SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934. For the fiscal year ended May 31, 1998.
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _____________ to
______________.
Commission file number 1-13679
TOP AIR MANUFACTURING, INC.
(Name of Small Business Registrant as Specified in its Charter)
Iowa 42-1155462
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
317 Savannah Park Road
Cedar Falls, Iowa 50613
(Address of Principal Executive Offices) (Zip Code)
(319) 268-0473
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Common Stock, no par value
Securities registered under Section 12(g) of the Act: None
Check if the Registrant: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Registrant's revenues for its most recent fiscal year are $16,562,461.
The aggregate market value of the voting stock held by non-affiliates was
approximately $4,231,928 as of August 24, 1998. (The exclusion from such amount
of the market value of the shares owned by any person shall not be deemed an
admission by the registrant that such person is an affiliate of the registrant.)
The Registrant had 5,076,557 shares of common stock outstanding as of
August 24, 1998.
Portions of the definitive proxy statement of the Registrant for the
Registrant's 1998 annual meeting of shareholders, which definitive proxy
statement will be filed with the Securities and Exchange Commission not later
than September 28, 1998 (120 days after the end of the Company's most recently
completed fiscal year), are hereby incorporated by reference into Items 9, 10,
11 and 12 of Part III hereof.
<PAGE>
TABLE OF CONTENTS
PART I
Page
ITEM 1. Description of Business 3
ITEM 2. Description of Property 6
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters 7
ITEM 6. Management's Discussion and Analysis of Financial Condition 8
ITEM 7. Financial Statements 11
ITEM 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures 12
PART III
ITEM 13. Exhibits and Reports on Form 8-K 12
<PAGE>
This information contained in this Form 10-KSB includes statements regarding
matters that are not historical facts (including statements as to the beliefs or
expectations of the Company) which are forward-looking statements within the
meaning of the federal securities laws. Because such forward-looking statements
include risks and uncertainties the Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
sections captioned "Description of Business," "Management's Discussion and
Analysis of Financial Condition" and those factors discussed in Exhibit 99.
PART I
Item 1 - Description of Business
General
Top Air Manufacturing, Inc. (hereinafter referred to as "Top Air" or
the "Company") 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, liquid manure handling equipment, grain
carts and wagons, milking parlors, seed conveyors, feeding and forage
equipment and a line of attachments and replacement parts for all of
the products that the Company manufactures. The Company currently
manufactures its products in two facilities, one in Cedar Falls, Iowa
and the other in Onarga, Illinois.
Acquisitions
In January, 1997, Top Air indirectly acquired all of the assets of
Ficklin Machine Co., Inc. ("Ficklin Machine") by purchasing all of
Ficklin Machine's capital stock in exchange for 1,150,000 shares of Top
Air's no par value common stock.
In June 1995, the Company acquired substantially all of the assets of
Clay Equipment Corporation in exchange for 837,666 shares of the
Company's no par value common stock and the assumption by the Company
of certain liabilities of Clay Equipment Corporation.
Business of Issuer
Principal Products and Markets
Sprayers. The Company 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, T-Tank 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 1,100
gallon capacity. The Company 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.
Manure Handling Equipment. This product group consists of a line of
tanks ranging in size from 2,600 gallons to 6,000 gallons, either
trailer mounted or truck mounted to transport animal manure from a
storage pit or a storage lagoon to a farm field. The manure is then
spread on top of the ground or injected several inches under the
surface as a fertilizer which is very cost effective as opposed to the
purchase of a commercial substitute. In addition to the tanks, this
product group includes several types of pumps to agitate the storage
pit or storage lagoon and subsequently load the tank.
Grain Carts and Wagons. The Company manufactures a wide variety of
agricultural grain handling equipment, including side and center
unloading (gravity) wagons, ranging in size from 190 to 720 bushel
capacity, and grain carts equipped with integral, folding 14 inch
diameter augers, which range in size from 400 to 750 bushel capacity.
The grain wagons consist of two basic units, the grain box and the
wagon running gear, which can be sold together or separately. Grain
carts are most commonly sold as complete units with large floatation
tires.
Grain carts are used in the farm fields during the harvest season to
transport grain from the combine to nearby roads where the grain is
transferred from the cart to trucks or grain wagons for transport to
storage facilities. Carts are favored for use in the field because they
are pulled by tractors and can be pulled across wet fields in which
trucks often get stuck. Grain wagons can also be used during spring
planting as seed tenders for grain drills and planters.
Seed Conveyor. The trend in agriculture is away from handling seed in
bags and toward bulk handling. Since seed is very sensitive to cracking
and breaking which reduces germination, the traditional auger elevator
or chain type conveyor is less desirable in seed handling. The seed
conveyor utilizes a poly vinyl type of belt with rubber cleats
vulcanized to the belt which substantially reduces damage to the seed.
The seed conveyor is available in either a six-inch or twelve-inch
width. The six-inch wide conveyor is normally mounted on a gravity box
or a grain drill while the twelve-inch wide unit is mounted on a
trailer for mobility.
Milking Parlors. Dairy farmers who remodel or build new facilities
normally install a milking parlor or expand the existing milking
parlor. The milking parlor substantially reduces the time required to
complete the milking process since more cows can be milked with fewer
man hours. Although the Company manufactures several types of milking
parlors, the most popular type is the rapid exit 90 degree parlor.
Feeding and Forage. Feeding and forage equipment consists of belt
feeders, belt conveyors and silo unloaders. These products are normally
used in a configuration to convey and feed chopped hay or corn silage
along with other ingredients to dairy cows or beef cattle. These
products are normally found in a small to medium size farm operation.
Replacement Parts and Attachments. The Company stocks a full line of
repair parts and attachments to fit all of the products that it
manufactures. The Company distributes these parts to retailers and
utilizes them in its own manufacturing processes. The Company has
actively promoted these parts and has established itself as a major
supplier in the replacement parts market.
Other Products. The Company also custom manufactures products for other
firms on a contract basis. Traditionally, these have been limited
production runs of new designs.
Method of Distribution
The Company has seven salesmen and thirteen manufacturers'
representatives calling upon dealers and distributors in seventeen
states and Canada. The Company's efforts are ongoing to continue
expanding its sales territory into additional states and to further
enhance market penetration in the current marketing areas. The Company
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
In fiscal 1998, approximately 60% of the Company's sales occurred
during the last six months of the year, compared to approximately 75%
of sales for the same period in fiscal 1997. This decrease in the
seasonality of sales is primarily a result of the acquisition of
Ficklin Machine. Ficklin Machine's strongest shipping months are August
through September whereas Top Air's heaviest shipping months are
typically October through May.
Competitive Conditions
The Company competes with a large number of other agricultural
equipment manufacturers and suppliers. The Company's products, however,
are considered sufficiently different so that the Company can establish
and maintain a market for its products. In addition, the Company offers
a full line of sprayer products, liquid manure handling equipment,
grain wagons and carts, milking parlors and feeding and forage
equipment that add to the Company's ability to penetrate the market.
The Company offers various dating and billing programs that allow the
Company's dealers incentive to stock larger quantities of products
without the necessity to commit financial resources several months in
advance. This also allows the Company 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 the Company's sales.
Backlog Orders
The Company had a sales backlog of approximately $800,000 as of May 31,
1998 compared to an immaterial sales backlog as of May 31, 1997. The
May 31, 1998 backlog consists mainly of grain carts and wagons
scheduled for summer delivery. See "Seasonal Factors."
Source and Availability of Raw Materials
The Company purchases its raw materials from a number of suppliers. The
Company has had no difficulty in obtaining component parts in the past
and does not anticipate any difficulty in obtaining sufficient
component parts and raw materials as production increases.
Patents and Trademarks
The Company 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). With its acquisition of
Clay Equipment, the company now sells a line of agricultural spreaders
under the registered trade name of "Better Built." While the Company
believes that its patents and trademarks have significant value, the
Company is not dependent upon patents, trademarks, service marks or
copyrights.
Environmental Compliance
The Company 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 31, 1998, the Company's plant and executive offices employed 135
people on a full-time basis. Of this number, seven are executive
officers and the remainder are sales representatives, office staff,
production workers, and truck drivers. Fifty full-time production
workers are currently covered under a collective bargaining agreement
with Local 1728 of the IAMAW (the "Union") which runs through June 30,
2001.
Research and Development
Research and development costs incurred for the years ended May 31,
1998, 1997 and 1996 were $486,985, $448,350 and $400,916, respectively.
Research and development activities consist primarily of wages paid for
the design and testing of new equipment and improvements to existing
equipment.
Item 2 - Description of Property
The Company's operations are located in Cedar Falls, Iowa and Onarga, Illinois.
The Cedar Falls location is the Company's headquarters and consists of an 85,000
square foot building (the "Cedar Falls Facility") that was completed in
November, 1996. The Cedar Falls Facility is located in an industrial park on
nine acres of land and includes approximately 7,000 square feet of executive
office space and an aggregate of approximately 78,000 square feet devoted to
manufacturing, assembly, and warehousing functions. The Company leases the Cedar
Falls Facility from the City of Cedar Falls, Iowa (the "City"). The lease term
runs through 2006 and the City holds a five-year renewal option. In the event
that the City exercises such option, the Company shall have the right to
purchase the Cedar Falls Facility from the City for $1.3 million upon the
expiration of the five year renewal term.
The Company's Onarga location consists of four buildings totaling 41,300 square
feet on eight and one-half acres (the "Onarga Facility"). The Onarga Facility
includes approximately 925 square feet of office space, 15,750 square feet of
manufacturing space and 24,625 square feet of warehouse space. The Onarga
Facility is subject to a mortgage dated January 13, 1997 of approximately
$850,000 in favor of Norwest Bank Iowa, N.A. The Company believes both the Cedar
Falls Facility and the Onarga Facility are adequately insured.
In August 1998, the Company began an expansion of the Cedar Falls Facility to
add approximately 27,000 square feet to the size of the Cedar Falls Facility
(the "Expansion") pursuant to the terms of a development agreement between the
Company and the City dated July 13, 1998 (the "Development Agreement"). The
Expansion will allow the Company to increase the size of its assembly area,
warehouse capacity and research and development department. The Expansion will
also enable the Company to increase production capacity and result in increased
production efficiencies. The Expansion is scheduled to be substantially
completed by January 1999 and is projected to cost approximately $1,000,000.
Under the Development Agreement, the Company will be entitled to 20.5% of the
sale proceeds from the disposition of the Cedar Falls Facility in the event such
facility is sold prior to November 2011. In addition, the Development Agreement
specifies that the City shall donate to the Company four acres of land adjacent
to the Cedar Falls Facility.
Item 3 - Legal Proceedings
There are no material legal proceedings pending to which the Company is a party
or of which any of its property is the subject. No proceedings were terminated
during the fourth quarter of the fiscal year covered by this Report.
Item 4 - Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
<PAGE>
PART II
Item 5 - Market for Common Equity and Related Stockholder Matters
Market Information
On December 8, 1997, Top Air's common stock was approved for listing on
the American Stock Exchange under the symbol "TPC". Prior thereto, The
Company's common stock was quoted on the Nasdaq SmallCap Market.
The table below lists the high and low bid prices or sales prices, as
applicable, for each quarterly period during the years ended May 31,
1998 and 1997. The high and low bid prices from June 1, 1996 through
December 7, 1997 were provided by the Nasdaq SmallCap Market, and the
high and low sales prices from December 8, 1997 through May 31, 1998
were provided by the American Stock Exchange.
Sales Price Range Bid Price Range
Fiscal 1998 Fiscal 1997
------------- ------------
High Low High Low
---- --- ---- ---
1st Quarter $2.9375 $1.5000 $1.8750 $1.1875
2nd Quarter 3.1250 2.2500 1.8750 1.1875
3rd Quarter 2.9375 2.3750 1.8750 1.1875
4th Quarter 2.7500 2.4375 2.0000 1.3125
The Nasdaq SmallCap Market quotations, bid prices prior to December 7,
1997, reflect interdealer prices, without retail markup, markdown or
commission and may not necessarily represent actual transactions.
Stockholders
As of May 31, 1998 the Company had approximately 850 holders of record
of the Company's common stock.
Dividends
The holders of common shares are entitled to receive dividends when and
as declared by the Board of Directors. Except for certain provisions in
the Company's loan agreement with Norwest Bank Iowa, N.A. regarding the
maintenance of certain working capital and tangible equity levels,
there are no agreements that restrict dividend payments. The Company
has never paid a cash dividend. Because the Company currently intends
to retain any earnings to finance the development of its business, it
does not anticipate payment of any cash dividends in the foreseeable
future.
Recent Sales of Unregistered Stock
In January 1997, the Company issued 1,150,000 shares of common stock to
Wayne W. Whalen in connection with the Company's acquisition of Ficklin
Machine in a transaction exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.
Also in January 1997, the Company issued to Gregory Wilson a ten year
option to purchase 50,000 shares of the Company's common stock at a
price of $1.375 per share in a transaction exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933. The option was
granted as partial consideration in connection with certain services
that Mr. Wilson rendered to the Company. The Company believes that the
total value of the consideration paid was commensurate with the value
of the services the Company received. The option is immediately
exercisable and includes conditional registration rights.
Item 6 - Management's Discussion and Analysis of Financial Condition
Overview
Financially, fiscal 1998 was very successful. The Company continued its
trend of delivering record levels of sales and net income. Market share
gains were seen in both existing territories, as well as new
territories. Operating cost margins were improved which translated into
a higher percentage of operating income as it relates to sales.
The benefits of recent acquisitions are also apparent in the Company's
results of operations. Such acquisitions diversified the Company's
product line which permitted the Company to post sales increases in a
year that saw declining livestock prices and demand for related
equipment. Product line diversification will allow the Company to
withstand typical product cycles by offering equipment that is counter
cyclical. In addition, the Company's acquisitions have substantially
reduced the seasonality typically experienced in agricultural
manufacturing, by adding both fall and spring use product offerings.
<PAGE>
Results Of Operations
Fiscal 1998 Compared to Fiscal 1997
Net sales increased $2,760,195 to $16,562,461 in fiscal year 1998 which
represents a 20% increase over fiscal 1997 net sales of $13,802,266.
The increase resulted primarily from strong sales of spraying
equipment, grain wagons and grain carts. Increases in these product
groups were accomplished through continued geographic expansion of the
Company's dealer network, coupled with incremental sales of Ficklin
Machine for a full twelve months during fiscal 1998. The increases
offset a decline in the net sales of manure handling equipment, which
were negatively affected by low livestock prices throughout the year.
The Company's gross margin increased to $5,441,660 in fiscal 1998 from
$4,566,239 in fiscal 1997, an increase of 19%. This increase was
primarily due to increased sales volume. Gross margin as a percentage
of net sales decreased to 32.9% in fiscal 1998 from 33.1% in 1997. The
decrease in margin resulted from a higher percentage of consolidated
net sales coming from the Ficklin Machine product line, which typically
carries a slightly lower margin. However, gross margins of the Ficklin
Machine product line were improved for fiscal 1998 through planned
product mix changes at that facility. As a result, the consolidated
gross margin percentage for fiscal 1998 was somewhat higher than
originally anticipated.
Operating expenses increased $469,496 to $3,530,425 in fiscal 1998
which was a 15% increase from $3,060,929 in 1997. The increase was due
to incremental expenses associated with the first full year of
operation at the Ficklin Machine facility and general expenses relating
to the higher level of business. Operating expenses as a percentage of
net sales continued its downward trend to 21.3% in fiscal 1998 compared
to 22.2% in fiscal 1997.
Interest expense increased $185,543 to $370,591 in fiscal 1998 which
was a 100% increase from $185,048 in fiscal 1997. The increase was due
to higher levels of short-term and long-term debt necessary to finance
the operation of Ficklin Machine and the purchase of new production
machinery for the Cedar Falls plant. Interest expense as a percentage
of net sales increased to 2.2% in fiscal 1998 from 1.3% in fiscal 1997.
Income tax expense increased $78,724 to $560,999 in fiscal 1998 which
was 16.3% increase from $482,275 in fiscal 1997. The increase was a
result of higher earnings.
Net income increased $142,631 to $1,000,007 in fiscal 1998 which was a
16.6% increase from $857,376 in 1997. Net income as a percentage of
net sales decreased to 6.0% in fiscal 1998 from 6.2% in fiscal 1997.
Fiscal 1997 Compared to Fiscal 1996
Net sales increased $2,173,336 to $13,802,266 in fiscal year 1997 which
represents a 19% increase over 1996 net sales of $11,628,930. This
increase can be attributed to strong sales in spraying and manure
handling equipment resulting from sales programs implemented during the
year. In addition, incremental sales increased in connection with the
acquisition of Ficklin Machine. The increases were offset by decreases
in a number of product lines formerly sold by Clay Equipment that were
sold off during the year to enable the Company to concentrate on
products with the greatest potential for growth and profitability.
The Company's gross margin increased to $4,566,239 in 1997 from
$3,904,285 in 1996, a 17% increase, primarily due to increased sales
volume. Gross margin as a percentage of net sales decreased to 33.1% in
1997 from 33.6% in 1996. This decrease is due primarily to the
incremental sales from the Ficklin Machine acquisition achieving a
lower percentage of profit than Top Air has historically experienced.
The margins experienced by Ficklin Machine in the spring months have
typically been lower than their margins on an annual basis.
Operating expenses increased $355,219 to $3,060,929 in 1997 which was a
13% increase from $2,705,710 in 1996. The increase was due to
incremental expenses associated with the acquisition of Ficklin Machine
and to the higher level of business. Operating expenses as a percentage
of net sales decreased to 22.2% in 1997 compared to 23.3% in 1996.
Interest expense decreased $12,786 to $185,048 in 1997 which was a 6.5%
decrease from $197,834 in 1996. The decrease was a net result of lower
levels of operating debt carried throughout the year, offset by the
additional debt assumed in connection with the purchase of Ficklin
Machine. Interest expense as a percentage of net sales decreased to
1.3% in 1997 from 1.7% in 1996.
Income tax expense increased $109,269 to $482,275 in 1997 which was a
29.3% increase from $373,006 in 1996. The increase was primarily a
result of higher earnings.
Net income increased $179,988 to $857,376 in 1997 which was a 26.6%
increase from $677,388 in 1996. Net income as a percentage of net sales
increased to 6.2% in 1997 from 5.8% in 1996.
Liquidity
Due to the seasonality of the period of use for the Company's products,
it is necessary for the Company to build inventories ahead and finance
accounts receivable for extended terms. As a result, the Company's need
for working capital continues to increase as sales grow.
The Company has used a combination of cash generated from operations
and short-term bank loans to fund working capital requirements. The
same combination is intended to be used to fund fiscal 1999
requirements. The Company believes it has access to sufficient working
capital for its present and foreseeable needs and anticipates borrowing
funds seasonally, as the need arises.
As of May 31, 1998, the Company had a $4,000,000 line of credit from a
bank pursuant to a credit and security agreement originally dated
January 13, 1997 which expires November 30, 1998 and bears interest at
the prime rate (8.25% as of May 31, 1998). As of May 31, 1998, there
was $1,620,000 outstanding under the Company's line of credit.
The Company's working capital on May 31, 1998 was $5,697,623 which was
an increase from $5,140,589 in fiscal 1997 and $3,728,790 in fiscal
1996. Working capital increased primarily as a result of current assets
being partially funded through earnings without the necessity to
utilize short-term borrowings. The current ratio decreased to 2.48:1 in
fiscal 1998 as compared to 2.90:1 in fiscal 1997 and 3.43:1 in fiscal
1996.
Net cash used in operations for fiscal 1998 was $663,705, an increase
of $327,644 from the cash used in fiscal 1997 of $336,061. The increase
was primarily a result of financing higher levels of accounts
receivable and inventories as the Company continues to grow.
Net cash used in investing activities during fiscal 1998 was $981,038,
a decrease of $1,034,100 from the cash generated in fiscal 1997 of
$53,062. The decrease was primarily a result of additional investment
in production machinery and equipment.
Net cash provided by financing activities in fiscal 1998 was
$1,386,371, an increase of $840,371 from cash provided by financing
activities in fiscal 1997 of $546,000. The increase was due to
long-term borrowings to fund purchases of new machinery and short-term
borrowing to fund increased levels of accounts receivable and
inventories.
Capital Resources
In August, 1998 the Company began construction on a 27,000 square foot
expansion to its Cedar Falls, Iowa facility. Total cost of the project
is expected to be approximately $1,000,000. Construction will be
substantially completed by January, 1999. This expansion will enable
the Company to expand production capacity and will allow increased
production efficiencies. The Company will use long term debt to finance
this expansion.
Year 2000
Top Air is currently in the process of evaluating its computer control
systems for the potential costs and effects of the upcoming Millennium
change. The Company has been advised that its main computer hardware
and software systems are year 2000 compliant and believes that actions
required to prepare all other systems for the year 2000 issue will not
have a material impact on its business, operations or financial
condition.
Item 7 - Financial Statements
The financial statements of the Company are included herein as a separate
section of this Report which begins on page F-1.
Item 8 - Changes In and Disagreements with Accountants
On Accounting and Financial Disclosure
Not Applicable.
<PAGE>
PART III
Items 9, 10, 11 and 12
The information called for by Items 9, 10, 11 and 12 is incorporated by
reference to the definitive proxy statement for the 1998 Annual Meeting of
Shareholders of the Company (which involves the election of Directors), which
will be filed with the Commission not later than September 28, 1998 (120 days
after the end of the Company's most recently completed fiscal year).
Item 13 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits of this Report.
(b) Reports on Form 8-K
None.
<PAGE>
TOP AIR MANUFACTURING, INC.
FINANCIAL REPORT
MAY 31, 1998
INDEX TO FINANCIAL REPORT
Page
----
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance sheets F-2
Consolidated Statements of income F-4
Consolidated Statements of stockholders' equity F-5
Consolidated Statements of cash flows F-6
Notes to consolidated financial statements F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Top Air Manufacturing, Inc.
Cedar Falls, Iowa
We have audited the accompanying consolidated balance sheets of Top Air
Manufacturing, Inc. and subsidiary as of May 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years ended May 31, 1998, 1997 and 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 Top Air
Manufacturing, Inc. and subsidiary as of May 31, 1998 and 1997, and the results
of their operations and their cash flows for the years ended May 31, 1998, 1997
and 1996 in conformity with generally accepted accounting principles.
/s/ McGLADREY & PULLEN, L.L.P.
Waterloo, Iowa
July 27, 1998
F-1
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
May 31, 1998 and 1997
ASSETS (NOTE 3) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 5,146 $ 263,518
Trade receivables, less allowance for doubtful
accounts 1998 $131,000; 1997 $165,000 4,211,004 3,344,742
Current portion of long-term notes receivable (Note 4) 25,934 198,013
Inventories (Note 2) 5,167,744 3,885,154
Prepaid expenses 140,918 102,571
Deferred income taxes (Note 5) 3,000 52,000
----------- ------------
Total current assets 9,553,746 7,845,998
----------- ------------
Long-Term Receivables, Intangibles and Other Assets
Notes receivable, net of current portion (Note 4) 286,598 149,132
Deferred income taxes (Note 5) 6,500 111,500
Goodwill (Note 10) 1,060,969 1,138,081
Other assets 57,182 81,627
----------- ------------
1,411,249 1,480,340
----------- ------------
Property and Equipment
Land and improvements 81,637 65,286
Buildings 357,183 350,450
Machinery and equipment 2,418,500 1,599,591
Transportation equipment 530,281 546,045
Office equipment 411,088 280,680
----------- ------------
3,798,689 2,842,052
Less accumulated depreciation 1,122,423 782,912
----------- ------------
2,676,266 2,059,140
----------- ------------
$13,641,261 $11,385,478
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Notes payable (Note 3) $ 1,620,000 $ 432,000
Current maturities of long-term debt (Note 3) 455,087 361,778
Accounts payable 1,004,707 885,076
Accrued salaries and bonuses, including amounts
due to officers 1998 $75,400; 1997 $205,844 299,601 475,485
Accrued commissions payable 245,311 184,585
Other accrued expenses, including amounts due to
officers and related party 1998 and 1997 $6,000 176,225 74,670
Income taxes payable (Note 5) 55,192 291,815
----------- ----------
Total current liabilities 3,856,123 2,705,409
---------- ----------
Long-Term Debt (Note 3) 2,323,567 2,108,381
---------- ----------
Commitments (Notes 6 and 11)
Stockholders' Equity (Note 3)
Capital stock, common, no par value;
stated value $.0625 per share;
authorized 20,000,000 shares; issued 1998
5,167,098 shares; 1997 5,164,765 shares (Note 6) 322,944 322,798
Additional paid-in capital 2,900,688 2,898,636
Retained earnings 4,369,952 3,369,945
---------- ----------
7,593,584 6,591,379
Less cost of common stock reacquired for the treasury
1998 83,642 shares; 1997 29,217 shares 132,013 19,691
----------- -----------
7,461,571 6,571,688
---------- -----------
$ 13,641,261 $ 11,385,478
============ ============
</TABLE>
F-3
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended May 31, 1998, 1997 and 1996
1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $16,562,461 $13,802,266 $11,628,930
Cost of goods sold 11,120,801 9,236,027 7,724,645
----------- ----------- -----------
Gross profit 5,441,660 4,566,239 3,904,285
----------- ----------- -----------
Operating expenses:
Selling 1,585,741 1,524,782 1,403,264
Provision for doubtful accounts 47,208 (31,208) 6,572
Other general and administrative, including
amounts paid to related parties 1998,
1997 and 1996 $48,000 (Note 7) 1,897,476 1,567,355 1,295,874
---------- ---------- ----------
3,530,425 3,060,929 2,705,710
---------- ---------- ----------
Operating income 1,911,235 1,505,310 1,198,575
---------- ---------- ----------
Financial income (expense):
Interest income 20,362 19,389 49,653
Interest expense (370,591) (185,048) (197,834)
----------- ---------- ----------
(350,229) (165,659) (148,181)
----------- ---------- ----------
Income before income taxes 1,561,006 1,339,651 1,050,394
Federal and state income taxes (Note 5) 560,999 482,275 373,006
----------- ---------- ----------
Net income $ 1,000,007 $ 857,376 $ 677,388
=========== ========= =========
Earnings per share (Note 9):
Basic $ 0.20 $ 0.19 $ 0.17
======= ======= =======
Fully diluted $ 0.19 $ 0.19 $ 0.17
======= ======= =======
Weighted average shares (Note 9):
Basic 5,088,646 4,416,379 3,942,532
Fully diluted 5,249,873 4,504,445 3,988,579
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended May 31, 1998, 1997 and 1996
Capital Additional
Stock, Paid-In Retained Treasury
Issued Capital Earnings Stock Total
------- ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1995 $198,402 $840,877 $1,835,181 $ - $2,874,460
Net income - - 677,388 - 677,388
Issuance of 837,666 shares
of common stock for the
purchase of Clay Equipment
Corporation (Note 10) 52,354 546,666 - - 599,020
Issuance of 1,666 shares
of common stock upon the
exercise of options 104 1,187 - - 1,291
Purchase of 29,217 shares
of common stock for the
treasury - - - (19,691) (19,691)
----------- -------------- -------------- --------- ----------
Balance, May 31, 1996 250,860 1,388,730 2,512,569 (19,691) 4,132,468
Net income - - 857,376 - 857,376
Issuance of 1,150,000 shares
of common stock for the
purchase of Ficklin Machine
(Note 10) 71,875 1,509,375 - - 1,581,250
Issuance of 1,000 shares of
common stock upon the
exercise of options 63 531 - - 594
------------ ------------ -------------- ----------- ------------
Balance, May 31, 1997 322,798 2,898,636 3,369,945 (19,691) 6,571,688
Net income - - 1,000,007 - 1,000,007
Purchase of 54,425 shares
of common stock for the
treasury - - - (112,322) (112,322)
Issuance of 2,333 shares of
common stock upon the
exercise of options 146 2,052 - - 2,198
----------- ------------- --------------- -------------- -------------
Balance, May 31, 1998 $ 322,944 $ 2,900,688 $ 4,369,952 $ (132,013) $ 7,461,571
========= =========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended May 31, 1998, 1997 and 1996
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $1,000,007 $857,376 $677,388
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 409,457 331,021 268,933
Amortization 97,516 32,275 112
Deferred income taxes 154,000 (87,000) 159,000
(Gain) on sale of equipment (11,631) (79,921) (16,220)
Change in assets and liabilities,
net of the effects of business
acquisitions (Note 10):
(Increase) decrease in:
Trade receivables (866,262) (1,500,679) (74,289)
Inventories (1,282,590) (41,043) 305,413
Prepaid expenses (38,347) 50,630 (87,242)
Increase (decrease) in:
Accounts payable and accrued expenses 110,768 (125,765) (448,399)
Income taxes payable (236,623) 227,045 (43,706)
------------ ---------- -----------
Net cash provided by (used in)
operating activities (663,705) (336,061) 740,990
------------ ---------- ----------
Cash Flows From Investing Activities
Proceeds from sale of equipment 19,600 1,135,312 67,450
Purchase of property and equipment (1,034,552) (996,927) (442,464)
Payments received on long-term
notes and other receivable 34,613 148,149 540,076
Disbursements on notes receivable - (193,000) -
Increase in intangible and other assets (699) (40,472) (45,164)
------------ ----------- ------------
Net cash provided by (used in)
investing activities (981,038) 53,062 119,898
----------- ----------- ------------
Cash Flows from Financing Activities
Proceeds from short-term borrowings 8,712,400 7,049,000 5,268,100
Principal payments on short-term borrowings (7,524,400) (6,617,000) (5,268,100)
Proceeds from long-term borrowings 725,000 1,388,444 3,562,700
Principal payments on long-term borrowings (416,505) (1,275,038) (4,819,419)
Purchase of common stock for the treasury (112,322) - (19,691)
Proceeds from issuance of common stock 2,198 594 1,291
------------ -------------- -------------
Net cash provided by (used in)
financing activities 1,386,371 546,000 (1,275,119)
----------- ----------- ------------
(Continued)
</TABLE>
F-6
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years Ended May 31, 1998, 1997 and 1996
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash
and cash equivalents $(258,372) $263,001 $(414,231)
Cash and Cash Equivalents
Beginning 263,518 517 414,748
---------- ----------- ----------
Ending $ 5,146 $263,518 $ 517
========== ======== ===========
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest $ 363,444 $ 173,334 $ 195,193
--------- --------- ---------
Income Taxes $ 643,622 $ 344,029 $ 257,712
--------- --------- ---------
Supplemental Schedule of Noncash Investing
and Financing Activities
Acquisition of Ficklin Machine
(Note 10):
Working capital acquired $1,075,457
Fair value of other assets acquired,
principally property and equipment 775,015
Goodwill 1,125,753
Long-term debt assumed (1,394,975)
-----------
$ 1,581,250
Issuance of 1,150,000 shares of common stock $ 1,581,250
===========
Acquisition of Clay Equipment Corporation
(Note 10):
Working capital acquired $1,329,160
Fair value of other assets acquired,
principally equipment 1,098,595
Long-term debt assumed (1,828,735)
$ 599,020
===============
Issuance of 837,666 shares of common stock $ 599,020
===============
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
TOP AIR MANUFACTURING, INC. AND SUBSIDIARY
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 repair and replacement parts to dealers
located primarily in the midwestern states on credit terms that the Company
establishes for individual customers.
Significant accounting policies:
Principles of consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiary, Ficklin Machine, which is
wholly-owned. All significant intercompany accounts and transactions have been
eliminated.
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 over the estimated useful lives of the assets.
Goodwill: Goodwill resulting from the Company's acquisition of Ficklin Machine
is being amortized over 15 years using the straight-line method and is
periodically reviewed for impairment based upon an assessment of future
operations to ensure that they are appropriately valued. Accumulated
amortization on goodwill totaled $103,195 and $28,144 at May 31, 1998 and 1997
respectively.
Revenue recognition: Sales of all products are recognized as goods are shipped.
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.
Research and development: Research and development costs are charged to
operations as they are incurred.
Stock options issued to employees: In fiscal year 1997, the Company adopted the
provision of SFAS No. 123, "Accounting for Stock-Based Compensation", which
establishes a fair value based method for the financial reporting of its
stock-based employee compensation plans. However, as allowed by the new
standard, the Company has elected to continue to measure compensation using the
intrinsic value based method as prescribed by Accounting Principles Board Option
No. 25, "Accounting for Stock Issued to Employees." Under this method,
compensation is measured as the difference between the market value of the stock
on the grant date, less the amount required to be paid for the stock. The
difference, if any, is charged to expense over the periods of service.
Fair value of financial instruments: The carrying amount of cash and cash
equivalents, trade receivables and accounts payable approximates fair value
because of the short maturity of these instruments. The carrying amounts of
notes receivable, current notes payable and long-term debt approximate fair
values because these instruments bear interest at approximate current rates
available to the Company for similar instruments.
F-8
<PAGE>
Earnings per share: In 1997, the Financial Accounting Standards Board (the
"FASB") issued Statement No. 128, "Earnings Per Share." Statement No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Basic earnings per share is computed by
dividing net income available to common stockholders by the weighted average
number of shares outstanding. In computing diluted earnings per share, the
dilutive effect of stock options during the periods presented as well as the
effect of contingently issuable shares also increase the weighted average number
of shares.
The Company initially applied Statement No. 128 for the year ended May 31, 1998
and has restated all per share information for prior years to conform to
Statement No. 128.
Recently issued accounting standards: In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information", both of which are required
to be adopted for fiscal years beginning after December 15, 1997. SFAS No. 130
will require the Company to report in its financial statements all non-owner
related changes in equity for the periods being reported. SFAS No. 131 will
require the Company to disclose revenues, earnings, and other financial
information pertaining to the business segments by which the Company is managed,
as well as what factors management used to determine these segments. The Company
is currently evaluating the requirements of SFAS NO. 130 and 131 to determine
how to present the required information in its financial statements and related
disclosures.
Note 2. Composition of Inventories
Inventories at May 31, 1998 and 1997 consisted of the following:
1998 1997
----- -----
Raw materials $286,304 $206,833
Work in process 383,516 257,099
Finished goods 4,497,924 3,421,222
----------- -----------
$ 5,167,744 $ 3,885,154
=========== ===========
Note 3. Pledged Assets and Related Debt
The Company has a line of credit agreement with a bank which expires November
30, 1998, under which they may borrow up to $4,000,000 in current notes payable
based on a percentage of inventory and trade receivables. Based on the levels of
inventory and trade receivables, the total amount available could be borrowed
under this agreement at May 31, 1998. The interest rate on advances under this
agreement is the bank's prime rate (effective rate of 8.25% at May 31, 1998).
The Company has borrowings on this line of $1,620,000 and $432,000 as of May 31,
1998 and 1997, respectively. (a)
F-9
<PAGE>
<TABLE>
<CAPTION>
Long-term debt at May 31, 1998 and 1997 consisted of the following:
Amount Owed
1998 1997
---- ----
<S> <C> <C>
Line of credit, bank, borrowings bearing interest at 8.25%, all outstanding
principal and interest due June 26, 2000. Under the terms of this agreement
the Company is allowed to use excess cash to temporarily pay down this loan
and will be allowed to borrow up to a maximum available credit established by
the bank. At May 31, 1998 additional borrowings of $15,000 are available under
this agreement. This borrowing limit decreases quarterly to approximately
$900,000 at the maturity of the agreement. (a) $1,168,403 $1,295,344
Note payable, bank, due in monthly installments of $15,711,
including interest at 8.25%, through January 10, 2004. (a) 853,142 963,445
Note payable, bank, due in monthly installments of $14,875,
including interest at 8.25% through October 3, 2002. (a) 668,913 -
Note payable, City of Cedar Falls, Iowa, due in annual installments of $12,857,
noninterest bearing, through September 15, 2000.
Collateralized by all inventory and trade receivables. 38,571 51,428
Contract payable, due in monthly installments of $2,494, including
interest at 8%, through May 7, 1999. Collateralized by a note
receivable of $121,960 (Note 4). 28,666 55,135
Note payable, employee, due in weekly installments of $962,
noninterest bearing, through October 31, 1998. Collateralized by
other assets. 20,959 70,959
Other - 33,848
--------------- -----------
2,778,654 2,470,159
Less current maturities 455,087 361,778
----------- ----------
$2,323,567 $2,108,381
========== ==========
</TABLE>
(a) These borrowings are collateralized by substantially all of the assets
of the Company. The agreements contain various restrictive covenants
including, among others, ones which require the Company to maintain a
certain amount of working capital, $5,000,000 of tangible equity and
certain minimum financial ratios. All covenants have been complied with
at May 31, 1998.
The following is a schedule by years of the maturities of the long-term debt as
of May 31, 1998:
Year ending May 31:
1999 $455,087
2000 439,104
2001 1,181,123
2002 320,957
2003 257,406
Thereafter 124,977
$ 2,778,654
Note 4. Notes Receivable
Notes receivable as of May 31, 1998 consist of the following:
To be received $2,500 monthly, including
interest at 10%, through March 1,
2000, with balance due at that date. $163,399
To be received $1,386 monthly, including
interest at 8%, through June 2009. 121,960
Stockholder, noninterest bearing, to be
received in three payments of $1,500
a year through January 2004. 27,173
312,532
Less current portion 25,934
$286,598
F-10
<PAGE>
Note 5. Income Taxes
Net deferred tax assets consist of the following components as of May 31, 1998
and 1997:
1998 1997
----- -----
Deferred tax assets:
Allowance for doubtful accounts $33,000 $50,000
Accrued expenses 46,000 57,000
Contracts payable 10,000 25,000
Net operating loss carryforward 128,000 139,000
Deductible goodwill of predecessor company 189,000 208,000
Inventory 28,000 38,000
-------- ---------
434,000 517,000
-------- --------
Deferred tax liabilities:
Property and equipment 100,500 38,500
Inventory 210,000 315,000
Trade receivables 114,000 -
------- ---------
424,500 353,500
------- -------
$ 9,500 $ 163,500
======== =========
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of May 31, 1998 and 1997 as follows:
1998 1997
---- ----
Current assets $ 3,000 $ 52,000
Noncurrent assets 6,500 111,500
-------- ---------
$ 9,500 $ 163,500
======== =========
The Company acquired operating loss carryforwards in connection with the
purchase of certain assets of Clay Equipment Corporation (Note 10). Limitations
imposed by current tax laws limit the utilization of these carryforwards to
approximately $40,000 per year through 2009.
Income tax expense is made up of the following components:
Year Ended May 31,
1998 1997 1996
---- ---- ----
Current tax expense:
Federal $ 397,999 $ 506,827 $ 188,000
State 9,000 62,448 26,006
406,999 569,275 214,006
Deferred tax expense (credit) 154,000 (87,000) 159,000
---------- ---------- -----------
$ 560,999 $ 482,275 $ 373,006
========== ========== ===========
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 to
income before income taxes for the following reasons:
Year Ended May 31,
1998 1997 1996
---- ---- ----
Income tax expense at statutory
federal income tax rate $ 546,352 $ 468,878 $ 367,638
State tax expense, net of federal
income tax benefit 6,202 41,216 17,164
Benefit of income taxed at lower
rates (15,610) (13,397) (10,504)
Other 24,055 (14,422) (1,292)
$ 560,999 $ 482,275 $ 373,006
F-11
<PAGE>
Note 6. Stock-Based Compensation
At May 31, 1998, the Company has a stock-based compensation plan which is
described below. As permitted under generally accepted accounting principles,
grants under this plan are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for grants under the plan. Had compensation cost for the stock based
compensation plan been determined based on the grant date fair values of the
awards (the method prescribed in SFAS No. 123), reported net income and earnings
per share would have been reduced to the pro forma amounts shown below:
Year Ended May 31,
1998 1997 1996
---- ---- ----
Net income
As reported $ 1,000,007 $ 857,376 $ 677,388
Pro forma 940,007 830,376 670,888
Basic earnings per share
As reported 0.20 0.19 0.17
Pro forma 0.18 0.19 0.17
Fully diluted earnings per share
As reported 0.19 0.19 0.17
Pro forma 0.18 0.18 0.17
The Company has a stock option plan adopted in 1993 which provides for the
issuance of a maximum of 425,000 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. The options granted under this plan become exercisable
over three years.
In addition, the Company granted options to purchase 50,000 share of common
stock of the Company to a non-employee in connection with the acquisition of
Ficklin Machine. See Note 10.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants:
Year Ended May 31,
1998 1997 1996
---- ---- ----
Risk free interest rate 5.71% 6.35% 6.35%
Expected life 10 years 10 years 10 years
Price volatility 40.4% 29.6% 29.6%
Expected dividends - - -
F-12
<PAGE>
The following table summarizes the options to purchase shares of the Company's
common stock:
Stock Options
-------------
Weighted
Average
Exercise
Outstanding Price
----------- --------
Balance at May 31, 1995 137,167 0.7673
Granted 67,000 1.2650
Exercised (1,666) 0.7251
Canceled (1,000) 0.7500
Balance at May 31, 1996 201,501 0.9332
Granted 116,000 1.3750
Exercised (1,000) 0.5938
Canceled (7,000) 1.1429
Balance at May 31, 1997 309,501 1.0952
Granted 67,500 2.6875
Exercised (2,333) 0.9421
Canceled (5,667) 1.2831
Balance at May 31, 1998 369,001 1.3846
Number of Options
1998 1997 1996
---- ---- ----
Exercisable, end of year 239,500 132,995 82,157
Weighted-average fair value
per option of options
granted during the year $ 1.66 $ 0.78 $ 0.71
Options are exercisable over varying periods ending on January 2008.
A further summary of the fixed options outstanding at May 31, 1998 is as
follows:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
$ .5938 35,334 $ 4.625 $ 0.5938 35,334 $ 0.5938
$ .8438 37,667 5.625 0.8438 37,667 0.8438
$ .7500 to $1.0000 56,500 6.578 0.8274 56,500 0.8261
$1.2188 to $1.2813 58,000 7.584 1.2624 38,669 1.2637
$1.3750 114,000 8.625 1.3750 71,330 1.3750
$2.6875 67,500 9.660 2.6875 - -
------ ----- ------ ------- ----------
369,001 $ 7.648 $ 1.3845 239,500 $ 1.0287
Research and Development
Research and development costs included in the statements of income as part of
other general and administrative expenses totaled $486,985, $448,350 and
$400,916 for the years ended May 31, 1998, 1997 and 1996, respectively.
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, 1998, 1997 and 1996 were $52,569, $40,444 and $35,029
respectively.
F-13
<PAGE>
Earnings Per Share
In compliance with Financial Accounting Standards Board Statement No. 128,
"Earnings per Share," issued in February 1997, the Company has changed its
method of computing earnings per share effective for fiscal 1998. All prior
periods presented have been restated to conform to the new requirements which
exclude contingently issuable shares and the dilutive effect of stock options
from the number of weighted average shares used in the computation of basic
earnings per share. The effect of Statement 128 on diluted earnings per share is
immaterial compared to previously disclosed fully diluted earnings per share.
Basic and diluted earnings per share are calculated as follows:
Year Ended May 31,
1998 1997 1996
---- ---- ----
Basic earnings per share:
Net income available to common
stockholders-basic $ 1,000,007 $ 857,376 $ 677,388
Weighted average shares
outstanding-basic 5,088,646 4,416,379 3,942,532
Basic earnings per share $ 0.20 $ 0.19 $ 0.17
Diluted earnings per share:
Net income available to
common stockholders-diluted $ 1,000,007 $ 857,376 $ 677,388
Weighted average shares
outstanding-basic 5,088,646 4,416,379 3,942,532
Effect of dilutive securities,
employee stock options 161,227 88,066 46,047
Weighted average shares
outstanding-diluted 5,249,873 4,504,445 3,988,579
Diluted earnings per share $ 0.19 $ 0.19 $ 0.17
At May 31, 1998, 1997 and 1996, respectively, 67,500, none and 67,000 of
employee stock options were outstanding but were not included in the computation
of diluted earnings per share because the options' exercise price was greater
than the average market price of the common shares.
Note 10. Business Acquisitions
On January 15, 1997 the Company acquired all of the issued and outstanding stock
of Ficklin Machine of Onarga, Illinois in exchange for 1,150,000 shares of the
Company's no par value common stock. As a result, Ficklin Machine became a
wholly-owned subsidiary of the Company.
Ficklin Machine designs, manufactures and distributes grain wagons and carts and
small lawn and garden sprayers. The Company currently intends to continue the
business of Ficklin Machine in substantially the same manner as conducted prior
to the acquisition. The acquisition has been accounted for by the purchase
method and the results of operations of Ficklin Machine since the date of
acquisition are included in the financial statements.
Unaudited pro forma consolidated condensed financial statements for the year
ended May 31, 1997 and 1996 as though Ficklin had been acquired as of March 6,
1996, Ficklin Machine's date of inception, are as follows:
Net sales $ 17,213,000 $ 12,681,000
Net income 923,000 705,000
Earnings per share:
Basic 0.18 0.17
Diluted 0.18 0.17
F-14
<PAGE>
On June 26, 1995 the Company acquired certain assets of Clay Equipment
Corporation ("Clay") of Cedar Falls, Iowa in exchange for the assumption of
approximately $2,500,000 of liabilities and 837,666 shares of the Company's no
par value common stock with a value of approximately $628,000. In connection
with the issuance of these shares, the Company incurred stock registration costs
of approximately $29,000. Clay designed, manufactured, and distributed livestock
equipment and other agricultural related products, primarily manure spreader
wagons and milking equipment. The Company moved the combined operations to Cedar
Falls, Iowa in October 1996 where the Company has entered into a lease with the
City of Cedar Falls, Iowa (See Note 11). In association with the move the City
purchased the land and building of the former Clay site under a flood relocation
plan. The City withheld $131,500 of the purchase price for possible clean up
costs after the former Clay site was demolished. Also, as part of the flood
relocation plan the Company sold equipment and was reimbursed by the City of
Cedar Falls for the moving costs or replacement of equipment with a book value
of $755,546. All proceeds and reimbursements were received by the Company. The
acquisition has been accounted for by the purchase method and results of
operations of Clay since the date of acquisition are included in the financial
statements.
Lease Commitments and Subsequent Events
The Company has entered into a 10 year noncancelable agreement to lease an
85,000 square foot facility from the City of Cedar Falls, Iowa ("City"). The
lease requires monthly payments of $16,722 plus insurance, utilities, and other
expenses to be paid by the Company. The City has the option to renew and extend
the lease for an additional 5 years at the end of the original lease term with
an increase in monthly rental not to exceed 3%. At the end of the lease
extension period, the Company has the option to purchase the facility for
approximately $1.3 million plus all reasonable costs and expenses incurred by
the City for the sale. The lease is being accounted for as an operating lease.
The total minimum rental commitment, including the extension period, at May 31,
1998 is approximately $2,700,000 which is due as follows:
Year ending May:
1999 $ 200,000
2000 200,000
2001 200,000
2002 200,000
2003 200,000
Thereafter 1,700,000
-----------
$ 2,700,000
===========
Under this agreement, the Company incurred approximately $200,000 and $143,000
in rent expense for the years ended May 31, 1998 and 1997, respectively.
On July 13, 1998 the Company received a contribution of approximately 4 acres of
land from the City in exchange for an agreement to expand its current
manufacturing facilities. Subsequently, the Company broke ground on this
expansion which is expected to cost approximately $1,000,000 and be completed in
January 1999. As a part of this agreement, in the event that the existing 85,000
square foot facility discussed above is sold prior to the Company's right to
exercise its purchase option, the Company would receive 20.5% of the proceeds of
the sale. The cost of the expansion is expected to be financed with additional
long-term debt under terms which have not yet been determined.
F-15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized:
Registrant Top Air Manufacturing
/s/ Steven R. Lind
By (Signature and Title) ------------------------------------------------
Steven R. Lind, Principal Executive Officer
/s/ Steven F. Bahlmann
------------------------------------------------
Steven F. Bahlmann, Principal Accounting Officer
Date: August 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ Wayne C. Dudley By: /s/ Franklin A. Jacobs
---------------------------------- ----------------------------------
Wayne C. Dudley, Director Franklin A. Jacobs, Director
Date: August 28, 1998 Date: August 28, 1998
By: /s/ Dennis W. Dudley By: /s/ S. Lee Kling
--------------------------------- ----------------------------------
Dennis W. Dudley, Director S. Lee Kling, Director
Date: August 28, 1998 Date: August 28, 1998
By: By: /s/ Sanford W. Weiss
-------------------------------- ----------------------------------
Robert J. Freeman, Director Sanford W. Weiss, Director
Date: August __, 1998 Date: August 28, 1998
By: /s/ Steven R. Lind By: /s/ Thaddeus P. Vannice, Sr.
-------------------------------- ----------------------------------
Steven R. Lind, Director Thaddeus P. Vannice, Sr., Director
Date: August 28, 1998 Date: August 28, 1998
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------- ----------- ----
*2 Share Exchange Agreement between Wayne W. Whalen and the Company
dated January 15, 1997 under which the Company acquired Ficklin
Machine Co., Inc., filed as Exhibit 2.1 to the Company's Form
8-K dated January 24, 1997
*3(a) Amended and restated Articles of Incorporation, filed as Exhibit
3(c) to the Company's Annual Report on Form 10-KSB for fiscal
year 1991 (the "1991 Form 10-KSB")
*3(b) Amended and Restated By-laws, filed as Exhibit 3(d)
to the 1991 Form 10-KSB
*3(c) Amendments to the Amended and Restated By-laws, effective
October 21, 1992, filed as Exhibit 3(c) to the Company's Annual
Report on Form 10-KSB for fiscal year 1993 (the "1993 Form
10-KSB)
*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
*10(a) Promissory Note dated January 1, 1991, between the
Company and Wayne C. Dudley (the "Dudley Note"),
filed as Exhibit 10(b) to the 1991 Form 10-KSB
*10(b) Letter Amendment, dated August 5, 1994, to the Dudley Note,
filed as Exhibit 10(c) to the Company's Annual Report on Form
10-KSB for fiscal year 1994 (the "1994 Form 10-KSB")
*10(c) 1993 Stock Option Plan adopted by the Board of Directors
November 6, 1992, filed as Exhibit 10(c) to the 1993 Form 10-KSB
*10(d) Summary Plan description for 401(k) plan adopted by the Board of
directors on October 22, 1991, filed as Exhibit 28(b) to the
Company's Annual Report on Form 10-KSB for fiscal year 1992 (the
"1992 Form 10-KSB")
*10(e) Promissory Note dated May 16, 1996 between the Company and
Norwest Bank Iowa, N.A., filed as Exhibit 10(e) to the Company's
Annual Report of Form 10-KSB for the fiscal year 1996 (the "1996
Form 10-KSB")
**10(f) Variable balance promissory note dated October 10, 1997, between
the Company and Norwest Bank Iowa, N.A.
*10(g) Promissory Note dated January 13, 1997 between the Company and
Norwest Bank Iowa, N.A., filed as Exhibit 10(g) to the Company
Annual Report on Form 10-KSB for the fiscal year 1997 (the "1997
Form 10-KSB")
*10(h) First Amendment to 1993 Stock Option Plan dated October 1, 1995,
filed as Exhibit 10(h) to the 1997 Form 10-KSB
*10(i) Second Amendment to 1993 Stock Option Plan dated March 4, 1997,
filed as Exhibit 10(i) to the 1997 Form 10-KSB
*10(j) Consulting Agreement dated December 12, 1996 between the Company
and Gregory Wilson, together with a Stock Option Agreement
issued in connection therewith, filed as Exhibit 10(j) to the
1997 Form 10-KSB
**10(k) Promissory Note dated October 10, 1997 between the Company and
Norwest Bank Iowa, N.A.
**10(l) Building lease dated April 17, 1995 between the
Company and the City of Cedar Falls, Iowa
**10(m) Developmental agreement dated between the
Company and the City of Cedar Falls, Iowa
**11 Statement re Computation of Per Share Earnings
**23 Consent of Accountants
<PAGE>
**27 Financial Data Schedule
(Filed in EDGAR version only)
**99 Cautionary Statement Identifying Important Factors
that Could Cause the Company's Actual Results to
Differ from those Projected in Forward-Looking
Statements
- ----------------
* Incorporated by reference to the indicated documents or parts thereof,
previously filed with the Commission.
** Filed herewith.
NORWEST BANKS
- --------------------------------------------------------------------------------
Borrower's name Date
Top Air Manufacturing, Inc. 10-10-1997
- --------------------------------------------------------------------------------
Promise to Pay: For Value received, the undersigned Borrower promises to pay to
the order of Norwest Bank Iowa, National Association (the "Bank"), at 302 Main
Street Cedar Falls, IA 50613 or at any other place designated at any time by the
holder of this promissory note (the "Note") in lawful money of the United States
of America, the principal sum of Four Million and 0/100 Dollars ($4,000,000.00),
together with interest on the unpaid principal amount in accordance with the
repayment terms set forth below.
Interest: Interest on this Note, calculated on the basis of actual days elapsed
in a 360 day year, will accrue as follows (choose one of the following):
|X| on the unpaid principal amount of this Note at the Note Rate.
|_| on the unpaid principal amount of this Note at the __________ of the Note
Rates selected at any time.
|_| on the unpaid principal amount of this Note:
up to and including $________________ at the Note Rate.
from $ _____________ to and including $ _______________ at the Note
Rate ______ ___________ %. from $ _____________ to and including
$_______________ at the Note Rate ______ ___________ %.
from $ _____________ to and including $ _______________ at the Note Rate
______ ___________ %.
|_| if the unpaid principal amount of this Note:
is not in excess of $ _____________ at the Note Rate.
is equal to or greater than $ _______________ but not in excess of $
_______________ at the Note Rate ______ ___________ %. is equal to or
greater than $ _______________ but not in excess of $ _______________ at
the Note Rate ______ ___________ %.
is equal to or greater than $ _______________ at the Note Rate ______
___________ %.
Note Rate: The Note Rate under this Note shall be (choose the applicable Note
Rate(s)):
|_| an annual rate of _________% (the "Note rate"),
|X| an annual rate |X| equal to the Index Rate, or |_| __________% __________
the Index Rate, or |_| _________% of the Index Rate, |X| from time to
time in effect, each change in the interest rate to become effective on
the day the corresponding change in the Index Rate becomes effective, or
|_| with an initial interest rate equal to 8.5000 % (the "Note Rate"),
|_| an annual rate as set forth in the Interest Rate Addendum attached to
this Note (the "Note Rate"),
provided that if this Note has a variable rate of interest, |_| the Note rate
shall at no time be less than _________%, and |_| shall at no time exceed an
annual rate of __________%. In no event shall the rate of interest applicable to
this Note under any term or condition exceed the maximum rate permitted by law.
|X| "Index Rate" means |X| the "Base Rate" which is the rate of interest
established by Norwest Bank Iowa, N.A.
|_| the "Wall Street Rate" which is the highest "prime" rate of interest
reported in the Wall Street Journal "Money Rates" Table, or
|_| the
Repayment Terms: Unless payable sooner as a result of its acceleration, the
Borrower promises to pay this Note as follows (choose the applicable Repayment
Term):
Principal. Principal shall be payable:
|_| on the earlier of demand or _______________ (the "Due Date").
|X| on 11-30-1998 (the "Due Date").
Interest. Interest shall be payable:
|_| on the Due Date.
|X| monthly, commencing 11-10-1997 and on the same day of each succeeding
month and on the Due Date.
"Due Date" means the maturity date of this Note whether it is the stated
maturity date or an earlier date by reason of acceleration or demand.
|X| Revolving Line. The Borrower may borrow, prepay, and reborrow under this
Note until the Due Date within the limits of this Note, and subject to the terms
and conditions in any other agreements between the Borrower and the Bank.
|X| Conditional Line. Any advances made under this Note shall be at the sole
discretion of the Bank and the Bank is not obligated to make any advance under
this Note.
|_|Late Fee: Each time that a scheduled payment is not paid when due or within
______ days afterward, the Borrower agrees to pay a late fee equal to |_| $
______________, or |_| _________________ % of the full amount of the late
payment, or |_| the ____________ of $ ________________ or _________________ %
of the full amount of the late payment. Acceptance by the Bank of any late
fee shall not constitute a waiver of any default hereunder.
|_|Other Fees: |_| The Borrower shall pay to the Bank a one-time, nonrefundable
________________________ equal to $ _______________ at the time this Note is
signed. |_| The Borrower shall pay to the Bank a ___________________ equal to
|_| $ __________________, or |_| _______________% per annum (calculated on
the basis of actual days elapsed in a _______ day year) of the |_| average
daily unused portion, |_| maximum principal amount of the line evidenced by
this Note, payable _________________, in _________________, commending
________________ and on the _________ day of each succeeding _____________
and on the Due Date.
|_|Additional Interest Before and After the Due Date: Each time that a
scheduled payment is not paid when due or within _________ days afterward,
additional interest will begin accruing on the next calendar day on the
entire unpaid principal amount of this Note at an annual Rate of ____________
% in excess of the Note Rate ("Additional Interest Rate"). Acceptance by the
Bank of Additional Interest shall not constitute a waiver of any default
hereunder. The unpaid principal and interest due on this Note after the Due
Date shall bear interest until paid at the Additional Interest Rate (except
in North Dakota).
Prepayment: The Borrower may at any time prepay this Note, in whole or in part.
Security: In addition to any other collateral interest given to the Bank
previously, now, or in the future, by separate agreement not referenced herein,
which states it is given to secure this Note or all indebtedness of the Borrower
to the Bank, this Note is secured with a (an) Security Agreement dated
06-26-1995, 1/13/97, and a Mortgage dated 1/13/97.
Default and Acceleration: Borrower will be in default under this Note if: (i)
the Borrower fails to pay when due any principal, interest or other amounts due
under this Note, or (ii) the Borrower fails to perform or observe any term or
covenant of this Note or any related documents or perform any other agreement
with the Bank, or (iii) the Borrower or any subsidiary fails to perform or
observe any agreement with any other creditor that relates to indebtedness or
contingent liabilities which would allow the maturity of such indebtedness or
obligation to be accelerated, or (iv) the Borrower changes its legal form of
organization, or (v) any representation or warranty made by the Borrower in
applying for the loan evidenced this Note is untrue in any material respect, or
(vi) a garnishment, levy or writ of attachment, or any local, state or federal
notice of tax lien or levy is served upon the Bank for the attachment of
property of the Borrower or any subsidiary that is in the Bank's possession for
indebtedness owed to the Borrower or any subsidiary by the Bank, or (vii) any
Guaranty given in connection herewith may have become, in the Bank's judgment,
unenforceable, or (viii) the holder of this Note at any time, in good faith,
believes that the Borrower will not be able to pay this Note when it is due.
NORWEST BANKS
- --------------------------------------------------------------------------------
Borrower's name Date
Top Air Manufacturing, Inc. 10-10-1997
- --------------------------------------------------------------------------------
Promise to Pay: For Value received, the undersigned Borrower promises to pay to
the order of Norwest Bank Iowa, National Association (the "Bank"), at 302 Main
Street Cedar Falls, IA 50613 or at any other place designated at any time by the
holder of this promissory note (the "Note") in lawful money of the United States
of America, the principal sum of Seven Hundred Twenty-Five Thousand and 00/100
Dollars ($ 725,000.00 ), together with interest on the unpaid principal amount
in accordance with the repayment terms set forth below. Interest: Interest on
this Note, calculated on the basis of actual days elapsed in a 360 day year,
will accrue as follows (choose one of the following):
|X| on the unpaid principal amount of this Note at the Note Rate. |_| on the
unpaid principal amount of this Note at the __________ of the Note Rates
selected at any time.
Note Rate: The Note Rate under this Note shall be (choose the applicable Note
Rate(s)): |X| an annual rate of 8.5000 % (the "Note rate"), |_| an annual rate
|_| equal to the Index Rate, or |_| __________% __________ the Index Rate, or
|_| _________% of the Index Rate,
|X| from time to time in effect, each change in the interest rate to become
effective on the day the corresponding change in the Index Rate becomes
effective, or |_| with an initial interest rate equal to __________% (the "Note
Rate"),
|_| an annual rate as set forth in the Interest Rate Addendum attached to this
Note (the "Note Rate"), provided that if this Note has a variable rate of
interest, |_| the Note rate shall at no time be less than _________%, and |_|
shall at no time exceed an annual rate of __________%. In no event shall the
rate of interest applicable to this Note under any term or condition exceed the
maximum rate permitted by law.
|_| "Index Rate" means |_| the "Base Rate" which is the rate of interest
established by_____________________ from time to time as its "base" or "prime"
rate, or
|_| the "Wall Street Rate" which is the highest "prime" rate of interest
reported in the Wall Street Journal "Money Rates" Table, or |_| the
Repayment Terms: Unless payable sooner as a result of its acceleration, the
Borrower promises to pay this Note as follows (choose the applicable Repayment
Term):
|X| Fixed Installments of Principal and Interest. Principal and interest shall
be paid together in 59 consecutive installments of $ 14,874.50 each, beginning
11-25-1997, and on the same day of each month thereafter until 09-25-2002, |_|
plus irregular installments of principal and interest of $________________ on
_______________; $_________________ on ________________ and $__________________
on ________________. On 10-04-2002, (the "Due Date") the entire unpaid
principal and accrued but unpaid interest on this Note shall become due and
payable. Each such installment, when paid, shall be applied first in payment of
accrued interest, then in reduction of principal and the balance thereof shall
be applied to the payment of any outstanding late fees. |_|If the Note Rate is a
variable rate and the accrued but unpaid interest is in excess of the scheduled
installment payment, the installment payment will be increased to an amount
sufficient to pay all the accrued but unpaid interest.
|_| Fixed Principal Installments Plus Interest. Principal only shall be paid as
follows (choose one of the following):
|_|In consecutive installments of 4_______________ each, beginning
___________________, and on the _________ day of each
________________________ thereafter until _____________________, plus a
final payment on _________________, (the "Due Date") when the entire
unpaid principal shall become due and payable or
|_|$_____________ on ____________; $_________________ on ____________;
$__________________ on ______________; $___________________ on
______________; $______________________ on ________________;
$___________________ on ______________.
In addition, interest shall be payable ___________________, beginning
___________________, and on the _________ day of each
__________________________ thereafter until _____________________ (the "Due
Date") when the entire unpaid principal and accrued but unpaid interest shall
become due and payable.
|_| Fixed Installment Payments. Principal and interest shall be paid as set
forth on the attached Repayment Addendum. "Due Date" means the maturity date of
this Note whether it is the stated maturity date or an earlier date by reason of
acceleration or demand.
|_| Late Fee: Each time that a scheduled payment is not paid when due or within
______ days afterward, the Borrower agrees to pay a late fee equal to |_| $
______________, or |_| _________________ % of the full amount of the late
payment, or |_| the ____________ of $ ________________ or _________________ % of
the full amount of the late payment. Acceptance by the Bank of any late fee
shall not constitute a waiver of any default hereunder.
|_| Other Fees: |_| The Borrower shall pay to the Bank a one-time, nonrefundable
________________________ equal to $ _______________ at the time this Note is
signed.
|_|Additional Interest Before and After the Due Date: Each time that a
scheduled payment is not paid when due or within _________ days afterward,
additional interest will begin accruing on the next calendar day on the
entire unpaid principal amount of this Note at an annual Rate of ____________
% in excess of the Note Rate ("Additional Interest Rate"). Acceptance by the
Bank of Additional Interest shall not constitute a waiver of any default
hereunder. The unpaid principal and interest due on this Note after the Due
Date shall bear interest until paid at the Additional Interest Rate (except
in North Dakota).
Security: In addition to any other collateral interest given to the Bank
previously, now, or in the future, by separate agreement not referenced herein,
which states it is given to secure this Note or all indebtedness of the Borrower
to the Bank, this Note is secured with a (an) Security Agreement dated
10-10-1997 and 6/26/95. Prepayment: The Borrower may at any time prepay this
Note, in whole or in part, |X| without premium or penalty |_| provided that at
the time of prepayment the Borrower pays a prepayment penalty equal to
____________% of the principal amount prepaid. Any partial payment shall be
applied against the principal portion of the installments due in inverse order
of maturity.
Default and Acceleration: Borrower will be in default under this Note if:
(i) the Borrower fails to pay when due any principal, interest or other amounts
due under this Note, or (ii) the Borrower fails to perform or observe any term
or covenant of this Note or any related documents or perform any other agreement
with the Bank, or (iii) the Borrower or any subsidiary fails to perform or
observe any agreement with any other creditor that relates to indebtedness or
contingent liabilities which would allow the maturity of such indebtedness or
obligation to be accelerated, or (iv) the Borrower changes its legal form of
organization, or (v) any representation or warranty made by the Borrower in
applying for the loan evidenced this Note is untrue in any material respect, or
(vi) a garnishment, levy or writ of attachment, or any local, state or federal
notice of tax lien or levy is served upon the Bank for the attachment of
property of the Borrower or any subsidiary that is in the Bank's possession for
indebtedness owed to the Borrower or any subsidiary by the Bank, or (vii) any
Guaranty given in connection herewith may have become, in the Bank's judgment,
unenforceable, or (viii) the holder of this Note at any time, in good faith,
believes that the Borrower will not be able to pay this Note when it is due;
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,
W I T N E S S E T H:
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 EDA; 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:
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.
(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 chancre 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 lights or claims which Lessee may have against Lessor under this
Lease or otherwise, but any recovery upon such lights 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 light 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;
(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 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 W 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 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 non-financing
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 films 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 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 thereon, and said manufacturing facility 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;
(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 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
(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 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.
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 W 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
(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 EDA.
(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 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 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:
To Lessor: To Lessee:
Mayor Chief Executive Officer
City of Cedar Falls Clay Equipment Corporation
220 Clay Street 311 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;
<PAGE>
(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: By:
----------------------------------- ----------------------------------
Mayor Chief Executive Officer
- -------------------------------------- -------------------------------------
City Clerk Secretary
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 ______ day of ________________, 199____.
UNITED STATES DEPARTMENT OF
COMMERCE, ECONONUC DEVELOPMENT
ADMINISTRATION
By:
------------------------------------
Regional Director
DEVELOPMENTAL AGREEMENT
This Agreement is made and entered into this 13th day of July, 1998 by
and between Top Air Manufacturing, Inc., hereinafter called Top Air, and the
City of Cedar Falls, Iowa, hereinafter called City.
WHEREAS, on or about April 17, 1995, City and Top Airs predecessor, Clay
Equipment Corporation, entered into an Industrial Lease and Option for the
structure and premises described as Lots 2 and 3, Cedar Falls Industrial Park,
Phase VI.
WHEREAS, in addition, on or about May 27, 1997, City and Top Air entered
into a lease for Lot 1, Cedar Falls Industrial Park, Phase IX. Pursuant to the
terms of that lease agreement, Top Air currently has an option to construct a
new facility on the premises, or an addition to the existing structure located
upon Lots 2 & 3, Cedar Falls Industrial Park, Phase VI.
WHEREAS, Top Air has notified City of its intent to build an addition to
the existing structure, therefore, pursuant to the terms of the lease agreement,
the parties enter into this Developmental Agreement.
NOW THEREFORE, in consideration of the foregoing and, mutual covenants
hereinafter contained, the parties agree as follows:
1. City has agreed to grant to Top Air the following described real
property:
Lot No. I in Cedar Falls Industrial Park Phase IX, City of Cedar
Falls, Black Hawk County, Iowa
2. Top Air will construct an addition to the existing structure
currently being occupied by Top Air containing a minimum of 27,000 square feet
with a minimum value for general real estate tax purposes of $800,000.00 on the
above described real estate. Such addition shall include enclosing the 12,000
square foot awning area which currently exists, and a minimum of 15,000 square
feet of new construction.
3. Unless otherwise agreed to by the parties, construction of such
facility shall begin by October 1, 1998 and be substantially completed by June
1, 1999. The start of construction shall be defined as the date of issuance of a
City building permit.
4. In the event the structure constructed by Top Air does not have a
minimum tax value of $800,000.00, City will donate 1 acre of land from Lot 1,
Phase Ix of the Cedar Falls Industrial Park to Top Air for each $200,000.00 of
taxable value added through building construction. Value added will be measured
in whole increments of $200,000.00 only.
5. In the event Top-Air does not construct the addition described
above, Top Air shall:
A. Convey clear title to Lot 1, Phase IX of the Cedar Falls
Industrial Park back to the City of Cedar Falls by June 15, 1999, or
B. Pay to the City of Cedar Falls the sum of $30,000.00 per acre
for Lot 1, Phase IX of the Cedar Falls Industrial Park, previously
conveyed to Top Air by June 15, 1999.
6. The addition to be constructed pursuant to this Developmental
Agreement shall be owned by Top Air, and the building to which the addition
shall be attached is currently owned by City and leased by Top Air. If at any
time prior to the expiration of the Industrial Lease and Option, the building,
and the addition, shall be sold, for whatever reason, City shall receive 79.5%
of the proceeds of such sale, and Top Air shall received 20.5% of the proceeds.
In the event of a sale of the building and addition, City shall have final
approval of the terms of the sale, including price.
7. Prior to the expiration of the Industrial Lease and Option, Top Air
shall in no way encumber the subject property or the addition to be constructed
thereon.
8. Top Air or its designee, shall not seek from either Black Hawk
County or City a Partial Exemption for Taxation of Industrial Property as
provided by Chapter 25, Sections 25-36 through 25-45 in the Cedar Falls Code of
Ordinances and Chapter 427 of the Code of Iowa.
9. City warrants and represents to Top Air that the persons signing
this Agreement on behalf of the City have full power and authority to do so.
Likewise, Top Air warrants and represents that the persons signing this
Agreement on its behalf have power and authority to do so.
10. This Agreement shall inure to the benefit of, and shall be binding
upon, the parties and their respective successors and assigns.
11. The parties agree to submit this agreement to the Black Hawk County
Assessor for certification pursuant to Section 403.6(l 9) of the Iowa Code.
CITY OF CEDAR FALLS, IOWA TOP AIR MANUFACTURING, INC.
By: By:
---------------------------------- ------------------------------------
Ed Stachovic, Mayor Steven R. Lind, President
By:
----------------------------------
Gary L. Hesse, CMC, City Clerk
STATE OF IOWA )
) SS:
BLACK HAWK COUNTY )
On this ______ day of ________________A.D. 1998, before me, the
undersigned, personally appeared Steven R. Lind who is the President of Top Air
Manufacturing, Inc. and known to me to be the identical person named herein and
who executed the attached instrument and acknowledged that he executed the same
as his voluntary act and deed and on behalf of Top Air Manufacturing, Inc.
------------------------------------------
Notary Public in and for the State of Iowa
STATE OF IOWA )
) SS.
BLACK HAWK COUNTY )
On this ______ day of _____________, 1998, before me _________________
a Notary Public in and for the State of Iowa, personally appeared Ed Stachovic,
Mayor and Gary L. Hesse, City Clerk, to me personally known, and who being by me
duly sworn, did say that they are the Mayor and City Clerk respectively, of the
City of Cedar Falls, Iowa; that the seal affixed to the foregoing instrument is
the corporate seal of the corporation, and that the instrument was signed and
sealed on behalf of the corporation, by authority of the City Council as
contained in Resolution No. _______________, 1998, adopted by the City Council
on the ____ day of ________________, 1998, and that Ed Stachovic and Gary L.
Hesse acknowledge the execution of the instrument to be their voluntary act and
deed and the voluntary act and deed of the corporation, by it voluntarily
executed.
------------------------------------------
Notary Public in and for the State of Iowa
The undersigned assessor, being legally responsible for the assessment
of the above described property upon completion of the improvements to be made
on it, certify that the actual value assigned to that land and improvements upon
completion shall not be less than $_____________.
-----------------------------------------
Black Hawk County Assessor
<TABLE>
<CAPTION>
COMPUTATIONS OF EARNINGS PER SHARE
Year Ended May 31,
--------------------------------------------------------
Diluted earnings per share: 1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
Computation of weighted average number of common
shares outstanding and common
equivalent shares:
Common Shares outstanding at the beginning of the 5,135,548 3,984,548 3,174,433
period
Weighted average number of shares issued (retired) (46,902) 431,831 768,099
during the period
Weighted average of the common equivalent shares 161,227 88,066 46,047
attributable to stock options granted,
computed under the treasury stock method 1
------------ ------------- ------------
Weighted average number of common and common 5,249,692 4,504,445 3,988,579
equivalent shares - diluted
============ ============= ============
Net Income available to common Stockholders - diluted $ 1,000,007 $ 857,376 $ 677,388
============= ============ ============
Earnings per common and common equivalent share - diluted $ .19 $ .19 $ .17
============= ============ ============
Year Ended May 31,
---------------------------------------------------------
Basic earnings per share: 1998 1997 1996
---------------------------------------------------------
Computation of weighted average number of common
shares outstanding and common
equivalent shares:
Common Shares outstanding at the beginning of the 5,135,548 3,984,548 3,174,433
period
Weighted average number of shares issued (retired) (46,902) 431,831 768,099
during the period
------------- ------------ -------------
Weighted average number of common and common 5,088,646 446,379 3,942,532
equivalent shares
============= ============ =============
Net Income available to common Stockholders $ 1,000,007 $ 857,376 $ 677,388
=============== ============= =============
Earnings per common and common equivalent share $ .20 $ .19 $ .17
=============== ============= =============
<FN>
(1) At May 31, 1998, 1997 and 1996, respectively, 67,500, none and 67,000 stock
options have not been included because they are anti-dilutive.
</FN>
</TABLE>
Ficklin Machine Co., Inc.
Incorporated under the laws of the State of Illinois
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference into the registration statement of
Top Air Manufacturing, Inc. on Form S-8 (Registration No. 33-74378) of our
report dated July 27, 1998 with respect to the financial statements of Top Air
Manufacturing, Inc. included in its Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1998.
/s/ McGLADREY & PULLEN, L.L.P.
Waterloo, Iowa
August 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet at May 31, 1998 and the Company's Statement of Income
for the Twelve Months Ended May 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 5,146
<SECURITIES> 0
<RECEIVABLES> 4,342,004
<ALLOWANCES> 131,000
<INVENTORY> 5,167,744
<CURRENT-ASSETS> 9,553,746
<PP&E> 3,798,689
<DEPRECIATION> 1,122,423
<TOTAL-ASSETS> 13,641,261
<CURRENT-LIABILITIES> 3,856,123
<BONDS> 2,323,567
0
0
<COMMON> 322,944
<OTHER-SE> 7,138,627
<TOTAL-LIABILITY-AND-EQUITY> 13,641,261
<SALES> 16,562,461
<TOTAL-REVENUES> 16,562,461
<CGS> 11,120,801
<TOTAL-COSTS> 14,651,226
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 47,208
<INTEREST-EXPENSE> 370,591
<INCOME-PRETAX> 1,561,006
<INCOME-TAX> 560,999
<INCOME-CONTINUING> 1,000,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,000,007
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
The following factors could affect the Company's actual results, including its
revenues, expenses and net income, and could cause them to differ from any
forward-looking statements made by or on behalf of the Company:
The Company competes with a large number of other agricultural equipment
manufacturers and suppliers who distribute sprayers, liquid manure
equipment, grain handling equipment and related parts. Although the Company
believes that its products are sufficiently different from other products
to enable it to establish and maintain a market for such products, many of
the Company's principal competitors are larger than the Company 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 the Company.
The Company has warranted the products it manufactures to be free from
defects in material and workmanship under normal use and service for a
period ranging from twelve to twenty-four months after date of purchase.
Although the Company 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.
The continued success of the Company will depend upon the efforts and
abilities of certain key officers and employees, particularly Steven R.
Lind, its President and Chief Executive Officer. The Company could be
adversely affected if for any reason such officers and employees should no
longer be active in the Company's operations. Steven R. Lind, President and
Chief Executive Officer of the Company, has entered into an employment
agreement with the Company.
The Company's executive officers and directors as a group beneficially own
approximately 39% of the outstanding shares of the Company's common stock.
Accordingly, these officers and directors acting together have effective
voting control of the Company, including the election of all of the
Company's directors and on any other matter being voted on by the Company's
shareholders. There are no provisions for cumulative voting by stockholders
in the Company's Articles of Incorporation. These facts may tend to
discourage attempts to acquire control of the Company by persons other than
those holders.
