employee Stock Ownership Plan:
The Boards of Directors of Clay Equipment Corporation ("Clay
Equipment") and its sole stockholder, Clay Holding, Inc. ("Clay
Holding"), have approved the sale to Top Air Manufacturing, Inc.
("Top Air") of substantially all of the assets of Clay Equipment.
This sale of assets is to be governed by an Asset Purchase
Agreement (the "Purchase Agreement") whereby, in exchange for such
assets, Top Air would assume certain liabilities of Clay Equipment
and deliver to Clay Equipment shares of Top Air common stock equal
to the lesser of (i) 750,000 and (ii) that number of shares having
a market value of $1,000,000, in either case subject to adjustment.
As a part of the transaction, and subject to the terms and
conditions set forth in the Purchase Agreement, the Clay Holding,
Inc. Employee Stock Ownership Plan (the "ESOP") will be terminated
and the assets of the ESOP, which will then consist primarily of
Top Air common stock, will be distributed to the ESOP participants.
Participants in the ESOP will be asked to consider and direct the
trustees of the ESOP to vote upon the Purchase Agreement.
As you know, the assets of the ESOP are set aside to provide
retirement funds for our employees. We have been advised by
counsel that an ESOP Participant who elects to directly roll over
the distribution of his or her Top Air Shares into an IRA or other
eligible retirement plan will not incur any federal or state tax as
a result of the distribution.
As described in greater detail in the Prospectus/Information
Statement, substantially all of the employees of Clay Equipment
will become employees of Top Air immediately upon the closing of
the transaction. Moreover, Top Air has agreed that upon
consummation of the transaction, it will recognize Local 1728 of
the International Association of Machinists and Aerospace Workers
as the bargaining agent for employees who were included in its
bargaining unit at Clay Equipment. The combined businesses and
operations of Clay Equipment and Top Air will be integrated into a
modern new facility to be located in Cedar Falls, Iowa. It is
expected that construction of this new facility will begin in June
1995 and be completed in January 1996.
The attached Prospectus/Information Statement sets forth
important information in connection with the proposed transaction,
and the Board of Directors of Clay Holding requests that the ESOP
Trustee and each ESOP participant read it carefully. To approve
the sale of substantially all of Clay Equipment's assets to Top Air
pursuant to the Purchase Agreement, a majority of the shares of
Clay Holding common stock must be voted in favor of it. The Boards
of Directors of Clay Equipment and Clay Holding have given careful
consideration to each aspect of the proposed transaction and have
unanimously concluded that it is in the best interests of Clay
Equipment, Clay Holding and the ESOP participants. THE BOARD OF
DIRECTORS OF CLAY HOLDING RECOMMENDS THAT EACH ESOP PARTICIPANT
DIRECT THE ESOP TRUSTEE TO VOTE HIS OR HER ALLOCATED SHARES FOR THE
PROPOSAL TO APPROVE THE PURCHASE AGREEMENT. ---
------------------------------------------------------
Leonard J. Hare, President and Chief Executive Officer
