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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): OCTOBER 31, 1997
CADE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 0-12808 39-1371038
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
5640 ENTERPRISE DRIVE, LANSING MI 48911
(Address of principal executive offices) (Zip Code)
(517) 394-1333
(Registrant's telephone number, including area code)
____________________
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ITEM 2 ACQUISITION OF ASSETS
On October 31, 1997, Cade Industries, Inc. ("Cade" or the "Company")
entered into a Stock Purchase Agreement to acquire Central Engineering Company,
a Minnesota corporation. Central Engineering Company manufactures engine test
cells and associated ground support equipment. Pursuant to the Stock Purchase
Agreement, Cade acquired all of the issued and outstanding shares of Central
Engineering Company, a closely held company, and its related real estate for
approximately $8.5 million. The purchase price consisted of 250,000 shares of
Cade's Common Stock and approximately $7,750,000 in cash. The cash portion of
the purchase price was financed through additional bank borrowings, pursuant to
which the Company's existing credit facility was increased from approximately
$10.3 million to $19.8 million. The acquired real estate was used in the
operation of Central Engineering Company and Cade intends to continue that use.
A copy of the November 3, 1997 press release announcing the acquisition is
attached as Exhibit 99.3.
ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Operations for the years ended June
30, 1997 and 1996
Consolidated Statements of Retained Earnings for the years ended June
30, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended June 30,
1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditor's Report
Consolidated Balance Sheet of September 30, 1997
Consolidated Statement of Earnings for the three months ended
September 30, 1997
Consolidated Statement of Cash Flow for the three months ended
September 30, 1997
Notes to Financial Statements
(b) Proforma Financial Information
It is impractical to provide the required proforma financial
information at this time and such information will be provided within
60 days by amendment to this report.
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(c) Exhibits
See the Exhibit Index
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EXHIBIT INDEX
Incorporated Herein Filed
Description By Reference To Herewith
Exhibit 2 Stock Purchase Agreement,
dated October 31, 1997 X
Exhibit 4.1 Credit Agreement, dated
October 31, 1997, by and between
Cade Industries, Inc. and Bank X
Exhibit 4.2 Line of Credit Note X
Exhibit 4.3 Term Note A, dated October 31, 1997 X
Exhibit 4.4 Term Note B, dated October 31, 1997 X
Exhibit 4.5 Term Note C, dated October 31, 1997 X
Exhibit 23 Consent of Independent Accountants X
Exhibit 99.1 Financial Statements of Central
Engineering Company X
Exhibit 99.2 Financial Statements of Central
Engineering Company for the three
months ended September 30, 1997 X
Exhibit 99.3 Press Release dated November 3, 1997 X
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CADE INDUSTRIES, INC.
By: /S/ Edward B. Stephens
-------------------------------------------
Edward B. Stephens
Vice President and Chief Financial Officer
Date: November 12, 1997.
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EXHIBIT 2
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STOCK PURCHASE AGREEMENT
for the
ACQUISITION
of
CENTRAL ENGINEERING COMPANY, a Minnesota corporation
by
CADE INDUSTRIES, INC., a Wisconsin corporation
Dated as of October 31, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
RECITALS..........................................................................1
DEFINITIONS.......................................................................1
<S> <C> <C> <C>
SECTION 1. PURCHASE AND SALE OF THE SHARES.........................5
1.1 Purchase and Sale.......................................5
1.2 Payment of Purchase Price...............................5
SECTION 2. THE CLOSING.............................................6
2.1 Place and Date..........................................6
2.2 Taking of Necessary Action..............................6
SECTION 3. OTHER AGREEMENTS........................................6
3.1 Expenses........................................6
3.2 Noncompetition; Confidentiality.................6
3.3 Shareholders' Representative....................7
SECTION 4. REPRESENTATIONS AND WARRANTIES OF LOREN E. SWANSON
........................................................8
4.1 Organization....................................8
4.2 Capital Structure...............................8
4.3 Subsidiaries....................................8
4.4 Authority; No Violation.........................8
4.5 Corporate Documents.............................9
4.6 Consents and Approvals..........................9
4.7 Financial Statements............................9
4.8 No Undisclosed Liabilities......................9
4.9 Inventory......................................10
4.10 Accounts.......................................10
4.11 No Adverse Change..............................10
4.12 Litigation.....................................12
4.13 Title; Use and Condition of Assets; Machinery and
Equipment..............................................12
4.14 Real Property..................................13
4.15 Intellectual Property Rights...................13
4.16 Licenses for Third Party Software..............14
4.17 Contracts, Leases and Commitments..............14
4.18 Warranties.....................................16
4.19 Customers......................................16
4.20 Tax Matters....................................17
4.21 Employee Relations.............................19
4.22 Employee Benefit Plans.........................20
</TABLE>
(i)
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<TABLE>
<S> <C> <C> <C>
4.23 Health, Safety, Employment and
Environmental Matters..............................25
4.24 Records and Customer Lists.........................26
4.25 Insurance..........................................26
4.26 Compliance with Laws...............................27
4.27 No Misrepresentation...............................28
4.28 Brokers............................................28
4.29 Dividends..........................................28
4.3 Bank Accounts......................................28
4.31 Transactions with Related Parties..................28
SECTION 5. PERSONAL REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS.......................................29
5.1 Title to Stock.....................................29
5.2 Investment Intent..................................29
5.3 Authorization; Capacity; Enforceability............30
5.4 No Violation or Conflict...........................30
5.5 Litigation.........................................31
5.6 Government Approvals...............................31
5.7 No Pending Acquisitions............................31
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER............31
6.1 Organization.......................................31
6.2 Capital Structure..................................31
6.3 Authority..........................................31
6.4 Consents and Approvals.............................32
6.5 Litigation.........................................32
6.6 Brokers............................................32
6.7 Annual Report......................................32
6.8 Buyer Common Stock.................................32
6.9 No Knowledge of Misrepresentations or Omissions....33
6.10 Contracts..........................................33
SECTION 7. 7.1 COVENANTS..........................................33
Best Efforts.......................................33
SECTION 8. CONDITIONS TO CLOSING..............................34
8.1 Conditions to Obligations of Buyer.................34
8.2 Conditions to Obligations of the Shareholders......37
SECTION 9. TERMINATION........................................40
9.1 Termination........................................40
9.2 Effect of Termination..............................40
SECTION 10. INDEMNITY..........................................41
</TABLE>
(ii)
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<TABLE>
<S> <C> <C> <C>
10.1 Indemnity by Shareholders..........................41
10.2 Indemnity by Buyer.................................42
10.3 Exceptions for Indemnified Damages.................42
10.4 Termination of Indemnification Obligations.........44
10.5 Exclusive Remedy...................................44
10.6 Tax Matters........................................44
SECTION 11. MISCELLANEOUS......................................44
11.1 Expenses...........................................44
11.2 Survival of Representations and Warranties.........44
11.3 Parties in Interest................................45
11.4 Notices............................................45
11.5 Waivers............................................45
11.6 Governing Law......................................46
11.7 Integration; Amendment and Termination.............46
11.8 Paragraph and Other Headings.......................46
11.9 Counterparts.......................................46
11.10 No Impairment......................................46
11.11 Schedules..........................................46
11.12 Legal Proceedings..................................46
</TABLE>
Annex A Employment and Non-Compete Agreement for Loren E. Swanson
Annex B Form of Escrow Agreement
Annex C Facilities Purchase and Sale Agreements
SCHEDULES
1.1 Chiltern Hills Assets and Liabilities sold to Kurt Swanson
1.2 Payment to Shareholders
4.2 Capital Structure and Shareholders
4.4 Authorization
4.8 Liabilities
4.9 Intangible Assets
4.9 Inventory
4.10 Accounts Receivable
4.11 Adverse Changes
4.12 Litigation
4.13 Title to Assets; Personal Property
4.14 Real Property
4.15 Intellectual Property
4.16 Software Licenses
4.17 Material Contracts
4.18 Warranties; Warranty Claims
(iii)
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4.19 Customers
4.20 Tax Matters
4.21 Employee Matters
4.22 Employee Benefit Plans
4.23 Health, Safety, Employment and Environmental Matters
4.25 Insurance
4.27 Financial Information
4.29 Dividend
4.30 Bank Accounts
4.31 Transactions with Related Parties
6.4 Buyer Consents and Approvals
10.1 Guaranteed Accounts
(iv)
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 31st day of October,
1997, by and among Cade Industries, Inc., a Wisconsin corporation ("Buyer") and
the shareholders (the "Shareholders") of Central Engineering Company, a
Minnesota corporation (the "Company"). This Stock Purchase Agreement, together
with all exhibits and schedules hereto, as amended from time to time, is
hereinafter referred to as the "Agreement."
RECITALS
WHEREAS, the Company and its wholly-owned subsidiaries, Cenco Europe,
Inc. ("C Europe"), a Minnesota corporation and Central Engineering
International Co., a Virgin Islands corporation ("C Engineering" and together
with C Europe, the "Subsidiaries") are principally engaged in the business of
manufacturing engine test cell and associated ground support equipment (the
"Business");
WHEREAS, Buyer desires to acquire the Company and its Subsidiaries
through the purchase of all of the issued and outstanding capital stock of the
Company.
NOW THEREFORE, in consideration of the Recitals and of the mutual
covenants, conditions, and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed as follows:
DEFINITIONS
The following capitalized terms when used herein shall have the
meanings specified:
"Accounts" shall mean the accounts receivable, notes receivable, and
similar rights of the Company and, unless the context otherwise requires, its
Subsidiaries.
"Affiliate" shall mean a person or entity which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, the other entity or person in question.
"Average Closing Price of Buyer's Common Stock" shall mean $3.00 per
share of Buyer's Common Stock.
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"Business" shall have the meaning set forth in first paragraph of
Recitals.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in the State of Wisconsin are authorized or permitted to be
closed in observance of a legal holiday.
"Buyer" shall mean Cade Industries, Inc., a Wisconsin corporation.
"Buyer's Common Stock" shall mean shares of common stock, $.001 par
value of Buyer.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C.A. Section 9601,
et seq., and the rules, regulations and orders promulgated thereunder.
"Chiltern Hills" shall mean the program developed by Kurt Swanson and
the assets and liabilities identified in the Transfer Agreement dated September
29, 1997, between the Company and the Chiltern Hills Company and listed on
SCHEDULE 1.1.
"Class A" shall mean shares of Class A Common Stock, $.10 par value,
of the Company.
"Class B" shall mean shares of Class B Common Stock, $.10 par value,
of the Company.
"Closing" shall have the meaning set forth in Section 2.1.
"Closing Date" shall have the meaning set forth in Section 2.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
"Company" shall mean Central Engineering Company, a Minnesota
corporation and, unless the context otherwise requires, its Subsidiaries.
"Contracts" shall have the meaning set forth in Section 4.17.
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"Employment Agreement" shall mean the Employment and Noncompete
Agreement between the Company and Loren E. Swanson in substantially the form
attached as ANNEX A.
"Environmental Laws" shall mean all Laws in effect on or prior to the
Closing Date (including, without limitation, CERCLA), regulations, and written
and binding policies by a governmental agency (foreign, federal, state, or
local) relating to the protection of the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, Laws and regulations
relating to Environmental Releases or threatened Environmental Releases of
Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
"Environmental Release" shall mean any release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or property.
"ERISA Affiliate" shall mean a trade or a business, whether or not
incorporated, that is required to be aggregated with the Company for employee
benefit purposes under Internal Revenue Code Sections 414(b), (c), (m), and/or
(o) or the regulations promulgated thereunder.
"Escrow Agent" shall mean First Trust National Association,
Minneapolis, Minnesota, or such other person or entity mutually acceptable to
Buyer and the Shareholders' Representative.
"Escrow Agreement" shall mean the Escrow Agreement dated as of the
date hereof among Buyer, the Shareholders' Representative and the Escrow Agent
and attached as ANNEX B.
"Expenses" shall have the meaning set forth in Section 3.1.
"Facilities" shall mean the land, buildings, fixtures, structures, and
improvements out of which the Business is operated, located in the St. Anthony
Industrial Park, Minneapolis, Minnesota, and owned, directly or indirectly, by
Loren E. Swanson and his Affiliates.
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"Facilities Purchase Agreement" shall mean the purchase and sale
agreements relating to the Facilities to be entered into by and among Buyer and
Ole Investments a general partnership and Loren E. Swanson, as the case may be,
in the form of ANNEX C attached hereto.
"Financial Statements" shall mean the consolidated financial
statements of the Company and its Subsidiaries for the years ended June 30,
1997, 1996 and 1995, reported upon by McGladrey & Pullen, LLP, independent
auditors.
"Closing Balance Sheet" shall mean a consolidated balance sheet of the
Company (exclusive of all assets and liabilities relating to Chiltern Hills
which were previously sold for cash to Kurt Swanson pursuant to the Transfer
Agreement) dated as of September 30, 1997, prepared as described in Section
3.3. hereof.
"GAAP" shall mean United States generally accepted accounting
principles, applied on a basis consistent with past practice.
"Hazardous Materials" shall mean: (a) any waste, hazardous waste,
pollutant, contaminant, or hazardous or toxic substance as specified, listed,
identified, or defined as of the Closing Date in (i) the Resource Conservation
and Recovery Act, 42 U.S.C.A. Section 6901, et seq., and the rules, regulations
and orders promulgated thereunder; (ii) CERCLA; (iii) the Clean Water Act, 33
U.S.C. 1251, et seq., and the rules, regulations and orders promulgated
thereunder; (iv) the Clean Air Act, 42 U.S.C. 7401, et seq., and the rules,
regulations and order promulgated thereunder; (v) the Toxic Substances Control
Act, 15 U.S.C. 2601, et seq., and the rules, regulations and orders promulgated
thereunder; (vi) the Hazardous Materials Transportation Act, 49 U.S.C. 1801, et
seq., and the rules, regulations and orders promulgated thereunder; (vii) the
Occupational Safety and Health Act, 29 U.S.C. 651 et seq., and the rules,
regulations and orders promulgated thereunder; and (viii) any other applicable
U.S. federal, state, local, or other statutes or Laws, and the rules,
regulations, and orders promulgated thereunder; (b) asbestos; (c) formaldehyde;
(d) polychlorinated biphenyls; (e) radioactive materials; and (f) waste oil and
other petroleum products.
"Holdback Amount" shall mean the sum of $400,000 to be held out of the
Purchase Price paid by Buyer at Closing and paid pursuant to Section 1.2.
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"Intellectual Property Rights" shall mean (i) patent rights and
rights, title and interest in and to all letters patent or applications for
letters patent, industrial models, industrial designs, petty patents, patents
of importation, utility models, certificates of invention and other government
issued or granted indicia of invention ownership including any reissue,
division, continuation or continuation-in-part applications throughout the
world; (ii) rights, title and interest in and to trade secrets and trade secret
rights arising under the common law, state law, federal law and laws of foreign
countries; (iii) copyright rights, and other literary property and author
rights whether or not copyrightable; and rights, title and interest in and to
all copyrights, copyright registrations, certificates of copyright and
copyrighted interests throughout the world; (iv) mask work rights including
mask work registration rights and mask work registrations throughout the world;
(v) rights, title and interest in and to all know-how and show-how whether or
not protectable by patent, copyright or trade secret law, or as a registered
mask work; and (vi) trademarks, trade names and service marks, whether
registered or arising under the common law, state law, federal law and laws of
foreign countries and all registrations thereof and interests therein
throughout the world and all associated goodwill.
"Inventory" shall mean all of the Company's and its Subsidiaries'
inventories of useable raw materials and supplies, work in process, and
finished goods which are resalable at normal prices and discounts in the
ordinary course of business.
"June 30, 1997 Balance Sheet" shall mean the consolidated balance
sheet of the Company and its Subsidiaries as of June 30, 1997.
"Knowledge of the Company" shall mean actual knowledge of the officers
of the Company or any knowledge which any such officer should have by virtue of
his or her position with or relationship to the Company or knowledge from
operating and managing the Business. For purposes of this provision, officers
will mean Loren E. Swanson, E.L. Tell, Ron Severson and Steve Biessener.
"Knowledge of the Shareholders" shall mean actual knowledge of any
Shareholder and any knowledge which any Shareholder should have by virtue of
his or her position with or relationship to the Company.
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"Law" shall mean any federal, state, local, or other law, rule,
regulation, or governmental requirement or restriction of any kind, including
any rules, regulations and orders promulgated thereunder and any final orders,
decrees, written and binding policies, consents or judgments of any regulatory
agencies, courts or other Persons.
"Leased Assets" shall mean all items of personal or real property
which the Company and/or its Subsidiaries lease, which items are listed on
SCHEDULE 4.17 hereto.
"Lien" shall mean, with respect to any asset: (a) any mortgage,
pledge, lien, charge, claim, restriction, reservation, condition, easement,
covenant, lease, encroachment, title defect, imposition, security interest or
other encumbrance of any kind whether imposed by Law, by contract or otherwise;
and (b) the interest of a vendor or lessor under any conditional sale
agreement, financing lease or other title retention agreement relating to such
asset.
"Material Change" shall have the meaning set forth in Section 4.11.
"Person" shall mean a natural person, corporation, limited liability
company, limited liability partnership, association, joint stock company,
trust, partnership, government entity, agency or branch or department thereof,
or any legal entity.
"Purchase Price" shall have the meaning set forth in Section 1.2.
"Shareholders' Representative" shall mean Loren E. Swanson.
"Shareholders" shall mean the holders of Class A or Class B Shares as
of the Closing.
"Taxes" shall have the meaning set forth in Section 4.20(a).
"Third Party Software" shall have the meaning set forth in Section
4.16.
SECTION 1. PURCHASE AND SALE OF THE SHARES.
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1.1 Purchase and Sale. At the Closing, and upon all of the terms
and subject to all of the conditions of this Agreement, the Shareholders shall
sell, assign, convey, and deliver to Buyer, and Buyer shall purchase and accept
from the Shareholders, all of the Class A and Class B issued and outstanding
shares of the Company. Certificates for said Class A and Class B shares shall
be delivered to Buyer free and clear of all claims and Liens, and shall be
properly endorsed for transfer to Buyer. Said purchase and sale shall be
deemed to be effective as of the Closing.
1.2 Payment of Purchase Price. The purchase price for the Class A
and Class B shares shall be $6,473,216 (the "Purchase Price"), paid as follows:
(a) At Closing, Buyer shall deliver to the Shareholders'
Representative certificates representing 250,000 shares of Buyer's Common Stock
issued in the names of the Shareholders and in the amounts set forth on
Schedule 1.2.
(b)$5,723,216, less the Holdback Amount, shall be paid at Closing. Payment
shall be made by wire transfer to an account designated in writing by the
Shareholders' Representative. Such amount shall be allocated to each
Shareholder as set forth on Schedule 1.2.
(c) The Holdback Amount shall be paid to the Escrow Agent at
Closing to be held, invested and disbursed pursuant to the terms of the Escrow
Agreement. On June 30, 1998, the Escrow Agent shall deliver to the
Shareholders' Representative, by wire transfer or other reasonable method
selected by the Shareholders' Representative, the amount remaining in the
account established to hold the Holdback Amount, unless at that time there
exists any claim which has been made by Buyer and which remains outstanding, in
which case an amount equal to the claimed amount shall be retained by the
Escrow Agent and the remaining net amount distributed to the Shareholders'
Representative.
SECTION 2.THE CLOSING
2.1 Place and Date. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Lindquist
& Vennum, P.L.L.P. at 10:00 a.m. on October 31, 1997, or such other place
and/or time as Buyer and the Company may agree upon in writing (the "Closing
Date") for the
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purpose of confirming the satisfaction, or if permissible, waiver of the
conditions set forth in Section 8 hereof.
2.2 Taking of Necessary Action. Each of the parties shall use its
best efforts to take all such action as may be necessary or appropriate to
effectuate the transactions contemplated hereby.
SECTION 3. OTHER AGREEMENTS
3.1 Expenses. The Shareholders shall pay, or make provision for,
all expenses of the Shareholders relating to the transactions contemplated in
this Agreement ("Expenses"), which Expenses shall include without limitation
all out-of-pocket costs, fees and expenses of counsel, accountants, brokers,
consultants, investment bankers, financial advisors, and other third parties
engaged by the Company or the Shareholders in connection with: (i) the
negotiation, preparation, execution, delivery and performance of this
Agreement; and (ii) the other Closing responsibilities of the Shareholders or
the Company prior to Closing.
3.2 Noncompetition; Confidentiality.
(a) The Shareholders acknowledge that: (i) the Business
connections, customers, customer lists, marketing, production, manufacturing,
sales techniques, procedures, operations, and other Intellectual Property
Rights and aspects of the Business which are to be acquired by Buyer hereunder
have been established and maintained by the Shareholders and the Company at
great expense to the extent protected as confidential information and trade
secrets, and are of great value; and (ii) Buyer and the Company would suffer
great loss and injury if the information were disclosed or used in any way to
the detriment of Buyer and the Company. Therefore, the Shareholders shall not,
directly or indirectly, use or disclose, or cause or allow to be used or
disclosed, to Buyer's and the Company's detriment, any secret, confidential, or
proprietary information relating to the Business. The foregoing limitation
shall not apply to any confidential or proprietary information which has been
voluntarily disclosed to the public by Buyer or the Company before or after the
Closing, independently developed and disclosed by others, or otherwise enters
the public domain through lawful means, not in violation of the provisions of
this Section.
(b) The Shareholders shall not make or publish any disparaging
remarks about Buyer, the Company, or the Business as
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long as the Company continues the Business, and shall not induce, encourage, or
cause any such customer or supplier to terminate doing business with the
Company. The Buyer shall not make or publish any disparaging remarks about the
Shareholders.
3.3 Shareholders' Representative.
(a) Each of the Shareholders has irrevocably constituted and
appointed Loren Swanson, and Mr. Swanson has accepted such appointment, as
their agent and attorney-in-fact with full power of substitution and revocation
to do any and all things and execute any and all documents on his or her behalf
which may be necessary, convenient, or appropriate to facilitate the
consummation of the transactions contemplated by this Agreement, including but
not limited to: (i) amendments to this Agreement, provided that no amendment
shall materially adversely affect the rights of any one Shareholder relative to
any other Shareholders; (ii) execution of documents and certificates pursuant
to this Agreement; (iii) receipt of payments under or pursuant to this
Agreement and disbursement thereof to the Shareholders; (iv) receipt and
forwarding of notices and communications pursuant to this Agreement; (v)
negotiation and compromise of any Holdback and indemnity claims made by Buyer
hereunder; and (vi) payment of fees and expenses incurred on behalf of the
Shareholders in connection with this Agreement.
(b) The Buyer shall be fully protected in dealing with Mr. Swanson
under this Agreement and may rely upon the authority of Mr. Swanson to act as
the Shareholders' Representative. Any payments or delivery of payments by the
Buyer to Mr. Swanson under this Agreement for the benefit of the Shareholders
shall be considered payments by the Buyer to the Shareholders. The appointment
of Mr. Swanson is coupled with an interest and is irrevocable by any
Shareholder in any manner or for any reason, unless written revocation is
personally delivered to Mr. Swanson and the Buyer on or prior to the time that
action on behalf of the Shareholders is taken or payments or deliveries are
made, in which case such revocation shall only apply to actions taken or
proposed to be taken after receipt of such notice. This power of attorney
shall not be affected by the death, disability, or incapacity of any
Shareholder.
(c) If at any time there is no Person acting as Shareholders'
Representative for any reason, the Shareholders holding a majority interest in
the Class A and Class B shares shall
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choose a Person to act as Shareholders' Representative under this Agreement.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF LOREN E. SWANSON.
Loren E. Swanson represents and warrants to Buyer that as of the date
hereof:
4.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has the requisite corporate power and authority to own, lease and operate
its properties and to transact the Business as it is now being conducted, holds
all material licenses or permits to conduct the Business, and is duly qualified
or licensed to do business and is in good standing in each place and
jurisdiction where the nature of the business conducted by it or the ownership,
lease or operation of its properties requires a license or qualification except
where the failure to be so qualified or licensed would not have a material
adverse effect upon the Company.
4.2 Capital Structure. The Company's authorized capital consists
of: (i) 100,000 shares of Class A, of which 15,450 shares are issued and
outstanding; and (ii) 1,000,000 shares of Class B, of which 75,390 shares are
issued and outstanding and collectively held by the Shareholders shown on
SCHEDULE 4.2. All the outstanding shares of Class A and Class B are, and at
the Closing will be, duly and validly issued, fully-paid and nonassessable and
free of any preemptive rights in respect thereof. There are not now
outstanding: (i) options, warrants, subscription agreements, commitments,
conversion or other rights which obligate to the Company to issue or sell any
capital stock or other security of the Company; (ii) any securities convertible
into or exchangeable for shares of such stock; or (iii) any other agreements or
commitments of any kind for the issuance of additional shares of capital stock
or options, warrants or other securities of the Company. No shares of Class A
or Class B of the Company are held in treasury by the Company. Except as
provided in SCHEDULE 4.2, there are no agreements to which the Company is a
party or of which it or Loren E. Swanson are otherwise aware restricting the
transfer of the Class A and/or Class B, or affecting the rights of any holder
of such shares with respect thereto. There are no rights on the part of any
holder of any securities of the Company or its Subsidiaries to put such
securities to the Company or its Subsidiaries for purchase, redemption or
otherwise.
4.3 Subsidiaries. The Company has no direct or indirect
subsidiaries other than C. Europe and C. Engineering.
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Each Subsidiary is duly organized, validly existing and in good standing under
the laws of the State of Minnesota or Virgin Islands, as the case may be, and
has all requisite corporate power and authority to own its assets and
properties, and to carry on its business as now being conducted. The
Subsidiaries are duly qualified to do business and in good standing in all
jurisdictions where failure to be so qualified would have a material adverse
effect on the business, operations or financial condition of such corporation.
The Company owns beneficially and of record all outstanding shares of capital
stock of its Subsidiaries.
4.4 Authority; No Violation. No corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby by the Shareholders. The execution, delivery
and performance by the Shareholders of this Agreement and the consummation of
the transactions contemplated hereby by the Shareholders is not prohibited by,
and does not conflict with or violate any provision of or result in any breach
or default of (or give rise to any right of termination, cancellation or
acceleration under) (i) any judgment, writ, order, injunction, decree, statute,
ordinance, rule or regulation applicable to the Company or its Subsidiaries or
any of their assets, (ii) except as provided in Schedule 4.2, the Articles of
Incorporation or Bylaws of the Company and its Subsidiaries, or (iii) except as
set forth on SCHEDULE 4.4, any material note, mortgage, Lien, indenture or any
other evidence of indebtedness or security therefor, lease, contract, license,
purchase or other commitment or any other agreement to which the Company or its
Subsidiaries is a party or by which either is bound, and has not resulted and
will not result in the creation or imposition of any Lien, security interest or
encumbrance in favor of any third party on any of the Company's and/or its
Subsidiaries' assets. No representation is given concerning the execution,
delivery or performance by the Company of the agreements attached hereto as
Annexes.
4.5 Corporate Documents. The Company has furnished to Buyer for
its examination (i) true, correct and complete copies of the Articles of
Incorporation and Bylaws of each of the Company and its Subsidiaries, and (ii)
the minute books of the Company and its Subsidiaries containing records of all
proceedings, consents, actions and meetings of the shareholders and board of
directors of the Company and its Subsidiaries, and no amendments to such
documents have been made or authorized.
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4.6 Consents and Approvals. The execution, delivery and
performance of this Agreement will not require any consent, waiver, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority.
4.7 Financial Statements. Except as set forth on SCHEDULE 4.7,
the Financial Statements, including the notes thereto, have been prepared in
conformity with GAAP consistently applied throughout the periods indicated,
present fairly the financial position of the Company and its Subsidiaries at
the respective dates of the balance sheets included in the financial
statements, and the results of operations of the Business for the respective
periods indicated, are in accordance with the books and records of the Company
and its Subsidiaries regarding the Business, and do not omit to state or
reflect any material fact concerning the Business required to be stated or
reflected therein in accordance with GAAP. The Closing Balance Sheet has been
prepared in conformity with GAAP consistently applied and fairly presents the
financial position of the Company and its Subsidiaries at September 30, 1997.
4.8 No Undisclosed Liabilities. Except as set forth on SCHEDULE
4.8, to the Knowledge of the Company, as of September 30, 1997, the Company and
its Subsidiaries have no liabilities or obligations (absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise) other than as disclosed on
the consolidated balance sheet as of that date (and notes thereto) contained in
the financial statements or liabilities set forth in this Agreement or the
Schedules hereto. Except as set forth on SCHEDULE 4.8, since June 30, 1997,
neither the Company nor its Subsidiaries has incurred any liabilities or
obligations (absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise) except liabilities incurred in the ordinary course of business
consistent with past practice.
4.9 Inventory. The quantity of the Inventory on the Closing Date
will be adequate for, but will not materially exceed levels appropriate to, the
operation of the Business as currently conducted by the Company.
4.10 Accounts. The Accounts of the Company reflected in the
Closing Balance Sheet and all the Accounts arising after such date are valid
and genuine and arose from bona fide transactions in the ordinary course of the
Business and have been recorded in accordance with the Company's and its
Subsidiaries' historical
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revenue recognition policy. Except as set forth on SCHEDULE 4.10 hereto, no
Account has been assigned or pledged to any other Person and no defense or set
off to any such Account has been asserted by the Account obligor. To the
Knowledge of the Company, (i) the allowance for doubtful accounts and other
related reserves for the Company's Accounts set forth in the Closing Balance
Sheet is adequate, except as provided in SCHEDULE 4.10, and in accordance with
the historical accounting practices of the Company, and, (ii) except as
provided in SCHEDULE 4.10, all of the Accounts of the Company on hand at the
Closing, net of such allowance for doubtful accounts and other related
reserves, are and will be good and collectible in due course. No Account
previously collected is subject to any claim of a third party, including
preference claims under bankruptcy laws.
4.11 No Adverse Change. Except as disclosed on SCHEDULE 4.11,
since June 30, 1997, there has been no material adverse change, to the
Knowledge of the Company, in the assets, liabilities, customer relations or
vendor relations, prospects, operations or condition, financial or otherwise,
of the Company and its Subsidiaries or the Business from that reflected in the
June 30, 1997 Balance Sheet and the Closing Balance Sheet, other than changes
in the ordinary course of business consistent with past practice which have not
materially adversely affected any of the Company's assets or materially
increased any of the liabilities (actual or contingent) of the Business.
Without limiting the generality of the foregoing, except as disclosed on
SCHEDULE 4.11 or the Closing Balance Sheet, since June 30, 1997, the Company
has not:
(a) entered into any transaction or agreement or incurred
any obligation or liability connected with the Business, other than
transactions in the ordinary course of business consistent with past practice;
(b) mortgaged, pledged or subjected to any pledge,
security interest, Lien or other encumbrance of any kind (except Liens for
taxes not yet due) any of the Company's or its Subsidiaries' assets;
(c) sold, assigned or otherwise transferred, or
authorized the sale, assignment or other transfer of, any of the Company's or
its Subsidiaries' assets, other than transactions in the ordinary course of
business consistent with past practice and other than the Chiltern Hills
assets;
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(d) suffered any damage, destruction or loss (whether or
not covered by insurance) affecting any of the Company's or its Subsidiaries'
assets or the Business;
(e) waived or relinquished any rights of substantial
value relating to the Company's or its Subsidiaries' assets or the Business or
the liabilities attributable to the Business without adequate consideration;
(f) amended in any respect adverse to the Company and/or
its Subsidiaries or the Business or terminated, orally or in writing, any
contract, agreement or order included in or relating to the assets or the
liabilities attributable to the Business, or received notice of amendment or
termination of any such contract, agreement or order;
(g) made or authorized any loan, borrowing, investment,
advance or guaranty (except advances or credits to customers, suppliers or
vendors in the ordinary course of business and except for travel advance to
employees), or made or authorized any capital expenditure of a material nature
which is inconsistent with past practices;
(h) made any change in the methods, price or terms of
sale of the products and services sold in the conduct of the Business other
than in the ordinary course of Business;
(i) cancelled or terminated or suffered the cancellation
or termination of any relationship with any material customer, supplier or
distributor or given or received any notice that any such relationship may be
cancelled or terminated;
(j) become a party to, settled or agreed to settle any
litigation, action or proceeding relating to the Business before any court,
arbitrator or governmental body;
(k) increased any compensation or other benefit payable
to current or former employees, consultants or independent contractors of the
Business other than in connection with customary periodic evaluations and in
accordance with past practice;
(l) suffered any change, event or condition which, in any
case or in the aggregate, had or may have a material adverse effect on the
condition (financial or otherwise), properties,
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assets, liabilities, or operations of the Company, its Subsidiaries or the
Business;
(m) paid or agreed to pay any brokerage, finder's fee,
taxes or other expenses in connection with, or incurred any severance pay
obligations by reason of, this Agreement or the transactions contemplated
hereby;
(n) made any change in accounting methods or practices
(including without limitation any change in depreciation or amortization
policies or rates);
(o) revalued any of the Company's or its Subsidiaries'
assets;
(p) accepted any cancellation of any of the debts or
claims of the Company or its Subsidiaries regarding the Business;
(q) taken any action or inaction which has caused or will
with notice, the passage of time or both, cause a material breach or default in
any contract, obligation, lease or license to which the Company and/or its
Subsidiaries is a party or by which the Company and/or the Company's or its
Subsidiaries' assets are bound;
(r) made any purchase commitment by or on behalf of the
Business in excess of the normal, ordinary and usual requirements of the
Business or at any price in excess of the then current market price or upon
terms and conditions more onerous than those usual and customary in the
industry;
(s) accelerated collection of any account receivable,
whether or not by offering a discount or other accommodation to its customers
or other debtors;
(t) hired or engaged any independent contractor to render
consulting or computer programming services to the Business including payments
in amounts which are inconsistent with past practices; or
(u) entered into any written or oral agreement or made
any commitment to take any action described in clauses (a) through (t) above.
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Each of the changes, events and actions described in this Section 4.11
shall herein be individually referred to as a "Material Change" and shall
collectively be referred to as "Material Changes."
4.12 Litigation. Except as set forth on SCHEDULE 4.12, there is no
pending or, to the Knowledge of the Company, currently threatened claim or
action, suit, arbitration, proceeding or, to the Knowledge of the Company,
investigation before any court, arbitrator or government commission or agency
against the Company or its Subsidiaries, nor, to the Knowledge of the Company,
is the Company aware of any basis for any of the foregoing. The Business is
not subject to the provisions of any order, writ, injunction, judgment or
decree of any court or governmental agency or instrumentality. Except as set
forth on SCHEDULE 4.12, there is no litigation against any third party by the
Company or its Subsidiaries. The matters set forth in SCHEDULE 4.12, except as
otherwise set forth therein, if decided adversely to the Company, will not
result in a material adverse change in the business, assets or financial
condition of the Company or the Business. The Company has furnished or made
available to Buyer copies of all relevant papers and documents relating to the
matters set forth in SCHEDULE 4.12.
4.13 Title; Use and Condition of Assets; Machinery and Equipment.
Except as set forth on SCHEDULE 4.13, the Company has good and marketable title
to all of its assets, free and clear of all mortgages, options, leases,
covenants, conditions, agreements, Liens, security interests, adverse claims,
restrictions, charges, encumbrances or rights of others. There exists no
restriction on the use or transfer of any of the Company's or its Subsidiaries'
assets and such assets conform in all material respects to all applicable laws
and regulations, and no notice of violation of any law or regulation relating
thereto has been received by the Company except as have been complied with in
all material respects. The Company's and its Subsidiaries' assets are in
reasonable operating condition and repair, ordinary wear excepted, and such
assets, other than leased assets (real and personal), constitute all of the
property now used in, and reasonably necessary for the conduct of, the Business
in the manner and to the extent presently conducted. Except as set forth on
SCHEDULE 4.13, all the Company's assets are located in the Facilities.
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No notice of any material violation of any building, zoning, or other Laws
relating to such assets, including the Facilities, or their use has been
received by the Company or its Subsidiaries.
4.14 Real Property. Neither the Company nor its Subsidiaries owns
any real property. True, correct and complete copies of all leases of the
Facilities and other real property used by the Company and its Subsidiaries
have been delivered to Buyer. Except as set forth on SCHEDULE 4.14:
(a) All the buildings, fixtures and leasehold
improvements used by the Company or its Subsidiaries in the Business are
located at the Facilities.
(b) To the Knowledge of the Shareholders and to the
Knowledge of the Company, all improvements located on, and the uses presently
made of, the Facilities and any other buildings in connection with the Business
comply in all material respects with (i) all applicable zoning, fire,
environmental, occupational safety and health standards established by law or
regulation and (ii) all applicable leases, contracts, commitments, licenses and
permits, and neither the Company nor its Subsidiaries is aware of any proposed,
pending or threatened change in any such codes, ordinances, standards, leases,
contracts, commitments, licenses or permits which would adversely affect the
Business or the Company's or its Subsidiaries' use of its property and assets.
(c) There are no brokerage or other leasing commissions
payable by the Company or its Subsidiaries in connection with the Facilities.
(d) Neither the Company nor its Subsidiaries has
experienced any material interruption in the delivery of adequate quantities of
any utilities (including, without limitation, electricity, natural gas, potable
water, water for cooling or similar purposes and fuel oil) or other public
services (including without limitation sanitary and industrial sewer service)
required by the Company or its Subsidiaries in the operation of the Business
during the past year. There are no known road disruptions which will regularly
limit access to the Facilities.
4.15 Intellectual Property Rights. The Company owns or has valid
licenses to all Intellectual Property Rights which are
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material to the operation of the Business as it presently is conducted.
Except as set forth on SCHEDULE 4.15, neither the Company nor its
Subsidiaries has granted any license or rights to any other Person or entity
with respect to any Intellectual Property Rights owned by the Company. To the
Knowledge of the Shareholders and to the Knowledge of the Company, neither the
Company nor its Subsidiaries is infringing upon or violating any Intellectual
Property Rights of any other Person or entity in the conduct of the Business.
Except as set forth on SCHEDULE 4.15, no royalty, commission, or payment of any
kind is due or could be due for the use of any product sold by the Company or
its Subsidiaries.
4.16 Licenses for Third Party Software. The software or computer
programs licensed from a third party ("Third Party Software") are presently
used by the Company or its Subsidiaries as licensee under the terms of said
licenses. All royalties due under said licenses have been paid or provided for
in the Company's books and records and, except as set forth on SCHEDULE 4.16,
there exists no material default under the terms of said licenses and no event
has occurred which, upon the passage of time or the giving of notice, or both,
would result in any material default or prevent the Company or its Subsidiaries
from exercising and obtaining the benefits of any options contained therein.
Each of the Company and its Subsidiaries, as appropriate, has all right, title
and interest of the licensee under the terms of said licenses, free of all
Liens, claims or encumbrances, all such licenses are valid and in full force
and effect and, except as set forth on SCHEDULE 4.16, each of the Company and
its Subsidiaries, as appropriate, is in compliance with the terms thereof.
There will be no default or basis for acceleration under any of said licenses
as a result of the transactions contemplated by this Agreement. Neither the
Company nor its Subsidiaries has received any notice of infringement, violation
or conflict with any Intellectual Property Rights of third parties with respect
to its use of any Third Party Software.
4.17 Contracts, Leases and Commitments.
(a)SCHEDULE 4.17 sets forth all contracts, agreements, orders
and commitments, written or oral, presently used by the Company and/or its
Subsidiaries or which are binding upon
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the Company or its Subsidiaries and which are material to the conduct of the
Business (the "Contracts"), and identifies below those Contracts which require
the approval or consent of a third party prior to the transactions contemplated
by this Agreement, including:
(1) Any purchase contract or purchase commitment, whether written
or oral, that continues (or an outstanding bid or proposal that if accepted
would continue) for a period of six months or more after the Closing or
involves $50,000 or more in remaining payments;
(2) (i) Any outstanding sales, license or service contract or
commitment which has a remaining term of six months or more after the
Closing or involves $50,000 or more in remaining payments to the Company
and/or its Subsidiaries or (ii) any outstanding oral sales, license or
service contract or commitment which was in effect at any time during the
past year and which involves or involved a value of $50,000 or more per
annum;
(3) Except for the Facilities, any outstanding lease under which
the Company and/or its Subsidiaries is a lessee or lessor of real or
personal property;
(4) Any written or oral agreement, or any other oral or written
agreement or employee policy that contains any severance or termination pay
liabilities or obligations or any other employee benefit provision,
including any agreement or arrangement providing for the payment of any
bonus or commission based on sales or earnings or any collective bargaining
agreement;
(5) Any written or oral agreement prohibiting or limiting the
ability of the Company and/or its Subsidiaries to engage in the Business or
any other Business or to compete with any Person;
(6) Any debt obligation for borrowed money, including guarantees
(including guarantees by way of acting as guarantor, surety, co-signor,
endorser, co-maker, indemnitor or otherwise) of or agreements to acquire,
any such debt obligation of others;
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(7) Any outstanding loan to any Person;
(8) Any outstanding powers of attorney; or
(9) Any contract (including any oral or written agreement) for the
acquisition of any other business or company.
True and complete copies of all written Contracts and written
summaries of all oral Contracts listed on SCHEDULE 4.17 have been furnished to
Buyer.
(b) With regard to the Contracts:
(1) Except as set forth on SCHEDULE 4.17, (i) no
event has occurred or is continuing which, upon the passage of
time or the giving of notice, or both, could constitute a
material default by the Company and/or its Subsidiaries with
respect to any Contract, and, to the Knowledge of the Company,
neither the Company nor its Subsidiaries is aware of any claim
of any such default having been made against the Company
and/or its Subsidiaries with respect to any Contract, and (ii)
neither the Company nor its Subsidiaries is aware of any event
which, upon the passage of time or the giving of notice, or
both, could constitute a material default by any other party
to any such Contract or could cause the acceleration of any
obligation of any other party thereto or the creation of a
Lien or encumbrance upon any of the Company's or its
Subsidiaries' assets.
(2) Except as set forth on SCHEDULE 4.17, each of
the Contracts is valid, binding and enforceable against the
Company and its Subsidiaries and, to the Knowledge of the
Company, each other party thereto in accordance with its terms
without any defenses, setoffs, counterclaims or disputes of
any nature and is in full force and effect.
(3) With respect to Contracts in process,
Schedule 4.17 lists each contract currently in penalty. To
the Knowledge of the Company, the Company is not aware of any
Contract in process which is reasonably likely to result in
material penalties being assessed against the Company.
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(c) No purchase commitment for materials, supplies,
component parts or other items of inventory of the Business to which the
Company and/or its Subsidiaries is a party is in excess of the ordinary,
normal, usual and current requirements of the Business or at a price in excess
of the reasonable market price. Except as set forth on SCHEDULE 4.17, to the
Knowledge of the Company, no Contract which relates to the Business obligates
the Company and/or its Subsidiaries (i) to provide products or services to
third parties which the Company and/or its Subsidiaries knows or has reason to
believe are bid at prices which it knew would result in a net loss on the sale
or provision of such products or services, or which are pursuant to terms or
conditions the Company does not expect to satisfy or fulfill in their entirety,
or (ii) to purchase or acquire services, information, Third Party Software,
inventory or equipment in excess of the normal, ordinary, usual and current
requirements of the Business or at a price in excess of the reasonable market
price at the time of Contract. Except as set forth in SCHEDULE 4.11 or 4.17,
neither the Company nor its Subsidiaries has waived any material right under
any Contract.
Except for the Employment and Noncompete Agreement of Loren E.
Swanson and other Company employees to be executed at Closing and as set forth
in SCHEDULE 4.17 or SCHEDULE 4.22, there are no agreements, understandings,
instruments or proposed transactions involving amounts in excess of $2,500
between the Company or its Subsidiaries and any employee of the Business which
shall survive the Closing Date except travel advances.
Except for the Contracts listed on SCHEDULE 4.17, neither the
Company nor its Subsidiaries is a party to, nor are any of their assets bound
by, any agreement that is materially adverse to the Business. Except as set
forth in SCHEDULE 4.12, neither the Company nor its Subsidiaries has received
notice that any party to any of the Contracts intends to cancel or terminate
any Contract or to exercise or not exercise any option under any Contract.
(d) After receipt of the consents required under the
Contracts listed on SCHEDULE 4.17, to the Knowledge of the Company, no Contract
will be terminated or otherwise affected by the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
4.18 Warranties. All material warranty obligations are set forth
in the Contracts listed on SCHEDULE 4.17 or on SCHEDULE 4.18. Except as set
forth on SCHEDULE 4.18 or included in the
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estimated cost to complete account on the Company's financial records, on the
date hereof, there are no pending products liability, warranty or similar
claims involving more than $10,000 each, and neither the Company nor its
Subsidiaries has knowledge of any such threatened claim.
4.19 Customers. A true, correct and complete list of the names and
addresses of the fifteen (15) largest customers of the Company on a
consolidated basis by fiscal year 1997 sales volume has been delivered by the
Company to Buyer. Except as set forth in SCHEDULE 4.19, to the Company's
Knowledge, neither the Company nor its Subsidiaries is aware of any customer
appearing on such list that has ceased (or threatened to cease) doing business
with the Company or its Subsidiaries, or which will materially alter the amount
of business it is presently doing with the Company or its Subsidiaries or will
cease to (or has threatened to cease to) do business with Buyer after the
Closing on the same terms and conditions as it did business with the Company
and/or its Subsidiaries prior to Closing.
4.20 Tax Matters.
(a)Except as set forth in SCHEDULE 4.20, each of the Company
and its Subsidiaries has within the times prescribed by law filed all returns,
declarations, reports, estimates, information returns and statements and other
documents (the "Returns") required to be filed by or for the Company or its
Subsidiaries or the Business in respect of all federal, state, local and foreign
taxes, assessments and governmental charges of any kind whatsoever, whether
payable directly, by withholding or otherwise, including without limitation,
income, profits, premium, rent, occupation, property, license, excise, sales,
windfall profits, use, conveyance, customs, duties, value added, gross receipts,
franchise, ad valorem, intangibles, severance, transfer, employment,
payroll-related, withholding, stamp and estimated taxes, assessments and
governmental charges, together with any interest, penalties, additions to tax or
additional amounts imposed by any taxing authority with respect thereto
(collectively, "Taxes" or "Tax"), and the information contained in each such
Return is complete and accurate in all material respects.
(b) All Taxes attributable to the Business, the Employees
or the Company's or its Subsidiaries' assets that have become due have been
timely paid in full or fully reserved against in the Financial Statements.
Except for Taxes related to the
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transactions contemplated by this Agreement, the Company has established (and
until the Closing will establish) on its books and records reserves that are
adequate for the payment of all Taxes for periods prior to the Closing not yet
due and payable and there is no difference between the amounts of the book
basis and the tax basis of assets (net of liabilities) that are not accounted
for by an accrual on the books for income tax purposes.
(c) There are no pending audits, actions, proceedings or
to the Knowledge of the Company, investigations or claims relating to any
liability of the Business or the Company's or its Subsidiaries' assets in
respect of Taxes, and, to the Knowledge of the Company, there is no basis for
any such claim which is likely to result in a Tax liability being imposed with
respect to the Business, the Employees or the Company's or its Subsidiaries'
assets for any period prior to Closing.
(d) There are no Liens or encumbrances for Taxes upon the
Company's or its Subsidiaries' assets, except Liens or encumbrances for Taxes
not yet due. Each of the Company and its Subsidiaries has complied (and until
the Closing will comply) in all material respects with all applicable laws,
rules and regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441
and 1442 of the Internal Revenue Code of 1986, as amended (the "Code"), or
similar provisions under any foreign laws) and has, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and paid
over under all applicable law.
(e) Neither the Company nor its Subsidiaries has
requested any extension of time within which to file any Return, which Return
has not since been (or will not be) timely filed except that the Company will
obtain an extension of the filing date of its fiscal 1997 consolidated tax
return.
(f) Except as set forth in SCHEDULE 4.20 (which shall set
forth the type of Return, date filed, and date of expiration of the statute of
limitations), (i) the statute of limitations for the assessment of federal
income taxes has expired for all federal income tax returns of the Company and
its Subsidiaries for all periods through June 30, 1993, (ii) the statute of
limitations for the assessment of income Taxes has expired for all other
Returns of the Company and its Subsidiaries
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for periods ending prior to July 1, 1993, or those Returns have been examined
by the appropriate taxing authorities for all periods and (iii) no deficiency
for any Taxes has been proposed, asserted or assessed against the Company or
its Subsidiaries which has not been resolved and paid in full.
(g) There are no outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect
to any Taxes or Returns that have been given by the Company or its
Subsidiaries.
(h) There are no federal, state, local or foreign audits
or other administrative proceedings or court proceedings presently pending with
regard to any Taxes or Returns.
(i) No power of attorney has been granted by the Company
or its Subsidiaries with respect to any matter relating to Taxes which is
currently in force.
(j) Neither the Company nor any Subsidiary is a party to
any agreement or arrangement (written or oral) providing for the allocation or
sharing of Taxes.
(k) Neither the Company nor any Subsidiary has
participated in or cooperated with (nor will the Company or its Subsidiaries
participate in or cooperate with prior to the Closing) an international boycott
within the meaning of Section 999 of the Code;
(l) Neither the Company nor any Subsidiary has filed (nor
will the Company or its Subsidiaries file prior to the Closing) a consent
pursuant to Section 341(f) of the Code or agree to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or its
Subsidiaries.
(m) No property of the Company or its Subsidiaries is
property that the Company or its Subsidiaries or any party to this transaction
is or will be required to treat as being owned by another Person pursuant to
the provisions of Section 168(f)(8) of the Code (as in effect prior to
amendment by the Tax Reform Act of 1986) or is "tax-exempt use property" within
the meaning of Section 168 of the Code.
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(n) Neither the Company nor any Subsidiary is required to
include in income any adjustment pursuant to Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by the Company or
any Subsidiary or as a result of the Tax Reform Act of 1986, and neither the
Company nor any Subsidiary has knowledge that the Internal Revenue Service has
proposed any such adjustment or change in accounting method.
(o) Neither the Company nor any Subsidiary has been a
United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(ii) of the Code.
(p) Neither the Company nor any Subsidiary is a party to
any agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(q) Neither the Company nor any Subsidiary is subject to
the provisions of Section 1503(d) of the Code.
(r) All transactions which could, if not adequately
disclosed, give rise to a penalty pursuant to Section 6662 of the Code were
adequately disclosed, (with respect to federal income tax the Returns not yet
filed but which will be filed before the Closing will be adequately disclosed)
on the relevant federal income tax returns.
4.21 Employee Relations.
(a) SCHEDULE 4.21 hereto is a true and complete list of
the names of all the Company's and its Subsidiaries' employees (the
"Employees") and consultants, including to the extent applicable, their titles,
rates of compensation and all other remuneration and perquisites granted to or
accrued on behalf of such Persons, together with the anticipated dates of such
Persons' next salary reviews.
(b) Except as set forth on SCHEDULE 4.21 attached hereto:
(i) None of the Employees is represented by any
labor union and there is no pending representation petition in respect
thereof; neither the Company nor its
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Subsidiaries is a party to any collective bargaining agreement;
(ii) There is no unfair labor practice complaint
pending against the Company or its Subsidiaries before the National
Labor Relations Board or any state or local agency;
(iii) There is no pending labor strike, work
stoppage, slow down, other labor trouble or interference with or
impairment of the Business affecting the Company or its Subsidiaries
(including, without limitation, any organizational drive);
(iv) There is no labor grievance pending against
the Company or its Subsidiaries;
(v) Neither the Company nor its Subsidiaries has
any outstanding commitment or agreement to effect any general wage or
salary increase for any of the Employees;
(vi) The employment of all Employees is terminable
at will without any penalties or severance obligations of any kind;
(vii) All sums due for employee compensation and
benefits and all vacation time owing any Employees have been duly and
adequately accrued on the consolidated accounting records of the
Company;
(viii) All Employees and consultants are either
United States citizens or resident aliens specifically authorized to
engage in employment in the United States in accordance with all
applicable laws;
(ix) To the Knowledge of the Company, no employee,
consultant, distributor, representative, advisor, salesman, agent,
customer or supplier of the Business will terminate his or its
employment or cease to do business with the Company after the
consummation of the transactions contemplated by this Agreement.
(x) No employee has executed nondisclosure and/or
confidentiality agreements.
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<PAGE> 34
(xi) No employee, consultant, distributor,
representative, or Person has a "life of the part" or "life of the
customer" or any so-called "procuring cause" contract, understanding
or agreement, whether express or implied, with the Company or its
Subsidiaries. All sums due from the Company and its Subsidiaries to
any employee, consultant, distributor, representative, or Person for
any commissions for sales consummated prior to September 30, 1997,
have been duly and adequately accrued on the Closing Balance Sheet of
the Company.
4.22 Employee Benefit Plans. Except as set forth on SCHEDULE 4.22:
(a) Neither the Company nor its Subsidiaries nor any
ERISA Affiliate for the period since October 31, 1991, has established,
maintained or contributed or been required to contribute nor is it a party to,
any of the following (collectively, the "Company Plans"):
(i) Any employee pension benefit plan, as defined
in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), including (without limitation) any
multiemployer plan, as defined in Section 3(37) of ERISA;
(ii) Any employee welfare benefit plan, as defined
in Section 3(1) of ERISA;
(iii) Any bonus, deferred compensation, incentive,
restricted stock, stock purchase, stock option, stock appreciation
right, phantom stock, debenture, supplemental pension, profit-sharing,
royalty pool, commission or similar plan or arrangement;
(iv) Any written or oral plan, program, agreement,
policy, commitment, arrangement or any past practice relating to
severance or termination pay, whether or not published or generally
known;
(v) Any plan, program, agreement, policy,
commitment or other arrangement relating to the provision of any
benefit described in Section 3(1)(A) of ERISA to former employees or
directors or to their survivors, other than procedures intended to
comply with the
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<PAGE> 35
continuation of health coverage requirements of Part 6 of Subtitle B of
Title I of ERISA;
(vi) Any other written or oral plan, program,
agreement, procedure, policy, commitment, understanding or arrangement
or any past practice relating to employee benefits, executive
compensation, fringe benefits, severance pay, terms of employment or
services as an independent contractor.
(b) The Company has provided to Buyer complete, accurate
and current copies of each of the following, to the extent they are currently
in effect or to the extent that any liability continues under a prior Plan:
(i) The text (including amendments and any other
written interpretations) of each of the Company Plans, to the extent
reduced to writing;
(ii) A description of all material elements of
each of the Company Plans, to the extent not previously reduced to
writing;
(iii) With respect to each Company Plan that is an
employee benefit plan (as defined in Section 3(3) of ERISA), the
following:
(A) The most recent summary plan description, as
described in Section 102 of ERISA;
(B) Any summary of material modifications that
has been distributed to participants or filed with
the U.S. Department of Labor, but that has not been
incorporated in an updated summary plan description
furnished under subparagraph (A) above; and
(C) The annual reports, as described in Section
103 of ERISA, for the most recent three plan years
for which an annual report has been prepared
(including all schedules and attachments and all
discrimination testing worksheets prepared in
connection with any such Plan).
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<PAGE> 36
(iv) With respect to each Company Plan that is
intended to qualify under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the
"Code"), the most recent determination letter
concerning the plan's qualification under Section
401(a) of the Code, as issued by the Internal Revenue
Service;
(v) Any handbook, manual, policy statement or
similar written guidelines furnished to employees of
the Company or any ERISA Affiliate, excluding any
such item that has been superseded by any subsequent
handbook, manual, policy statement or similar written
guidelines;
(vi) All trust agreements, insurance contracts,
accounts or other documents which establish the
funding vehicle for any Company Plan;
(vii) The most recent actuarial reports or other
financial reports prepared in connection with any
Company Plan; and
(viii) Any investment management agreements,
administrative services contracts or other agreements
and documents relating to the ongoing administration
and investment of any Company Plan.
(c) With respect to each Company Plan that is an employee
benefit plan (as defined in Section 3(3) of ERISA) and that is subject to the
reporting, disclosure and record retention requirements set forth in Part 1 of
Subtitle B of Title I of ERISA and the regulations thereunder, each of such
requirements has in all material respects been fully met on a timely basis.
(d) With respect to each Company Plan that is an employee
benefit plan (as defined in Section 3(3) of ERISA) and that is subject to Part
4 of Subtitle B of Title I of ERISA, none of the following now exists or has
existed within the six-year period ending on the date hereof:
(i) Any act or omission constituting a material
violation of Sections 402, 403, 404 or 405 of ERISA which is not
exempted by applicable Department of Labor Regulations; or
30
<PAGE> 37
(ii) Any act or omission that constitutes a
material violation of Sections 406 and 407 of ERISA and is not
exempted by Section 408 of ERISA or that constitutes a material
violation of Section 4975(c) of the Code and is not exempted by
Section 4975(d) of the Code. Neither the Company, nor any ERISA
Affiliate, nor to the Company's Knowledge, any fiduciary or party in
interest (as those terms are defined in Section 3(21)(A) and 3(14) of
ERISA, respectively) has incurred, or reasonably expects to incur, on
account of any Company Plan, any liability for taxes under Code
Sections 4971, 4972, 4975, 4976, 4977, 4979, 4980 or 4980B, or for
penalties under ERISA Sections 502(c), (i) or (l), with respect to any
Company Plan; or
(iii) No officer, employee or director of the
Company or any of its ERISA Affiliates has committed a material breach
of any responsibility or obligation imposed upon fiduciaries by Title
I of ERISA with respect to any Company Plan.
(e) Each Company Plan that is intended to qualify under
Section 401(a) of the Code has at all times met, and currently meets, in all
material respects all requirements for qualification under Section 401(a) of
the Code and the regulations thereunder and the requirements of all applicable
laws, except to the extent that such requirements may be satisfied by adopting
retroactive amendments under Section 401(b) of the Code and the regulations
thereunder. Each such Company Plan has been administered in all material
respects in accordance with its terms and the applicable provisions of ERISA
and the Code and the regulations thereunder and to the Company's Knowledge no
matter exists which would adversely affect the qualified tax exempt status of
such Company Plan and any related trust.
(f) There are no actions, suits, proceedings,
investigations or hearings pending with respect to any Company Plan, or to the
Company's Knowledge, any claims (other than claims for benefits arising in the
ordinary course of a Company Plan) threatened against or with respect to any
Company Plan or any ERISA Affiliate which would result in any material
liability, and there are no facts known to the Company or any of its ERISA
Affiliates which could reasonably give rise to any such actions, suits,
proceedings, investigations, hearings or claims.
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<PAGE> 38
(g) Each employee welfare benefit plan, as defined in
Section 3(1) of ERISA, to the extent applicable, has satisfied in all material
respects and continues to satisfy the material requirements of Sections 419,
419A and 4980B of the Code.
(h) All contributions, premiums or other payments due
from the Company Shareholders, the Company or any ERISA Affiliate to (or under)
any Company Plan on or prior to September 30, 1997 have been fully paid or
adequately provided for on the Closing Balance Sheet. All accruals with respect
to Company Plans (including, where appropriate, proportional accruals for
partial periods) have been made in accordance with prior practices.
(i) Each Company Plan materially complies, in form and
operation, with all applicable statutes, laws and regulations, including but
not limited to ERISA and the Code and all applicable requirements of (i) the
Age Discrimination in Employment Act of 1967, as amended, and the regulations
thereunder, (ii) Title VII of the Civil Rights Act of 1964, as amended, and the
regulations thereunder, and (iii) the health care continuation provisions of
Part 6 of Subtitle B of Title I of ERISA and any applicable state law.
(j) Except with respect to matters described in the
Employment Agreement to be signed at Closing, no payment made to any employee,
officer, director or independent contractor of the Company or its Subsidiaries
(the "Recipient") pursuant to any employment contract, severance agreement or
other arrangement (the "Golden Parachute Payment") will be nondeductible by the
Company or its Subsidiaries because of the application of Sections 280G and
4999 of the Code to the Golden Parachute Payment, nor will the Company or its
Subsidiaries be required to compensate any Recipient because of the imposition
of an excise tax (including any interest or penalties related thereto) on the
Recipient by reason of Sections 280G and 4999 of the Code.
(k) With respect to any Company Plan that is an employee
pension benefit plan, as defined in Section 3(2) of ERISA: (i) neither the
Company nor any ERISA Affiliate has incurred any "accumulated funding
deficiency" (within the meaning of ERISA Section 302 or Code Section 412(a)),
whether or not waived; (ii) no "reportable event" (within the meaning of ERISA
Section 4043), which is not exempted from reporting by applicable regulations,
has occurred with respect to any Company Plan subject to the minimum funding
requirements of Code Section 412; (iii) no Company Plan
32
<PAGE> 39
subject to Title IV of ERISA has terminated within the six year period ending
on the date hereof, termination proceedings have not been instituted or
threatened by the Company, any ERISA Affiliate or the Pension Benefit Guaranty
Corporation or any other party, nor is the Company aware of any condition that
would cause the termination of any Company Plan, which may result in liability
of the Company or an ERISA Affiliate under Sections 4062 or 4064 of ERISA or
Code Section 412, or imposition of a lien on the property of the Company or an
ERISA Affiliate under ERISA Section 4068; (iv) the current value of all assets
under each Company Plan equals or exceeds the value of all benefit liabilities,
as defined in ERISA Section 4001(a)(16), with respect to that Company Plan; and
(v) all insurance premiums, including premiums to the Pension Benefit Guaranty
Corporation, have been timely paid in full with respect to any such Company
Plan for plan years or other applicable policy periods ending on or before
closing.
(l) During the six year period immediately preceding this
Agreement, neither the Company nor any of its ERISA Affiliates has (i) ceased
operations at a facility so as to become subject to the provisions of ERISA
Section 4062(e), (ii) entered into any transaction a principal purpose of which
was to evade or avoid pension liability or which otherwise could be subject to
the provisions of ERISA Section 4069, (iii) withdrawn as a substantial employer
so as to become subject to the provisions of ERISA Section 4063, (iv) ceased
making contributions on or before the date of this Agreement to any Company
Plan subject to the provisions of ERISA Section 4064(a) to which such entity
made (or was obligated to make) contributions during any of the six years prior
to the date of this Agreement, (v) failed to make a payment or required
installment to any Company Plan so as to become subject to the requirements of
ERISA Section 302(f), or (vi) adopted an amendment to a Company Plan so as to
become subject to the requirements of ERISA Section 307.
(m) There has been no withdrawal by Company or any of its
ERISA Affiliates from any "multiemployer plan" within the meaning of ERISA
Section 3(37), within the past six years which could have any material adverse
effect on Company or any Company Plan.
(n) The fiduciaries and administrators of each Company
Plan have at all times complied with all material applicable provisions of law
(including without limitation the provisions of ERISA and the Code) in
operating and dealing with
33
<PAGE> 40
each Company Plan, except where the failure to comply would not have a material
adverse effect on the Company
(o) No Company Plan, nor to the Company's Knowledge, any
administrator or fiduciary of any Company Plan or the Company or any ERISA
Affiliate has any material liability under any provision of ERISA or any other
applicable law by reason of any communication or failure to communicate with
respect to or in connection with any Company Plan, or any filing or failure to
file with any government entity.
(p) No Company Plan, nor to the Company's Knowledge, any
administrator or fiduciary of any Company Plan or the Company or any ERISA
Affiliate has any material liability to any Company Plan participant,
beneficiary or other Person under any provision of ERISA or any other
applicable law by reason of any payment of benefits or other amounts or failure
to pay benefits with respect to or in connection with any Company Plan. There
are no material liabilities of any Company Plan of any nature, whether accrued,
absolute, contingent or otherwise, existing, or which may hereafter arise out
of any event occurring on or prior to September 30, 1997 or out of any act or
failure to act on the part of the Company, any ERISA Affiliate, any fiduciary
of any Company Plan or any employee or other agent of any of them on or prior
to September 30, 1997, except as and to the extent and in the amounts reflected
in the Closing Balance Sheet, or as to any funded Company Plan, in the
financial statements of such Company Plan. Neither the Company nor any ERISA
Affiliate is delinquent or in arrears on other amounts owed to or with respect
to any contributions under any Company Plan.
(q) Except to the extent required by Law, to the
Company's Knowledge, the consummation of the transactions contemplated by the
Agreement will not (i) give rise to any liability or obligation of the Company
pursuant to any Company Plan, including but not limited to, the payment of
severance pay or benefits, (ii) accelerate the time of payment or vesting or
increase the amount of compensation due under any Company Plan, (iii) except as
described in any Employment Agreement to be signed at Closing, cause any
individual to accrue or receive additional benefits, service or accelerated
rights to payment of benefits under any Company Plan, or (iv) directly or
indirectly cause the Company or any ERISA Affiliate to transfer or set aside
any assets to fund or otherwise provide for benefits for any individual.
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4.23 Health, Safety, Employment and Environmental Matters. Except
as set forth in SCHEDULE 4.23:
(a) The Company, its Subsidiaries and the Business are in
compliance in all material respects with all federal, state, local and foreign
health and occupational safety laws and all federal, state, local and foreign
laws related to employment and employment practices, compensation and benefits,
which are applicable to the conduct of the Business.
(b) Except as set forth on SCHEDULE 4.23, the Company,
its Subsidiaries and the Business are in compliance with the terms and
conditions of all environmental permits, licenses, and other authorizations
required under applicable laws relating to pollution of the environment the
noncompliance with which would have a material adverse effect on the Business.
All such permits, licenses and other authorizations are described on SCHEDULE
4.23.
(c) To the Knowledge of the Company, the Company, its
Subsidiaries and the Business are in compliance in all material respects with
all applicable federal, state, local and foreign laws relating to emissions,
discharges, and releases of Hazardous Materials into the environment and the
generation, treatment, storage, transportation and disposal of hazardous
wastes, including, without limitation, any applicable provisions of the
Resource Conservation and Recovery Act of 1976 or CERCLA, the noncompliance
with which would have a material adverse effect on the Business.
(d) To the Knowledge of the Company, there are no
conditions at, on, under or related to, the Facilities which pose a significant
hazard to human health or the environment, whether or not in compliance with
law, and there has been no production, use, treatment, storage, transportation
or disposal by the Company or any Subsidiary of any Hazardous Substance on the
premises or elsewhere in violation of Environmental Laws nor any release or
threatened release by the Company or any Subsidiary of any Hazardous Substance,
pollutant or contaminant. Except as set forth on SCHEDULE 4.23, to the
Knowledge of the Company, no Hazardous Substance is now or ever has been stored
by the Company or any Subsidiary on the Premises in underground tanks, pits or
surface impoundments. To the Knowledge of the Company, there are no
asbestos-containing materials incorporated into the buildings or interior
improvements that are part of either the Facilities or the Company's or its
Subsidiaries' assets, nor is there any electrical
35
<PAGE> 42
transformer, fluorescent light fixture with ballasts containing PCBs or other
PCB Item, as defined at 40 C.F.R. Section 761.3, on the Facilities or among
the Company's or its Subsidiaries' assets.
(e) Set forth on SCHEDULE 4.23 is a list of all
environmental audits, environmental risk assessments and site assessments in
the Company's possession or control relating to the Facilities or the Business.
True and correct copies of each of the foregoing reports have been provided by
the Company to Buyer.
4.24 Records and Customer Lists. The records and customer
lists of the Company and its Subsidiaries relating to the Business are in all
material respects complete and correct, and have been maintained in accordance
with good business practices.
4.25 Insurance. SCHEDULE 4.25 sets forth (i) all primary,
excess and umbrella policies of general liability, fire, workers' compensation,
products liability, completed operations, employers, liability, health, bonds
and other forms of insurance providing insurance coverage to the Company and
its Subsidiaries, including the name of insurer, limits of liability, per
occurrence and annual aggregate, if any, or combined single limit as
applicable; and (ii) all claims and lawsuits in excess of $50,000 made or filed
during the last two years with respect to the Business of the Company which
have been paid or settled. The Company has made available to Buyer true,
complete and correct copies of all such policies. With respect to all such
policies, all premiums currently payable or previously due and payable with
respect to all periods up to and including the Closing have been paid and no
notice of cancellation or termination has been received with respect to any
such policy. All such policies are valid, outstanding and enforceable
policies. Such policies are sufficient for compliance with all requirements of
law and of all agreements to which the Company or its Subsidiaries is a party
and will not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. SCHEDULE 4.25 also identifies all
risks which the Company or its Subsidiaries have designated as being
self-insured. Except as set forth in SCHEDULE 4.25, neither the Company nor
its Subsidiaries has been refused any insurance with respect to the Business of
the Company and its Subsidiaries nor has its coverage been limited, by any
insurance carrier to which it has applied for such insurance or with which it
has carried insurance during the last five years. Each notice which has been
required to be delivered by the Company with respect to any insured claim has
been given to the appropriate insurer on
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<PAGE> 43
a timely basis. Neither the Company nor its Subsidiaries has received any
notice of default or cancellation with respect to any policy of insurance.
4.26 Compliance with Laws. The Company and its
Subsidiaries have all material requisite licenses, permits and certificates,
including environmental, health and safety permits, from foreign, federal,
state and local governmental authorities necessary to conduct the Business and
own and operate their assets (collectively, the "Permits"). The Permits are
valid and in full force and effect and will not be terminated or otherwise
materially adversely affected by the consummation of the transactions
contemplated hereby. Except as disclosed in SCHEDULE 4.23, neither the Company
nor its Subsidiaries is in violation of any law, rule, regulation or ordinance
(including, without limitation, laws, rules, regulations or ordinances relating
to building, zoning, environmental protection, disposal of hazardous
substances, land use or similar matters) relating to the Business, its assets
or properties, the violation of which could have a material adverse effect on
the Business or the Company's or its Subsidiaries' assets or properties. The
Company's and its Subsidiaries' conduct of the Business does not violate, in
any material respect, any federal, state, local or foreign laws, regulations or
orders (including, but not limited to, any of the foregoing relating to
employment, wages, hours, employment discrimination, occupational safety,
Environmental Laws, hazardous waste (as defined in the Resource Conservation
and Recovery Act, as amended, and the regulations adopted pursuant thereto),
conservation or corrupt practices, the enforcement of which could have a
material adverse effect on the results of operations, condition (financial or
otherwise), assets, properties or prospects of the Company, its Subsidiaries or
the Business. The Company and its Subsidiaries each has filed all material
returns, reports and other documents and furnished all information required or
requested by any federal, state, local or foreign governmental agency and all
such returns, reports, documents and information are true and complete in all
material respects regarding the Business. Neither the Company nor its
Subsidiaries is engaged in any unfair labor practice or discriminatory
employment practice and, except as set forth on SCHEDULE 4.26, no complaint of
any such practice against the Company or its Subsidiaries has been filed or, to
the Knowledge of the Company, threatened to be filed with or by the National
Labor Relations Board, the Equal Employment Opportunity Commission or any other
administrative agency, federal or state, that regulates labor or employment
practices, nor has any grievance been filed or, to
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the Knowledge of the Company, threatened to be filed against the Company or its
Subsidiaries by any Employee pursuant to any collective bargaining or other
employment agreement to which the Company or its Subsidiaries is a party. Each
of the Company and its Subsidiaries is in compliance in all material respects
with all applicable federal and state laws and regulations regarding
occupational safety and health standards and has received no complaint from any
federal or state agency or regulatory body alleging material violations of any
such laws or regulations.
4.27 No Misrepresentation. The representations and warranties of
Loren E. Swanson contained herein or in the Financial Statements, schedules,
and exhibits attached hereto do not, and on the Closing Date will not to the
Knowledge of the Company, contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made herein or
therein, in light of the circumstances under which made, not misleading. Loren
E. Swanson has not willfully or recklessly withheld from Buyer knowledge of any
event, condition or fact which may adversely and materially affect the
Business. To the Knowledge of the Company, the statements set forth in
SCHEDULE 4.27 are accurate in all material respects.
4.28 Brokers. All negotiations relative to this Agreement and the
transactions contemplated herein have been carried out by the Shareholder
Representative and Gerald E. Magnuson directly with Buyer, without the
intervention of any broker, finder, investment banker or other Person on behalf
of the Company in such a manner as to give rise to any claim by any such Person
for any finder's fee, brokerage commission or similar payment except amounts
payable to Gerald E. Magnuson, which shall be paid by the Shareholders.
4.29 Dividends. Except as set forth on SCHEDULE 4.29, since June
30, 1997, the Company and its Subsidiaries has not declared or paid any
dividend or other distribution nor has it made, directly or indirectly, any
payment or other distribution of any nature whatsoever to any of the
Shareholders except for regular salary payments for services rendered and the
reimbursement for ordinary and necessary business expenses.
4.30 Bank Accounts. SCHEDULE 4.30 hereto describes all checking
accounts, savings accounts, custodial accounts, certificates of deposit, safety
deposit boxes, money market accounts or other similar accounts (collectively,
"Cash Accounts")
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maintained by the Company. The signatories identified on SCHEDULE 4.30
constitute the only signatories with respect to such accounts. The Company
represents and warrants that it will have at least $2 million in its cash
accounts as of Closing.
4.31 Transactions with Related Parties. Except as set forth on
SCHEDULE 4.31 hereto or as otherwise disclosed herein or in the Schedules
hereto, the Company and its Subsidiaries are not a party to any transaction or
proposed transaction, including, without limitation, the purchase or sale of
raw materials or finished goods, the furnishing of services or the borrowing or
lending of money, with any Company director, officer or employee, or any Person
or entity who is an affiliate of any Shareholder or any such director, officer
or employee of the Company. Except as set forth on SCHEDULE 4.31 hereto, no
Shareholder or any director, officer or employee of the Company, nor any of
their affiliates, own or have any ownership interest in any corporation or
other entity which is in competition with the Company or which is engaged in a
related or similar business to that of the Company, and none of such Persons,
or any of their affiliates, have entered into any agreement, commitment or
understanding contemplating such ownership or ownership interest.
SECTION 5. PERSONAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders represents and warrants to Buyer, severally
and not jointly, and only to the extent such representations and warranties
relate specifically to such Shareholder, that:
5.1 Title to Stock. Each of the Shareholders is the record holder
and beneficial owner of his or her shares of Class A and/or Class B, has good
and marketable title to his or her shares of Class A and/or Class B, free and
clear of any Lien, and has the absolute right to sell his or her shares in
connection with the transactions contemplated herein.
5.2 Investment Intent.
(a) Each Shareholder has sufficient knowledge and
experience in financial and business matters to enable it to evaluate the
merits and risks of the transactions contemplated by this Agreement or has
relied for advice on a qualified purchase
39
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representative as defined in Rule 501 under the Securities Act of 1933, as
amended.
(b) Each Shareholder has been given access to information
requested by such Shareholder regarding Buyer, including the opportunity to ask
questions of and receive answers from the officers of Buyer concerning the
present and proposed activities of Buyer and to obtain the information which
such Shareholder deems necessary or advisable in order to evaluate the merits
and risks of the transactions contemplated by this Agreement, and each
Shareholder has made his or her own independent investigation of Buyer and the
merits and risks of the transactions contemplated by this Agreement.
(c) Each Shareholder is acquiring the Buyer's Common
Stock for his or her own account, for investment purposes, and not with a
present view to resale or for distribution of all or any portion of the Buyer's
Common Stock.
(d) Each Shareholder understands that the Buyer's Common
Stock has not been, and will not be, registered under the Securities Act of
1933, as amended, as of the Closing or under any state securities Laws, is
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, a "stop transfer" order will be
placed on the certificates representing shares of Buyer's Common Stock issued
hereunder, and such certificates will bear a legend in substantially the
following form, as well as any other legend that may be required by applicable
Law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR THE SECURITIES LAWS OF ANY STATE (THE "STATE LAWS"), BUT
HAVE BEEN ISSUED IN RELIANCE UPON EXEMPTIONS THEREFROM. NO TRANSFER
OF THESE SECURITIES OR ANY INTEREST THEREIN MAY BE MADE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND
THE APPROPRIATE STATE LAWS, UNLESS THE ISSUER HAS RECEIVED AN OPINION
OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER DOES NOT REQUIRE SUCH
REGISTRATION.
(e) Each Shareholder further represents that:
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(i) Such Shareholder has been provided with the information
specified in Rule 502(b)(2)(ii)(B) and (C) under the Securities Act of 1933 as
amended, and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and risks inherent in holding the
Buyer's Common Stock;
(ii) Such Shareholder has not been offered the Buyer's Common
Stock by any form of general advertising or general solicitation; and
(iii) Such Shareholder is able to bear the economic risk and
lack of liquidity inherent in holding the Buyer's Common Stock.
5.3 Authorization; Capacity; Enforceability. Each Shareholder has
the legal capacity to execute, deliver and perform this Agreement and all of
the documents and instruments required by this Agreement to be executed and
delivered by such Shareholder. This Agreement is, and the other documents and
instruments required hereby will be, when executed and delivered by such
Shareholder, the valid and binding obligations of such Shareholder, enforceable
in accordance with their respective terms.
5.4 No Violation or Conflict. The execution, delivery and
performance of this Agreement by each Shareholder:
(a) does not and will not conflict with or violate,
breach, constitute a default under, or give rise to a right of termination or
acceleration of an obligation under any contract, Law, judgment, order or
decree to which such Shareholder is a party or by which such Shareholder is
bound; and/or
(b) will not result in the creation of any right or Lien
against or with respect to the Company's Stock or any of such Shareholder's
assets or properties.
5.5 Litigation. There are no actions, suits or proceedings
pending or, to the Knowledge of any Shareholder, proposed or threatened,
against any Shareholder by any Person which question the legality, validity or
propriety of the transactions contemplated by this Agreement.
5.6 Government Approvals. No permission, approval, determination,
consent or waiver by, or any declaration, filing or registration with, any
governmental or regulatory authority is
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required in connection with the execution, delivery and performance of this
Agreement by the Shareholders.
5.7 No Pending Acquisitions. Except for this Agreement, no
Shareholder is a party to or bound by any agreement, undertaking or commitment
with respect to any transaction described below:
(a) a merger, share exchange, consolidation,
reorganization, combination or similar transaction involving the Company;
(b) a purchase, lease or other acquisition of all or any
portion of the assets of, or any equity interest (or any option, warrant or
securities convertible into any equity interest) in, the Company.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company as follows:
6.1 Organization. Buyer is a corporation duly organized, validly
existing under the laws of the State of Wisconsin and Buyer has the requisite
corporate power and authority to own and use its properties and enter into the
transactions contemplated by this Agreement.
6.2 Capital Structure. The authorized number of shares of Buyer
is 100,000,000 shares of Common Stock, par value $.001 per share; 21,668,804
shares are issued and outstanding (as of October 30, 1997); and 500 authorized
shares of Preferred Stock, none of which are issued and outstanding. All the
shares are validly issued, fully-paid and nonassessable except to the extent
provided by Wis. Stats. Section 180.0622(2)(b).
6.3 Authority. The execution, delivery and performance of this
Agreement and the further documents, instruments and agreements referred to or
provided for herein by Buyer have been duly authorized by all necessary
corporate action on the part of Buyer. Buyer has all requisite corporate power
to execute, deliver and perform this Agreement and the further documents,
instruments and agreements referred to or provided for herein, and the
performance by Buyer of this Agreement and the further documents, instruments
and agreements referred to or provided for herein is not prohibited by and does
not violate any provision of or result in the breach of (i) any judgment, order
or decree applicable to
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Buyer, or (ii) the articles of incorporation or bylaws of Buyer and (iii) any
material note, mortgage, Lien, indenture to which the Company is a party. This
Agreement has been duly executed and delivered by Buyer and, assuming due
execution and delivery by the Shareholders, is a valid and legally binding
obligation of Buyer enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally.
6.4 Consents and Approvals. Neither the execution and delivery of
this Agreement by Buyer, the consummation by Buyer of the transactions
contemplated hereby nor compliance by Buyer with any of the provisions hereof
will (i) require any consent, waiver, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
except for filings as may be required under the Securities Laws; (ii) result in
a default (or give rise to any right or termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any
indenture, mortgage, note, lien, license, government registration, contract,
lease, agreement or other instrument or obligation to which Buyer is a party or
by which Buyer or any of their assets may be bound; or (iii) violate any order,
writ, judgment, injunction, decree, statute, ordinance, rule or regulation
applicable to Buyer or any of their assets.
6.5 Litigation. There is no claim, action, suit or proceeding
pending before any court, commission, agency, arbitrator or government agency
against Buyer or any threatened against Buyer which would adversely affect the
validity or enforceability of this Agreement.
6.6 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Buyer directly with
the Company, without the intervention of any broker, finder, investment banker
or other Person on behalf of Buyer other than William Blair & Company (the fees
of which will be paid by Buyer), in such a manner as to give rise to any claim
by any such Person against the Company for any finder's fee, brokerage
commission or similar payment.
6.7 Annual Report. Buyer has delivered to the Shareholder
Representative Buyer's Annual Report for the year ended December 31, 1996 and
its quarterly report for the quarter ended June 30, 1997. As of their
respective filing dates, such Annual Report and quarterly report did not
contain any untrue statement of
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a material fact or, to the knowledge of Buyer, omit to state any fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The consolidated financial
statements contained in such Reports have been prepared in accordance with
generally accepted accounting principles consistently followed throughout the
periods indicated and fairly present the financial position of the Buyer as of
the respective dates thereof and the results of its operations for the
respective periods indicated. Since December 31, 1996, there has not been any
material adverse change in the financial condition or the results of operations
of the Buyer, except as disclosed in securities filings and reports to
shareholders.
6.8 Buyer Common Stock. The Buyer's Common Stock to be delivered
to the Shareholders pursuant to this Agreement (i) have been duly authorized,
validly issued, fully paid and non-assessable and will be delivered free and
clear of all Liens (except to the extent provided by Wis. Stats. Section
180.0662(2)(b) and as noted on the stock certificates); and (ii) have been
issued pursuant to valid exemptions from the registration requirements of the
Securities Act of 1933, as amended, and applicable state securities laws.
6.9 No Knowledge of Misrepresentations or Omissions. Buyer has
not in bad faith failed to inform the Shareholders that the Buyer has knowledge
that (i) the representations and warranties of the Shareholders in this
Agreement and the Schedules hereto are not true and correct in all material
respects; (ii) the Schedules to this Agreement contain material errors; or
(iii) there are material omissions from the Schedules to this Agreement.
6.10 Contracts. Upon Closing, Buyer agrees to be bound by and
assume those Contracts listed on Schedule 4.17 which by their terms require
such assumption to avoid a default thereunder resulting from the consummation
of the transactions contemplated by this Agreement. Buyer shall also provide
Loren E. Swanson all reasonable assistance and cooperation after Closing to
obtain the release of Loren E. Swanson from all liabilities under performance
bonds of the Company.
SECTION 7. COVENANTS
7.1 Best Efforts. Subject to the terms and conditions herein
provided, each of the parties to this Agreement agrees to
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use its best efforts to take, or cause to be taken, all action, and to do, or
cause to be done as promptly as practicable, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement. If at any time
after the Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, including the execution of additional instruments,
the each of the parties to this Agreement and their officers and directors as
appropriate, shall take all such necessary action.
SECTION 8. CONDITIONS TO CLOSING
8.1 Conditions to Obligations of Buyer. The obligations of Buyer
under this Agreement are subject to the fulfillment at or prior to the Closing
of each of the following conditions, each of which may be waived in writing in
the sole discretion of Buyer.
(a) Representations and Warranties. Each of the
representations and warranties made by the Shareholders in this Agreement, the
schedules or exhibits hereto, or any written statement delivered to Buyer
hereunder shall be true and correct in all material respects as made, as of the
Closing Date, and the Shareholders shall have performed and complied in all
respects with all agreements and covenants required by this Agreement to be
performed, satisfied or complied with them prior to or at the Closing.
(b) Government Order, Injunction. No court, domestic or
foreign, shall have entered an injunction or other similar order enjoining
consummation of the transactions provided for herein, and no action or
proceeding shall have been threatened or instituted and remain pending before a
court or other governmental body by any governmental agency or public authority
to restrain or prohibit the transactions contemplated by this Agreement, nor
shall any governmental agency have notified any party to this Agreement that
consummation of the transactions contemplated herein would constitute a
violation of the laws of the United States and that it intends to commence
proceedings to restrain the consummation of the transactions contemplated
hereby unless such agency shall have withdrawn such notice prior to the
Closing.
(c) Government Consents. All consents, approvals,
authorizations or orders of, or filings with, any governmental
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agency required for the consummation of the transactions contemplated herein
shall have been obtained or made.
(d) Required Consents. The Company and its Subsidiaries
shall have obtained consents to proceed with the transactions contemplated by
this Agreement under those Contracts identified in SCHEDULE 4.17.
(e) No Adverse Change. No change shall have occurred or
be threatened which, and Buyer shall not have become aware of any fact that,
would reasonably be expected to have a material adverse effect on the Company's
or its Subsidiaries' assets or the Business.
(f) Employment and Other Agreements. The Buyer shall
have entered into an employment and noncompetition agreement with Loren E.
Swanson in substantially the form attached as ANNEX A and the agreements to
purchase the Facilities in substantially the form attached as ANNEX C.
(g) Opinion of Counsel for the Shareholders. Buyer shall
have been furnished with an opinion of Lindquist and Vennum, P.L.L.P., counsel
for the Shareholders, substantially to the effect that:
(1) Each of the Company and its Subsidiaries is a
corporation validly existing and in good standing, and has the
requisite corporate power and authority to own and use its properties
and to transact the Business as it is now being conducted.
(2) The execution, delivery and performance of
this Agreement and the Escrow Agreement by the Shareholders have been
duly authorized and approved by all requisite corporate and
Shareholder action of the Company, and this Agreement and the Escrow
Agreement have been duly and validly executed and delivered by the
Shareholders in accordance with their terms and constitute valid and
binding obligations of the Shareholders, enforceable against them in
accordance with their terms except as the enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws generally affecting the rights of
creditors.
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(3) The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby by the Shareholders does not and will not, with or without the
giving of notice or the lapse of time, or both, (i) conflict with any
terms or provisions of the respective Articles of Incorporation or
By-laws of the Company or its Subsidiaries; (ii) to our knowledge,
result in a breach of, or constitute a default under, result in the
termination or modification of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon
any of the properties of the Company or its Subsidiaries pursuant to
any indenture, mortgage, deed of trust, contract, license, commitment
or other agreement or instrument known to us after reasonable inquiry,
to which the Company or its Subsidiaries is a party or by which any of
the Company's or its Subsidiaries' properties are bound or affected;
(iii) violate any law, rule or regulation; (iv) violate any judgment,
order or decree known to us after reasonable inquiry, of any
government or governmental agency, instrumentality or court, domestic
or foreign, having jurisdiction over the Company or its Subsidiaries
or any of their properties or business; or (v) result in a breach,
termination or lapse of the Company's or its Subsidiaries' necessary
corporate power and authority to own or lease and operate its
properties and to conduct its business as it presently is being
conducted.
(4) The Company's authorized capital consists of:
(i) 100,000 Class A shares, of which, to our knowledge, 15,450 shares
are issued and outstanding; and (ii) 1,000,000 shares of Class B
shares, of which, to our knowledge, 75,930 are issued and
outstanding, and counsel has no reason to believe that such shares are
not duly and validly issued, fully-paid and nonassessable and free of
any preemptive rights.
(5) To our knowledge, no consent, approval,
authorization or order of, or filing with, any governmental agency in
the United States is required and remains to be done on the part of
the Company or its Subsidiaries in order for the transactions
contemplated by this Agreement to be consummated.
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(6) Except as disclosed in this Agreement
(including the schedules and exhibits hereto), said counsel for the
Company has no knowledge of:
(i) any claim, action, suit or
proceeding pending before any court, arbitrator or government
agency against the Company or its Subsidiaries or threatened
against the Company or its Subsidiaries which would affect the
validity or enforceability of this Agreement or the Escrow
Agreement, or which might reasonably be expected to have a
material adverse effect on the Business; or
(ii) any governmental investigations or
suits with respect to any of the transactions contemplated
herein.
(h) Closing Deliveries. The Buyer shall have received at
or prior to the Closing the following documents:
(1) a certificate of the Secretary of State of
the State of Minnesota and the appropriate Virgin Islands
authority as to the legal existence and good standing of the
Company and its Subsidiaries in Minnesota and the Virgin
Islands, as the case may be;
(2) certificate of the Secretary or Assistant
Secretary of the Company attesting to the authenticity and
continuing validity of the articles, documents and bylaws
delivered pursuant hereto;
(3) estoppel certificates from the lessor of each
item of property listed on SCHEDULE 4.14 hereto representing
that there are no outstanding claims against the Company or
its Subsidiaries under such lease other than for accrued rent
not yet due and payable;
(4) certificates of appropriate governmental
officials in each state in which the Company and its
Subsidiaries is required to qualify to do business as a
foreign corporation as to the due qualification and good
standing of the Company and its Subsidiaries in each such
jurisdiction;
(5) all minute books, stock books and records;
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(6) a copy of the Employment and Noncompete
Agreement duly executed by Loren E. Swanson and other Company
employees;
(7) a copy of each Facilities purchase and sale
agreement, duly executed;
(8) resignations of directors; and
(9) such other certificates of the Company's and
its Subsidiaries' officers and such other documents, to be in
form and substance reasonably satisfactory to the Buyer,
evidencing satisfaction of the conditions of this Section 8.1
as the Buyer shall reasonably request.
8.2 Conditions to Obligations of the Shareholders. The
obligations of the Shareholders under this Agreement are subject to the
fulfillment at or prior to the Closing of each of the following conditions,
each of which may be waived in writing at the sole discretion of the Company.
(a) Representations and Warranties. Each of the
representations and warranties made by Buyer in this Agreement shall be true
and correct in all material respects as made on the date hereof and Buyer shall
have performed and complied in all respects with all agreements and conditions
required by this Agreement to be performed or complied with by it prior to or
at the Closing.
(b) Government Order, Injunction. No court, domestic or
foreign, shall have entered and maintained in effect an injunction or other
similar order enjoining consummation of the transactions provided for herein,
and no action or proceeding shall have been instituted and remain pending
before a court or other governmental body by any governmental agency or public
authority to restrain or prohibit the transactions contemplated by this
Agreement, nor shall any governmental agency have notified any party to this
Agreement that consummation of the transactions contemplated hereby would
constitute a violation of the laws of the United States and that it intends to
commence proceedings to restrain the consummation of the transactions
contemplated hereby unless such agency shall have withdrawn such notice prior
to the Closing Date.
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(c) Government Consents. All consents, approvals,
authorizations or orders of or filings with any governmental agency required
for consummation of the transactions contemplated herein shall have been
obtained or made.
(d) No Adverse Change. Since September 30, 1997 there
shall not have been any material change in the assets, liabilities, employee
relations, customer relations or vendor relations, prospects, operations or
condition, financial or otherwise, of the Buyer's business from that reflected
in the financial statements for the fiscal quarter then ended, other than
changes in the ordinary course of business consistent with past practice which
have not materially adversely affected Buyer's assets or materially increased
the liabilities (actual or contingent) of the Buyer's business other than
borrowings incurred in connection with the transactions contemplated by this
Agreement.
(e) Litigation. There shall not be any pending action,
suit, arbitration, proceeding or investigation before any court, arbitrator or
government commission or agency against the Buyer which, if decided adversely
to the Buyer, would result in a material adverse change in the business, assets
or financial condition of the Buyer or its business.
(f) Compliance with Laws. The Buyer shall not be in
violation of any material law, rule, regulation or ordinance (including,
without limitation, laws, rules, regulations or ordinances relating to
building, zoning, environmental protection, disposal of hazardous substances,
land use or similar matters) relating to its business, its assets or
properties, the violation of which could have a material adverse effect on its
business or assets.
(g) No Misrepresentation. The representations and
warranties of the Buyer contained herein or in the schedules, annexes and
exhibits attached on the Closing Date shall not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made herein or therein, in light of the circumstances under which
made, not misleading.
(h) Employment and Other Agreements. The Buyer shall
have entered into an employment and noncompetition agreement with Loren E.
Swanson in the form of ANNEX A and the agreements to purchase the Facilities
and shall have paid the total $2,000,000 required under the Facilities purchase
agreements.
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(i) Opinion of Counsel for Buyer. The
Shareholders shall have been furnished with an opinion of Quarles & Brady,
counsel for Buyer, substantially to the effect that:
(1) Buyer is a corporation validly existing
in the State of Wisconsn
(2) performance of The execution, delivery
and by this Agreement and the Escrow Agreement Buyer
have been duly authorized and approved by all
requisite corporate and shareholder action of Buyer,
and this Agreement and Escrow Agreement have been duly
and validly executed and delivered by Buyer in
accordance with their terms and constitute valid and
binding obligations of Buyer, enforceable against it
in accordance with their terms except as the
enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or
similar laws generally affecting the rights of
creditors.
(3) The execution, delivery and
performance of this Agreement and the consummation of
the transactions contemplated hereby by Buyer does
not and will not, with or without the giving of
notice or the lapse of time, or both, (i) conflict
with any terms or provisions of Buyer's Articles of
Incorporation or Bylaws; (ii) to our knowledge,
result in a breach of, or constitute a default under,
or result in the termination or modification of, or
result in the creation or imposition of any Lien,
security interest, charge or encumbrance upon any
other properties of Buyer pursuant to any indenture,
mortgage, deed of trust, contract, license,
commitment or other agreement or instrument known to
us after reasonable inquiry, to which Buyer is a
party or by which any of Buyer's properties are bound
or affected; (iii) violate any law, rule or
regulation; (iv) violate any judgment, order or
decree known to us after reasonable inquiry, of any
government or governmental agency, instrumentality or
court, domestic or foreign, having jurisdiction over
Buyer or any of its properties or Business; or (v)
result in the breach, termination or lapse of Buyer's
necessary
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corporate power and authority to own or lease and
operate its properties and to conduct its business
as it presently is being conducted.
(4) Buyer's Common Stock to be delivered
to the Shareholders pursuant to this Agreement (i)
have been duly authorized, validly issued, full paid
and non-assessable, and will be delivered free and
clear of all Liens subject to the personal liability
imposed on the shareholders by Section 180.0622(2) of
the Wisconsin Business Corporation Law, as judicially
interpreted, for debts owing to employees for
services performed. Although Section 180.0622(2) of
the Wisconsin Business Corporation Law provides that
such personal liability of shareholders shall be "to
an amount equal to the par value of shares owned by
them respectively, and to the consideration for which
their shares without par value was issued," the
Wisconsin Supreme Court, by a split decision without
a written opinion, has affirmed a judgment holding
shareholders of a corporation liable under Section
180.40(6) (the predecessor to Section 180.0622(2))
for unpaid employee wages up to the consideration
paid for their par value shares rather than the
shares' lower stated par value.
Local 257 of Hotel and Restaurant
Employees and Bartenders International Union
v. Wilson Street East Dinner Playhouse, Inc., 126
Wis. 2d 284, 375 N.W.2d 664 (1985) (affirming the
1983 decision of the Circuit Court for Dane County,
Wisconsin in Case No. 82-CV-0023).
(5) To our knowledge, no consent,
approval, authorization or order of, or filing with,
any governmental agency in the United States is
required and remains to be done on the part of Buyer
in order for the transactions contemplated by this
Agreement to be consummated.
(6) We have no knowledge of: (i) any
claim, action, suit or proceeding before any court,
arbitrator or government agency against Buyer or
threatened against Buyer which would affect the
validity or enforceability of this Agreement or the
Escrow Agreement, or which might reasonably be
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expected to have a material adverse effect on Buyer's
business; or (ii) any governmental investigations or
suits with respect to any of the transactions
contemplated herein.
(j) Closing Deliveries. The Shareholders shall have received at or prior
to the Closing the following:
(i) a certificate of the Secretary of
State of the State of Wisconsin as to the legal
existence and status of the Buyer in Wisconsin;
(ii) a certificate of the Secretary of
each of the Buyer attesting to the incumbency of
their respective officers, the authenticity of the
resolutions authorizing the transactions contemplated
by this Agreement;
(iii) Employment and Noncompete with Loren
Swanson;
(iv) Escrow Agreement;
(v) Purchase Price and Buyer Common
Stock;
(vi) such other certificates of the
officers of the Buyer and such other documents
evidencing satisfaction of the conditions specified
in this Section 8.2 as the Shareholders'
Representative shall reasonably request.
(i)Guarantees. Loren E. Swanson shall have been released from
all liabilities under all written guarantees of bank debt and Buyer shall have
provided substitute guarantees for the performance bond of the Company.
SECTION 9. TERMINATION
9.1 Termination. This Agreement may be terminated at any time
prior to the Closing notwithstanding approval thereof by the Shareholders or by
the Buyer:
(a) By the mutual written consent of Buyer and the
Shareholders' Representative; or
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<PAGE> 60
(b) By Buyer or the Shareholders' Representative if,
without fault of the terminating party, the Closing shall not have occurred on
or before November 15, 1997; or
(c) By Buyer or the Shareholders' Representative if any
court of competent jurisdiction or other governmental body shall have issued,
enacted, entered, promulgated or enforced an order, judgment, decree,
injunction, restraining order or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions contemplated hereby and
such judgment, order, decree, injunction, restraining order, ruling or other
action shall have become final and nonappealable.
9.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 9.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders other than the
provisions of this Section 9. Nothing contained in this Section 9.2 shall
relieve any party from liability for any breach of this Agreement.
SECTION 10. INDEMNITY
10.1 Indemnity by Shareholders.
(a) From and after the Closing Date, the Shareholders, by
approving this Agreement, hereby agree that they shall, jointly and severally,
indemnify and hold Buyer harmless from and against, and shall defend promptly
Buyer from and reimburse Buyer for, any and all losses, damages, costs,
expenses, liabilities, obligations, and claims of any kind (including, without
limitation, reasonable attorneys' fees and other costs and expenses)
("Damages") which Buyer may at any time suffer or incur, or become subject to,
as a result of or in connection with any of the following:
(i) any breach of this Agreement or inaccuracy of
any of the representations and warranties made by the Shareholders in
or pursuant to this Agreement;
(ii) any failure by the Shareholders to carry out,
perform, satisfy, and discharge any of their or its covenants,
agreements, undertakings, liabilities, or obligations under this
Agreement;
(iii) any operating or administrative expenses that
should have been accrued on the Closing Balance Sheet in accordance
with GAAP consistently applied in excess of $25,000 provided that this
specified indemnification provision shall lapse on December 31, 1997;
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<PAGE> 61
(iv) any claim, cost, or expense in excess of
$20,000 for any breach of the representations at Section 4.17(b)(3).
(b) Buyer shall promptly notify the Shareholders of any
claim, demand, action, or proceeding for which indemnification will be sought
under this Agreement and, if such claim, demand, action, or proceeding is a
third party claim, demand, action, or proceeding, the Shareholders shall have
the right at their expense to assume the defense thereof using counsel
reasonably acceptable to Buyer. Buyer shall have the right to participate, at
its own expense, with respect to any such third party claim, demand, action, or
proceeding. In connection with any such third party claim, demand, action, or
proceeding, the parties shall cooperate with each other and provide each other
with access to relevant books and records in their possession. No such third
party claim, demand, action, or proceeding shall be settled without the prior
written consent of the party seeking indemnification and the Shareholders.
Notwithstanding anything herein to the contrary, if a firm written offer is made
to settle any such third party claim, demand, action, or proceeding and Buyer
refuses to consent to such settlement, then: (i) the Shareholders shall be
excused from, and Buyer shall be solely responsible for, all further defense of
such third party claim, demand, action, or proceeding; and (ii) the maximum
liability of the Shareholders relating to such third party claim, demand,
action, or proceeding shall be the amount of the proposed settlement if the
amount thereafter recovered from Buyer on such third party claim, demand,
action, or proceeding is greater than the amount of the proposed settlement.
10.2 Indemnity by Buyer.
(a) From and after the Closing Date, Buyer hereby agrees
that it shall indemnify and hold the Shareholders harmless from and against,
and shall defend promptly the Shareholders from and reimburse the Shareholders
for, any and all Damages which the Shareholders may at any time suffer or
incur, or become subject to, as a result of or in connection with any of the
following:
(i) any misrepresentation or breach of any
representations and warranties made by Buyer in or pursuant to this
Agreement;
(ii) any failure by Buyer to carry out, perform,
satisfy and discharge any of their covenants, agreements,
undertakings, liabilities, or obligations under this Agreement;
(iii) except for matters for which the Shareholders
must indemnify Buyer, the ownership and operation of the Company and
the Business after the Closing;
(iv) any guarantees disclosed to Buyer in writing
by Loren E. Swanson of bank debt of the Company prior to the Closing
or any guarantees of performance bonds of the Company with respect to
the Contracts listed on SCHEDULE 4.17.
(b) The Shareholders shall promptly notify Buyer of any
claim, demand, action, or proceeding for which indemnification will be sought
under this Section 10.2 of this
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<PAGE> 62
Agreement and, if such claim, demand, action, or proceeding is a third party
claim, demand, action, or proceeding, Buyer will have the right at their
expense to assume the defense thereof using counsel reasonably acceptable to
the Shareholders. The Shareholders shall have the right to participate, at
their own expense, with respect to any such third party claim, demand, action,
or proceeding. In connection with any such third party claim, demand, action,
or proceeding, the parties shall cooperate with each other and provide each
other with access to relevant books and records in their possession. No such
third party claim, demand, action, or proceeding shall be settled without the
prior written consent of the Shareholders and Buyer. Notwithstanding anything
herein to the contrary, but subject to the limitations in Section 10.3, if a
firm written offer is made to settle any such third party claim, demand,
action, or proceeding and the Shareholders refuse to consent to such
settlement, then: (i) Buyer shall be excused from, and the Shareholders shall
be solely responsible for, all further defense of such third party claim,
demand, action, or proceeding; and (ii) the maximum liability of Buyer relating
to such third party claim, demand, action, or proceeding shall be the amount of
the proposed settlement if the amount thereafter recovered on such third party
claim, demand, action, or proceeding is greater than the amount of the proposed
settlement.
10.3 Exceptions for Indemnified Damages.
(a) Notwithstanding the provisions of Section 10.1,
Damages under 10.1(a)(i) or (ii) for which Buyer is entitled to indemnification
shall not include the first $125,000 of Damages. In addition, Damages for
which Buyer is entitled to indemnification shall not include any individual
Damage which is less than $1,000 or Damages to the extent a specific reserve
(as described below) has been established on the Closing Balance Sheet. The
Company has established special reserves of $40,000 each for Jobs 1077 and 1129
and $10,000 for Job 1061 (or a total of $90,000).
(b) Notwithstanding the provisions of Section 10.1,
Damages for which the Buyer is entitled to indemnification pursuant to Section
10.1 shall not exceed $4,500,000.
(c) Any proceeds from insurance paid to the Buyer or the
Company as a direct result of any fact, event or circumstances requiring
indemnity pursuant to Section 10.1 shall constitute a credit which shall be
offset against the total Damage (before the application of Section 10.3(a)
herein).
(d) Any Damages calculated for purposes of Section 10.1
shall be calculated taking into account any offsetting federal, state, local or
foreign tax benefits realized because of such Damage to Buyer or the Company.
(e) The limitations set forth in this Section 10.3 shall
not apply to any Damages resulting from the breach by a Shareholder of the
representations and warranties in Section 5.
(f) The Shareholders may, at their option, pay any
Damages in cash or Buyer's Common Stock, valued at the Average Closing Price of
Buyer's Common Stock for each of the trading days in the 30 calendar days
ending three days prior to payment.
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<PAGE> 63
(g) Notwithstanding the liability of the Shareholders
hereunder as joint and several, the liability of each Shareholder to indemnify
the Buyer from a breach of a representation or warranty under Section 5 shall
be several and not joint and limited as to each Shareholder in proportion to
the total purchase price received by such shareholder considering the total
purchase price received by all Shareholders hereunder.
(h) Notwithstanding any other provision in this
Agreement, the accounts listed on SCHEDULE 10.1 (the "Guaranteed Accounts")
will be collected by the Company on or before June 29, 1998, or the Buyer will
have the right on June 30, 1998 to assign the Guaranteed Account, in whole or
in part, to the Shareholders and receive the uncollected amount first from the
Holdback Amount and, if necessary, then directly from the Shareholders. The
Buyer agrees that any funds received from the customer on that particular
contract will be first assigned to the accounts listed on SCHEDULE 10.1 and
used to reduce the outstanding receivables listed on SCHEDULE 10.1. The Buyer
agrees to allow Shareholders to review the books and records of the Company at
the Shareholders' expense, in order to confirm that amounts have been allocated
properly. If any Guaranteed Accounts are assigned to the Shareholders on June
30, 1998, Buyer agrees to prepare such documents, to be in a form and substance
reasonably satisfactory to the Shareholders, to assign the rights to the
Guaranteed Accounts to the Shareholders for collection. At all times while any
Guaranteed Account shall be outstanding, Buyer and the Company will cooperate
in all reasonable respects with Loren Swanson in any manner reasonably
requested by him to assist in the collection of such Accounts subsequent to
Closing. In addition, Loren Swanson shall be permitted to do whatever is
reasonably deemed necessary to collect such Accounts, including devoting such
reasonable time as he deems appropriate to such collection efforts while he is
an employee of the Company. Through June 30, 1998 Loren Swanson shall take no
action in collecting the Guaranteed Accounts which he reasonably believes would
have a material adverse effect on the Company.
10.4 Termination of Indemnification Obligations. On March 31,
1999, the parties shall be released from the agreements of indemnification
contained in this Section 10 in respect of any claims which shall not have been
made prior to such date; provided that claims for breach of Section 5 shall
continue until the expiration of all statute of limitations applicable to such
claims. Such agreements of indemnification shall remain effective in respect
of claims made in writing by giving notice as provided in Section 11.4 prior to
such date until such claims are finally determined or satisfied in full.
10.5 Exclusive Remedy. The enforcement of the agreements of
indemnification contained in this Section 10 shall be, after the date hereof,
the exclusive remedy of the parties hereto for any breach of any warranty,
representation or term hereof or any certificate delivered pursuant to this
Agreement, whether sounding in tort, contract or otherwise, and the parties
hereto waive all remedies otherwise available to such parties save only
remedies which by law may not be waived; provided that this section shall not
limit or restrict any of Buyer's remedies for fraud by the Shareholders or any
of the Shareholders' remedies for fraud by Buyer.
10.6 Tax Matters. In the event that any taxing authority conducts
an audit to determine the amount of any Taxes of the Company or any Subsidiary
for any period ending on or before the Closing Date, or asserts any tax
liability for such period, the Shareholders' Representative
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shall have the exclusive authority to direct, compromise or contest such audit
or asserted tax liabilities as he shall, in his sole discretion, deem proper.
In such event, Buyer and the Company shall cause the Company or the respective
Subsidiary to empower (by power of attorney or such other documentation as may
be appropriate) Shareholders' Representative or his designee to represent such
Company or Subsidiary in any audit or administrative or judicial proceeding
insofar as such audit or proceeding involves any asserted liability for Taxes
for the period specified above. Notwithstanding the foregoing, the
Shareholders' Representative shall keep the Company fully informed regarding
the audit or asserted tax liability described above. Without the consent of
the Shareholders' Representative, not to be unreasonably withheld, Buyer shall
not, and shall cause the Company and each Subsidiary not to, amend any federal,
state or local income tax return where such amendment is made after the Closing
and the effect thereof is to increase materially any income taxes payable by
the Company or any Subsidiary for any period on or prior to the Closing.
SECTION 11. MISCELLANEOUS
11.1 Expenses. Each party shall bear and pay its own expenses and
those of its affiliates arising in connection with the transactions
contemplated by this Agreement.
11.2 Survival of Representations and Warranties. The
representations, warranties and covenants made by the parties hereto in this
Agreement and in the schedules and exhibits hereto or in any certificate or
document delivered pursuant hereto shall survive the Closing, any investigation
made at any time with respect thereto, for the period of time set forth in
Section 10.4.
11.3 Parties in Interest. This Agreement shall inure to the
benefit of and be binding upon the Company, the Shareholders, and Buyer; except
as otherwise expressly provided herein, nothing in this Agreement, express or
implied, is intended to confer any rights or benefits on any third party.
Neither the Company, the Shareholders, nor Buyer shall have the right to assign
this Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed, provided that Buyer may
assign its rights and obligations hereunder to any other subsidiary of Buyer,
except that no such assignment shall relieve Buyer of its obligations
hereunder.
11.4 Notices. All notices, requests, consents, claims, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered in Person, by cable, telegram or telex, or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties as follows:
If to Buyer: Cade Industries, Inc.
5640 Enterprise Drive
P.O. Box 23094
Lansing, Michigan 48909
Attention: Richard A. Lund
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With a copy to: Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin, 53202-4497
Attention: Conrad G. Goodkind
If to the Company: Loren E. Swanson
or the Shareholders One Meadowlark Lane
(prior to the North Oaks, Minnesota 55127
Closing)
With a copy to: Lindquist & Vennum, P.L.L.P.
4200 IDS Center
80 South Eighth Street
Minneapolis, MN 55402-2205
Attention: Charles P. Moorse
provided, however, that if either party shall have designated a different
address by notice to the other, then to the last address so designated.
11.5 Waivers. Waiver by any party of any breach of or failure to
comply with any provision of this Agreement by the other party shall not be
construed as, or constitute, a continuing waiver of any such provision, or a
waiver of any other breach of, or failure to comply with, any other provision
of this Agreement.
11.6 Governing Law. This Agreement shall be construed and enforced
in accordance with and governed by the internal laws of the State of Michigan.
11.7 Integration; Amendment and Termination. This Agreement
(including the schedules, annexes and exhibits hereto) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect to the subject matter hereof. This Agreement may not be amended or
terminated, nor may any condition or term hereof be waived, orally, but only by
an instrument in writing duly executed by the parties hereto or, in the case of
a waiver, by the party otherwise entitled to performance. Except as expressly
agreed to in writing at the Closing, the parties agree that neither has made
any representations, warranties, covenants or undertakings other than as
expressly provided for in the Agreement, schedules and annexes hereto.
11.8 Paragraph and Other Headings. The paragraph and other
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, faxed or otherwise, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
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<PAGE> 66
11.10 No Impairment. If any provision of this Agreement is held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
11.11 Schedules. Disclosure of information on one Schedule with
respect to any representation or warranty hereto shall be deemed to be
disclosure of such information with respect to all representations and
warranties as set forth in this Agreement, provided such disclosure is
sufficiently adequate to inform the Buyer of its relevance to such other
representation or warranty.
11.12 Legal Proceedings. If a dispute arises between the parties
relating to this Agreement or any of the other agreements to be delivered
hereunder, the parties agree to use the following procedure prior to either
party pursuing other available remedies:
(a) In the event Buyer proposes to make any claim for
indemnification under Section 10.2 of this Agreement, it shall deliver a
certificate signed by the President or any Vice President of Buyer (the
"Officer's Certificate") to the Shareholders' Representative, which Officer's
Certificate shall state that Buyer has suffered, paid or properly accrued
liabilities, damages, losses or expenses or anticipates liability for claims in
the aggregate stated amount to which such party is entitled to indemnification
pursuant to this Agreement and shall specify in reasonable detail each
individual item of damage, loss, expense or other claim included in the amount
so stated, the date such item was suffered, paid or properly accrued, the basis
for any anticipated liability and the nature of the misrepresentation, breach
of warranty, agreement or claim to which each such item is related.
(b) If within 15 days of receipt of the Officer's Certificate, in
the event that the Shareholders' Representative objects in writing to the
reimbursement of Buyer in respect of any claim or claims made in an Officer's
Certificate, the Shareholders' Representative and Buyer shall, within the
ten-day period beginning as of the date of the receipt by Buyer of such written
objection, attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. A meeting shall be held between
the parties, attended by individuals with decision-making authority regarding
the dispute, in an attempt in good faith to negotiate a resolution of the
dispute. If the Buyer and the Shareholders' Representative shall so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and, with respect to matters for which claims can be made against the
Holdback Amount, if available, shall be furnished to the Escrow Agent. The
Escrow Agent shall be entitled to rely on any such memorandum and to make
distributions from the Holdback Amount in accordance with the terms thereof.
(c) If, within 30 days after such meeting, the parties have not
succeeded in negotiating a resolution of the dispute, they will jointly appoint
a mutually acceptable neutral Person not Affiliated with either of the parties
(the "neutral"), seeking assistance in such regard from the Center for Public
Resources if they have been unable to agree upon such appointment within 40
days from the initial meeting. The fees of the neutral shall be shared
equally by the parties.
(d) In consultation with the neutral, the parties will select or
devise an alternative dispute resolution procedure ("ADR") by which they will
attempt to resolve the dispute, and a time and place for the ADR to be held,
with the neutral making the decision as to the procedure, and/or
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<PAGE> 67
place and time (but unless circumstances require otherwise, not later than 60
days after selection of the neutral) if the parties have been unable to agree
on any of such matters within 20 days after initial consultation with the
neutral.
(e) The parties agree to participate in good faith in the ADR to its
conclusion as designated by the neutral. If the parties are not successful in
resolving the dispute through the ADR, then the parties may agree to submit the
matter to binding arbitration or a private adjudicator, or either party may seek
an adjudicated resolution through the appropriate court. Nothing in this
Section 11.12 shall restrict a party's right to file an action with an
appropriate court if such party determines such action be necessary at the time
due to the implication of any statute of limitations.
(f) In the event legal proceedings through the courts are commenced to
enforce the parties' respective rights and obligations herein, each party shall
be responsible to pay for its own related costs and expenses, including
reasonable legal fees, incurred with respect to said legal proceedings.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first above written.
Cade Industries, Inc.,
a Wisconsin corporation
By:_________________________________________
Title:______________________________________
____________________________________________
Loren E. Swanson, for and on behalf of
himself as a Shareholder.
For, and on behalf of the following Shareholders,
pursuant to authority under certain Irrevocable
Power of Attorney dated October __, 1997:
L. Kurt Swanson
Karna M. Anderson
Philip J. Anderson
Charlene E. Bostrom
Bruce C. Bostrom
Lisa A. Miller
William S. Miller
Carla T. Swanson
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<PAGE> 1
EXHIBIT 4.1
<PAGE> 2
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SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
CADE INDUSTRIES, INC.
DATED AS OF
OCTOBER 31, 1997
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<PAGE> 3
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, made as of the 31st
day of October, 1997, by and between Cade Industries, Inc., a Wisconsin
corporation, of Lansing, Michigan ("Company"), and Bank, a Michigan banking
corporation, of Detroit, Michigan (herein called "Bank");
RECITALS:
A. Company and Bank entered into an Amended and Restated
Revolving Credit and Term Loan Agreement dated as of January 30, 1995 (the
"Existing Agreement").
B. Company and Bank desire to amend and restate the Existing
Agreement in its entirety.
NOW, THEREFORE, Company and Bank agree that the Existing Agreement is
amended and restated in its entirety as follows:
WITNESSETH:
1.A THE INDEBTEDNESS: LINE OF CREDIT
1.A.1 Bank may lend to Company at any time and from time to time
from the effective date hereof until April 1, 1999 sums not to exceed Nine
Million Dollars ($9,000,000) in aggregate principal amount at any one time
outstanding. The borrowings hereunder shall be evidenced by a Line of Credit
Note (herein called "Line Note") in form similar to that annexed hereto as
Exhibit "A" under which advances, repayments and readvances may be made,
subject to the terms and conditions of this Agreement; provided, however, the
Bank shall have no obligation to make any advances with respect to the line of
credit.
1.A.2 The principal indebtedness represented by the Line Note and
all interest thereon shall be payable in accordance with the terms of the Line
Note.
<PAGE> 4
1.A.3 Bank shall not lend under the Line Note unless Company shall
have first filed with Bank a Request for Advance (as of the date of the
borrowing) in form similar to that annexed hereto as Exhibit "B", executed by
an authorized officer of the Company. Bank may, at its option, lend under the
Line Note upon the telephone request of an authorized employee of the Company
and, in the event Bank makes any such advance upon a telephone request, the
requesting employee shall, if requested by Bank, mail to Bank, on the same day
as such telephone request, a Request for Advance in the form attached as
Exhibit "B".
1.A.4 In addition to advances under the Line Note to be provided to
Company by Bank under and pursuant to Section 1.A.1 of this Agreement, Bank may
issue, or commit to issue, from time to time, standby and trade letters of
credit for the account of Company (herein individually called a "Letter of
Credit" and collectively "Letters of Credit") and enter into foreign exchange
contracts where the total exposure of Bank (as calculated by Bank) does not
exceed Two Million Five Hundred Thousand Dollars ($2,500,000) at any one time
in the aggregate for a Letter of Credit and One Million Dollars ($1,000,000);
provided, however that the sum of the aggregate amount of advances outstanding
under the Line Note plus the undrawn amount of the Letters of Credit (and
unreimbursed drawings thereunder) and foreign exchange exposure shall not
exceed Nine Million Dollars ($9,000,000.00) at any one time; and provided
further that no Letter of Credit shall, by its terms, have an expiration date
which extends beyond April 1,1999. In addition to the terms and conditions of
this Agreement, the issuance of any Letters of Credit shall also be subject to
the terms and conditions of any letter of credit applications and agreements
executed and delivered by Company unto Bank with respect thereto.
1.A.5 Company may prepay the Line Note in accordance with the terms
of the Line Note.
2. TERM CREDIT-A
2.1 Bank agrees to loan to Company and Company agrees to borrow,
on the date of execution of this Agreement, the sum of Three Million Five
Hundred Seventy One Thousand Four Hundred Twenty Eight and 56/100 Dollars
($3,571,428.56). At the time of borrowing, Company agrees to execute a term
note in form similar to that
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<PAGE> 5
annexed hereto as Exhibit "C" as evidence of the indebtedness hereunder (herein
called "Term Note-A"). The loan under this Section 2 shall be subject to the
terms and conditions of this Agreement.
2.2 The indebtedness represented by the Term Note-A shall be
repaid in quarterly principal installments of One Hundred Seventy Eight
Thousand Five Hundred Seventy One and 43/100 Dollars ($178,571.43) each, plus
interest as set forth below, commencing on January 1, 1998, and on the 1st day
of each succeeding calendar quarter, until November 1, 2002, when the entire
unpaid balance of principal and interest thereon shall be due and payable.
Company agrees to pay interest on the unpaid principal balance of the Term
Note-A from time to time outstanding at a per annum rate of eight and nineteen
one hundredths percent (8.19%). Upon the occurrence of any default or event of
default hereunder, interest shall accrue on the unpaid principal balance at a
per annum rate equal to the greater of (i) eleven and nineteen one hundredths
percent (11.19%) and three percent (3%) above Bank's Prime Rate. Interest shall
be computed on a daily basis using a year of 360 days and assessed for the
actual number of days elapsed, and in such computation effect shall be given to
any change in the interest rate resulting from a change in the Prime Rate on
the date of such change in the Prime Rate. "Prime Rate" shall mean the rate of
interest established by Bank as its prime rate as the same may be changed from
time to time, which may not necessarily be Bank's lowest rate for loans.
A late installment charge equal to five percent (5%) of each late
installment may be charged on any installment payment not received by Bank
within ten (10) calendar days after the installment due date but acceptance of
this charge shall not waive any default or event of default under this
Agreement.
2.3 All partial prepayments with respect to the Term Note-A shall
be applied to the Term Note-A in the inverse order of their respective
maturities. The Term Note-A may be prepaid on any principal installment payment
date upon five (5) days written notice to Bank, in whole or in part (in amounts
of at least $100,000) upon payment of a premium equal to the sum of the
discounted net present values of the interest payments that would otherwise be
payable on the principal amount being prepaid, after reducing each such
interest payment by the amount of the interest that would be payable on each
interest payment due date if the
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<PAGE> 6
principal amount being prepaid were re-invested at the Current Market Rate
therefor plus $500. For these purposes, "Current Market Rate" shall mean a per
annum interest rate equal to one half percent (1/2%) above the rate reasonably
determined by Bank (based on quotations from established dealers) to be in
effect approximately two days prior to the repayment date in the secondary
market for United States Treasury securities of a comparable amount and with a
comparable term to maturity as the principal amount being prepaid. For the
purposes of computation, the discount rate for each computation will be the
Current Market Rate for the relevant principal installment. Upon any
involuntary prepayment of the Term Note-A, Company shall pay to Bank a
prepayment premium equal to the prepayment premium which would be due and
payable hereunder if Company had voluntarily elected to prepay the Term Note-A
(in an amount equal to such involuntary prepayment) on such date of involuntary
prepayment.
2.4 The proceeds of the Term Note-A shall be used solely to fund a
portion of the purchase price payable by Company under the terms of the Stock
Purchase Agreement dated as of October 31, 1997 by and among Company and the
shareholders of Central Engineering Company ("Stock Purchase Agreement") and to
refinance Company's existing term debt with Bank.
3. TERM CREDIT-B
3.1 Bank agrees to loan to Company and Company agrees to borrow,
on the date of execution of this Agreement, the sum of Four Million Dollars
($4,000,000). At the time of borrowing, Company agrees to execute a term note
in form similar to that annexed hereto as Exhibit "D" as evidence of the
indebtedness hereunder (herein called "Term Note-B"). The loan under this
Section 3 shall be subject to the terms and conditions of this Agreement.
3.2 The indebtedness represented by the Term Note-B shall be
repaid in quarterly principal and interest installments of One Hundred Eighteen
Thousand Six Hundred Twenty Four and 08/100 Dollars ($118,624.08) each,
commencing on January 1, 1998, and on the 1st day of each succeeding calendar
quarter, until November 1, 2002, when the entire unpaid balance of principal
and interest thereon shall be due and payable. Company agrees to pay interest
on the unpaid principal balance of the Term Note-B from time to time
outstanding at a per annum rate of one half percent (1/2%) below
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<PAGE> 7
Bank's Prime Rate. Interest shall be payable quarterly on the 1st day of each
calendar quarter commencing January 1, 1998. Upon the occurrence of any default
or event of default hereunder, interest shall accrue on the unpaid principal
balance at a per annum rate equal to two and one half percent (2-1/2%) above
the Prime Rate. Interest shall be computed on a daily basis using a year of 360
days and assessed for the actual number of days elapsed, and in such
computation effect shall be given to any change in the interest rate resulting
from a change in the Prime Rate on the date of such change in the Prime Rate.
The installment payments are calculated at an assumed fixed interest
rate and an assumed fifteen year amortization term. In the event the Bank's
prime rate changes, the Bank, at its sole option, may from time to time
recalculate the period installment amount so that the remaining periodic
installments will fully amortize the remaining loan balance within the
remaining amortization term in equal installments at the interest rate then
being charged under Term Note-B. COMPANY AGREES TO PAY THE PERIODIC
INSTALLMENTS AS THEY MAY BE RECALCULATED BY THE BANK, AT THE BANK'S SOLE
OPTION, FROM TIME TO TIME AND ACKNOWLEDGES THAT A RECALCULATION SHALL NOT
AFFECT THE MATURITY DATE OR THE OTHER TERMS AND PROVISIONS OF TERM NOTE-B.
A late installment charge equal to five percent (5%) of each late
installment may be charged on any installment payment not received by Bank
within ten (10) calendar days after the installment due date but acceptance of
this charge shall not waive any default or event of default under this
Agreement.
3.3 Company may prepay the Term Note-B in whole or in part without
premium or penalty.
3.4 The proceeds of the Term Note-B shall be used solely to fund a
portion of the purchase price payable by Company under the terms of the Stock
Purchase Agreement.
4. TERM CREDIT-C
4.1 Bank agrees to loan to Company and Company agrees to borrow,
on the date of execution of this Agreement, the sum of Three Million Two
Hundred Fifty Thousand Dollars ($3,250,000). At the time of borrowing, Company
agrees to execute a term note in
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<PAGE> 8
form similar to that annexed hereto as Exhibit "E" as evidence of the
indebtedness hereunder (herein called "Term Note-C and together with the Line
Note, Term Note-A and Term Note-B, the "Notes"). The loan under this Section 4
shall be subject to the terms and conditions of this Agreement.
4.2 The indebtedness represented by the Term Note-C shall be
repaid in quarterly principal installments of Two Hundred Seventy Thousand
Eight Hundred Thirty Three and 33/100 Dollars ($270,833.33) each, plus interest
as set forth below, commencing on January 1, 1998, and on the 1st day of each
succeeding calendar quarter, until November 1, 2000, when the entire unpaid
balance of principal and interest thereon shall be due and payable. Company
agrees to pay interest on the unpaid principal balance of the Term Note-C from
time to time outstanding at a per annum rate of eight and six one hundredths
percent (8.06%) until November 1, 1999 when the interest rate shall be a per
annum rate equal to one half of one percent (1/2%) below Bank's Prime Rate.
Upon the occurrence of any default or event of default hereunder, interest
shall accrue on the unpaid principal balance at a per annum rate equal to the
greater of (i) eleven and six one hundredths percent (11.06%) and three percent
(3%) above Bank's Prime Rate. Interest shall be computed on a daily basis using
a year of 360 days and assessed for the actual number of days elapsed, and in
such computation effect shall be given to any change in the interest rate
resulting from a change in the Prime Rate on the date of such change in the
Prime Rate.
A late installment charge equal to five percent (5%) of each late
installment may be charged on any installment payment not received by Bank
within ten (10) calendar days after the installment due date but acceptance of
this charge shall not waive any default or event of default under this
Agreement.
4.3 All partial prepayments with respect to the Term Note-C shall
be applied to the Term Note-A in the inverse order of their respective
maturities. While the interest rate is a fixed rate, the Term Note-C may be
prepaid on any principal installment payment date upon five (5) days written
notice to Bank, in whole or in part (in amounts of at least $100,000) upon
payment of a premium equal to the sum of the discounted net present values of
the interest payments that would otherwise be payable on the principal amount
being prepaid, after reducing each such interest payment by the
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<PAGE> 9
amount of the interest that would be payable on each interest payment due date
if the principal amount being prepaid were re-invested at the Current Market
Rate therefor plus $500. For these purposes, "Current Market Rate" shall mean a
per annum interest rate equal to one half percent (1/2degrees/0) above the rate
reasonably determined by Bank (based on quotations from established dealers) to
be in effect approximately two days prior to the repayment date in the
secondary market for United States Treasury securities of a comparable amount
and with a comparable term to maturity as the principal amount being prepaid.
For the purposes of computation, the discount rate for each computation will be
the Current Market Rate for the relevant principal installment. Upon any
involuntary prepayment of the Term Note-C, Company shall pay to Bank a
prepayment premium equal to the prepayment premium which would be due and
payable hereunder if Company had voluntarily elected to prepay the Term Note-C
(in an amount equal to such involuntary prepayment) on such date of involuntary
prepayment. At all times when the interest rate is a floating rate, the Term
Note-C may be prepaid in the manner set forth in Section 3.3.
4.4 The proceeds of the Term Note-C shall be used solely to fund a
portion of the purchase price payable by Company under the terms of the Stock
Purchase Agreement.
5. INTEREST RATE REDUCTION.
5.1 The interest rates with respect to the Line Note and any other
Note which bears interest at a floating rate shall be reduced by one quarter of
one percent (1/4%) per annum at all times while the following conditions shall
have been satisfied by Company:
(a) The ratio of Debt to Tangible Net Worth is equal to
or less than 1.5 to 1.0;
(b) The Leverage Ratio is equal to or less than 2.5 to
1.0 and
(c) The after tax profit for Company and its consolidated
subsidiaries for two consecutive years (beginning
with the year ending December 31, 1997) are
$2,000,000 or more per year.
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<PAGE> 10
5.2 The determination of whether the conditions for reduction have
been satisfied shall be determined based on Company's quarterly and year end
financial statements and shall be adjusted as of the first day of the first
month following the delivery of such financial statements indicating that an
adjustment to the interest rates is applicable.
6. CONDITIONS
6.1 Company agrees to furnish Bank, prior to the borrowing under
this Agreement, in form and substance satisfactory to Bank, with (i) an opinion
of counsel for Company and the Guarantors (as defined below); (ii) certified
copies of resolutions of the Board of Directors of Company evidencing approval
of the borrowings hereunder; (iii) certified copies of Company's Articles of
Incorporation and Bylaws; and (iv) a certificate of good standing from
Company's state of incorporation and from each state in which its business or
operations requires it to be qualified to do business.
6.2 As security for all indebtedness of Company to Bank hereunder,
Company agrees to furnish, execute and deliver to Bank, or cause to be
furnished, executed and delivered to Bank, prior to or simultaneously with the
borrowing hereunder, in form and substance to be satisfactory to Bank and
supported by appropriate corporate resolutions in certified form authorizing
same, the following:
(a) Guaranty Agreements from Cade Composites, Inc.,
Auto-Air Composites, Inc., Pollux Acquisition
Corporation, H.A.C. Corporation Cade, International,
Inc. and Cade Commercial Composites, Inc., Central
Engineering Company, Central Engineering
International Co. and Cenco Europe, Inc.
(collectively, the "Guarantors" and individually, a
"Guarantor") (collectively, the "Guaranty Agreements"
and individually, a "Guaranty Agreement").
(b) The collateral documents listed in attached Schedule
6.2(b).
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6.3 The Company and certain of the Guarantors have executed and
delivered to Bank Security Agreements granting to the Bank a security interest
in all of their respective assets. The Security Agreements do not presently
secure Company's obligations to Bank under Section l.A of this Agreement or
certain of the obligations of the Guarantors under the Guaranty Agreements.
Company agrees that upon the occurrence of a Collateral Trigger Event (as
defined below) the Security Agreement from Company to Bank shall automatically
and without further action by Company or Bank be deemed to secure Company's
obligations to Bank under Section 1 .A. of this Agreement and the Line Note.
To the extent that any of the Guarantors has heretofore given a
security interest to Bank in certain of the foregoing and such documents and
agreements comply with the requirements of this Agreement, it is hereby agreed
that such documents and agreements shall remain in full force and effect for
the purposes of this Agreement, but Bank may, if it deems it necessary or
desirable, require execution of a new agreement or agreements.
In addition, following the occurrence of a Collateral Trigger Event,
the Mortgage dated as of September 1, 1990 by Auto-Air Composites, Inc. in
favor of Bank shall be deemed to secure Company's indebtedness to Bank under
Section 1.A. of this Agreement and Auto-Air's obligations to Bank under its
Guaranty with respect to Company's indebtedness to Bank under Section I .A. of
this Agreement.
For purposes of this Section 6.3, "Collateral Trigger Event" shall
mean either of the following events (i) if as of any date of determination the
ratio of Debt to Tangible Net Worth (each as defined herein) shall exceed 2.0
to 1.0 or (ii) the occurrence of an event of default under Section 11.1, 11.2
or 11.3 of this Agreement.
6.4 Prior to the borrowing hereunder, Company shall have provided
to Bank evidence satisfactory to Bank of the consummation of the transactions
described in the Stock Purchase Agreement on terms satisfactory to Bank
("Acquisition") and evidence of satisfaction of the terms set forth in Bank's
commitment letter dated October 24, 1997.
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7. REPRESENTATIONS AND WARRANTIES
Company represents and warrants, and such representations and
warranties shall be deemed to be continuing representations and warranties
during the entire life of this Agreement:
7.1 Company and the Guarantors are corporations duly organized and
existing and in good standing under the laws of their respective states of
incorporation; Company and the Guarantors are duly qualified and authorized to
do business as foreign corporations in each jurisdiction where the character of
their assets or the nature of their activities makes such qualification
necessary; execution, delivery and performance of this Agreement, and any other
documents and instruments required under this Agreement, and the issuance of
the Note by Company are within its corporate powers, have been duly authorized,
are not in contravention of law or the terms of either of its Articles of
Incorporation or Bylaws, and do not require the consent or approval of any
governmental body, agency or authority; and this agreement and any other
documents and instruments required under this Agreement, when issued and
delivered under this Agreement, will be valid and binding in accordance with
their terms.
7.2 The execution, delivery and performance of this Agreement and
any other documents and instruments required under this Agreement, and the
issuance of the Notes by Company, are not in contravention of the unwaived
terms of any indenture, agreement or undertaking to which Company is a party or
by which Company is bound.
7.3 No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of the officers of
Company is threatened against Company or any of its subsidiaries, the outcome
of which could materially impair Company's or any of its subsidiaries'
financial condition or ability to carry on its business.
7.4 Company has good and marketable title to all of the properties
and assets reflected on the balance sheets referred to in Section 7.7 hereof
and there are no security interests in, liens, mortgages, or other encumbrances
on any of the Company's assets, except to Bank or as otherwise permitted by
this Agreement.
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7.5 There are no subsidiaries of Company except the Guarantors.
7.6 Company does not maintain or contribute to any employee
pension benefit plan subject to title IV of the "Employee Retirement Income
Security Act of 1974" (herein called "ERISA").
7.7 The financial statements of Company and its consolidated
subsidiaries dated June 30, 1997, previously furnished Bank, are complete and
correct and fairly present the financial condition of Company and its
consolidated subsidiaries, and the results of its and their operations; since
said dates there have been no material adverse changes in the financial
condition of Company and its consolidated subsidiaries; to the knowledge of
Company's officers, neither Company nor any of its subsidiaries has any
contingent obligations (including any liability for taxes) not disclosed by or
reserved against in said balance sheets, and at the present time there are no
material unrealized or anticipated losses from any present commitment of
Company or any of its subsidiaries. The proforma financial statements of
Company and the Guarantors as of June 30, 1997, previously furnished to Bank,
are complete and correct and fairly present the financial condition of Company
and the Guarantors, and the results of its and their operations; since said
date there have been no material adverse changes in the financial condition of
Company and the Guarantors; to the knowledge of Company's officers, neither
Company nor any of the Guarantors has any contingent obligations (including any
liability for taxes) not disclosed by or reserved against in said balance
sheets, and at the present time there are not material unrealized or
anticipated losses from any present commitment of Company or any of the
Guarantors.
7.8 All tax returns and tax reports of Company and its
subsidiaries, required by law to be filed have been duly filed or extensions
obtained, and all taxes, assessments and other governmental charges or levies
(other than those presently payable without penalty and those currently being
contested in good faith for which adequate reserves have been established) upon
Company or any of its subsidiaries (or any of its or their properties) which
are due and payable have been paid. The charges, accruals and reserves on the
books of Company and its subsidiaries in respect of the Federal income tax for
all periods are adequate in the opinion of Company.
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7.9 Company and its subsidiaries are, in the conduct of their
businesses, in compliance with all federal, state or local laws, statutes,
ordinances and regulations applicable to them, the enforcement of which, if
they were not in compliance, would materially adversely affect their business
or the value of their property or assets. Company and its subsidiaries have all
approvals, authorizations, consents, licenses, orders and other permits of all
governmental agencies and authorities, whether federal, state or local,
required to permit the operation of their businesses as presently conducted,
except such approvals, authorizations, consents, licenses, orders and other
permits with respect to which the failure to have can be cured without having
an adverse effect on the operation of such businesses.
7.10 No representation or warranty by Company in this Agreement,
nor any statement or certificate (including financial statements) furnished or
to be furnished to Bank pursuant hereto contains or will contain any untrue
statement of any fact or omits or will omit to state a fact necessary to make
such representation, warranty, statement or certificate not misleading.
7.11 Bank, upon proper filing of the financing statements
described herein, will have a first priority perfected security interest in the
collateral described in Section 6.2 above, subject only to Permitted Liens and
such perfected security interest will secure all indebtedness of Company to
Bank and the covenants contained herein.
7.12 Neither Company nor any of its subsidiaries is a party to
any litigation or administrative proceeding, nor so far as is known by Company
is any litigation or administrative proceeding threatened against Company or
any of its subsidiaries, which in either case (A) asserts or alleges that
Company or any of its subsidiaries violated Environmental Laws (as defined
herein), (B) asserts or alleges that Company or any of its subsidiaries is
required to clean up, remove, or take remedial or other response action due to
the disposal, depositing, discharge, leaking or other release of any hazardous
substances or materials, (C) asserts or alleges that Company or any of its
subsidiaries is required to pay all or a portion of the cost of any past,
present, or future cleanup, removal or remedial or other response action which
arises out of or is related to the disposal, depositing, discharge,
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leaking or other release of any hazardous substances or materials by Company or
any of its subsidiaries.
7.13 To the best knowledge of Company, after due inquiry, there
are no conditions existing currently which would subject Company or any of its
subsidiaries to damages, penalties, injunction relief or cleanup costs under
any applicable Environmental Laws or which require or are likely to require
cleanup, removal, remedial action or other response pursuant to applicable
Environmental Laws by Company or any of its subsidiaries.
7.14 Neither Company nor any of its subsidiaries is subject to
any judgment, decree, order or citation related to or arising out of applicable
Environmental Laws and to the best knowledge of Company, after due inquiry,
neither Company nor any of its subsidiaries has been named or listed as a
potentially responsible party by any governmental body or agency in a matter
arising under any applicable Environmental Laws.
7.15 Company and its subsidiaries have all permits, licenses and
approvals required under applicable Environmental Laws.
8. COMPANY'S AFFIRMATIVE COVENANTS
Company covenants and agrees that it will, so long as any indebtedness
remains or could become outstanding under this Agreement:
8.1 Furnish Bank:
(a) as soon as available and in any event within one hundred
twenty (120) days after the end of each of Company's fiscal
years, a copy of its consolidated and consolidating financial
statements for each fiscal year including balance sheets as of
the end of such fiscal year and the related statements of
income and retained earnings for such fiscal year, each
prepared in accordance with generally accepted accounting
principles and practices consistently applied and, with
respect to such consolidated statements only, audited by
Deloitte & Touche or other independent certified public
accountants reasonably acceptable to Bank;
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(b) as soon as available and in any event within forty five (45)
days after the end of each of Company's fiscal quarters, a
copy of its consolidating balance sheets and related
consolidating statements of income for such fiscal quarter,
each prepared in accordance with generally accepted accounting
principles and practices consistently applied and certified
(subject to year-end audit adjustments) by an officer of
Company; together with a certification by an officer of
Company to the effect that there has been no event of default
under this Agreement and that the representations and
warranties set forth in this Agreement are true as of the date
of such certification;
(c) as soon as available, Company's 10-Q and 10-K Reports filed
with the Federal Securities and Exchange Commission, and as
soon as available, copies of all other documents filed by
Company with the Securities and Exchange Commission or other
federal regulatory or taxing agencies or authorities;
(d) promptly as issued, all press releases, notices to
shareholders and all other material written communications
transmitted to the general public or to the trade or industry
in which Company is engaged;
(e) within forty five (45) days after the end of each fiscal
quarter, an order backlog report, a deferred program cost and
tooling report, each in form satisfactory to Bank;
(f) within forty five (45) days after and as of the end of each
fiscal quarter, an accounts receivable aging report in form
satisfactory to Bank;
(g) from time to time, such further information regarding the
business affairs and financial condition of Company or any of
its subsidiaries as the Bank may reasonably request;
(h) not later than fifteen (15) days prior to the first day of
each fiscal year of Company, an annual budget with respect to
such fiscal year in form satisfactory to Bank
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and specifying all material assumptions on which such budget
is based.
8.2 Preserve and maintain, and cause each of its subsidiaries to
preserve and maintain, corporate existence and such of their rights, licenses
and privileges as are material to their business and operations; and will
qualify and remain qualified to do business in each jurisdiction in which such
qualification is material to their business and operations or the ownership of
their properties.
8.3 Comply, and cause each of its subsidiaries to comply, in all
material respects with all applicable laws, rules, regulations and orders of
any governmental authority, noncompliance with which could materially and
adversely affect the financial condition or operations of the Company or any
subsidiary, except to the extent that compliance with any of the foregoing is
then being contested in good faith and by appropriate legal proceedings and
with respect to which adequate financial reserves have been established.
8.4 Maintain, and cause each of its subsidiaries to maintain,
insurance coverage on their physical assets and against other business risks,
in such amounts and of such types as are customarily carried by companies
similar in size and nature, and in the event of acquisition of additional
property, real or personal, or of the incurrence of additional risks of any
nature, increase such insurance coverage in such manner and to such extent as
prudent business judgment and present practice would dictate. In the case of
all insurance policies covering property mortgaged or pledged to the Bank or
property in which the Bank shall have a security interest, other than those
policies protecting against casualty liability to strangers, all such insurance
policies shall provide that the loss payable thereunder shall be payable to the
Company (or Company's subsidiary, as applicable) and the Bank as their
respective interests may appear, all said policies or copies thereof, including
all endorsements, to be deposited with the Bank.
8.5 At any reasonable time and from time to time, upon reasonable
notice, permit, and cause its subsidiaries to permit, the Bank or any agents or
representatives thereof to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of Company and the
subsidiaries, and to discuss the affairs, finances and accounts of the Company
and
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its subsidiaries with any of their officers and key management personnel.
8.6 Keep, and cause its subsidiaries to keep, proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
subsidiaries so as to permit the Company and its subsidiaries to present
financial statements prepared in accordance with generally accepted accounting
principles consistently applied.
8.7 Pay or cause to be paid, and cause its subsidiaries to pay or
cause to be paid, promptly and within the time that they can be paid without
interest or penalty, all taxes, assessments and similar imposts and charges of
every kind and nature lawfully levied, assessed or imposed upon the Company or
its subsidiaries or its or their property except to the extent being contested
in good faith.
8.8 Comply, and cause its subsidiaries to comply, with all
requirements imposed by ERISA as presently in effect or hereafter promulgated
including, but not limited to, the minimum funding requirements of any pension
plan adopted by Company or a subsidiary, as applicable, which is subject to
Title IV of ERISA (a "Pension Plan").
8.9 Promptly notify the Bank upon the occurrence thereof of any of
the following events:
(i) the termination of any Pension Plan pursuant to
Subtitle C of Title IV of ERISA or otherwise;
(ii) the appointment of a trustee by a United States
District Court to administer any Pension Plan;
(iii) the commencement by the Pension Benefit Guaranty
Corporation, or any successor thereto of any
proceeding to terminate any Pension Plan;
(iv) the failure of any Pension Plan to satisfy the
minimum funding requirements for any plan year as
established in the Internal Revenue Code of 1986,
as amended;
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(v) the withdrawal of the Company or any of its
subsidiaries from any Pension Plan; or
(vi) a reportable event, within the meaning of Title
IV of ERISA.
8.10 Beginning December 31, 1997, maintain at all times a
Tangible Net Worth of not less than $17,000,000.
"Tangible Net Worth" shall mean total shareholders' equity
of Company and its consolidated subsidiaries as determined in accordance with
generally accepted accounting principles consistently applied ("GAAP") less the
amount of all assets classified as intangible assets (including, without
limitation, covenants not to compete, receivables from affiliates, deferred
bond issuance costs, customer lists, goodwill, trade names, patents, copyrights
and franchises).
8.11 Maintain a ratio of Debt to Tangible Net Worth of not more
than 2.0 to 1.0.
"Debt" shall mean all liabilities of Company and its
consolidated subsidiaries as determined in accordance with GAAP.
8.12 On a consolidated statement basis maintain, at all times, a
ratio of current assets to current liabilities, determined in accordance with
GAAP, of not less than 1.4 to 1.0.
8.13 Maintain at all times a Leverage Ratio of not more than 3.0
to 1.0.
"Leverage Ratio" shall mean as of any date of determination
a ratio the numerator of which is all interest bearing debt obligations, letter
of credit liabilities, contingent liabilities not otherwise recorded as a
liability in the Company's financial statements (Including guaranties), capital
lease obligations and obligations secured by liens on assets of Company or any
subsidiary and the denominator of which is EBITDA for the four preceding fiscal
quarters ending on such date of determination.
"EBITDA" shall mean for any period of determination Net
Income for such period plus, to the extent deducted in determining
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Net Income. interest expense, income taxes and depreciation and amortization
expense for such period.
"Net Income" shall mean the net income (or loss) of Company
and its consolidated subsidiaries for any period determined in accordance with
GAAP but excluding in any event any extraordinary gains or losses and any taxes
on the excluded gains and any tax deductions or credits on account of any
excluded losses.
8.14 Maintain all of its principal bank accounts with Bank.
8.15 On or before March 1, 1998 provide to Bank satisfactory
written environmental assessment reports for all real estate mortgaged to Bank
prepared by a consultant acceptable to the Bank, the contents of which may be
disclosed to governmental agencies and authorities when the Bank believes this
to be required by law. The environmental assessment reports and other
information provided by the Company to the Bank as required in this Section
must demonstrate to the Bank's sole and absolute satisfaction that each
Mortgagor is in compliance with all of the provisions regarding Environmental
Laws (as defined herein) set forth in this Agreement and the applicable
mortgage to which it is a party.
9. NEGATIVE COVENANTS
Company covenants and agrees that so long as any indebtedness remains
or could become outstanding under this Agreement, it will not, and will not
allow any of its subsidiaries to, without the prior written consent of Bank:
9.1 Enter into any merger or consolidation or sell, lease,
transfer, or dispose of all, substantially all, or any material part of its
assets. For purposes of this Section 9.1, with respect to any person, sales or
other dispositions of assets shall not be deemed to be a material disposition
of assets unless such sales or other dispositions, in the aggregate during any
fiscal year of such person, exceed ten percent (10%) of such person's tangible
net worth (determined for such person alone in the manner set worth in Section
8.10).
9.2 Purchase, acquire or redeem any of its capital stock, except
to the extent that the purchase or redemption price does not
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exceed in the aggregate Two Hundred Fifty Thousand Dollars ($250,000) during
any single fiscal year; make any material change in its capital structure,
except reverse stock splits and the issuance of preferred stock; cease having
as its primary business the design, development and manufacture of composites
and other synthetic materials for the transportation and aerospace industries
and other specialized applications.
9.3 Become or remain obligated for any indebtedness for borrowed
money, or for any indebtedness incurred in connection with the acquisition of
any property, real or personal, tangible or intangible, except:
(i) indebtedness to the Bank;
(ii) current unsecured trade, utility or non-
extraordinary accounts payable arising in the
ordinary course of the Company's or any
subsidiary's business;
(iii) indebtedness set forth in attached Exhibit "F";
(iv) existing indebtedness to the holders of the
Company's 6% subordinated nonconvertible
debentures ("Subordinated Debt"), excluding any
extension or renewal thereof
9.4 Acquire or become obligated for the purchase of all or
substantially all of the assets or business interests of any person, firm or
corporation or any shares of stock of any corporation, trusteeship or
association or in any other manner effectuate or attempt to effectuate an
expansion of present business by acquisition, except for the Acquisition and
acquisitions and purchases for which the purchase price does not exceed Two
Hundred Thousand Dollars ($200,000) in aggregate during any single fiscal year
and to the extent that immediately after such transaction and after giving
effect thereto, no event of default hereunder has occurred or exists.
9.5 Create, incur, assume or suffer to exist any mortgage,
pledge, encumbrance, security interest, lien or charge of any kind (including
any charge upon property purchased under a conditional sales or other title
retaining agreement) upon any of its property
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or assets whether now owned or hereafter acquired other than in favor of the
Bank and liens and encumbrances set forth in attached Exhibit "G"
(collectively, "Permitted Liens").
9.6 Guarantee or otherwise in any way become or be responsible
for obligations of any other person, whether by agreement to purchase the
indebtedness of any other person through the purchase of goods, supplies, or
services (or by way of stock purchase, capital contribution, advance or loan)
for the purpose of paying or discharging the indebtedness of any other person,
or otherwise, except for (i) the endorsement of negotiable instruments by the
Company or its subsidiaries in the ordinary course of business for collection,
(ii) guaranties to Bank, (iii) unsecured guaranties by Company or any of its
subsidiaries of indebtedness of Company or any of its subsidiaries, as
applicable, to a person other than Bank which is permitted under Section 9.3,
and (iv) guaranties of indebtedness of suppliers in an aggregate amount not
succeeding One Hundred Thousand Dollars ($100,000) at any time outstanding.
9.7 Purchase or hold beneficially any stock or other securities
of, or make any investment or acquire any interest whatsoever in, any other
person except for certificates of deposit with maturities of one year or less
of United States commercial banks and direct obligations of the United States
Government maturing within one year from the date of acquisition thereof and
the investments described in attached Exhibit "H".
9.8 Make loans, advances of credit or extensions of credit to
any of its officer, director or shareholder of the Company or any member of
their immediate families or entity controlled by any of the foregoing or to any
other person, except for (i) sales on open account or in the ordinary course of
business, (ii) loans from Company to the Guarantors and from any Guarantor to
Company or another Guarantor, (iii) advances to suppliers in the ordinary
course of business consistent with past practices, and (iv) loans and advances
to officers and directors of Company and its subsidiaries in an aggregate
amount not exceeding One Hundred Thousand Dollars ($100,000) at any time
outstanding.
9.9 Enter into, maintain, or make contribution to, directly or
indirectly, any employee pension plan that is subject to Title IV of ERISA.
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9.10 Modify or amend any of the documents or instruments
evidencing the Subordinated Debt, purchase any of the Subordinated Debt or make
any payment with respect to the Subordinated Debt following the occurrence of
any of the events of default described in Sections 11.1 through 11.3 hereof or
the occurrence of any event which with the giving of notice or the passage of
time or both would constitute such an event of default.
10. ENVIRONMENTAL PROVISIONS
10.1 For the purposes of this Agreement the term "Environmental
Laws" shall mean all federal, state and local laws including statutes,
regulations, ordinances, codes, rules, and other governmental restrictions and
requirements, relating to environmental pollution, contamination or other
impairment of any nature, any hazardous or other toxic substances of any
nature, whether liquid, solid and/or gaseous, including smoke, vapor, fumes,
soot, acids, alkalis, chemicals, wastes, by-products, and recycled materials.
These Environmental Laws shall include but not be limited to the Federal Solid
Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Federal Superfund Amendments and Reauthorization Act of 1986, regulations
of the Environmental Protection Agency, regulations of the Nuclear Regulatory
Agency, regulations of any state department of natural resources or state
environmental protection agency now or at any time hereafter in effect and
local health department ordinances.
10.2 Company and each of its subsidiaries shall timely comply
with all applicable Environmental Laws.
10.3 Company shall provide to Bank, immediately upon receipt,
copies of any correspondence, notice, pleading, citation, indictment,
complaint, order, decree, or other document from any source asserting or
alleging a circumstance or condition which requires or may require a financial
contribution by Company or any of its subsidiaries or a cleanup, removal,
remedial action, or other similar response by or on the part of Company or any
of its subsidiaries under applicable Environmental Laws or which seeks damages
or civil, criminal or punitive penalties from the Company
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or any of its subsidiaries for an alleged violation of Environmental Laws.
10.4 Company shall promptly notify Bank in writing as soon as
Company becomes aware of any condition or circumstance which makes the
environmental warranties contained in this Agreement incomplete or inaccurate
as of any date.
10.5 In the event of any condition or circumstance that makes any
environmental warranty, representation and/or agreement incomplete or
inaccurate in any material respect as of any date, Company shall, at its sole
expense, retain an environmental professional consultant, reasonably acceptable
to Bank, to conduct a thorough and complete environmental audit regarding the
changed condition and/or circumstance and any environmental concerns arising
from that changed condition and/or circumstance. A copy of the environmental
consultant's report will be promptly delivered to Bank upon completion.
10.6 At any time Company or any of its subsidiaries, directly or
indirectly through any professional consultant or other representative,
determines to undertake an environmental audit, assessment or investigation,
Company shall promptly provide Bank with written notice of the initiation of
the environmental audit, fully describing the purpose and intended scope of the
environmental audit. Upon receipt, Company will promptly provide to Bank copies
of all final findings and conclusions of any such environmental investigation.
Preliminary findings and conclusions shall be provided if final reports have
not been completed and delivered to Bank within 60 days following completion of
the preliminary findings and conclusions.
10.7 Company hereby indemnifies, saves and holds Bank and any of
its past, present and future officers, directors, shareholders, employees,
representatives and consultants harmless from any and all loss, damages, suits,
penalties, costs, liabilities and expenses (including but not limited to
reasonable investigation, environmental audit(s), and legal expenses) arising
out of any claim, loss or damage of any property, injuries to or death of
persons, contamination of or adverse affects on the environment, or any
violation of any applicable Environmental Laws, due to any acts of Company or
any of its subsidiaries, or any of its or their officers, directors,
shareholders, employees, consultants and/or
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representatives. In no event shall Company be liable hereunder for any loss,
damages, suits, penalties, costs, liabilities or expenses arising from any act
of negligence of Bank, or its agents or employees.
It is expressly understood and agreed that the indemnifications
granted herein are intended to protect Bank, its past, present and future
officers, directors, shareholders, employees, consultants and representatives
from any claims that may arise by reason of the security interest, liens and/or
mortgages granted to Bank, or under any other document or agreement given to
secure repayment of any indebtedness from Company, whether or not such claims
arise before or after Bank has foreclosed upon and/or otherwise become the
owner of any such property. All obligations of indemnity as provided hereunder
shall be secured by the security agreements and mortgage referred to in Section
2 hereof.
It is expressly agreed and understood that the provisions hereof shall
and are intended to be continuing and shall survive the repayment of any
indebtedness from Company to Bank.
10.8 Company shall maintain all permits, licenses and approvals
required under applicable Environmental Laws.
11. DEFAULTS
11.1 Upon non-payment of the principal or interest due under the
terms of this Agreement or on any of the Notes or other instrument or evidence
of indebtedness outstanding under this Agreement when due in accordance with
the terms thereof and continuance thereof for ten (10) days, the Notes shall
automatically become immediately due and payable and Bank's obligation to make
further advances hereunder shall automatically terminate.
11.2 Upon occurrence of any of the following events of default:
(a) default in the observance or performance of any of the
conditions, covenants or agreements of Company set forth in
Sections 6.3, 8.1, 8.4, 8.5, 8.10 through 8.13, 8.14, 8.15
or Section 9 hereof;
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(b) default in the observance or performance of any of the other
conditions, covenants or agreements of Company herein set
forth and continuance thereof for thirty (30) days after
written notice to Company by Bank;
(c) any representation or warranty made by Company herein or in
any instrument submitted pursuant hereto proves to have been
untrue in any material respect when made;
(d) default in the observance or performance of any of the
conditions, covenants or agreements of Company or any
Guarantor set forth in any collateral document of security
which may be given to secure the indebtedness hereunder or
in any other collateral document related to or connected
with this Agreement or the indebtedness hereunder, and
continuation of such default beyond any period of grace
specified in any such document;
(e) default in the payment of any other obligation of Company or
any Guarantor for borrowed money in an amount in excess of
One Hundred Thousand Dollars ($100,000), or in the
observance or performance of any conditions, covenants or
agreements related or given with respect thereto and, in
each such case, continuance beyond any applicable cure
period;
(f) judgments for the payment of money in excess of the sum of
One Hundred Thousand Dollars ($100,000) in the aggregate
shall be rendered against Company or any Guarantor, and such
judgments shall remain unpaid, unvacated, unbonded or
unstayed by appeal or otherwise for a period of sixty (60)
consecutive days from the date of its entry;
(g) the occurrence of any "reportable event", as defined in the
Employee Retirement Income Security Act of 1974 and any
amendments thereto, which is determined to constitute
grounds for termination by the Pension Benefit Guaranty
Corporation of any employee pension benefit plan maintained
by or on behalf of Company for the benefit of any of its
employees or for the appointment by the appropriate United
States District Court of a trustee to administer such plan
and such
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reportable event is not corrected and such determination is
not revoked within 30 days after notice thereof has been
given to the plan administrator or Company; or the
institution of proceeding by the Pension Benefit Guaranty
Corporation to terminate any such employee benefit pension
plan or to appoint a trustee to administer such plan; or the
appointment of a trustee by the appropriate United States
District Court to administer any such employee benefit
pension plan;
(h) the revocation of any Guaranty or any guaranty by Company in
favor of Bank of the obligations of any of its subsidiaries;
(i) default by Company in payment under any guaranty by Company
in favor of Bank of the obligations of any of its
subsidiaries;
then, or at any time thereafter, unless such default is first remedied, Bank
may give notice to Company declaring all outstanding indebtedness hereunder to
be due and payable, whereupon all indebtedness then outstanding hereunder shall
immediately become due and payable without further notice and demand, as the
case may be and Bank's commitment, if any, to make advances hereunder shall
automatically terminate.
11.3 If a creditors' committee shall have been appointed for the
business of Company or any Guarantor; or if Company or any Guarantor shall have
made a general assignment for the benefit of creditors or shall have been
adjudicated bankrupt, or shall have filed a voluntary petition in bankruptcy or
for reorganization or to effect a plan or arrangement with creditors; or shall
file an answer to a creditor's petition or other petition filed against it,
admitting the material allegations thereof for an adjudication in bankruptcy or
for reorganization; or shall have applied for or permitted the appointment of a
receiver or trustee or custodian for any of its property or assets; or such
receiver, trustee or custodian shall have been appointed for any of its
property or assets (otherwise than upon application or consent of Company or
any Guarantor, as applicable) and such receiver, trustee, or custodian so
appointed shall not have been discharged within sixty (60) days after the date
of his appointment; or if an order shall
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<PAGE> 28
be entered and shall not be dismissed or stayed within sixty (60) days from its
entry, approving any petition for reorganization of Company or any Guarantor;
then the Notes and all indebtedness then outstanding hereunder shall
automatically become immediately due and payable and Bank's commitment, if any,
to make advances hereunder shall automatically terminate.
11.4 Upon the occurrence and during the continuance of any Event
of Default, Company shall immediately upon demand by Bank deposit with Bank
cash collateral in the amount equal to the maximum amount available to be drawn
at any time under any Letter of Credit then outstanding.
12. MISCELLANEOUS
12.1 This Agreement shall be binding upon and shall inure to the
benefit of Company and Bank and their respective successors and assigns, except
that the credit provided for under this Agreement and no part thereof and no
obligation of Bank hereunder shall be assignable or otherwise transferable by
Company without the prior written consent of Bank.
12.2 No delay or failure of Bank in exercising any right, power
or privilege hereunder shall affect such right, power or privilege, nor shall
any single or partial exercise thereof preclude any further exercise thereof,
or the exercise of any other power, right or privilege. The rights of Bank
under this Agreement are cumulative and not exclusive of any right or remedies
which Bank would otherwise have.
12.3 All notices with respect to this Agreement shall be deemed
to be completed upon mailing by registered or certified mail, return receipt
requested, to the following:
To Company:
Cade Industries, Inc.
5640 Enterprise
Lansing, Michigan 48911
Attention: Treasurer
With a copy to:
Quarles & Brady
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<PAGE> 29
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-4497
Attention: David L. Bourne
To Bank:
Bank
101 N. Washington Square, 4th Floor
Lansing, Michigan 48933-1677
Attention: Lori M. Fisher
Failure of Bank for any reason whatsoever to deliver to Quarles & Brady a copy
of any notice required hereunder shall in no event affect the validity or
sufficiency for any purpose of any notice given hereunder by Bank to Company.
12.4 Upon any event of default or default as described in this
Agreement or any default in payment of any liability above mentioned, Bank may,
without notice to anyone except as otherwise provided herein, declare the Notes
due forthwith, take all action, remedial and otherwise, as provided herein or
in the Security Agreement or other document, instrument, or agreement of
security or of collateral, and collect, deal with and dispose of all or any
part of any security without notice in any manner permitted or authorized by
the Michigan Uniform Commercial Code or other applicable law. Bank may apply
the proceeds and any deposits or credits in part or full payment of any of said
liabilities (including reasonable attorneys' fees and expenses), whether due or
not, in any manner or other Bank elects.
12.5 This Agreement and the Note shall be governed by, and
construed and enforced in accordance with, Michigan law.
12.6 Company shall pay all closing costs and expenses, including,
by way of description and not limitation, reasonable outside attorney fees and
lien search fees incurred by Bank in connection with the commitment,
consummation and closing of this Agreement. All of said amounts required to be
paid by Company may, at Bank's option, be charged by Bank as an advance against
the proceeds of the Notes. All costs, including attorney fees, incurred by Bank
in reviewing, revising, protecting or enforcing any of its
28
<PAGE> 30
or any of the Bank's rights against Company or defending Bank from any claims
or liabilities by any party or otherwise incurred by Bank in connection with an
event of default or the enforcement of this Agreement or the related documents,
including by way of description and not limitation, such charges in any court
or bankruptcy proceedings or arising out of any claim or action by any person
against Bank which would not have been asserted were it not for Bank's
relationship with Company hereunder or otherwise, shall also be paid by
Company.
12.7 No amendments or waiver of any provision of this Agreement
nor consent to any departure by the Company therefrom shall in any event be
effective unless the same shall be in writing and signed by the Bank, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No amendment, waiver or
consent with respect to any provision of this Agreement shall affect any other
provision of this Agreement.
12.8 For purposes of this Agreement, "subsidiary" or
"subsidiaries" shall mean all corporations a majority of the voting stock of
which is owned by Company directly, or indirectly, through one or more
intermediaries.
12.9 This Agreement shall become effective upon the execution
hereof by Bank and Company.
12.10 COMPANY AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY
IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT, THE NOTES AND ANY OF
THE OTHER DOCUMENTS AND INSTRUMENTS RELATED THERETO.
29
<PAGE> 31
WITNESS the due execution hereof as of the day and year first above
written.
BANK CADE INDUSTRIES, INC.
By:_________________________ By:_________________________________
Its:________________________ Its:________________________________
Attest:_____________________________
Its:________________________________
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<PAGE> 32
EXHIBIT "A"
TAX I.D.NO.______________
LINE OF CREDIT NOTE
(Eurodollar Rate)
$9,000,000 Detroit, Michigan
October 31, 1997
On or before April 1, 1999 (herein called the "Maturity Date"), FOR
VALUE RECEIVED, the undersigned, Cade Industries, Inc., a Wisconsin corporation
(herein called "Borrower"), promises to pay to the order of BANK, a Michigan
banking corporation (herein called "Bank"), in lawful currency of the United
States of America, the principal sum of NINE MILLION DOLLARS ($9,000,000), or
so much of said sum as has been advanced and is then outstanding under this
Note, together with interest thereon as hereinafter set forth.
This Note is a note under which Advances, repayments and re-Advances
may be made from time to time, subject to the terms and conditions of this
Note; provided, however, in no event shall Bank be obligated to make any
Advances or re-Advances hereunder (notwithstanding anything expressed or
implied herein or elsewhere to the contrary).
Each of the Advances made hereunder shall bear interest at the
Eurodollar-based Rate or the Prime-based Rate, as elected by Borrower or as
otherwise determined under this Note.
Accrued and unpaid interest on the unpaid balance of each outstanding
Prime-based Advance shall be payable quarterly, in arrears, commencing on
January 1, 1998, and on the first Business Day of each succeeding quarter
thereafter, until maturity (whether as stated herein, by acceleration, or
otherwise). Interest accruing at the Prime-based Rate shall be computed on the
basis of a year of 360 days, and shall be assessed for the actual number of
days
<PAGE> 33
elapsed, and in such computation, effect shall be given to any change in the
Applicable Interest Rate as a result of any change in the Prime-based Rate on
the date of each such change in the Prime-based Rate.
Accrued and unpaid interest on each Eurodollar-based Advance shall be
payable on the last day of the Interest Period applicable thereto (unless
sooner accelerated in accordance with the terms of this Note). Interest
accruing at the Eurodollar-based Rate shall be computed on the basis of a 360
day year and shall be assessed for the actual number of days elapsed from the
first day of the Interest Period applicable thereto but not including the last
day thereof.
From and after the occurrence of any Default hereunder, and so long as
any such Default remains unremedied or uncured thereafter, the Indebtedness
outstanding under this Note shall bear interest at a per annum rate of three
percent (3%) above the otherwise Applicable Interest Rate, which interest shall
be payable upon demand.
The amount and date of each Advance, its Applicable Interest Rate, its
Interest Period, if any, and the amount and date of any repayment shall be
noted on Bank's records, which records shall be conclusive evidence thereof,
absent manifest error; provided, however, any failure by Bank to make any such
notation, or any error in any such notation, shall not relieve Borrower of its
obligations to repay Bank all amounts payable by Borrower to Bank under or
pursuant to this Note, when due in accordance with the terms hereof.
Borrower may request an Advance hereunder, including the refunding of
an outstanding Advance as the same type of Advance or the conversion of an
outstanding Advance as the same type of Advance, upon the delivery to Bank of a
Request for Advance executed by an authorized officer of Borrower, subject to
the following:
(a) no Default, and no condition or event which, with the giving
of notice or the running of time, or both, would constitute a
Default, shall have occurred and be continuing or exist under
this Note;
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<PAGE> 34
(b) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as
Exhibit "A";
(c) each such Request for Advance shall be delivered to Bank by
11:00 a.m. (Detroit, Michigan time) one (l) Business Day prior
to the proposed date of Advance in the case of
Eurodollar-based Advances, and by 11:00 a.m. (Detroit,
Michigan time) on the proposed date of Advance in the case of
Prime-based Advances;
(d) the principal amount of each Eurodollar-based Advance shall be
at least Five Hundred Thousand Dollars ($500,000);
(e) the proposed date of any refunding of any outstanding
Eurodollar-based Advance as another Eurodollar-based Advance
or the conversion of any outstanding Eurodollar-based Advance
to a Prime-based Advance shall only be on the last day of the
Interest Period applicable to such outstanding
Eurodollar-based Advance; and
(f) a Request for Advance, once delivered to Bank, shall not be
revocable by Borrower; provided, however, as aforesaid, Bank
shall not be obligated to make any Advance under this Note.
If, as to any outstanding Eurodollar-based Advance, Bank shall not
receive a timely Request for Advance in accordance with the foregoing
requesting the refunding of such Advance as a Eurodollar-based Advance, the
principal amount of such Advance which is not then repaid shall be
automatically converted to a Prime-based Advance on the last day of the
Interest Period applicable thereto, subject in all respects to the terms and
conditions of this Note. The foregoing shall not in any way whatsoever limit or
otherwise affect any of Bank's rights or remedies under this Note upon the
occurrence of any Default hereunder, or any condition or event which, with the
giving of notice or the running of time, or both, would constitute a Default.
Borrower may prepay all or part of the outstanding balance of any
Prime-based Advance under this Note at any time. Borrower may prepay all or
part of any Eurodollar-based Advance on the last day
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<PAGE> 35
of the Interest Period applicable thereto, provided that the aggregate balance
of Eurodollar-based Advances outstanding after such prepayment shall be at
least Five Hundred Thousand Dollars ($500,000), and the unpaid portion of such
Eurodollar-based Advance which is then refunded or converted shall be subject
to the limitations set forth in this Note. Any prepayment made in accordance
with this paragraph shall be without premium or penalty. Any other prepayment
shall be otherwise restricted by and subject to the terms of this Note.
Subject to the definition of an "Interest Period" hereunder, in the
event that any payment under this Note becomes due and payable on any day which
is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day, and, to the extent applicable, interest shall continue
to accrue and be payable thereon during such extension at the rates set forth
in this Note.
All payments to be made by Borrower to Bank under or pursuant to this
Note shall be in immediately available funds, without setoff or counterclaim,
and in the event that any payments submitted hereunder are in funds not
available until collected, said payments shall continue to bear interest until
collected. Borrower hereby authorizes Bank to charge any account of Borrower
with Bank for all sums due hereunder when due in accordance with the terms
hereof.
If Borrower makes any payment of principal with respect to any
Eurodollar-based Advance on any day other than the last day of the Interest
Period applicable thereto (whether voluntarily, by acceleration, or otherwise),
or if Borrower fails to borrow any Eurodollar-based Advance after notice has
been given by Borrower to Bank in accordance with the terms of this Note
requesting such Advance, or if Borrower fails to make any payment of principal
or interest in respect of a Eurodollar-based Advance when due, Borrower shall
reimburse Bank, on demand, for any resulting loss, cost or expense incurred by
Bank as a result thereof, including, without limitation, any such loss, cost or
expense incurred in obtaining, liquidating, employing or redeploying deposits
from third parties, whether or not Bank shall have funded or committed to fund
such Advance. Such amount payable by Borrower to Bank may include, without
limitation, an amount equal to the excess, if any, of (a) the amount of
interest which would have accrued on the
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<PAGE> 36
amount so prepaid, or not so borrowed, refunded or converted, for the period
from the date of such prepayment or of such failure to borrow, refund or
convert, through the last day of the relevant Interest Period, at the
applicable rate of interest for said Advance(s) provided under this Note, over
(b) the amount of interest (as reasonably determined by Bank) which would have
accrued to Bank on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank eurodollar market.
Calculation of any amounts payable to Bank under this paragraph shall be made
as though Bank shall have actually funded or committed to fund the relevant
Eurodollar-based Advance through the purchase of an underlying deposit in an
amount equal to the amount of such Advance and having a maturity comparable to
the relevant
Interest Period; provided, however, that Bank may fund any
Eurodollar-based Advance in any manner it deems fit and the foregoing
assumptions shall be utilized only for the purpose of the calculation of
amounts payable under this paragraph. Upon the written request of Borrower,
Bank shall deliver to Borrower a certificate setting forth the basis for
determining such losses, costs and expenses, which certificate shall be
conclusively presumed correct, absent manifest error.
For any Eurodollar-based Advance, if Bank shall designate a Eurodollar
Lending Office which maintains books separate from those of the rest of Bank,
Bank shall have the option of maintaining and carrying such Advance on the
books of such Eurodollar Lending Office.
If, with respect to any Interest Period, Bank determines that, (a) by
reason of circumstances affecting the foreign exchange and interbank markets
generally, deposits in Eurodollars in the applicable amounts or for the
relative maturities are not being offered to Bank for such Interest Period, or
(b) if the rate of interest referred to in the definition of "Eurodollar based
Rate" upon the basis of which the rate of interest for a Eurodollar-based
Advance is to be determined does not accurately or fairly cover or reflect the
cost to Bank of making or maintaining a Eurodollar-based Advance hereunder,
then Bank shall forthwith give notice thereof to the Borrower. Thereafter,
until Bank notifies Borrower that such conditions or circumstances no longer
exist, the right of Borrower to request a Eurodollar-based Advance and to
convert an
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<PAGE> 37
Advance to or refund an Advance as a Eurodollar-based Advance shall be
suspended.
If, after the date hereof, the introduction of, or any change in, any
applicable law, rule or regulation or in the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, shall make it unlawful or impossible for the Bank (or
its Eurodollar Lending Office) to make or maintain any Advance with interest at
the Eurodollar-based Rate, Bank shall forthwith give notice thereof to
Borrower. Thereafter, (a) until Bank notifies Borrower that such conditions or
circumstances no longer exist, the right of Borrower to request a
Eurodollar-based Advance and to convert an Advance to or refund an Advance as a
Eurodollar-based Advance shall be suspended, and thereafter, Borrower may
select only the Prime-based Rate as the Applicable Interest Rate hereunder, and
(b) if Bank may not lawfully continue to maintain an outstanding Advance to the
end of the then current Interest Period applicable thereto, the Prime based
Rate shall be the Applicable Interest Rate for the remainder of such Interest
Period with respect to such outstanding Advance.
If the adoption after the date hereof, or any change after the date
hereof in, any applicable law, rule or regulation of any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of law)
made by any such authority, central bank or comparable agency after the date
hereof:
(a) shall subject Bank (or its Eurodollar Lending Office) to any
tax, duty or other charge with respect to this Note or any
Advance hereunder or shall change the basis of taxation of
payments to Bank (or its Eurodollar Lending Office) of the
principal of or interest on any Advance or any other amounts
due under this Note in respect thereof (except for changes in
the rate of tax on the overall net income of Bank or its
Eurodollar Lending Office imposed by the jurisdiction in which
Bank's principal executive office or Eurodollar Lending Office
is located); or
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<PAGE> 38
(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of
Governors of the Federal Reserve System), special deposit or
similar requirement against assets of, deposits with or for
the account of, or credit extended by Bank (or its Eurodollar
Lending Office) or shall impose on Bank (or its Eurodollar
Lending Office) or the foreign exchange and interbank markets
any other condition affecting any Advance under this Note;
and the result of any of the foregoing is to increase the cost to Bank of
maintaining any part of the indebtedness hereunder or to reduce the amount of
any sum received or receivable by Bank under this Note by an amount deemed by
the Bank to be material, then Borrower shall pay to Bank, within fifteen (15)
days of Borrower's receipt of written notice from Bank demanding such
compensation, such additional amount or amounts as will compensate Bank for
such increased cost or reduction. A certificate of Bank, prepared in good faith
and in reasonable detail by Bank and submitted by Bank to Borrower, setting
forth the basis for determining such additional amount or amounts necessary to
compensate Bank shall be conclusive and binding for all purposes, absent
manifest error in computation.
In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to Bank, or any interpretation or administration thereof
by any governmental authority charged with the interpretation or administration
thereof, or compliance by Bank with any guideline, request or directive of any
such authority (whether or not having the force of law), including any
risk-based capital guidelines, affects or would affect the amount of capital
required or expected to be maintained by Bank (or any corporation controlling
Bank), and Bank determines that the amount of such capital is increased by or
based upon the existence of any obligations of Bank hereunder or the making or
maintaining any Advances hereunder, and such increase has the effect of
reducing the rate of return on Bank's (or such controlling corporation's)
capital as a consequence of such obligations or the making or maintaining of
such Advances hereunder to a level below that which Bank (or such controlling
corporation) could have achieved but for such circumstances (taking into
consideration its policies with respect to capital adequacy), then
7
<PAGE> 39
Borrower shall pay to Bank, within fifteen (15) days of Borrower's receipt of
written notice from Bank demanding such compensation, additional amounts as are
sufficient to compensate Bank (or such controlling corporation) for any
increase in the amount of capital and reduced rate of return which Bank
reasonably determines to be allocable to the existence of any obligations of
the Bank hereunder or to the making or maintaining any Advances hereunder. A
certificate of Bank as to the amount of such compensation, prepared in good
faith and in reasonable detail by the Bank and submitted by Bank to Borrower,
shall be conclusive and binding for all purposes absent manifest error in
computation.
This Note and any other indebtedness and liabilities of any kind of
Borrower to Bank, and any and all modifications, renewals or extensions
thereof, whether joint or several, contingent or absolute, direct or indirect,
now existing or later arising, and however evidenced (collectively the
"Indebtedness"), are secured by and Bank is granted a security interest in all
items at any time deposited in any account of Borrower with Bank and by all
proceeds of these items (cash or otherwise), all account balances of Borrower
from time to time with Bank, by all property of Borrower from time to time in
the possession of Bank, and by any other collateral, rights and properties
described in each and every mortgage, security agreement, pledge, assignment
and other security or collateral agreement which has been, or will at any
time(s) later be, executed by Borrower or others to or for the benefit of Bank
(collectively the "Collateral").
If Borrower or any guarantor under a guaranty of all or part of the
Indebtedness ("guarantor") (a) fail(s) to pay this Note, or any part thereof,
or any of the Indebtedness when due, by maturity, acceleration or otherwise, or
fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (b)
fail(s) to comply with any of the terms or provisions of any agreement between
Borrower or any guarantor and Bank; or (c) become(s) insolvent or the subject
of a voluntary or involuntary proceeding in bankruptcy, or a reorganization,
arrangement or creditor composition proceeding, (if a business entity) cease(s)
doing business as a going concern, (if a natural person) die(s) or become(s)
incompetent, (if a partnership) dissolve(s) or any general partner of it dies,
becomes incompetent or becomes the subject of a bankruptcy proceeding, or (if a
corporation) is the subject of a dissolution, merger or consolidation; or (d)
if any warranty or representation made by
8
<PAGE> 40
Borrower or any guarantor in connection with this Note or any of the
Indebtedness shall be discovered to be untrue or incomplete in any material
respect; (e) or if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the Indebtedness; or (f) if there is any failure
by Borrower or any guarantor to pay, when due, any of its indebtedness (other
than to the Bank) or in the observance or performance of any term, covenant or
condition in any document evidencing, securing or relating to such
indebtedness; or (g) if Bank deems itself insecure, believing in good faith
that the prospect of payment or performance of this Note or any of the
Indebtedness is materially impaired or shall fear deterioration, removal or
waste of any of the Collateral; or (h) if there is filed or issued a levy or
writ of attachment or garnishment or other like judicial process upon Borrower
or any guarantor or any of the Collateral, including, without limit, any
accounts of Borrower or any guarantor with Bank, then Bank, upon the occurrence
and at any time during the continuance or existence of any of these conditions
or events (each a "Default"), may at its option and without prior notice to
Borrower, declare any or all of the Indebtedness to be immediately due and
payable (notwithstanding any provisions contained in the evidence of it to the
contrary), sell or liquidate all or any portion of the Collateral, set off
against the Indebtedness any amounts owing by Bank to Borrower, and exercise
any one or more of the rights and remedies granted to Bank by any agreement
with Borrower given to it under applicable law, or otherwise.
Borrower waives presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices, and agrees that no extension or indulgence
to Borrower, or release, substitution or nonenforcement of any security, or
release or substitution of any guarantor or any other party, whether with or
without notice, shall affect the obligations of Borrower. Borrower waives all
defenses or right to discharge available under Section 3-605 of the Uniform
Commercial Code and waives all other suretyship defenses or right to discharge.
Borrower agrees that Bank has the right to sell, assign, or grant
participations, or any interest, in any or all of the Indebtedness, and that,
in connection with such right, but without limiting its ability to make other
disclosures to the full extent allowable, Bank may
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<PAGE> 41
disclose all documents and information which the Bank now or later has relating
to Borrower and the Indebtedness.
Borrower agrees to reimburse Bank, or any other holder or owner of
this Note, for any and all costs and expenses (including, without limit, court
costs, legal expenses and reasonable attorneys' fees, whether inside or outside
counsel is used, whether or not suit is instituted, and, if suit is instituted,
whether at the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or the Indebtedness or incurred in any other matter or
proceeding relating to this Note or the Indebtedness.
Borrower acknowledges and agrees that there are no contrary
agreements, oral or written, establishing a term of this Note and agrees that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by a duly authorized officer of Bank expressly
stating that the writing constitutes an amendment, waiver or modification of
the terms of this Note. If any provision of this Note is unenforceable in whole
or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF MICHIGAN.
This Note shall bind Borrower and Borrower's respective successors and
assigns.
For the purposes of this Note, the following terms have the following
meanings:
"Advance" means a borrowing requested by Borrower and made by Bank
under this Note, including any refunding of an outstanding Advance as the same
type of Advance or the conversion of any such outstanding Advance to another
type of Advance, and shall include a Eurodollar-based Advance and a Prime-based
Advance.
"Applicable Interest Rate" means the Eurodollar-based Rate or the
Prime-based Rate, as selected by Borrower from time to time or as otherwise
determined in accordance with the terms and conditions of this Note.
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<PAGE> 42
"Business Day" means any day, other than a Saturday, Sunday or
holiday, on which Bank is open for all or substantially all of its domestic and
international business (including dealings in foreign exchange) in Detroit,
Michigan.
"Eurodollar-based Advance" means an Advance which bears interest at
the Eurodollar based Rate.
"Eurodollar-based Rate" means a per annum interest rate which is equal
to the sum of two and ten-hundredths percent (2.10%), plus the quotient of:
(a) the per annum interest rate at which Bank's Eurodollar Lending
Office offers deposits to prime banks in the eurodollar market
in an amount comparable to the relevant Eurodollar-based
Advance and for a period equal to the relevant Interest Period
at or about 11:00 a.m. (Detroit, Michigan time) (or as soon
thereafter as practical) one (l) Business Day prior to the
first day of such Interest Period;
divided by
(b) a percentage equal to 100% minus the maximum rate during such
Interest Period at which Bank is required to maintain reserves
on "Euro-currency Liabilities" as defined in and pursuant to
Regulation D of the Board of Governors of the Federal Reserve
System or, if such regulation or definition is modified, and
as long as Bank is required to maintain reserves against a
category of liabilities which includes eurodollar deposits or
includes a category of assets which includes eurodollar loans,
the rate at which such reserves are required to be maintained
on such category.
"Eurodollar Lending Office" means Bank's office located in the Cayman
Islands, British West Indies, or such other branch of Bank, domestic or
foreign, as it may hereafter designate as its Eurodollar Lending Office by
notice to Borrower.
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<PAGE> 43
"Interest Period" means a period of one (1) to ninety (90) days, as
selected by Borrower pursuant to the terms of this Note, commencing on the day
a Eurodollar-based Advance is made, provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Business Day shall be extended to the next succeeding
Business Day, except that if the next succeeding Business Day
falls in another calendar month, the Interest Period shall end
on the next preceding Business Day, and when an Interest
Period begins on a day which has no numerically corresponding
day in the calendar month during which such Interest Period is
to end, it shall end on the last Business Day of such calendar
month, and
(b) no Interest Period shall extend beyond the Maturity Date.
"Prime-based Advance" shall mean an Advance which bears interest at
the Prime-based Rate.
"Prime Rate" means the per annum interest rate established by Bank as
its prime rate for its borrowers, as such rate may vary from time to time,
which rate is not necessarily the lowest rate on loans made by Bank at any such
time.
"Prime-based Rate" shall mean a per annum interest rate which is equal
to the Prime Rate minus one-half of one percent (l/2%).
"Request for Advance" means a Request for Advance issued by Borrower
under this Note in the form annexed to this Note as Exhibit "A".
Borrower agrees to make all payments to Bank of any and all amounts
due and owing by Borrower to Bank hereunder, including, without limitation, the
payment of principal and interest on any Advance, on the date provided for such
payment, in United States Dollars in immediately available funds, at the office
of Bank located at Tower at Detroit Center, 500 Woodward Avenue, Detroit,
Michigan 48226, or such other address as Bank may notify Borrower in writing.
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<PAGE> 44
No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall any
single or partial exercise thereof preclude any further exercise thereof, or
the exercise of any other power, right or privilege. The rights of Bank under
this Agreement are cumulative and not exclusive of any right or remedies which
Bank would otherwise have, whether by other instruments or by law.
BORROWER AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY
JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR
IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS HEREUNDER.
This Note replaces a Note dated September 29, 1995, as amended, by
Borrower payable to Bank.
CADE INDUSTRIES, INC.
By:________________________________
Its:_______________________________
13
<PAGE> 45
EXHIBIT "B"
REQUEST FOR ADVANCE
TO: BANK (the "Bank")
The undersigned hereby request(s) an advance in the amount of
_____________________________ DOLLARS ($________________)against the Promissory
Note dated October 31, 1997, of undersigned to the Bank in the face amount of
Nine Million Dollars ($9,000,000).
The proceeds of this advance shall be deposited to the Account No.
_______________ of the undersigned with the Bank or as follows
______________________________________________.
Undersigned warrant(s) that no condition exists or event has occurred
which constitutes or, with the running of time would constitute a default under
that certain Second Amended and Restated Credit Agreement dated as of October
31, 1997, by and between undersigned and the Bank.
Dated this _____ day of __________________, 19__.
CADE INDUSTRIES, INC.
By:________________________________
Its:_______________________________
<PAGE> 46
EXHIBIT "C"
TERM NOTE-A
$3,571,428.56 Detroit, Michigan
Dated: October 31, 1997
FOR VALUE RECEIVED, Cade Industries, Inc., a Wisconsin corporation
(herein called "Company") promises to pay to the order of Bank, a Michigan
banking corporation, (herein called "Bank"), at its Main Office at 500 Woodward
Avenue, Detroit, Michigan 48226, the principal sum of Three Million Five
Hundred Seventy One Thousand Four Hundred Twenty Eight and 56/100 Dollars
($3,571,428.56) in lawful money of the United States of America payable in
quarterly installments of principal of One Hundred Seventy Eight Thousand Five
Hundred Seventy One and 43/100 Dollars ($178,571.43) each, commencing on
January 1,1998, and on the first day of each calendar quarter thereafter until
November 1, 2002, when the entire unpaid balance of principal and interest
thereon shall be due and payable, together with interest thereon as hereinafter
set forth.
Company shall pay interest on the indebtedness outstanding under this
Note from time to time at the per annum rate equal to eight and nineteen one
hundredths percent (8.19%). Upon the occurrence of any event of default
described in the Loan Agreement (as defined below) and maturity of the
indebtedness hereunder (whether at stated maturity or by acceleration),
interest shall accrue on the unpaid principal balance at a per annum rate as
provided in the Loan Agreement referred to below. Interest shall be payable
quarterly commencing on the 1st day of January, 1998 and on the first day of
each calendar quarter thereafter. Interest shall be computed on a daily basis
using a year of 360 days and assessed for the actual number of days elapsed,
and, in such computation, effect shall be given to any change in the interest
rate resulting from a change in the Prime Rate on the date of such change in
the Prime Rate. "Prime Rate" shall mean the rate of interest established by
Bank as its prime rate as the same may be changed
<PAGE> 47
from time to time, which may not necessarily be Bank's lowest rate for loans.
This Note evidences indebtedness incurred by Company under, is secured
pursuant to, may be matured as set forth in, and shall be prepaid in accordance
with, the Second Amended and Restated Credit Agreement entered by and between
Company and Bank dated as of October 31, 1997 ("Loan Agreement"), the terms and
conditions of which are hereby incorporated herein. Upon an event of default,
as described in the Loan Agreement, Bank shall be entitled to all of the rights
and remedies described therein or to which it is entitled under applicable law.
As additional security, Bank is granted a lien on all property and
assets (including deposits and other credits) of Company at any time in
possession or control (or owing by) Bank for any purpose.
If the interest and principal hereof are not fully paid at maturity
hereof (whether by demand or otherwise), Company shall pay the holder hereof
all its reasonable costs of collection of said principal and interest
including, but not limited to, reasonable attorney fees.
All agreements between Company and Bank pertaining to the indebtedness
described herein are expressly limited so that in no event whatsoever shall the
amount of interest paid or agreed to be paid to Bank exceed the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of the Loan Agreement, this Note or
any other instrument securing this Note or all or any part of the indebtedness
secured thereby, at the time performance of such provision shall be due, shall
involve exceeding the interest limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, the
obligation to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under such applicable law, and if, for any
reason whatsoever, the Bank shall ever receive as interest an amount which
would be deemed unlawful under such applicable law, such interest shall be
automatically applied to the payment of the principal amount described herein
or otherwise owed by Company to Bank, (whether or not then due and payable) and
not to the payment of interest.
2
<PAGE> 48
This Note replaces a Term Note dated September 29, 1995 in the
original principal amount of $3,600,000 by Company payable to Bank.
Company hereby waives presentment, demand, protest and notice of
dishonor and agree that no obligation hereunder shall be discharged by any
extension, indulgence or release given to any guarantor or other person or by
the release or non-enforcement of any security or guaranty given in connection
herewith. Notwithstanding anything herein to the contrary, nothing shall limit
any rights granted Bank by other instruments or by law.
CADE INDUSTRIES, INC.
By:________________________________
Its:_______________________________
Attest:____________________________
Its:_______________________________
3
<PAGE> 49
EXHIBIT "D"
TERM NOTE-B
$4,000,000 Detroit, Michigan
Dated: October 31 , 1997
FOR VALUE RECEIVED, Cade Industries, Inc., a Wisconsin corporation
(herein called "Company") promises to pay to the order of Bank, a Michigan
banking corporation, (herein called "Bank"), at its Main Office at 500 Woodward
Avenue, Detroit, Michigan 48226, the principal sum of Four Million Dollars
($4,000,000) in lawful money of the United States of America payable in
quarterly installments of principal and interest of One Hundred Eighteen
Thousand Six Hundred Twenty Four and 08/100 Dollars ($118,624.08) each,
commencing on January 1, 1998, and on the first day of each calendar quarter
thereafter until November 1, 2002, when the entire unpaid balance of principal
and interest thereon shall be due and payable, together with interest thereon
as hereinafter set forth.
Company shall pay interest on the indebtedness outstanding under this
Note from time to time at the per annum rate equal to one half of one percent
(1/2%) below Bank's Prime Rate. Upon the occurrence of any event of default
described in the Loan Agreement (as defined below) and maturity of the
indebtedness hereunder (whether at stated maturity or by acceleration),
interest shall accrue on the unpaid principal balance at a per annum rate of
three percent (3%) above Bank's Prime Rate. Interest shall be payable quarterly
commencing on the 1st day of January, 1998 and on the first day of each
calendar quarter thereafter. Interest shall be computed on a daily basis using
a year of 360 days and assessed for the actual number of days elapsed, and, in
such computation, effect shall be given to any change in the interest rate
resulting from a change in the Prime Rate on the date of such change in the
Prime Rate. "Prime Rate" shall mean the rate of interest established by Bank as
its prime rate as the same may be changed from time to time, which may not
necessarily be Bank's lowest rate for loans.
<PAGE> 50
This Note evidences indebtedness incurred by Company under, is secured
pursuant to, may be matured as set forth in, and shall be prepaid in accordance
with, the Second Amended and Restated Credit Agreement entered by and between
Company and Bank dated as of October 31, 1997 ("Loan Agreement"), the terms and
conditions of which are hereby incorporated herein. Upon an event of default,
as described in the Loan Agreement, Bank shall be entitled to all of the rights
and remedies described therein or to which it is entitled under applicable law.
As additional security, Bank is granted a lien on all property and
assets (including deposits and other credits) of Company at any time in
possession or control (or owing by) Bank for any purpose.
If the interest and principal hereof are not fully paid at maturity
hereof(whether by demand or otherwise), Company shall pay the holder hereof all
its reasonable costs of collection of said principal and interest including,
but not limited to, reasonable attorney fees.
All agreements between Company and Bank pertaining to the indebtedness
described herein are expressly limited so that in no event whatsoever shall the
amount of interest paid or agreed to be paid to Bank exceed the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of the Loan Agreement, this Note or
any other instrument securing this Note or all or any part of the indebtedness
secured thereby, at the time performance of such provision shall be due, shall
involve exceeding the interest limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, the
obligation to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under such applicable law, and if, for any
reason whatsoever, the Bank shall ever receive as interest an amount which
would be deemed unlawful under such applicable law, such interest shall be
automatically applied to the payment of the principal amount described herein
or otherwise owed by Company to Bank, (whether or not then due and payable) and
not to the payment of interest.
Company hereby waives presentment, demand, protest and notice of
dishonor and agree that no obligation hereunder shall be discharged by any
extension, indulgence or release given to any
2
<PAGE> 51
guarantor or other person or by the release or non-enforcement of any security
or guaranty given in connection herewith. Notwithstanding anything herein to
the contrary, nothing shall limit any rights granted Bank by other instruments
or by law.
CADE INDUSTRIES, INC.
By:______________________________
Its:_____________________________
Attest:__________________________
Its:_____________________________
3
<PAGE> 52
EXHIBIT "E"
TERM NOTE-C
$3,250,000 Detroit, Michigan
Dated: October 31, 1997
FOR VALUE RECEIVED, Cade Industries, Inc., a Wisconsin corporation
(herein called "Company") promises to pay to the order of Bank, a Michigan
banking corporation, (herein called "Bank"), at its Main Office at 500 Woodward
Avenue, Detroit, Michigan 48226, the principal sum of Three Million Two Hundred
Fifty Thousand Dollars ($3,250,000) in lawful money of the United States of
America payable in quarterly installments of principal of Two Hundred Seventy
Thousand Eight Hundred Thirty Three and 33/100 Dollars ($270,833.33) each,
commencing on January 1, 1998, and on the first day of each calendar quarter
thereafter until November 1, 2000, when the entire unpaid balance of principal
and interest thereon shall be due and payable, together with interest thereon
as hereinafter set forth.
Company shall pay interest on the indebtedness outstanding under this
Note from time to time at the per annum rate equal to eight and six one
hundredths percent (8.06%) until November 1, 1999 when the interest rate shall
be a per annum rate equal to one half of one percent (1/2%) below Bank's Prime
Rate. Upon the occurrence of any event of default described in the Loan
Agreement (as defined below) and maturity of the indebtedness hereunder
(whether at stated maturity or by acceleration), interest shall accrue on the
unpaid principal balance at a per annum rate as provided in the Loan Agreement
referred to below. Interest shall be payable quarterly thereafter. Interest
shall be computed on a daily basis using a year of 360 days and assessed for
the actual number of days elapsed, and, in such computation, effect shall be
given to any change in the interest rate resulting from a change in the Prime
Rate on the date of such change in the Prime Rate. "Prime Rate" shall mean the
rate of interest established by Bank as its prime
<PAGE> 53
rate as the same may be changed from time to time, which may not necessarily be
Bank's lowest rate for loans.
This Note evidences indebtedness incurred by Company under, is secured
pursuant to, may be matured as set forth in, and shall be prepaid in accordance
with, the Second Amended and Restated Credit Agreement entered by and between
Company and Bank dated as of October 31, 1997 ("Loan Agreement"), the terms and
conditions of which are hereby incorporated herein. Upon an event of default,
as described in the Loan Agreement, Bank shall be entitled to all of the rights
and remedies described therein or to which it is entitled under applicable law.
As additional security, Bank is granted a lien on all property and
assets (including deposits and other credits) of Company at any time in
possession or control (or owing by) Bank for any purpose.
If the interest and principal hereof are not fully paid at maturity
hereof (whether by demand or otherwise), Company shall pay the holder hereof
all its reasonable costs of collection of said principal and interest
including, but not limited to, reasonable attorney fees.
All agreements between Company and Bank pertaining to the indebtedness
described herein are expressly limited so that in no event whatsoever shall the
amount of interest paid or agreed to be paid to Bank exceed the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of the Loan Agreement, this Note or
any other instrument securing this Note or all or any part of the indebtedness
secured thereby, at the time performance of such provision shall be due, shall
involve exceeding the interest limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, the
obligation to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under such applicable law, and if, for any
reason whatsoever, the Bank shall ever receive as interest an amount which
would be deemed unlawful under such applicable law, such interest shall be
automatically applied to the payment of the principal amount described herein
or otherwise owed by Company to Bank, (whether or not then due and payable) and
not to the payment of interest.
2
<PAGE> 54
Company hereby waives presentment, demand, protest and notice of
dishonor and agree that no obligation hereunder shall be discharged by any
extension, indulgence or release given to any guarantor or other person or by
the release or non-enforcement of any security or guaranty given in connection
herewith. Notwithstanding anything herein to the contrary, nothing shall limit
any rights granted Bank by other instruments or by law.
CADE INDUSTRIES, INC.
By: _______________________________
Its: ______________________________
Attest: ___________________________
Its: ______________________________
3
<PAGE> 55
EXHIBIT "F"
PERMITTED DEBT
(a) Purchase money indebtedness for the acquisition of fixed assets in an
aggregate amount not exceeding One Hundred Thousand Dollars ($100,000) for each
such transaction;
(b) Other purchase money indebtedness for the acquisition of fixed assets
and indebtedness for the construction of new facilities incurred by Company or
its subsidiaries; provided, however, such indebtedness shall not be permitted
unless Bank shall have been given the first option to extend such credit
facilities to Company or the subsidiaries, as applicable, on substantially the
same or better terms as offered by another lender;
(c) Indebtedness of Company to any of the Guarantors and indebtedness of
any Guarantor to Company or the other Guarantor;
(d) (i) Indebtedness of H.A.C. Corporation to Bank Of The West to
finance building construction in the amount of $547,579.
(ii) Indebtedness of H.A.C. Corporation to Business Credit
Leasing for a capitalized lease of a Torrit Dust Collector totaling $31,078.
(iii) Indebtedness of H.A.C. Corporation to Border State Leasing
for a capitalized lease of a Canon NP 780 reader/printer totaling $3,696.
(iv) Indebtedness of H.A.C. Corporation to Ikon Capital for a
capitalized lease of a Sharp 9800 copy machine totaling $9,863.
(e) An unsecured line of credit to Company in an amount not to exceed Nine
Million Dollars ($9,000,000.00); provided, however, such indebtedness shall not
be permitted unless while no default under this Agreement exists, Bank declines
to renew or extend
<PAGE> 56
Company's line of credit under Section 1A of this Agreement at the stated
maturity thereof on substantially similar terms as now existing or terms more
favorable to Company.
(f) Indebtedness of Auto-Air Composites, Inc. to Fifth Third Bank for a
capitalized lease of a Remanufactured 2 axis 56" Bullard VTL Series 18TB CNC
system totaling $159,865.
(g) Indebtedness of Auto-Air Composites, Inc. to Fifth Third Bank for a
capitalized lease of a Manufacturing Resource Planning System, Visual
Manufacturing totaling $80,294.
(h) Indebtedness of Cade Composites, Inc. to Leasetec Corporation for a
capitalized lease of a Catia Engineering Computer Station and 174-F Advance
Designer software totaling $35,042.
(i) Indebtedness of Central Engineering Company to American Express for
various business credit card line of credit.
2
<PAGE> 57
EXHIBIT "G"
PERMITTED LIENS
(a) Liens for taxes, assessments, or governmental charges, or the
unpaid installments thereof and liens incident to construction, which are
either not delinquent or are being contested in good faith; and
(b) Easements, restrictions, minor title irregularities and
similar matters which have no material adverse effect as a practical matter
upon the ownership and use of the affected property; and
(c) Liens or deposits in connection with workmen's compensation or
other insurance or to secure customs' duties, public or statutory obligations
in lieu of surety, stay or appeal bonds, or to secure performance of contracts
or bids (other than contracts for the payment of borrowed money) or deposits
required by law as a condition to the transaction of business or other liens or
deposits of a like nature made in the ordinary course of business; and
(d) Purchase money security interests in fixed assets to secure
the purchase money indebtedness permitted under this Agreement, provided that
each such security interest is created substantially contemporaneously with the
acquisition of such fixed assets and does not extend to any property other than
the fixed asset so financed; and
(e) Liens in existence as of September 1, 1990; and
(f) Liens to secure construction indebtedness or debt used to
finance acquisition of new facilities, provided that each such security
interest or lien is created substantially contemporaneously with the
acquisition of such fixed assets or construction of facilities and does not
extend to any property other than the fixed asset so financed or the property
being constructed.
<PAGE> 58
EXHIBIT "H"
PERMITTED INVESTMENTS
(a) Investments in obligations of a governmental body, rated "A"
or better, maturing within one year of the date of acquisition; and
(b) Investments in prime commercial paper; and
(c) Money market funds; and
(d) Purchases of insurance on lives of officers or employees of
the Company, provided the Company is named the beneficiary on any such policy;
and
(e) Obligations which are guaranteed by the United States
Government; and
(f) Repurchase agreements; and
(g) Acquisitions permitted pursuant to the provisions of Section
9.4.
(h) $900,000 life insurance policy in the name of John Haran with
spouse as beneficiary.
<PAGE> 59
SCHEDULE 6.2(B)
1. Security Agreements from the Company and each of the Guarantors
2. Mortgage from Auto-Air Composites dated September 1, 1990
3. Continuing Collateral Mortgage dated October 31, 1997 from Central
Engineering Company in favor of the Bank
<PAGE> 1
EXHIBIT 4.2
<PAGE> 2
LINE OF CREDIT NOTE
(Eurodollar Rate)
$9,000,000 Detroit, Michigan
October 31, 1997
On or before April 1, 1999 (herein called the "Maturity Date"), FOR VALUE
RECEIVED, the undersigned, Cade Industries, Inc., a Wisconsin corporation
(herein called "Borrower"), promises to pay to the order of __________ BANK, a
Michigan banking corporation (herein called "Bank"), in lawful currency of the
United States of America, the principal sum of NINE MILLION DOLLARS
($9,000,000), or so much of said sum as has been advanced and is then
outstanding under this Note, together with interest thereon as hereinafter set
forth.
This Note is a note under which Advances, repayments and re-Advances may
be made from time to time, subject to the terms and conditions of this Note;
provided, however, in no event shall Bank be obligated to make any Advances or
re-Advances hereunder (notwithstanding anything expressed or implied herein or
elsewhere to the contrary).
Each of the Advances made hereunder shall bear interest at the
Eurodollar-based Rate or the Prime-based Rate, as elected by Borrower or as
otherwise determined under this Note.
Accrued and unpaid interest on the unpaid balance of each outstanding
Prime-based Advance shall be payable quarterly, in arrears, commencing on
January 1, 1998, and on the first Business Day of each succeeding quarter
thereafter, until maturity (whether as stated herein, by acceleration, or
otherwise). Interest accruing at the Prime-based Rate shall be computed on the
basis of a year of 360 days, and shall be assessed for the actual number of
days elapsed, and in such computation, effect shall be given to any change in
the Applicable Interest Rate as a result of any change in the Prime-based Rate
on the date of each such change in the Prime-based Rate.
Accrued and unpaid interest on each Eurodollar-based Advance shall be
payable on the last day of the Interest Period applicable thereto (unless
sooner accelerated in accordance with the terms of this Note). Interest
accruing at the Eurodollar-based Rate shall be computed on the basis of a 360
day year and shall be assessed for the actual number of days elapsed from the
first day of the Interest period applicable thereto but not including the last
day thereof.
<PAGE> 3
From and after the occurrence of any Default hereunder, and so long as any
such Default remains unremedied or unaccrued thereafter, the Indebtedness
outstanding under this Note shall bear interest a per annum rate of three
percent (3%) above the otherwise Applicable Interest Rate, which interest shall
be payable upon demand.
The amount and date of each Advance, its Applicable Interest Rate, its
Interest Period, if any, and the amount and date of any repayment shall be
noted on Bank's records, which records shall be conclusive evidence thereof,
absent manifest error; provided, however, any failure by Bank to make any such
notation, or any error in any such notation, shall not relieve Borrower of its
obligations to repay Bank all amounts payable by Borrower to Bank under or
pursuant to this Note, when due in accordance with the terms hereof.
Borrower may request an Advance hereunder, including the refunding of an
outstanding Advance as the same type of Advance or the conversion of an
outstanding Advance as the same type of Advance, upon the delivery to Bank of a
Request for Advance executed by an authorized officer of Borrower, subject to
the following:
(a) no Default, and no condition or event which, with the giving
of notice or the running of time, or both, would constitute a
Default, shall have occurred and be continuing or exist under this
Note;
(b) each such Request for Advance shall set forth the information
required on the Request for Advance form annexed hereto as Exhibit
"A";
(c) each such Request for Advance shall be delivered to Bank by
11:00 a.m. (Detroit, Michigan time) one (1) Business Day prior to
the proposed date of Advance in the case of Eurodollar-based
Advances, and by 11:00 a.m. (Detroit, Michigan time) on the proposed
date of Advance in the case of Prime-based Advances;
(d) the principal amount of each Eurodollar-based Advance shall
be at least Five Hundred Thousand Dollars ($500,000);
(e) the proposed date of any refunding of any outstanding
Eurodollar-based Advance as another Eurodollar-based Advance or the
conversion of any outstanding Eurodollar-based Advance to a
Prime-based Advance shall only be on the last day of the Interest
Period applicable to such outstanding Eurodollar-based Advance; and
2
<PAGE> 4
(f) a Request for Advance, once delivered to Bank, shall not be
revocable by Borrower; provided, however, as aforesaid, Bank shall
not be obligated to make any Advance under this Note.
If, as to any outstanding Eurodollar-based Advance, Bank shall not receive
a timely Request for Advance in accordance with the foregoing requesting the
refunding of such Advance as a Eurodollar-based Advance, the principal amount
of such Advance which is not then repaid shall be automatically converted to a
Prime-based Advance on the last day of the Interest Period applicable thereto,
subject in all respects to the terms and conditions of this Note. The
foregoing shall not in any way whatsoever limit or otherwise affect any of
Bank's rights or remedies under this Note upon the occurrence of any Default
hereunder, or any condition or event which, with the giving of notice or the
running of time, or both, would constitute a Default.
Borrower may prepay all or part of the outstanding balance of any
Prime-based Advance under this Note at any time. Borrower may prepay all or
part of any Eurodollar-based Advance on the last day of the Interest Period
applicable thereto, provided that the aggregate balance of Eurodollar-based
Advances outstanding after such prepayment shall be at least Five Hundred
Thousand Dollars ($500,000), and the unpaid portion of such Eurodollar-based
Advance which is then refunded or converted shall be subject to the limitations
set forth in this Note. Any prepayment made in accordance with this paragraph
shall be without premium or penalty. Any other prepayment shall be otherwise
restricted by and subject to the terms of this Note.
Subject to the definition of an "Interest Period" hereunder, in the event
that any payment under this Note becomes due and payable on any day which is
not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day, and, to the extent applicable, interest shall continue
to accrue and be payable thereon during such extension at the rates set forth
in this Note.
All payments to be made by Borrower to Bank under or pursuant to this Note
shall be in immediately available funds, without setoff or counterclaim, and in
the event that any payments submitted hereunder are in funds not available
until collected, said payments shall continue to bear interest until collected.
Borrower hereby authorizes Bank to charge any account of Borrower with Bank
for all sums due hereunder when due in accordance with the terms hereof.
If Borrower makes any payment of principal with respect to any
Eurodollar-based Advance on any day other than the last day of the Interest
Period applicable thereto (whether voluntarily, by acceleration, or otherwise),
or if Borrower fails to borrow any
3
<PAGE> 5
Eurodollar-based Advance after notice has been given by Borrower to
Bank in accordance with the terms of this Note requesting such Advance, or if
Borrower fails to make any payment of principal or interest in respect of a
Eurodollar-based Advance when due, Borrower shall reimburse Bank, on demand,
for any resulting loss, cost or expense incurred by Bank as a result thereof,
including, without limitation, any such loss, or expense incurred in obtaining,
liquidating, employing or redeploying deposits from third parties, whether or
not Bank shall have funded or committed to fund such Advance. Such amount
payable by Borrower to Bank may include, without limitation, an amount equal to
the excess, if any, of (a) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, refunded or converted, for the
period from the date of such prepayment or of such failure to borrow, refund,
or convert, through the last day of the relevant Interest Period, at the
applicable rate of interest for said Advance(s) provided under this Note, over
(b) the amount of interest (as reasonably determined by Bank) which would have
accrued to Bank on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank eurodollar market.
Calculation of any amounts payable to Bank under this paragraph shall be made
as though Bank shall have actually funded or committed to fund the relevant
Eurodollar-based Advance through the purchase of an underlying deposit in an
amount equal to the amount of such Advance and having a maturity comparable to
the relevant Interest Period; provided, however, that Bank may fund any
Eurodollar-based Advance in any manner it deems fit and the foregoing
assumptions shall be utilized only for the purpose of the calculation of
amounts payable under this paragraph. Upon the written request of Borrower,
Bank shall deliver to Borrower a certificate setting forth the basis for
determining such losses, costs and expenses, which certificate shall be
conclusively presumed correct, absent manifest error.
For any Eurodollar-based Advance, if Bank shall designate a Eurodollar
Lending Office which maintains books separate from those of the rest of Bank,
Bank shall have the option of maintaining and carrying such Advance on the
books of such Eurodollar Lending Office.
If, with respect to any Interest Period, Bank determines that, (a) by
reason of circumstances affecting the foreign exchange and interbank markets
generally, deposits in Eurodollars in the applicable amounts or for the
relative maturities are not being offered to Bank for such Interest Period, or
(b) if the rate of interest referred to in the definition of "Eurodollar-based
Rate" upon the basis of which the rate of interest for a Eurodollar-based
Advance is to be determined does not accurately or fairly cover or reflect the
cost to Bank of making or maintaining a Eurodollar-based Advance hereunder,
then Bank shall forthwith give notice thereof to the Borrower. Thereafter,
until Bank notifies Borrower that such conditions or circumstances no longer
exist, the right of
4
<PAGE> 6
Borrower to request a Eurodollar-based Advance and to convert an Advance to or
refund an Advance as a Eurodollar-based Advance shall be suspended.
If, after the date hereof, the introduction of, or any change in, any
applicable law, rule or regulation or in the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, shall make it unlawful or impossible for the Bank (or
its Eurodollar Lending Office) to make or maintain any Advance with interest at
the Eurodollar-based Rate, Bank shall forthwith give notice thereof to
Borrower. Thereafter, (a) until Bank notifies Borrower that such conditions or
circumstances no longer exist, the right of Borrower to request a
Eurodollar-based Advance and to convert an Advance to or refund an Advance as a
Eurodollar-based Advance shall be suspended, and thereafter, Borrower may
select only the Prime-based Rate as the Applicable Interest Rate hereunder, and
(b) if Bank may not lawfully continue to maintain an outstanding Advance to the
end of the then current Interest Period applicable thereto, the Prime-based
Rate shall be the Applicable Interest Rate for the remainder of such Interest
Period with respect to such outstanding Advance.
If the adoption after the date hereof, or any change after the date hereof
in, any applicable law, rule or regulation of any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Bank (or its Eurodollar Lending
Office) with any request or directive (whether or not having the force of law)
made by any such authority, central bank or comparable agency after the date
hereof:
(a) shall subject Bank (or its Eurodollar Lending Office) to any
tax, duty or other charge with respect to this Note or any Advance
hereunder or shall change the basis of taxation of payments to Bank
(or its Eurodollar Lending Office) of the principal of or interest
on any Advance or any other amounts due under this Note in respect
thereof (except for changes in the rate of tax on the overall net
income of Bank or its Eurodollar Lending Office imposed by the
jurisdiction in which Bank's principal executive office or
Eurodollar Lending Office is located); or
(b) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of
Governors of the Federal Reserve System), special deposit or similar
requirements against assets of, deposits with or for the account of,
or credit extended by Bank (or its Eurodollar Lending Office) or
shall impose on Bank (or its Eurodollar Lending Office) or the
5
<PAGE> 7
foreign exchange and interbank markets any other condition
affecting any Advance under this Note;
and the result of any of the foregoing is to increase the cost to Bank of
maintaining any part of the indebtedness hereunder or to reduce the amount of
any sum received or receivable by Bank under this Note by an amount deemed by
the Bank to be material, then Borrower shall pay to Bank, within fifteen (15)
days of Borrower's receipt of written notice from Bank demanding such
compensation, such additional amount or amounts as will compensate Bank for
such increased cost or reduction. A certificate of Bank, prepared in good
faith and in reasonable detail by Bank and submitted by Bank to Borrower
setting forth the basis for determining such additional amount or amounts
necessary to compensate Bank shall be conclusive and binding for all purposes,
absent manifest error in computation.
In the event that any applicable law, treaty, rule or regulation (whether
domestic or foreign) now or hereafter in effect and whether or not presently
applicable to Bank, or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof, or compliance by Bank with any guideline, request or directive of any
such authority (whether or not having the force of law), including any
risk-based capital guidelines, affects or would affect the amount of capital
required or expected to be maintained by Bank (or any corporation controlling
Bank), and Bank determines that the amount of such capital is increased by or
based upon the existence of any obligations of Bank hereunder or the making or
maintaining any Advances hereunder, and such increase has the effect of
reducing the rate of return on Bank's (or such controlling corporation's)
capital as a consequence of such obligations or the making or maintaining of
such Advances hereunder to a level below that which Bank (or such controlling
corporation) could have achieved but for such circumstances (taking into
consideration its policies with respect to capital adequacy), then Borrower
shall pay to Bank, within fifteen (15) days of Borrower's receipt of written
notice from Bank demanding such compensation, additional amounts as are
sufficient to compensate Bank (or such controlling corporation) for any
increase in the amount of capital and reduced rate of return which Bank
reasonably determines to be allocable to the existence of any obligations of
the Bank hereunder or to be making or maintaining any Advances hereunder. A
certificate of Bank as to the amount of such compensation, prepared in good
faith and in reasonable detail by the Bank and submitted by Bank to Borrower,
shall be conclusive and binding for all purposes absent manifest error in
computation.
This Note and any other indebtedness and liabilities of any kind of
Borrower to Bank, and any and all modifications, renewals or extensions
thereof, whether joint or several, contingent or absolute, direct or indirect,
now existing or later arising, and however evidenced (collectively the
"Indebtedness"), are secured by
6
<PAGE> 8
and Bank is granted a security interest in all items at any time deposited in
any account of Borrower with Bank and by all proceeds of these items (cash or
otherwise,) all account balances of Borrower from time to time with Bank, by
all property of Borrower from time to time in the possession of Bank, and by
any other collateral, rights and properties described in each and every
mortgage, security agreement, pledge, assignment and other security or
collateral agreement which has been or will at any time(s) later be, executed
by Borrower or others to or for the benefit of Bank (collectively the
"Collateral").
If Borrower or any guarantor under a guaranty of all or part of the
Indebtedness ("guarantor") (a) fail(s) to pay this Note, or any part thereof,
or any of the Indebtedness when due, by maturity, acceleration or otherwise, or
fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (b)
fail(s) to comply with any of the terms or provisions of any agreement between
Borrower or any guarantor and Bank; or (c) become(s) insolvent or the subject
of a voluntary or involuntary proceeding in bankruptcy, or a reorganization,
arrangement or creditor composition proceeding, (if a business entity) cease(s)
doing business as a going concern, (if a natural person) die(s) or become(s)
incompetent, (if a partnership) dissolve(s) or any general partner of it dies,
becomes incompetent or becomes the subject of a bankruptcy proceeding, or (if a
corporation) is the subject of a dissolution, merger or consolidation; or (d)
if any warranty or representation made by Borrower or any guarantor in
connection with this Note or any of the Indebtedness shall be discovered to be
untrue or incomplete in any material respect; (e) or if there is any
termination, notice of termination, or breach of any guaranty, pledge,
collateral assignment or subordination agreement relating to all or any part of
the Indebtedness; or (f) if there is any failure by Borrower or any guarantor
to pay, when due, any of its indebtedness (other than to the Bank) or in the
observance or performance of any term, covenant or condition in any document
evidencing, securing or relating to such indebtedness; or (g) if there is filed
or issued a levy or writ of attachment or garnishment or other like judicial
process upon Borrower or any guarantor or any of the Collateral, including,
without limit, any accounts of Borrower or any guarantor with Bank, then Bank,
upon the occurrence and at any time during the continuance or existence of any
of these conditions or events (each a "Default"), may at its option and without
prior notice to Borrower, declare any or all of the Indebtedness to be
immediately due and payable (notwithstanding any provisions contained in the
evidence of it to the contrary), sell or liquidate all or any portion of the
Collateral, set off against the Indebtedness any amounts owing by Bank to
Borrower, and exercise any one or more of the rights and remedies granted to
Bank by an agreement with Borrower given to it under applicable law, or
otherwise.
Borrower waives presentment, demand, protest, notice of dishonor, notice
of demand or intent to demand, notice of
7
<PAGE> 9
acceleration or intent to accelerate, and all other notices, and agrees that no
extension or indulgence to Borrower, or release, substitution or nonenforcement
of any security, or release or substitution of any guarantor or any other
party, whether with or without notice, shall affect the obligations of
Borrower. Borrower waives all defenses or right to discharge available under
Section 3-605 of the Uniform Commercial Code and waives all other suretyship
defenses or right to discharge. Borrower agrees that Bank has the right to
sell, assign, or grant participations, or any interest, in any or all of the
Indebtedness, and that, in connection with such right, but without limiting its
ability to make other disclosures to the full extent allowable, Bank may
disclose all documents and information which the Bank now or later has relating
to Borrower and the Indebtedness.
Borrower agrees to reimburse Bank, or any other holder or owner of this
Note, for any and all costs and expenses (including, without limit, court
costs, legal expenses and reasonable attorneys' fees, whether inside or outside
counsel is used, whether or not suit is instituted, and, if suit is instituted,
whether at the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or the Indebtedness or incurred in any other matter or
proceeding relating to this Note or the Indebtedness.
Borrower acknowledges and agrees that there are no contrary agreements,
oral or written, establishing a term of this Note and agrees that the terms and
conditions of this Note may not be amended, waived or modified except in a
writing signed by a duly authorized officer of Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. If any provision of this Note is unenforceable in whole or part for any
reason, the remaining provisions shall continue to be effective. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MICHIGAN.
This Note shall bind Borrower and Borrower's respective successors and
assigns.
For the purposes of this Note, the following terms have the following
meanings:
"Advance" means a borrowing requested by Borrower and made by Bank under
this Note, including any refunding of an outstanding Advance as the same type
of Advance or the conversion of any such outstanding Advance to another type of
Advance, and shall include a Eurodollar-based Advance and a Prime-based
Advance.
"Applicable Interest Rate" means the Eurodollar-based Rate or the
Prime-based Rate, as selected by Borrower from time to time or
8
<PAGE> 10
as otherwise determined in accordance with the terms and conditions of this
Note.
"Business Day" means any day, other than a Saturday, Sunday or holiday, on
which Bank is open for all or substantially all of its domestic and
international business (including dealings in foreign exchange) in Detroit,
Michigan.
"Eurodollar-based Advance" means an Advance which bears interest at the
Eurodollar-based Rate.
"Eurodollar-based Rate" means a per annum interest rate which is equal to
the sum of two and ten-hundredths percent (2.10%), plus the quotient of:
(a) the per annum interest rate at which Bank's Eurodollar
Lending Office offers deposits to prime banks in the eurodollar
market in an amount comparable to the relevant Eurodollar-based
Advance and for a period equal to the relevant Interest Period at or
about 11:00 a.m. (Detroit, Michigan time) (or as soon thereafter as
practical) one (1) Business Day prior to the first day of such
Interest Period;
divided by
(b) a percentage equal to 100% minus the maximum rate during such
Interest Period at which Bank is required to maintain reserves on
"Euro-currency Liabilities" as defined in and pursuant to Regulation
D of the Board of Governors of the Federal Reserve System or, if
such regulation or definition is modified, and as long as Bank is
required to maintain reserves against a category of liabilities
which includes eurodollar deposits or includes a category of assets
which includes eurodollar loans, the rate at which such reserves are
required to be maintained on such category.
"Eurodollar Lending Office" means Bank's office located in the Cayman
Islands, British West Indies, or such other branch of Bank, domestic or
foreign, as it may hereafter designate as its Eurodollar Lending Office by
notice to Borrower.
"Interest Period" means a period of one (1) to ninety (90) days, as
selected by Borrower pursuant to the terms of this Note, commencing on the day
a Eurodollar-based Advance is made, provided that:
(a) any Interest Period which would otherwise end on a day which
is not a Business Day shall be extended to the next succeeding
Business Day, except that if the next
9
<PAGE> 11
succeeding Business Day falls in another calendar month, the
Interest Period shall end on the next preceding Business Day, and
when an Interest Period begins on a day which has no numerically
corresponding day in the calendar month during which such Interest
Period is to end, it shall end on the last Business Day of such
calendar month, and
(b) no Interest Period shall extend beyond the Maturity Date.
"Prime-based Advance" shall mean an Advance which bears interest at the
Prime-based Rate.
"Prime Rate" means the per annum interest rate established by Bank as its
prime rate for its borrowers, as such rate may vary from time to time, which
rate is not necessarily the lowest rate on loans made by Bank at any such time.
"Prime-based Rate" shall mean a per annum interest rate which is equal to
the Prime Rate minus one-half of one percent (1/2%).
"Request for Advance" means a Request for Advance issued by Borrower under
this Note in the form annexed to this Note as Exhibit "A".
Borrower agrees to make all payments to Bank of any and all amounts due
and owing by Borrower to Bank hereunder, including, without limitation, the
payment of principal and interest on any Advance, on the date provided for such
payment, in United States Dollars in immediately available funds, at the office
of Bank located at Detroit Center, 500 Woodward Avenue, Detroit, Michigan
48226, or such other address as Bank may notify Borrower in writing.
No delay or failure of Bank in exercising any right, power or privilege
hereunder shall affect such right, power or privilege, nor shall any single or
partial exercise thereof preclude any further exercise thereof, or the exercise
of any other power, right or privilege. The rights of Bank under this
Agreement are cumulative and not exclusive of any right or remedies which Bank
would otherwise have, whether by other instruments or by law.
BORROWER AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS
HEREUNDER.
10
<PAGE> 12
This Note replaces a Note dated September 29, 1995, as amended, by
Borrower payable to Bank.
CADE INDUSTRIES, INC.
By:_____________________________
Its:____________________________
11
<PAGE> 1
EXHIBIT 4.3
<PAGE> 2
TERM NOTE-A
$3,571,428.56 Detroit, Michigan
Dated: October 31, 1997
FOR VALUE RECEIVED, Cade Industries, Inc., a Wisconsin corporation (herein
called "Company") promises to pay to the order of _________ Bank, a Michigan
banking corporation, (herein called "Bank"), at its Main Office at 500 Woodward
Avenue, Detroit, Michigan 48226, the principal sum of Three Million Five
Hundred Seventy One Thousand Four Hundred Twenty Eight and 56/100 Dollars
($3,571,428.56) in lawful money of the United States of America payable in
quarterly installments of principal of One Hundred Seventy Eight Thousand Five
Hundred Seventy One and 43/100 Dollars ($178,571.43) each, commencing on
January 1, 1998 and on the first day of each calendar quarter thereafter until
November 1, 2002, when the entire unpaid balance of principal and interest
thereon shall be due and payable, together with interest thereon as hereinafter
set forth.
Company shall pay interest on the indebtedness outstanding under this Note
from time to time at the per annum rate equal to eight and nineteen one
hundredths percent (8.19%). Upon the occurrence of any event of default
described in the Loan Agreement (as defined below) and maturity of the
indebtedness hereunder (whether at stated maturity or by acceleration),
interest shall accrue on the unpaid principal balance at a per annum rate as
provided in the Loan Agreement referred to below. Interest shall be payable
quarterly commencing on the 1st day of January, 1998 and on the first day of
each calendar quarter thereafter. Interest shall be computed on a daily basis
using a year of 360 days and assessed for the actual number of days elapsed,
and, in such computation, effect shall be given to any change in the interest
rate resulting from a change in the Prime Rate on the date of such change in
the Prime Rate. "Prime Rate" shall mean the rate of interest established by
Bank as its prime rate as the same may be changed from time to time, which may
not necessarily be Bank's lowest rate for loans.
This Note evidences indebtedness incurred by Company under, is
<PAGE> 3
secured pursuant to, may be matured as set forth in, and shall be prepaid in
accordance with, the Second Amended and Restated Credit Agreement entered by
and between Company and Bank dated as of October 31, 1997 ("Loan Agreement"),
the terms and conditions of which are hereby incorporated herein. Upon an
event of default, as described in the Loan Agreement, Bank shall be entitled to
all of the rights and remedies described therein or to which it is entitled
under applicable law.
As additional security, Bank is granted a lien on all property and assets
(including deposits and other credits) of Company at any time in possession or
control (or owing by) Bank for any purpose.
If the interest and principal hereof are not fully paid at maturity hereof
(whether by demand or otherwise), Company shall pay the holder hereof all its
reasonable costs of collection of said principal and interest including, but no
limited to, reasonable attorney fees.
All agreements between Company and Bank pertaining to the indebtedness
described herein are expressly limited so that in no event whatsoever shall the
amount of interest paid or agreed to be paid to Bank exceed the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of the Loan Agreement, this Note or
any other instrument securing this Note or all or any part of the indebtedness
secured thereby, at the time performance of such provision shall be due, shall
involve exceeding the interest limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, the
obligation to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under such applicable law, and if, for any
reason whatsoever, the Bank shall ever receive as interest an amount which
would be deemed unlawful under such applicable law, such interest shall be
automatically applied to the payment of the principal amount described herein
or otherwise owed by Company to Bank, (whether or not then due and payable) and
not to the payment of interest.
This Note replaces a Term Note dated September 29, 1995 in the original
principal amount of $3,600,000 by Company payable to Bank.
Company hereby waives presentment, demand, protest and notice
2
<PAGE> 4
of dishonor and agree that no obligation hereunder shall be discharged by any
extension, indulgence or release given to any guarantor or other person or by
the release or non-enforcement of any security or guaranty given in connection
herewith. Notwithstanding anything herein to the contrary, nothing shall limit
any rights granted Bank by other instruments or by law.
CADE INDUSTRIES, INC.
By:____________________________
Its:__________________________
Attest:_______________________
Its:__________________________
3
<PAGE> 1
EXHIBIT 4.4
<PAGE> 2
TERM NOTE-B
$4,000,000 Detroit, Michigan
Dated: October 31, 1997
FOR VALUE RECEIVED, Cade Industries, Inc., a Wisconsin corporation (herein
called "Company") promises to pay to the order of ___________ Bank, a Michigan
banking corporation, (herein called "Bank"), at its Main Office at 500 Woodward
Avenue, Detroit, Michigan 48226, the principal sum of Four Million Dollars
($4,000,000) in lawful money of the United States of America payable in
quarterly installments of principal and interest of One Hundred Eighteen
Thousand Six Hundred Twenty Four and 08/100 Dollars ($118,624.08) each,
commencing on January 1, 1998 and on the first day of each calendar quarter
thereafter until November 1, 2002, when the entire unpaid balance of principal
and interest thereon shall be due and payable, together with interest thereon
as hereinafter set forth.
Company shall pay interest on the indebtedness outstanding under this Note
from time to time at the per annum rate equal to one half of one percent (1/2%)
below Bank's Prime Rate. Upon the occurrence of any event of default described
in the Loan Agreement (as defined below) and maturity of the indebtedness
hereunder (whether at stated maturity or by acceleration), interest shall
accrue on the unpaid principal balance at a per annum rate of three percent
(3%) above Bank's Prime Rate. Interest shall be payable quarterly commencing
on the 1st day of January, 1998 and on the first day of each calendar quarter
thereafter. Interest shall be computed on a daily basis using a year of 360
days and assessed for the actual number of days elapsed, and, in such
computation, effect shall be given to any change in the interest rate resulting
from a change in the Prime Rate on the date of such change in the Prime Rate.
"Prime Rate" shall mean the rate of interest established by Bank as its prime
rate as the same may be changed from time to time, which may not necessarily be
Bank's lowest rate for loans.
This Note evidences indebtedness incurred by Company under, is secured
pursuant to, may be matured as set forth in, and shall be prepaid in accordance
with, the Second Amended and Restated Credit
<PAGE> 3
Agreement entered by and between Company and Bank dated as of October 31,
1997 ("Loan Agreement"), the terms and conditions of which are hereby
incorporated herein. Upon an event of default, as described in the Loan
Agreement, Bank shall be entitled to all of the rights and remedies described
therein or to which it is entitled under applicable law.
As additional security, Bank is granted a lien on all property and assets
(including deposits and other credits) of Company at any time in possession or
control (or owing by) Bank for any purpose.
If the interest and principal hereof are not fully paid at maturity hereof
(whether by demand or otherwise), Company shall pay the holder hereof all its
reasonable costs of collection of said principal and interest including, but
not limited to, reasonable attorney fees.
All agreements between Company and Bank pertaining to the indebtedness
described herein are expressly limited so that in no event whatsoever shall the
amount of interest paid or agreed to be paid to Bank exceed the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of the Loan Agreement, this Note or
any other instrument securing this Note or all or any part of the indebtedness
secured thereby, at the time performance of such provision shall be due, shall
involve exceeding the interest limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, the
obligation to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under such applicable law, and if, for any
reason whatsoever, the Bank shall ever receive as interest an amount which
would be deemed unlawful under such applicable law, such interest shall be
automatically applied to the payment of the principal amount described herein
or otherwise owed by Company to Bank, (whether or not then due and payable) and
not to the payment of interest.
Company hereby waives presentment, demand, protest and notice of dishonor
and agree that no obligation hereunder shall be discharged by any extension,
indulgence or release given to any guarantor or other person or by the release
or non-enforcement of any security or guaranty given in connection herewith.
Notwithstanding anything herein to the contrary, nothing shall
2
<PAGE> 4
limit any rights granted Bank by other instruments or by law.
CADE INDUSTRIES, INC.
By:____________________________
Its:__________________________
Attest:_______________________
Its:__________________________
3
<PAGE> 1
EXHIBIT 4.5
<PAGE> 2
TERM NOTE-C
$3,250,000 Detroit, Michigan
Dated: October 31, 1997
FOR VALUE RECEIVED, Cade Industries, Inc., a Wisconsin corporation (herein
called "Company") promises to pay to the order of __________ Bank, a Michigan
banking corporation, (herein called "Bank"), at its Main Office at 500 Woodward
Avenue, Detroit, Michigan 48226, the principal sum of Three Million Two Hundred
Fifty Thousand Dollars ($3,250,000) in lawful money of the United States of
America payable in quarterly installments of principal of Two Hundred Seventy
Thousand Eight Hundred Thirty Three and 33/100 Dollars ($270,833.33) each,
commencing on January 1, 1998 and on the first day of each calendar quarter
thereafter until November 1, 2000, when the entire unpaid balance of principal
and interest thereon shall be due and payable, together with interest thereon
as hereinafter set forth.
Company shall pay interest on the indebtedness outstanding under this Note
from time to time at the per annum rate equal to eight and six one hundredths
percent (8.06%) until November 1, 1999 when the interest rate shall be a per
annum rate equal to one half of one percent (1/2%) below Bank's Prime Rate.
Upon the occurrence of any event of default described in the Loan Agreement (as
defined below) and maturity of the indebtedness hereunder (whether at stated
maturity or by acceleration), interest shall accrue on the unpaid principal
balance at a per annum rate as provided in the Loan Agreement referred to
below. Interest shall be payable quarterly commencing on the 1st day of
January, 1998 and on the first day of each calendar quarter thereafter.
Interest shall be computed on a daily basis using a year of 360 days and
assessed for the actual number of days elapsed, and, in such computation,
effect shall be given to any change in the interest rate resulting from a
change in the Prime Rate on the date of such change in the Prime Rate. "Prime
Rate" shall mean the rate of interest established by Bank as its prime rate as
the same may be changed from time to time, which may not necessarily be Bank's
lowest rate for loans.
This Note evidences indebtedness incurred by Company under, is
<PAGE> 3
secured pursuant to, may be matured as set forth in, and shall be prepaid in
accordance with, the Second Amended and Restated Credit Agreement entered by
and between Company and Bank dated as of October 31, 1997 ("Loan Agreement"),
the terms and conditions of which are hereby incorporated herein. Upon an
event of default, as described in the Loan Agreement, Bank shall be entitled to
all of the rights and remedies described therein or to which it is entitled
under applicable law.
As additional security, Bank is granted a lien on all property and assets
(including deposits and other credits) of Company at any time in possession or
control (or owing by) Bank for any purpose.
If the interest and principal hereof are not fully paid at maturity hereof
(whether by demand or otherwise), Company shall pay the holder hereof all its
reasonable costs of collection of said principal and interest including, but no
limited to, reasonable attorney fees.
All agreements between Company and Bank pertaining to the indebtedness
described herein are expressly limited so that in no event whatsoever shall the
amount of interest paid or agreed to be paid to Bank exceed the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of the Loan Agreement, this Note or
any other instrument securing this Note or all or any part of the indebtedness
secured thereby, at the time performance of such provision shall be due, shall
involve exceeding the interest limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, the
obligation to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under such applicable law, and if, for any
reason whatsoever, the Bank shall ever receive as interest an amount which
would be deemed unlawful under such applicable law, such interest shall be
automatically applied to the payment of the principal amount described herein
or otherwise owed by Company to Bank, (whether or not then due and payable) and
not to the payment of interest.
Company hereby waives presentment, demand, protest and notice of dishonor
and agrees that no obligation hereunder shall be discharged by any extension,
indulgence or release given to any guarantor or other person or by the release
or non-enforcement of
2
<PAGE> 4
any security or guaranty given in connection herewith. Notwithstanding
anything herein to the contrary, nothing shall limit any rights granted Bank by
other instruments or by law.
CADE INDUSTRIES, INC.
By:___________________________
Its:__________________________
Attest:_______________________
Its:__________________________
3
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report, dated September 12,
1997, relating to the consolidated financial statements of Central Engineering
Company and subsidiaries, included in this Form 8-K, in the previously filed
Registration Statement of Cade Industries, Inc., on Form S-8, No. 333-0333.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
November 13, 1997
<PAGE> 1
EXHIBIT 99.1
<PAGE> 2
Contents
INDEPENDENT AUDITOR'S REPORT
FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of operations and retained earnings
Consolidated statements of cash flows
Notes to consolidated financial statements
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Central Engineering Company
and Subsidiaries
Minneapolis, Minnesota
<PAGE> 3
We have audited the accompanying consolidated balance sheets of Central
Engineering Company and Subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, retained earnings, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Central Engineering
Company and Subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
September 12, 1997
<PAGE> 4
CENTRAL ENGINEERING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS (Note 3) 1997 1996
<S> <C> <C>
Current Assets
Cash and cash equivalents $2,151,702 $ 673,054
Accounts receivable:
Amounts due currently, less allowance for doubtful
accounts of $130,000 3,723,324 2,979,406
Retained percentages 152,366 200,365
Other 114,722 62,477
Costs and estimated profits in excess of billings on
uncompleted contracts (Note 2) 1,414,986 2,932,754
Inventories 355,043 296,572
Prepaid expenses and other 9,906 6,895
Income tax refund receivable - 355,036
Deferred taxes (Note 4) 223,000 184,000
--------- ----------
Total current assets 8,145,049 7,690,559
Property and Equipment, at cost
Engineering and production 2,019,994 1,956,112
Transportation 86,656 86,656
Office 426,205 410,673
Leasehold improvements 445,178 445,178
---------- ----------
2,978,033 2,898,619
Less accumulated depreciation 2,518,824 2,333,749
459,209 564,870
---------- ----------
$8,604,258 $8,255,429
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
Current Liabilities
Accounts payable $1,643,517 $1,459,767
Customer deposits - 153,952
Billings in excess of costs and estimated profits on
uncompleted contracts (Note 2) 2,672,599 2,877,985
Accrued liabilities 680,393 632,408
Income taxes payable (Note 4) 161,488 -
---------- ----------
Total current liabilities 5,157,997 5,124,112
</TABLE>
Commitments (Notes 3, 6, and 7)
Stockholders' Equity
Capital stock:
Common, Class A, voting, $0.10 par value; authorized
100,000 shares; 15,450 shares issued and outstanding 1,545 1,545
Common, Class B, nonvoting, $0.10 par value; authorized
<PAGE> 6
<TABLE>
<S> <C> <C>
1,000,000 shares; 75,930 shares issued and outstanding 7,593 7,593
Additional paid-in capital 63,366 63,366
Retained earnings 3,373,757 3,058,813
---------- ----------
3,446,261 3,131,317
---------- ----------
$8,604,258 $8,255,429
========== ==========
</TABLE>
<PAGE> 7
CENTRAL ENGINEERING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1997 and 1996
1997 1996
<PAGE> 8
<TABLE>
<S> <C> <C>
Earned revenue $21,223,825 $14,744,515
Cost of earned revenue 18,156,302 12,858,517
----------- -----------
Gross profit 3,067,523 1,885,998
Operating expenses 2,635,420 3,009,309
----------- -----------
Operating income (loss) 432,103 (1,123,311)
Other income (expense):
Interest income 46,501 4,367
Interest expense (2,660) (64,317)
----------- -----------
43,841 (59,950)
----------- -----------
Income (loss) before income taxes 475,944 (1,183,261)
Federal and state income taxes (benefit) (Not 161,000 (484,000)
----------- -----------
Net income (loss) $ 314,944 $(699,261)
=========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended June 30, 1997 and 1996
1997 1996
Balance, beginning $3,058,813 $3,758,074
Net income (loss) 314,944 (699,261)
----------- -----------
Balance, ending $3,373,757 $3,058,813
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 9
CENTRAL ENGINEERING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 314,944 $(699,261)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 187,059 218,629
(Gain) loss on sale of property and
equipment 66 (2,000)
Deferred taxes (39,000) (110,000)
Changes in assets and liabilities:
Accounts receivable (748,164) 438,600
Billings in excess of costs and
estimated profits on
uncompleted contracts, net 1,158,430 1,329,577
Income taxes 516,524 (326,976)
Accounts payable 183,750 (334,094)
Other (13,497) (90,253)
---------- ----------
Net cash provided by operating
activities 1,560,112 424,222
Cash Flows From Investing Activities
Proceeds from sale of property and
equipment 6 2,000
Purchase of property and equipment (81,470) (73,904)
---------- ----------
Net cash used in investing
activities (81,464) (71,904)
---------- ----------
Increase in cash and cash
equivalent 1,478,648 352,318
Cash and Cash Equivalents
Beginning 673,054 320,736
</TABLE>
<PAGE> 10
Ending $2,151,702 $ 673,054
========== =========
Supplemental Disclosures of Cash Flow Information
Cash payments for (refunds from):
Interest $ 2,660 $ 50,317
Income taxes, net (316,524) (47,024)
See Notes to Consolidated Financial Statements.
<PAGE> 11
Notes to Consolidated Financial Statements
Note 1:
Nature of Business and Significant Accounting Policies
Nature of business: The Company's operations are principally in the design,
manufacture, and construction of aircraft ground support equipment and
facilities. Sales are made on credit terms that the Company establishes for
individual customers.
The Company conducts business in the United States and numerous foreign
countries. Accounts receivable relating to foreign revenues as of June 30, 1997
and 1996, are approximately $3,675,000 and $2,631,000, respectively, and foreign
revenues for the years ended June 30, 1997 and 1996, were approximately
$11,504,000 and $10,886,000.
During 1995, the Company started a separate division named "Chiltern Hills
Multimedia," for purposes of developing a software product. Net operating
expenses for the years ended June 30, 1997 and 1996, include approximately
$150,000 and $382,000, respectively, related to this division.
A summary of the Company's significant accounting policies follows:
Principles of consolidation: The consolidated financial statements include the
accounts of Central Engineering Company and its wholly-owned subsidiaries,
Central Engineering International Co. and Cenco Europe, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates: The preparation of financial statements in
<PAGE> 12
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts 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. See revenue and cost recognition accounting policy
for the estimation process relating to contracts.
Revenue and cost recognition: Profits on contracts are recorded on the basis of
the percentage of completion of individual contracts, commencing when progress
reaches a point where experience is sufficient to estimate final results with
reasonable accuracy. That portion of the total contract price is accrued which
is allocable, on the basis of the Company's estimates of percentage of
completion, to contract expenditures and work performed. Indirect costs are
allocated to contract costs and inventories.
As these contracts may extend over one or more years, revisions in cost and
profit estimates during the course of the work are reflected in the accounting
period in which the facts which require the revision become known. Additionally,
the entire amount of the estimated loss is accrued at the time when it is
determined that a loss on a contract is likely to occur.
The asset, "costs and estimated profits in excess of billings on uncompleted
contracts," represents revenue recognized in excess of amounts billed. The
liability, "billings in excess of costs and estimated profits on uncompleted
contracts," represents billings in excess of revenue recognized.
<PAGE> 13
Note 1. Nature of Business and Significant Accounting Policies
(Continued)
Cash and cash equivalents: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand and all commercial paper, money market
accounts, and repurchase agreements with an original maturity of three months or
less. The Company maintains cash in its bank accounts which, at times, exceed
the FDIC insurance limit. The Company has not experienced any losses on such
accounts.
Inventories: Inventories consist of manufactured parts and assemblies and are
priced at the lower of cost (first-in, first-out) or market.
Depreciation: The Company provides depreciation based on the estimated useful
life of individual assets. Depreciation methods and estimated useful lives are
as follows:
Method Years
Engineering and production equipment
Straight-line and declining balance 5-7
Transportation equipment
Declining balance 5
Office equipment
Straight-line and declining balance 5-7
Leasehold improvements
Straight-line and declining balance 7-31.5
Income taxes: Deferred income taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible
<PAGE> 14
temporary differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws on the date of enactment.
Federal income tax credits are accounted for as a reduction in the provision for
income taxes in the year in which the credits are utilized.
Forward exchange contracts: The Company has entered into foreign currency
contracts as a hedge against foreign currency exposures for certain construction
contracts. These foreign currency contracts limit the Company's exposure to both
favorable and unfavorable currency fluctuations. The foreign currency contracts
are designated as a hedge of a firm commitment for construction contracts
denominated in foreign currencies, and any gains and losses are deferred and
included in the measurement of the construction contracts profitability (Note
7).
Fair value of financial instruments: At June 30, 1997, the Company's financial
statements include the following financial instruments:
Cash and cash equivalents: The carrying amounts approximate fair value due to
the short-term maturity of those instruments.
<PAGE> 15
Note 1. Nature of Business and Significant Accounting Policies
(Continued)
Foreign currency contracts: The fair value of foreign currency
contracts (used for hedging purposes) is estimated based upon
the foreign currency spot rate as of June 30, 1997. The fair
value of the foreign currency contracts approximates contract
value.
Note 2.
Uncompleted Contracts
Summary follows:
June 30 June 30
1997 1996
Costs incurred on uncompleted contracts $49,711,490 $37,652,757
Estimated profits 4,216,927 3,580,723
53,928,417 41,233,480
Less billings to date 55,186,030 41,178,711
$(1,257,613) $ 54,769
Included in the accompanying consolidated balance sheets under the following
captions:
June 30
<PAGE> 16
June 30 June 30
1997 1996
Costs and estimated profits in excess
of billings on uncompleted contracts $ 1,414,986 $2,932,754
Billings in excess of costs and
estimated profits on uncompleted
contracts 2,672,599 2,877,985
$(1,257,613) $ 54,769
As of June 30, 1997, the Company had contracts in process with
an aggregate contract price of $72,850,265, of which $18,921,848
had not yet been recognized as earned revenues.
Note 3.
Short-Term Borrowing
The Company has a $2,500,000 working capital line of credit
through December 1997, which provides for borrowings at 1
percent over the prime lending rate and the issuance of letters
of credit at a fee of 2.0 percent per annum of usage. The
credit facility is secured by substantially all of the Company's
assets, the guarantee by the Company and its subsidiaries, and
the personal guarantee by the Company's major stockholder. At
June 30, 1997, there was no outstanding letter of credit and no
outstanding borrowings.
In connection with the above credit facilities, the Company has
agreed to certain financial and operational covenants.
<PAGE> 17
Note 4.
Income Tax Matters
Net deferred tax assets consist of the following components:
June 30 June 30
1997 1996
Deferred tax assets:
Accounts receivable allowance $ 47,000 $ 47,000
Accrued vacation 76,000 70,000
Uniform capitalization, section 263A 3,000 3,000
Costs on uncompleted contracts 95,000 37,000
State tax loss carryforward 8,000 33,000
Other accruals 3,000 4,000
-------- --------
Total deferred tax assets 232,000 194,000
Deferred tax liabilities:
Deferred revenue and other 9,000 10,000
-------- --------
Net deferred tax assets $223,000 $184,000
======== ========
No valuation allowance is required for deferred tax assets as the recorded
amount is considered to be fully realizable.
Income tax expense consists of the following components:
<PAGE> 18
June 30 June 30
1997 1996
Current taxes payable (refundable):
Federal $195,000 $(376,000)
State 5,000 2,000
Deferred tax benefit (39,000) (110,000)
-------- ---------
Income tax expense (benefit) $161,000 $(484,000)
======== =========
The 1996 income tax benefit differs from the amount obtained by
applying the U.S. federal income tax rate of 34 percent to
pretax loss primarily due to the deferred tax benefit resulting
from the state tax loss carryforward.
As of June 30, 1997, there is a state tax loss carryforward of
approximately $80,000 available to offset future taxable income,
expiring in 2011.
<PAGE> 19
Profit Sharing Plan and Trust
The Company has a profit sharing plan for those employees who meet certain
eligibility requirements. The annual contribution to the plan is at the
discretion of the Company's Board of Directors with a minimum annual
contribution of 1.5 percent of a participant's wages for the plan year. The
profit sharing plan includes a 401(k) retirement savings plan. Under the terms
of this plan, the Company will contribute an amount equal to 25 percent of the
participant's wage reduction contributions up to a maximum of 1.5 percent of a
participant's wages for the plan year.
Contributions totaled approximately $113,000 and $132,000 for the years ended
June 30, 1997 and 1996, respectively.
Related-Party Transactions
The Company leases three buildings under operating leases from partnerships
which include the major stockholder. The building leases expire December 31,
1997, and require remaining rentals totaling $129,100 plus the payment of real
estate taxes, special assessments, maintenance, utilities, and insurance on the
property. The rentals are subject to an annual adjustment. The total rent paid
to the two partnerships was $258,200 in 1997 and $255,700 in 1996.
Foreign Currency Contracts
During 1997, the Company entered into forward currency contracts to hedge
certain firm commitments for the delivery of goods and services for two
construction contracts denominated in foreign currencies. The purpose of the
Company's foreign currency hedging activity is to protect it from the risk that
the eventual dollar cash flows resulting from the delivery of goods and services
to international customers will be adversely affected by changes in exchange
rates. At June 30, 1997, the Company had forward currency contracts, all with a
maturity of less than one year, to exchange British pounds and Singapore
dollars for U.S. dollars in the amount of $5,670,800 and $3,382,200,
respectively. There were no significant unrealized gains or losses relating to
foreign currency contract at June 30, 1997.
<PAGE> 1
EXHIBIT 99.2
<PAGE> 2
CENTRAL ENGINEERING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30 SEPTEMBER 30
1997 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash including temporary 2,004,117 1,895,735
investment of $1,754,425
at September, 1997 and
$1,535,538 at September,
1996
Accounts receivable
Amounts due currently,
less allowance for doubtful
accounts-$130,000 3,471,114 3,012,517
Retained percentages 152,336 260,565
Miscellaneous 671,470 343,038
Costs and estimated profits
in excess of billings on
uncompleted contracts 1,577,366 2,793,535
Inventories 565,784 314,681
Prepaid expenses and other 75,596 61,465
Income taxes receivable 177,012 546,129
--------- ---------
Total current assets 8,694,795 9,227,665
PROPERTY AND EQUIPMENT, at cost
Engineering and production 2,030,961 1,991,923
Transportation 86,656 86,656
Office 430,769 412,511
Leasehold improvements 445,178 445,178
--------- ---------
2,993,564 2,936,268
Less accumulated
depreciation 2,557,428 2,391,103
--------- ---------
436,136 545,165
--------- ---------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
9,130,931 9,772,830
========== ==========
</TABLE>
<PAGE> 4
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30 SEPTEMBER 30
1997 1996
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable 0 0
Accounts payable 1,175,488 1,227,375
Customer deposits 0 750,886
Billings in excess of
costs and estimated
profits on uncompleted
contracts 3,777,122 3,384,160
Accrued liabilities 643,249 1,256,201
--------- ---------
Total current liabilities 5,595,859 6,618,622
STOCKHOLDERS' EQUITY
Common stock, Class A,
$.10 par value authorized
100,000 shares; issued and
outstanding, 15,450 shares 1,545 1,545
Common stock, Class B,
$.10 par value authorized
1,000,000 shares; issued
and outstanding, 75,930 shares 7,593 7,593
Additional paid-in capital 63,366 63,366
Retained earnings 3,462,568 3,081,704
--------- ---------
3,535,072 3,154,208
--------- ---------
9,130,931 9,772,830
========= =========
</TABLE>
<PAGE> 5
CENTRAL ENGINEERING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(UNAUDITED)
INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1997 1996
-------- --------
<S> <C> <C>
Earned revenue 4,369,702 3,625,795
Cost of
earned revenue 3,633,418 2,977,648
--------- ---------
Gross profit 736,284 648,147
Sales expense 366,634 324,490
Other operating expenses 232,839 284,766
--------- ---------
Total operating expenses 599,473 609,256
Operating income (loss) 136,811 38,891
Interest expense 0 0
--------- ---------
Income (loss)
before income taxes 136,811 38,891
Income taxes (credit) 48,000 16,000
--------- ---------
Net income (loss) 88,811 22,891
========= =========
RETAINED EARNINGS
Beginning of year 3,373,757 3,058,813
Net income (loss) 88,811 22,891
--------- ---------
3,462,568 3,081,704
========= =========
</TABLE>
<PAGE> 6
CENTRAL ENGINEERING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
1997 1996
---- -----
<S> <C> <C>
Cash Flows from Operating Activities
Net income 88,811 22,891
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 38,100 56,850
Changes in assets and liabilities:
Accounts receivable (304,508) (373,872)
Billings in excess of costs and
estimated profits on uncompleted
contracts, net 731,402 1,224,219
Income taxes (115,500) (7,093)
Accounts payable (468,029) (232,392)
Other (102,834) 569,223
---------- ----------
Net cash provided (used) by
operating activities (132,558) 1,259,826
Cash Flows From Investing Activities
Purchase of property and equipment (15,027) (37,145)
---------- ----------
Increase (Decrease) in cash and
cash equivalents (147,485) 1,222,681
Cash and Cash Equivalents
Beginning 2,151,702 673,054
---------- ----------
Ending 2,004,117 1,895,735
========== ==========
</TABLE>
<PAGE> 7
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CENTRAL ENGINEERING COMPANY
SEPTEMBER 30, 1997
NOTE A - BASIS OF PRESENTATION
The condensed consolidated financial statements as of and for the three month
periods ended September 30, 1997 and 1996, have been prepared by the company
without audit. In the opinion of management, such condensed consolidated
financial statements reflect all adjustments necessary (consisting of normal
recurring accruals) for a fair presentation.
<PAGE> 1
EXHIBIT 99.3
<PAGE> 2
FOR IMMEDIATE RELEASE Contact:S.A. Mull
Shareholder Relations
or
E.B. Stephens
Chief Financial Officer
(517) 394-1333
CADE INDUSTRIES, INC.
ACQUIRES CENTRAL ENGINEERING COMPANY
Lansing, Michigan (November 3, 1997) - Cade Industries (Nasdaq/NM: Cade)
announced today that it has acquired Central Engineering Company, a Minnesota
based company, and the underlying real estate used in its operations for
approximately $7.7 million in cash and 250,000 shares of Common Stock. The
cash portion of the purchase was financed through additional bank debt.
Central Engineering, formed in 1956, manufactures engine test cell and
associated ground support equipment. Approximately 75% of its revenues are
from foreign customers. Cade believes the acquisition will be accretive to
earnings and add $15-20 million in annual revenues. The acquisition of Central
Engineering adds the world's only turnkey capability to the aviation industry
for the design and construction of gas turbine test cell facilities to the Cade
business.
Richard A. Lund, Cade's President, stated, "We welcome Central Engineering
Company employees and customers to the Cade family of business, and we look
forward to continuing the tradition of excellence in products and services
throughout the world. We are very pleased that Mr. Loren Swanson, the founder
and President of Central Engineering Company will continue in the capacity as
Chairman."
Cade designs, develops, manufactures, overhauls and repairs high technology
composite components for the aerospace and air transport industries. The
Company's operating subsidiaries are located in
<PAGE> 3
Lansing, Michigan; San Diego, California; and Grand Prairie, Texas (Dallas);
and Minneapolis, Minnesota.
The above statements involving sales and earnings are forward-looking
statements that involve a number of risks and uncertainties. Among the factors
that could cause actual results to differ materially from those which are
anticipated are the following: business conditions generally and conditions
specifically in the aircraft and aerospace industries; timing of receipt and
delivery of orders; price fluctuations for raw materials and labor; competitive
factors, including price competition from other suppliers of similar products
and overhaul and repair services; risk of obsolescence of tooling inventory
before full amortization on project costs; risks associated with the
integration of Central Engineering; and cancellation of orders.
For more information or to receive a copy of this press release, please call
our Company News On-Call at 1-800-758-5804 - extension 075675 or you can access
the information via the Internet at http://www.prewswire.com or for further
information on Cade Industries you can access the Company's web site at
http://www.cade-industries.com.
P.O. BOX 23094: LANSING, MI: (517)394-1333: (517) 394-1404:
