<PAGE>
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-13257
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NORTECH SYSTEMS INCORPORATED
----------------------------
(Exact name of registrant as specified in its chapter)
Minnesota 41-16810894
------------------------------ ------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
641 East Lake St., Suite 234 Wayzata, MN 55391
------------------------------------------ -----
(Address of principal executive offices) (Zip code)
Registrant's telephone No., including area code: (612) 473-4102
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 per share par value.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required of file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Based upon the $6.625 per share average of the closing bid and asked prices,
respectively, on March 15, 1996 for the shares of common stock of the Company,
the aggregate market value of the Company's common stock held by non-affiliates
as of such date was $9,145,587.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
YES X NO
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As of March 15, 1996 there were 2,450,863 shares of the Company's $.01 per
share par value common stock outstanding.
2
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference to the parts indicated of
the Annual Report on Form 10-K:
Parts of Annual Report Documents Incorporated
on Form 10-K by Reference
Part III
Item 10 Reference is made to the
11 Registrant's proxy statements
12 to be used in connection with
the 1995 Annual Shareholders'
meeting and filed with the
Securities and Exchange
Commission no later than April
30,1996.
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NORTECH SYSTEMS INCORPORATED
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
INDEX
PAGE
PART I
Item 1. Business 5- 9
Item 2. Properties 9-10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10-11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-14
Item 8. Consolidated Financial Statements 15-35
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management 36
Item 13. Certain Relationships and Related Transactions 36
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K 37-39
Signatures 40
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
Nortech Systems Incorporated (the "Company") is a Minnesota corporation
organized in December 1990. Prior to December 1990, the Company operated as DSC
Nortech, Inc., which filed a petition for reorganization under Chapter 11 of
the United States Bankruptcy Code during 1990. The business and assets of DSC
Nortech, Inc., were transferred to Nortech Systems Incorporated during 1990.
The Company's headquarters are in Wayzata, Minnesota, a suburb of Minneapolis,
Minnesota. The Company's main manufacturing facility is located in Bemidji,
Minnesota, with additional manufacturing and engineering support locations in
Fairmont, Minnesota, Plymouth, Minnesota and Augusta, Wisconsin. The Company
manufactures wire harnesses, cables, and electromechanical assemblies as well as
large-screen, high resolution video monitors for radar, document and medical
imaging. The Company provides a full "turnkey" contract manufacturing service
to its customers. All products are built to the customer's design
specifications. Nortech Medical Services, Inc., its wholly owned subsidiary,
provides service bureau and office management services to physicians and clinics
throughout Minnesota.
The Company believes it provides a high degree of manufacturing sophistication.
This includes the use of statistical process control to insure product quality,
state-of-the-art materials, management techniques allowing just-in-time (JIT)
delivery of products, and the systems necessary to effectively manage the
business. This level of sophistication enables the Company to attract major
original equipment manufacturers (OEM).
The strategy of the Company in that regard has been to expand its customer base,
and has added several new customers from various industries; including
Companies engaged in the production of medical products, super computers, mid-
size and micro computer business systems, defense industry product and
industrial products. The Company strategy is to develop a customer base
spanning several industry segments to avoid the affects of fluctuations within a
given industry. Some of the Company's major customers are Cray Research, G.E.
Medical Systems and OTC, a division of SPX Corporation.
The Company believes that contract manufacturing will continue to grow and
expand in the United States because contract manufacturing provides OEMs with
the domestic equivalent of off-shore sourcing without the associated logistical
problems. The contract manufacturer can provide an OEM with a quality product
at a price well below that available in the OEM's own facility. This is due
primarily to the specialization available through the contract manufacturer and
the significantly lower overhead costs.
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In 1991, the Company acquired all of the common stock of SMR Computer Services,
Inc. The Company, through its subsidiary (currently named Nortech Medical
Services, Inc.), also provides service bureau and office management services to
physicians.
In March 1995, the Company acquired all of the assets of Monitor Technology
Corporation, consisting of inventory, accounts receivable, equipment and other
assets. The Company has continued the business of Monitor which is the
manufacturing of large-screen, high resolution video monitors for radar,
document and medical imaging. In addition, this division provides repair
services on internally and externally produced monitors.
In August 1995, the Company acquired all the assets of the Aerospace Division of
Communication Cable, Inc. The Company has continued the business formally
conducted by Aerospace which involves the manufacturing of custom designed,
high-technology electronic cable assemblies for various applications.
Since the Company's inception, substantially all revenues generated have been
directly related to the contract manufacturing industry. Therefore, segmented
financial information is not included in this report.
MARKETING AND SALES
BUSINESS STRATEGY.
The Company believes the electronic manufacturing sub-contracting business is
emerging from a small job shop oriented business into a dynamic, high technology
electronics industry. The first market segment the Company has entered is the
wire harness and cable assemblies market. The Company intends to expand from
this market segment into complete electromechanical assemblies. Many companies
no longer perform this type of work on a captive, in-house basis, as they are
finding that independent subcontractors can more cost effectively perform this
specialized work.
As part of the Company's commitment to quality, the Bemidji location became ISO
9002 Certified in July 1995. The Company believes this certification will
benefit its current customer base as well as attract new business opportunities.
The Company will continue it's commitment to quality, cost effectiveness and
responsiveness to customer requirements. To achieve these objectives, the
Company will provide complete manufacturing services to customers, from the
procurement of materials to the manufacturing, testing and shipping of products.
The Company will continue its efforts to diversify its customer base and expand
into other segments of the electronic manufacturing subcontract business.
6
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MARKETING.
The Company is continuing to concentrate its marketing activities in the
medical, industrial and military manufacturing industries. The emphasis
continues to be on mature companies which require a contract manufacturer with a
high degree of manufacturing and quality sophistication, including statistical
process control (SPC) and statistical quality control (SQC) and statistical
quality control (SQC). The Company has initiated efforts to expand its markets
beyond the Upper Midwest Area, which presently extends east to the Ohio/Michigan
area, south to Missouri, and west to Colorado. New market opportunities that
are being pursued are in the Southeast, the Northeast, the Far West, the
Southwest and north into Canada. The Company markets its products and services
thought manufacturers' representatives. The Company's marketing strategy
emphasizes the sophistication of its manufacturing services. The basic systems,
procedures, and disciplines normally associated with a mature corporate
environment are in place. All the Company's employees are well trained in SPC
and SQC. Because of the Bemidji facility's rural location, costs can be
minimized and its level of manufacturing sophistication can be offered at a
competitive price.
SOURCES AND AVAILABILITY OF MATERIALS
The Company is not dependent on any one supplier for materials for products sold
to customers. Components utilized in the assembly of wire harnesses, cable
assemblies and printed circuit assemblies are purchased directly from the
component manufacturers or from their distributors. On occasion some components
may be placed on a stringent allocation basis; however, due to the excess
manufacturing capacity currently available at most component manufacturers, the
Company does not anticipate any major material purchasing or availability
problems occurring in the foreseeable future.
PATENTS AND LICENSES
The Company is not presently dependent on a proprietary product requiring
licensing, patent, copyright or trademark protection. There are no revenues
derived from service-related business for which patents, licenses, copyrights,
and trademark protection are necessary for successful operations.
COMPETITION
The contract manufacturing industry is characterized by competition among a
variety of sources, including small closely-held companies, larger full-service
manufacturers, company-owned facilities and foreign competitors. The Company
does not believe that the smaller operations are significant competitors as they
do not seem to have the capabilities required by target customers of the
Company. The Company also believes
7
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that foreign competitors do not provide a substantial competitive threat
because the cable and wire harness industry involves a high weight-to-cost
ratio. Consequently, shipping and transportation costs decrease the ability
of foreign manufacturers to compete in this market segment. Further, off-shore
production cannot effectively meet the requirements of just-in-time inventory
management techniques presently being implemented by many major target
customers. Therefore, the Company's principal competitors are larger
full-service manufacturers, many of which have substantially far greater
assets and capital resources than are available to the Company and are better
financed than the Company.
The Company will continue to pursue marketing opportunities in the Upper
Midwest. Although there presently are no dominant contract manufacturers in
the wire harness and cable assembly business in the Upper Midwest, there are
several established competitors. The Company expects its major competition to
come from Americable, Technical Services, Inc. and Waters Instruments, Inc.,
all of which are located on Minnesota. Each of these companies specializes in
molded cables or wire assemblies and has sufficient manufacturing
capabilities to offer a significant competitive challenge to the Company's
operations. The principal competitive factors in the contract manufacturing
industry are price, quality and responsive service. The Company believes that
it can compete favorably in the market segments to which it sells.
BACKLOG
Historically, the Company's backlog has been running 60 to 90 days, depending on
the customer. However, because of the increased emphasis on just-in-time
manufacturing (JIT), many of the Company's major customers are taking advantage
of the Company's ability to service them adequately under the JIT concept.
Additionally, because of the Company's quality history with customers, many
products now go directly from the Company's shipping dock to the customer's
production line.
The Company's 90 day order backlog was approximately $3,281,641 on December
31, 1994 and approximately $4,513,000 on December 31, 1995.
MAJOR CUSTOMERS
The Company sells its products to companies in the computer, medical,
governmental and various other industries. Historically, the Company has not
experienced significant losses related to the receivables from customers in any
particular industry or geographic area.
Three customers, G.E. Medical Systems, Cray Research and OTC, a division of SPX
Corporation, accounted for approximately 24.1%, 16.6% and 11.8% of sales,
respectively, for the year ended December 31, 1995. G.E. Medical Systems
accounted for approximately 10.4% of accounts receivable at December 31, 1995.
8
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Three customers, Cray Research, G.E. Medical Systems and Unisys Corporations,
accounted for approximately 26.8%, 24.5% and 20.2% of sales, respectively, for
the year ended December 31, 1994. G.E. Medical Systems, Cray Research and OTC,
a division of SPX Corporation, accounted for approximately 29.8%, 20.5% and
11.3% of accounts receivable, respectively, at December 31, 1994.
Two customers, Cray Research and G.E. Medical Systems, accounted for
approximately 33.5% and 27.3% of sales, respectively, for the year ended
December 31, 1993.
RESEARCH AND DEVELOPMENT
The Company expended $124,919 on Company-sponsored research and development in
1995. This research is related to the development of large-screen, high
resolution video monitors for the imaging division. In 1994 and 1993, no funds
were expended on Company-sponsored research.
COMPLIANCE WITH ENVIRONMENTAL PROVISIONS
Management believes that its manufacturing facilities are currently operating
under compliance with local, state, and federal environmental laws. Any
environmental-oriented equipment is capitalized and depreciated over a seven-
year period. The annualized depreciation expense for this type of environmental
equipment on a Company-wide basis is insignificant.
EMPLOYEES
The Company has 288 full-time and 83 part-time employees as of March 1, 1996,
consisting of 348 employees in manufacturing, manufacturing product support and
medical support services and 23 in general administration.
ITEM 2. PROPERTIES
The Company's headquarters consist of approximately 2,900 square feet located in
Wayzata, Minnesota, a western suburb of Minneapolis, Minnesota. Such
facilities now are leased on a month-to-month basis. The Company believes its
Wayzata facilities are now adequate and will be adequate in the foreseeable
future for its headquarters. However, should the Company need other or
additional space, it believes such facilities are readily available. The
Company owns its Bemidji, Minnesota facility consisting of eight acres of land
and 60,000 spare feet of office and manufacturing space and leases another 8000
square feet of manufacturing and office space in Augusta, Wisconsin.
9
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The Company's imaging division operates from a facility located in Plymouth,
Minnesota. The building contains approximately 22,800 square feet and is
leased for a term that terminates on May 31, 2000. The Company has an option to
extend the lease for an additional five-year term. The Company believes that
this facility is adequate for its operations and will be adequate in the
foreseeable future for such operations.
The Company also owns three buildings which contain approximately 46,900 square
feet and are located in Fairmont, Minnesota, which are used for the
manufacturing of the Company's custom designed, high-technology electronic cable
assemblies. The Company believes that these buildings are adequate and will be
adequate in the foreseeable future for this portion of the Company's business.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the NASDAQ National Market under the
symbol NSYS. Prior to October 11, 1995, the stock was traded on the NASDAQ
Small Cap Market.
The high and low bid quotations for the Company's Common Stock for each
quarterly period within the two most recent years were as follows:
<TABLE>
<CAPTION>
Quarter Ended: Low High
-------------- --- ----
<S> <C> <C>
March 31, 1994 $5.000 $5.750
June 30, 1994 $4.000 $4.750
September 30, 1994 $3.750 $4.500
December 31, 1994 $3.000 $3.750
March 31, 1995 $3.000 $4.000
June 30, 1995 $3.000 $4.250
September 30, 1995 $3.250 $6.000
December 31, 1995 $4.750 $8.500
</TABLE>
10
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The low and high quotations set forth above were furnished by NASDAQ. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission, and may not necessarily represent actual transactions.
As of March 15, 1996, there were approximately 1,459 holders of shares of the
Company's Common Stock. The Company has never paid a cash dividend on shares of
its Common Stock and does not intend to pay cash dividends in the foreseeable
future.
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11
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NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED:
--------------------
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992 Dec. 31, 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales 18,305,928 12,820,709 11,705,833 7,299,916 6,052,996
Income (Loss) From
Continuing Operations 1,331,924 1,183,406 1,042,556 636,723 530,413
Income (Loss) Per
Common Share From
Continuing Operations 0.55 0.54 0.47 0.28 0.24
Total Assets 13,223,064 6,647,897 6,553,291 5,284,001 2,974,806
Total Long-Term
Debt 3,768,685 746,755 858,437 977,635 1,012,942
</TABLE>
Note: For additional selected Financial Data (Past two years by quarter
information) See note 13 of the Consolidated Financial Statement.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS, YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
REVENUES.
For the years ended December 31, 1995, and 1994 the Company had sales of
$18,305,928 and $12,820,709 respectively. The increase of $5,485,219, or 42.8%
resulted primarily from increased sales to the medical and automotive industries
offset by the reduced sales to the mid-sized computer industries as well as
increased revenues from the newly acquired divisions. For the year ended
December 31, 1993 the Company had sales of $11,705,833. The approximate 9.5%
increase in sales in 1994 was attributable to an increase in sales in the
mid-sized computer industry.
GROSS PROFIT.
The Company had gross profit of $3,764,840 in 1995, $2,598,569 in 1994 and
$2,385,016 in 1993. Gross profits as a percentage of gross sales were 20.6% in
1995, 20.3% in 1994 and 20.4% in 1993. The increase in gross profit from 1994
to 1995 as due to increased sales levels and acquisition activity in 1995.
SELLING, GENERAL, AND ADMINISTRATIVE.
Selling, general, and administrative expenses were $2,280,105 in 1995,
$1,647,797 in 1994, and $1,546,971 in 1993. The increase from 1994 to 1995
reflects increased selling, general and administrative expenses associated with
the acquisition of two additional divisions. The increase from 1993 to 1994
reflects increased selling expense due to increased revenue levels.
MISCELLANEOUS INCOME.
Miscellaneous income was $177,967 in 1995, $86,307 in 1994, and $71,030 in 1993.
The miscellaneous income resulted primarily from charges for miscellaneous
services.
INTEREST EXPENSE.
Interest expense was $240,562 in 1995, $117,835 in 1994, and $124,887 in 1993.
The increased expense for 1995 is due to the increased debt from acquired
operations.
INCOME TAXES.
Tax expense was not recorded in 1995 because of additional net operating loss
carryforwards (NOL's) of approximately $2,504,000 which were recognized because
of final tax regulations. The regulations clarified that tax carryforwards
attributes in a Chapter 11 bankruptcy prior to December 31, 1993 where stock was
issued for debt, need not be reduced by cancellation income. The tax benefit of
approximately $851,000 created by additional NOL's was partially offset by a
$300,000 increase in the deferred tax valuation allowance.
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Realization of the deferred tax asset is dependent upon the Company generating
sufficient taxable earnings in future periods. In determining that realization
of the deferred tax asset is more likely than not, the Company gave
consideration to recent earnings history, its expectation for taxable earnings
in the future and the expiration dates associated with tax carryforwards.
Tax benefits of $245,794 and $241,206 were recorded in 1994 and 1993 due to the
reduction in the deferred tax valuation allowance of $600,000 and $540,000,
respectively, due to the realization of net operating loss carryforwards.
NET INCOME.
The Company's net income in 1995 was $1,331,924 or .55 per common share. The
Company's net income in 1994 was $1,183,406 or $.54 per common share. The
Company's net income in 1993 was $1,042,556 or $.47 per common share.
The Company believes that the effect of inflation on past operations has not
been significant and anticipates that inflation will not have a significant
impact on future operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital improved from $2,922,773 as of December 31, 1994
to $5,279,509 as of December 31, 1995. Stockholders equity increased from
$4,720,503 as of December 31, 1994 to $6,036,166 as of December 31, 1995 due to
the Company's 1995 net income and the issuance of common stock due to the
exercise of stock options and gainsharing distributions. The Company's
liquidity and capital resources have improved substantially, and the Company
believes that its' future financial requirements can be met with funds generated
from the operating activities and from the Company's operating line of credit.
In March 1995, the Company completed the net asset purchase of Monitor
Technology Corporation. This division of the Company designs and builds high
and ultra-high resolution CRT monitors for radar, document and medical imaging.
In addition, they provide repair services on internally and externally produced
monitors.
In August 1995, the Company acquired all the assets of the Aerospace Division of
Communication Cable, Inc. The Company has continued the business formally
conducted by Aerospace which involves the manufacturing of custom-designed,
high-technology electronic cable assemblies for various applications.
These acquisitions are expected to positively impact future operations and
enhance the financial condition of the Company over time. However, there are no
guarantees of future performance.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
PAGE
----
Independent Auditor's Report of :
Larson, Allen, Weishair & Co., LLP 16
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1995 and 1994. 17
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993. 18
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993. 19
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993. 20-21
Notes to Consolidated Financial Statements 22-35
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15
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LARSON
ALLEN
[LOGO] WEISHAIR
& CO.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Nortech Systems Incorporated and Subsidiary
Bemidji, Minnesota
We have audited the accompanying consolidated balance sheets of Nortech Systems
Incorporated and Subsidiary as of December 31, 1995 -and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These:consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perforrn the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated 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 Nortech Systems
Incorporated and Subsidiary as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years IN the period
ervded December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Larson, Allen, Meishair & Co., LLP
LARSON, ALLEN, MEISHAIR & CO., LLP
St. Cloud, Minnesota
February 16, 1996
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NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents (Including Interest Bearing Cash of
$906,111 and $822,404 at December 31, 1995 and 1994) $ 924,590 $ 841,702
Accounts Receivable, Less Allowance for Uncollectible
Accounts (1995 - $6,053; 1994 - $4,343) 1,856,219 1,243,599
Inventories 3,855,212 1,514,658
Prepaid Expenses and Other 131,701 43,453
Deferred Tax Asset 430,000 460,000
----------- -----------
Total Current Assets $ 7,197,722 $ 4,103,412
----------- -----------
PROPERTY AND EQUIPMENT (At Cost)
Land $ 108,300 $ 68,300
Building and Leasehold Improvements 1,897,559 832,601
Manufacturing Equipment 2,389,201 902,916
Office and Other Equipment 1,701,640 1,583,714
----------- -----------
Total $ 6,096,700 $ 3,387,531
Accumulated Depreciation (2,256,862) (1,844,046)
----------- -----------
Total Property and Equipment (At Depreciated Cost) $ 3,839,838 $ 1,543,485
----------- -----------
OTHER ASSETS
Goodwill and Other Intangible Assets $ 998,254 $ -
Deferred Tax Asset 1,130,000 1,000,000
Other Assets 57,250 1,000
----------- -----------
Total Other Assets $ 2,185,504 $ 1,001,000
----------- -----------
Total Assets $13,223,064 $ 6,647,897
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long-Term Debt $ 283,100 $ 189,144
Accounts Payable 1,054,880 580,860
Accrued Payroll 407,016 380,267
Other Liabilities 173,217 30,368
----------- -----------
Total Current Liabilities $ 1,918,213 $ 1,180,639
----------- -----------
LONG-TERM DEBT
Notes Payable (Net of Current Maturities Shown Above) $ 3,768,685 $ 746,755
----------- -----------
REDEEMABLE COMMON STOCK
$.01 Par Value; 250,000 Shares Issued and Outstanding
Redeemable at $6 Per Share $ 1,500,000 $ -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, $1 Par Value; 1,000,000 Shares
Authorized; 250,000 Shares Issued and Outstanding $ 250,000 $ 250,000
Common Stock $.01 Par Value; 9,000,000 Shares
Authorized; 2,200,863 and 2,194,305 Shares Issued and
Outstanding, Net of Redeemable Shares Reported Above,
at December 31, 1995 and 1994, Respectively 22,009 21,943
Additional Paid-In Capital 11,242,672 11,229,065
Accumulated Deficit (5,478,515) (6,780,505)
----------- -----------
Total Stockholders' Equity $ 6,036,166 $ 4,720,503
----------- -----------
Total Liabilities and Stockholders' Equity $13,223,064 $ 6,647,897
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
17
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NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
SALES $ 18,305,928 $ 12,820,709 $ 11,705,833
COST OF SALES (14,541,088) (10,222,140) (9,320,817)
------------ ------------ ------------
GROSS PROFIT $ 3,764,840 $ 2,598,569 $ 2,385,016
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (2,280,105) (1,647,797) (1,546,971)
RESEARCH AND DEVELOPMENT COSTS (124,919) - -
INTEREST INCOME 34,703 18,368 17,162
MISCELLANEOUS INCOME 177,967 86,307 71,030
INTEREST EXPENSE (240,562) (117,835) (124,887)
------------ ------------ ------------
INCOME BEFORE INCOME TAX PROVISION $ 1,331,924 $ 937,612 $ 801,350
INCOME TAX BENEFIT - 245,794 241,206
------------ ------------ ------------
NET INCOME $ 1,331,924 $ 1,183,406 $ 1,042,556
------------ ------------ ------------
------------ ------------ ------------
INCOME PER SHARE OF COMMON STOCK
Net Income Per Share of Common Stock $ 0.55 $ 0.54 0.47
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,407,804 2,194,021 2,217,265
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-In Accumulated Stockholders'
Stock Stock Capital Deficit Equity
------------ ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1992 $ 250,000 $ 22,408 $ 11,322,929 $ (8,976,661) $ 2,618,676
1993 Net Income - - - 1,042,556 1,042,556
Redemption of Stock - (500) (105,750) - (106,250)
Issuance of Stock - 29 9,582 - 9,611
Dividends Paid - - - (14,860) (14,860)
---------- ----------- ------------ ------------- ------------
BALANCE
DECEMBER 31, 1993 $ 250,000 $ 21,937 $ 11,226,761 $ (7,948,965) $ 3,549,733
1994 Net Income - - - 1,183,406 1,183,406
Issuance of Stock - 6 2,304 - 2,310
Dividends Paid - - - (14,946) (14,946)
---------- ----------- ------------ ------------- ------------
BALANCE
DECEMBER 31, 1994 $ 250,000 $ 21,943 $ 11,229,065 $ (6,780,505) $ 4,720,503
1995 Net Income - - - 1,331,924 1,331,924
Issuance of Stock -
Stock Options - 50 8,700 - 8,750
Issuance of Stock -
Other - 16 4,907 - 4,923
Dividends Paid - - - (29,934) (29,934)
---------- ----------- ------------ ------------- ------------
BALANCE
DECEMBER 31, 1995 $ 250,000 $ 22,009 $ 11,242,672 $ (5,478,515) $ 6,036,166
---------- ----------- ------------ ------------- ------------
---------- ----------- ------------ ------------- ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 18,114,515 $ 13,307,176 $ 11,284,702
Interest Income Received 34,703 18,368 17,162
Cash Paid to Suppliers and Employees (17,379,766) (11,794,879) (11,135,177)
Interest Expense Paid (239,809) (117,927) (126,521)
Income Taxes Paid (19,016) (34,206) (7,546)
------------ ------------ ------------
Net Cash Provided by
Operating Activities $ 510,627 $ 1,378,532 $ 32,620
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Businesses $ (2,930,696) $ - $ -
Acquisition of Property and Equipment (458,359) (224,096) (422,821)
Acquisition of Intangible Assets (82,059) - -
Purchase of Investments (56,250) - -
------------ ------------ ------------
Net Cash Used by
Investing Activities $ (3,527,364) $ (224,096) $ (422,821)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds (Payments) Under
Line of Credit $ - $ (266,533) $ 349,329
Payments on Long-Term Debt (289,294) (963,178) (278,739)
Proceeds from Long-Term Debt 3,405,180 531,000 196,092
Proceeds from Sale of Stock 13,673 2,310 9,611
Redemption of Stock - - (106,250)
Payment of Dividends (29,934) (14,946) (14,860)
------------ ------------ ------------
Net Cash Provided (Used) by
Financing Activities $ 3,099,625 $ (711,347) $ 155,183
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 82,888 $ 443,089 $ (235,018)
Cash and Cash Equivalents - Beginning 841,702 398,613 633,631
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - ENDING $ 924,590 $ 841,702 $ 398,613
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NON-CASH TRANSACTIONS
During 1995 the Company issued $1,500,000 of redeemable Common Stock as part
of the purchase of another corporation's net assets.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Net Income $ 1,331,924 $ 1,183,406 $ 1,042,556
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 444,636 245,847 167,723
Deferred Taxes (100,000) (280,000) (250,000)
(Increase) Decrease in
Accounts Receivable (369,380) 365,160 (485,253)
(Increase) Decrease in Accounts
Receivable - Stockholder - 35,000 (6,908)
(Increase) Decrease in Inventory (407,932) 173,065 (475,431)
(Increase) Decrease in Prepaid Ass (79,751) 33,507 (31,618)
Decrease in
Accounts Payable - Stockholder - - (10,729)
Increase (Decrease) in
Accounts Payable 207,835 (391,788) (79,179)
Increase (Decrease) in Accrued Pa (17,852) 6,077 173,111
Increase (Decrease) in
Accrued Liabilities (498,853) 8,258 (11,652)
------------ ------------ ------------
Net Cash Provided by
Operating Activities $ 510,627 $ 1,378,532 $ 32,620
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Nortech Systems Incorporated (the "Company") is a Minnesota
corporation with headquarters in Wayzata, Minnesota, a suburb of
Minneapolis, Minnesota. The Company's main manufacturing facility is
located in Bemidji, Minnesota, with additional manufacturing and
engineering support locations in Fairmont, Minnesota, Plymouth,
Minnesota and Augusta, Wisconsin. The Company manufactures wire
harnesses, cables, and electromechanical assemblies as well as
large-screen, high-resolution video monitors for radar, document and
medical imaging. The Company provides a full "turnkey" contract
manufacturing service to its customers. All products are built to the
customer's design specifications. The Company also services the types
of monitors it produces. Nortech Medical Services, Inc., its wholly owned
subsidiary, provides service bureau and office management services to
physicians and clinics throughout Minnesota.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts
and transactions have been eliminated.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market (based on the lower of replacement cost or net realizable
value).
PROPERTY AND EQUIPMENT
The Company capitalizes the cost of purchased software, equipment, and
leasehold improvements. Expenditures for maintenance and repairs and
minor renewals and betterments which do not improve or extend the life
of the respective assets are expensed. The assets and related
depreciation accounts are adjusted for property retirements and disposals
with the resulting gain or loss included in results of operations. Fully
depreciated assets remain in the accounts until retired from service.
DEPRECIATION
Property and equipment are depreciated by the straight-line and
accelerated methods of depreciation. Accelerated depreciation did not
materially exceed straight-line depreciation for the years ended
December 31, 1995, 1994 and 1993. Depreciation was calculated over
estimated useful lives as follows:
Building and Improvements 31 Years
Manufacturing Equipment 5 - 7 Years
Office and Other Equipment 5 - 7 Years
22
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995,1994 AND 1993
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Sales are recorded by the Company when products are shipped to the
customer.
GOODWILL
Goodwill representing the excess of the purchase price over the fair
value of the net assets of the acquired entities (see Note 2), is being
amortized on a straight-line basis over the period of expected benefit
of fifteen years. Total amortization of goodwill recorded for fiscal
years 1995, 1994 and 1993 was $30,724, $O, and $O, respectively. The
carrying value of goodwill will be reviewed periodically based on the
undiscounted cash flows of the entity acquired over the remaining
amortization period. Should this review indicate that goodwill will not
be recoverable, the Company's carrying value of the goodwill will be
reduced by the estimated shortfall of undiscounted cash flows.
INTANGIBLE ASSETS
During 1995 the Company acquired other intangible assets including
purchased technology and certification costs. Total costs of these
assets were $82,059, which are being amortized over a period of 5 to 7
years. The related amortization expense for 1995 was $1,096.
CASH AND CASH EQUIVALENTS
The Company considers its investments with an original maturity of
three months or less to be cash equivalents. At December 31, 1995,
the Company had invested excess funds of $285,000 in repurchase
agreements collateralized by government backed securities. Due to the
short-term nature of the agreements, the Company does not take
possession of the securities, which are instead held at the Company's
principal bank from which it purchases the securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, short-term investments, receivables,
accounts payable and accrued liabilities approximate fair value because
of the short maturity of these instruments. The fair value of long-term
debt approximates its carrying value and is based on current rates at
which the Company could borrow funds with similar remaining maturities.
USE OF ESTIMATES
The preparation of financial statements in 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. Estimates also affect the reported
amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates.
23
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company has adopted FASB Statement No. 109, ACCOUNTING FOR INCOME
TAXES, which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the
financial statement and tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. The provision for income
taxes is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
Investment credits are accounted for by using the "flow-through"
method whereby the benefit is reflected as a reduction of income taxes
in the year utilized.
EARNINGS PER SHARE
Primary earnings per share of common stock is computed by dividing
net income by the weighted average number of common shares outstanding
during the period.
The impact of outstanding warrants and options was not material and
was not included in the calculation of primary earnings per share.
Preferred stock issued is noncumulative and nonconvertible.
NOTE 2 ACQUISITIONS
In 1995 the Company acquired the two businesses described below,
which have been accounted for by the purchase method of accounting.
The results of the operations of the acquired Companies are
included in the Company's consolidated statement of income from the
dates of the acquisitions.
MONITOR TECHNOLOGY CORPORATION
On March 28, 1995, the Company acquired substantially all of the
assets and assumed certain liabilities of Monitor Technology
Corporation (MTC). Monitor Technology Corporation designs and builds
high and ultra-high resolution CRT monitors for computer
applications throughout the United States. In addition, they provide
repair services on internally and externally produced monitors.
24
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 2 ACQUISITIONS (CONTINUED)
MONITOR TECHNOLOGY CORPORATION (CONTINUED)
The purchase price of $2,232,667, which includes the assumption of
liabilities of $707,887 and acquisition costs of $24,780, was paid
with cash and by issuing 250,000 shares of the Company's common stock.
The common stock was valued at $6, which is the redeemable price based
on a repurchase agreement issued to the seller at closing. The excess
of the purchase price over the estimated fair value of assets acquired
is being amortized on a straight-line basis over 15 years.
The agreement also allows the seller the option which requires the
Company to repurchase the common stock at $6 a share commencing on
March 28, 1996, and extending for a period of thirty days hereafter.
The Company's obligation under the repurchase agreement is guaranteed
by a director of the Company.
AEROSPACE
On August 23, 1995, the Company acquired the Aerospace Division of
Communication Cable, Inc. The Aerospace Division manufactures and
sells multi-conductor electrical cable assemblies to customer
specifications for the aerospace industry throughout the United
States.
The purchase price was $2,950,517 consisting of a cash payment of
$2,845,506, the assumption of liabilities of $44,601, and
acquisition costs of $60,410.
The excess of the purchase price over the estimated fair value of the
net assets acquired is being amortized on a straight-line basis over
15 years.
A summary of the purchase price allocation for MTC and Aerospace is as
follows:
Net Working Capital Items $ 1,984,359
Property, Plant and Equipment 2,250,810
Excess of Cost over Fair Value
of Net Assets of Purchased Businesses 948,015
------------
Total $ 5,183,184
------------
------------
25
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 2 ACQUISITIONS (CONTINUED)
The following proforma unaudited consolidated statements of income
for the Company are presented as though the acquisitions of Monitor
Technology Corporation and the Aerospace Division of Communication
Cable, Inc. had occurred on January 1, 1995 and 1994.
<TABLE>
<CAPTION>
(Unaudited) 1995 1994
------------------------------------- -------------- --------------
<S> <C> <C>
Revenues $ 22,332,054 $ 20,449,800
-------------- --------------
-------------- --------------
Net Income (Loss) $ 1,497,486 $ 1,281,232
-------------- --------------
-------------- --------------
Net Income Per Share of Common Stock $ .61 $ .52
-------------- --------------
-------------- --------------
</TABLE>
The proforma financial information is presented for information
purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisitions been consummated
as of the above dates, nor are they necessarily indicative of future
operating results.
NOTE 3 INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Raw Materials $ 1,972,384 $ 795,272
Work in Process 1,676,949 603,932
Finished Goods 205,879 115,454
-------------- --------------
Total $ 3,855,212 $ 1,514,658
-------------- --------------
-------------- --------------
</TABLE>
NOTE 4 SHORT-TERM LINE OF CREDIT
The Company had a line of credit available at December 31, 1994, for
$350,000. The line of credit was with Northern National Bank, paid
interest at a variable rate, and was secured by accounts receivable
and inventory. The interest rate was 8% at December 31, 1994. The
maximum and average amounts outstanding on lines of credit during 1994,
were $349,329 and $320,219, respectively. There was no balance
outstanding as of December 31, 1994.
26
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 5 LONG-TERM DEBT
<TABLE>
<CAPTION>
Description 1995 1994
---------------------------------------------- ---------- -------
<S> <C> <C>
Note Payable - Northern National Bank,
Revolving Line of Credit, Borrowing Limit of
$3,000,000, Interest at LIBOR Index PLUS 2 1/2%,
Due January 1997; Secured by Accounts
Receivable, Equipment, Inventory and
General Intangibles 2,161,179 $ 0
Note Payable - City of Augusta, Interest at
Firstar Bank of Eau Claire's Prime, Five
Annual Payments Beginning August 1996,
Due August 2000; Secured by Leasehold
Improvements 40,000 40,000
Note Payable - Northern States Power
Company, Interest at 6%, Monthly
Payments of $483 Including Interest, Due
December 1998; Secured by Equipment 15,483 20,199
Note Payable - Northern National Bank,
Interest at Bank's Prime Plus 2%, Monthly
Payments of $1,200 Including Interest,
Due April 2000; Secured by Real Estate 120,754 122,876
Note Payable - Midwest Minnesota Community,
Development Corporation, Interest at 9%,
Monthly Payments of $2,802 Including Interest,
Due January 2000; Secured by Real Estate
and Equipment 115,297 135,178
Note Payable - Midwest Minnesota Community,
Development Corporation, Interest at 8%,
Monthly Payments of $1,654 Including Interest,
Due September 2009; Secured by
Real Estate and Equipment 142,185 146,279
Note Payable - Northern National Bank,
Interest at 7.5%, Monthly Payments of $5,270
Including Interest, Due May 1999; Secured by
Inventory, Equipment, Accounts Receivable
and General Intangibles 230,608 232,796
27
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 311,1995, 1994 AND 1993
NOTE 5 LONG-TERM DEBT (CONTINUED)
Description 1995 1994
---------------------------------------------- ---------- -------
Note Payable - Northern National Bank,
Interest at LIBOR Index Plus 2 1/2%, Monthly
Payments of $13,060 Including Interest, Due
January 2001; Secured by Equipment,
Accounts Receivable and Inventory and
General Intangibles 640,000 0
Note Payable - Northern National Bank,
Interest at LIBOR Index Plus 2 1/2%,
Monthly Payments of $5,000 Including Interest,
Due January 2001; Secured by Equipment, Accounts
Receivable, Inventory and General Intangibles 510,000 0
Note Payable - Joint Economic Development
Commission, Inc., Interest at 10%,
Monthly Payments of $1,652 Including
Interest, Due June 1996; Secured by
Building and Land 76,279 90,586
Note Payable - Northern National Bank,
Interest at Bank's Prime Plus 3%, Monthly
Payments of $11,638 Including Interest,
Due December 1995; Secured by Certificate
of Deposit, Equipment, Accounts Receivable
and Inventory 0 45,119
Note Payable - Northern National Bank,
Interest at Bank's Prime, Monthly Payments of
$4,600 Including Interest, Due January 15,
1995; Secured by Inventory, Equipment and
Accounts Receivable 0 98,570
Note Payable - Northern National Bank,
Interest at Bank's Prime, Monthly Payments of
$375 Including Interest, Due 0 4,296
January 15, 1996; Secured by Vehicle ----------- --------
Total Long-Term Debt $ 4,051,785 $935,899
Current Maturities 283,100 189,144
----------- --------
Long-Term Debt - Net of
Current Maturities $ 3,768,685 $746,755
----------- --------
----------- --------
</TABLE>
28
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 5 LONG-TERM DEBT (CONTINUED)
Maturity requirements by year on long-term debt are as follows:
Years Ending December 31, Amount
------------------------- --------------
1996 $ 283,100
1997 2,400,339
1998 258,046
1999 296,594
2000 314,579
Later Years 499,127
-----------
Total $ 4,051,785
-----------
-----------
The maximum and average amounts outstanding on the Company's revolving
line of credit during 1995 were $2,161,179 and $400,000, respectively.
NOTE 6 LEASE OBLIGATION
The Company has entered into various operating leases for equipment and
office space. Rent expense for the years ended December 31, 1995, 1994
and 1993, was $290,799, $77,516 and $118,672, respectively. The future
minimum lease payments are as follows:
Years Ending December 31, Amount
------------------------- --------------
1996 $ 227,695
1997 184,625
1998 176,700
1999 176,700
2000 176,700
-----------
Total $ 942,420
-----------
-----------
NOTE 7 RELATED PARTY TRANSACTIONS
Ceridian Corporation is one of the Company's stockholders at
December 31, 1995, 1994 and 1993. Transactions and balances with
Ceridian Corporation are as follows:
CONTRACT FOR DEED - CERIDIAN CORPORATION
During 1991 the Company entered into a contract for deed with Ceridian
Corporation for the purchase of the building and land. The original
purchase price was $840,000. The contract was paid off in 1994.
29
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 7 RELATED PARTY TRANSACTIONS (CONTINUED)
SALES
In 1995, 1994 and 1993, sales to Ceridian Corporation represented
approximately 1% of total sales in each year.
NOTE 8 INCOME TAXES
The provision for income taxes for each of the three years in the
period ended December 31, 1995, consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<C> <C> <C>
Current Taxes - Federal $ 37,000 $ 17,183 $ 2,148
Current Taxes - State 63,000 17,023 6,646
Deferred Taxes (100,000) (280,000) (250,000)
--------- --------- ---------
Total $ 0 $(245,794) $(241,206)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred tax assets at December 31, 1995 and 1994, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net Operating Loss (NOL)
Carryforwards $ 1,635,000 $ 1,240,000
Tax Credit Carryforwards 295,000 320,000
Other 30,000 0
Valuation Allowance (400,000) (100,000)
----------- -----------
Total $ 1,560,000 $ 1,460,000
----------- -----------
----------- -----------
</TABLE>
The statutory rate reconciliation for each of the three years in the
period ended December 31, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Statutory Tax Provision $ 453,000 $319,000 $272,000
State Income Taxes 80,000 50,000 40,000
Additional NOL Carryforwards (851,000) 0 0
Increase (Reduction) in
Deferred Tax
Valuation Allowance 300,000 (600,000) (540,000)
Other 18,000 (14,794) (13,206)
--------- --------- ---------
Income Tax Benefit $ 0 $(245,794) $(241,206)
--------- --------- ---------
--------- --------- ---------
</TABLE>
30
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 8 INCOME TAXES (CONTINUED)
The Company has available for Federal income tax purposes, operating
loss carryforwards, unused investment credits, and unused research and
development credits which may provide future tax benefits, expiring as
follows:
<TABLE>
<CAPTION>
Investment Research and
Operating Loss Tax Credit Development Tax
Year of Expiration Carryforward Carryforward Credit Carryforward
------------------ -------------- -------------- -------------------
<S> <C> <C> <C>
1996 $ 0 $ 12,546 $ 44,779
1997 0 4,064 43,051
1998 0 50,888 97,643
1999 3,678,800 39,965 0
2001 767,300 0 0
2002 253,200 0 0
2003 109,700 0 0
---------- -------- --------
Totals $4,809,000 $107,463 $185,473
---------- -------- --------
---------- -------- --------
</TABLE>
During 1995 the Company identified an additional $2,503,778 of net
operating loss carryforwards related to final tax regulations. The
regulations clarified that tax carryforward attributes in a Title 11
bankruptcy prior to December 31, 1993, where stock was issued for debt,
need not be reduced by debt cancellation income. As a result of the
increase in net operating loss carryforwards, which must be utilized
prior to taking the benefit in tax credit carryovers, the Company has
increased its valuation allowance accordingly.
In 1995 the Company utilized operating loss carryforwards of $1,450,000
to offset federal taxable income and $46.000 of research and
development credits to offset state tax.
In 1994 the Company utilized operating loss carryforwards of $932,000
to offset federal taxable income and $126,100 to offset state taxable
income. The Company also utilized $33,900 of research and development
tax credits to offset state tax.
In 1993 the Company utilized operating loss carryforwards of $760,000
to offset federal taxable income and $365,300 to offset state taxable
income.
31
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 9 PREFERRED STOCK TRANSACTIONS
The holders of the preferred stock are entitled to a noncumulative
dividend of 12% when and as declared. In liquidation, holders of
preferred stock have preference to the extent of $1.00 per share plus
dividends accrued but unpaid. Preferred stock dividends of $29,934,
$14,946 and $14,860 were paid during the year-ended December 31, 1995,
1994 and 1993, respectively.
During 1993, Nortech Systems Incorporated redeemed 50,000 shares of
common stock from Ceridian Corporation.
NOTE 10 MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company sells its products to companies in the computer, medical,
governmental and various other industries. Historically, the Company
has not experienced significant losses related to receivables from
customers in any particular industry or geographic area.
The Company maintains its excess cash balances in checking, money
market and certificate of deposit accounts at two financial
institutions. These balances exceed the federally insured limit by
$520,000 at December 31, 1995. The Company has not experienced any
losses in any of the short-term investment instruments it has used
for excess cash balances.
Three customers accounted for approximately 24.1%, 16.6% and 11.8% of
sales, respectively, for the year ended December 31, 1995. One customer
accounts for approximately 10.4% of accounts receivable at December 31,
1995.
Three customers accounted for approximately 26.8%, 24.5% and 20.2% of
sales respectively, for the year ended December 31, 1994. Three
customers accounted for approximately 29.8%, 20.5% and 11.3% of
accounts receivable, respectively, at December 31, 1994.
Two customers accounted for approximately 33.5% and 27.3% of sales,
respectively, for the year ended December 31, 1993.
32
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 11 EMPLOYEE STOCK OPTION AND AWARD PLANS
In 1992, the Company approved the adoption of a stock option plan. The
purpose of the Plan is to promote the interests of the Company and its
shareholders by providing officers, directors and other key employees
with additional incentive and the opportunity, through stock ownership,
to increase their proprietary interest in the Company and their
personal interest in its continued success. Through December 31, 1995,
100,000 shares have been authorized for issuance. In addition, the
Company has contingently granted an additional 50,000 options to its
president awaiting approval by the shareholders.
Stock options may be granted for the purchase of common stock at a
price not less than the fair market value on the date of the grant.
Options are generally exercisable after one or more years and expire no
later than 10 years from the date of grant. Changes in the stock
options outstanding, including contingent options, are as follows:
<TABLE>
<CAPTION>
Option Price
Shares (Per Share)
---------- --------------
<S> <C> <C>
Balance as of December 31, 1992 $ 22,500 $ 1.75
Granted January 21, 1993 15,000 $ 1.625
----------
Balance as of December 31, 1993 $ 37,500 $ 1.625 - $1.75
Granted January 24, 1994 10,000 $ 3.625
----------
Balance as of December 31, 1994 $ 47,500 $ 1.625 - $3.625
Granted December 1, 1995 95,000 $ 5.25
Exercised (5,000) $ 1.75
----------
Balance as of December 31, 1995 $ 137,500 $ 1.625 - $5.25
----------
----------
</TABLE>
During 1993, the Company adopted a gain sharing plan. The purpose of
the Plan is to provide a bonus for increased output, improved quality
and productivity and reduced costs. The Company has authorized 50,000
shares to be available under this Plan.
In accordance with the terms of the Plan, employees can acquire newly
issued shares of common stock for 90% of the current market value.
5,069 shares have been issued under this Plan through December 31,
1995.
33
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 12 RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (the FASB) statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, will become effective for the Company in
1996. Currently, Statement No. 121 would have no impact on the
Company's financial position or results of operations.
FASB issued Statement No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION,
which will become effective for the Company in 1996. The Company has
not determined the impact of Statement No. 123 on its financial
position or results of operations.
34
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 13 SUPPLEMENTARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarter Ending Quarter Ending Quarter Ending Quarter Ending Total
3/31/95 6/30/95 9/30/95 12/31/95 1995
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 3,625,264 $ 4,374,899 $ 5,449,175 $ 4,856,590 $ 18,305,928
GROSS PROFIT 673,905 964,800 966,969 1,159,166 3,764,840
NET INCOME 244,003 244,049 212,588 631,284 1,331,924
INCOME PER SHARE
OF COMMON STOCK 0.11 0.10 0.10 0.25 0.55
Quarter Ending Quarter Ending Quarter Ending Quarter Ending Total
3/31/95 6/30/95 9/30/95 12/31/95 1995
-------------- -------------- -------------- -------------- -------------
NET SALES $ 3,499,798 $ 3,235,186 $ 2,666,091 $ 3,419,634 $ 12,820,709
GROSS PROFIT 704,144 614,024 566,570 713,831 2,598,569
NET INCOME 297,126 262,564 200,622 423,094 1,183,406
INCOME PER SHARE
OF COMMON STOCK 0.14 0.12 0.09 0.19 0.54
</TABLE>
In the 4th quarter of 1995, the Company reduced previous quarter's tax
expense of $206,388, which increased 4th quarter net income by .08 per share
due to recognition of additional net operating loss carryforwards.
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the directors and executive officers of the Registrant
will be included in the Registrant's 1995 proxy statement to be filed with the
Securities and Exchange Commission not later than April 30, 1996 and said
portions of the proxy statement are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation of the Registrant will be included
in the Registrant's 1995 proxy statements to be filed with the Securities and
Exchange Commission not later than April 30, 1996 and said portions of the proxy
statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management of the Registrant will be included in the Registrant's 1995 proxy
statements to be filed with the Securities and Exchange Commission not later
than April 30, 1996 and said portions of the proxy statements are incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(See note 7 of Consolidated Financial Statements)
(The remainder of this page was left intentionally blank)
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS AND
REPORTS ON FORM 8-K.
(a)1. Consolidated Financial Statements - Consolidated Financial Statements and
related Notes are included in Part II, Item 8, and are identified in the
Index on Page 13.
(a)2. Consolidated Financial Schedule - The following Consolidated Financial
Statement Schedule supporting the Consolidated Financial Statements and
the accountant's report thereon are included in this Annual Report on
Form 10-K:
PAGE
----
Independent Auditor's Report on Supplementary Information
Larson, Allen, Weishair & Co., LLP 41
Consolidated Financial Statement Schedule for the years ended December 31,
1995, 1994 and 1993
VIII Valuation and Qualifying Accounts 42
All other schedules are omitted since they are not applicable, not required,
or the required information is included in the financial statements or notes
thereto.
(a)3. THE FOLLOWING EXHIBITS ARE FILED AS A PART OF THIS REPORT:
10.1 Revolving Note and Security Agreement for working capital line of
credit between Company and Northern National Bank dated December 29,
1995.
10.2 Promissory Note for purchase of facility in Fairmont, Minnesota
between Company and Northern National Bank dated December 29, 1995.
10.3 Promissory Note for purchase of capital equipment located at
Fairmont, Minnesota facility between Company and Northern National
Bank dated December 29, 1995.
10.4 Security Agreement covering Promissory Notes in Exhibits 10.1, 10.2
and 10.3.
10.5 Asset Purchase Agreement for the purchase of assets of Monitor
Technology Corporation dated February 24, 1995.
37
<PAGE>
10.6 Asset Purchase Agreement for the purchase of Aerospace Division of
Communication Cable, Inc. dated August 23, 1995.
23.1 Letter of Consent from Larson, Allen, Weishair & Company in
reference to the S-8 Forms filed June 21 1994 and June 30, 1993.
The following exhibits are incorporated by reference to exhibits 10.1, 10.2,
10.3, 10.4 and 10.5, respectfully, to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
10.1 Promissory Note for working capital line of credit between the Company
and Northern National Bank dated May 2, 1994.
10.2 Promissory Note and Loan Agreement for capital equipment line of credit
between the Company and Northern National Bank dated April 29, 1994.
10.3 Loan Agreement for Real Estate between the Company and Northern National
Bank dated March 18, 1994.
10.4 Update Promissory Note and Loan Agreement for NMS capital equipment
between the Company and Northern National Bank dated January 15, 1995.
10.5 Promissory Notes and Loan Agreement for Real Estate between the Company
and MMCDC and MMCDC/NNC dated March 18, 1994.
The following exhibits are incorporated by reference to Exhibits 10.2, 10.3 and
10.4, respectfully, to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.2 Promissory Note and Loan Agreement for capital equipment line of
credit between the Company and Northern National Bank date September
24, 1993.
10.3 Promissory Notes for capital equipment between the Company and City
of Augusta, Wisconsin dated August 17, 1993.
10.4 Promissory Notes and Loan Agreement for capital equipment between
the Company and Northern States Power Company dated November 15,
1993.
The following exhibits are incorporated by reference to Exhibits 3.1, 3.2, 10.1
and 10.3 respectively, to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.
3.1 Articles of Incorporation (SMR) dated August 9, 1991.
38
<PAGE>
3.2 Bylaws (SMR)
10.3 Promissory Note and Mortgage between the Company and Joint Economic
Development Commission, Inc. dated June 28, 1991.
The following exhibit is incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990.
3.1 Articles of Incorporation dated October 30, 1990.
The following exhibit is incorporated by reference to Exhibit 3.2 to the
Annual Report on Form 10-K for the year ended December 31, 1984:
3.2 Bylaws
(b) Reports on Form 8-K
Form 8-K report date March 28, 1995 and filed April 5, 1995 for purchase
of assets of Monitor Technology Corporation.
Form 8-K/A Amendment #1 filed on July 13, 1995. This Form 8-K/A was an
amendment to Form 8-K report date March 28, 1995 and filed April 5, 1995.
Form 8-K report date August 23, 1995 filed August 28, 1995 for the
purchase of assets of Aerospace Division of Communication Cable, Inc.
(CCI)
Form 8-K/A Amendment #1 filed October 25, 1995. This Form 8-K/A was an
amendment to Form 8-K report date August 23, 1995 and filed August 28,
1995.
Form 8-K/A Amendment #2 filed November 21, 1995. This Form 8-K/A was an
amendment to Form 8-K report date August 23, 1995 and filed August 28,
1995.
(The remainder of this page was left intentionally blank.)
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NORTECH SYSTEMS INCORPORATED
March 29, 1996 By:/s/
---------------------------
Quentin E. Finkelson
Its President and
Chief Executive Officer
March 29, 1996 By:/s/ Gary M. Anderly
---------------------------
Gary M. Anderly
Principal Financial Officer
and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
March 29, 1996 /s/
---------------------------
Quentin E. Finkelson,
President, Chief Executive
Officer and Director
March 29, 1996 /s/
---------------------------
Myron Kunin, Director
March 29, 1996 /s/
---------------------------
Richard W. Perkins, Director
40
<PAGE>
LARSON
[LOGO] ALLEN
WEISHAIR
& CO.
Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT ON
SUPPLEMENTARY INFORMATION
Board of Directors
Nortech Systems Incorporated And Subsidiary
Bemidji, Minnesota
Our report on the basic consolidated financial statements of Nortech Systems
Incorporated and Subsidiary for 1995, 1994 and 1993 precedes the consolidated
financial statements. The audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule on the following page is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Larson, Allen, Weishair & Co.
LARSON, ALLEN, WEISHAIR & CO., LLP
St. Cloud, Minnesota
February 16, 1996
41
<PAGE>
NORTECH SYSTEMS INCORPORATED AND SUBSIDIARY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column E Column F
- ---------------------- -------------- ------------ ------------ ------------
Additions
Balance at Charged Balance at
Beginning to Costs End of
Classification Of Period And Expenses Add (Deduct) Period
- ---------------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:
Allowance for Doubtful Accounts $ 4,343 $ 1,710 $ - $ 6,053
Deferred Tax Valuation Allowance 100,000 - 300,000 400,000
-------------- ------------ ------------ ------------
$ 104,343 $ 1,710 $ 300,000 $ 406,053
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
Year Ended December 31, 1994:
Allowance for Doubtful Accounts $ - $ 4,343 $ - $ 4,343
Deferred Tax Valuation Allowance 700,000 - (600,000) 100,000
-------------- ------------ ------------ ------------
$ 700,000 $ 4,343 $ (600,000) $ 104,343
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
Year Ended December 31, 1993:
Allowance for Doubtful Accounts $ 5,000 $ - $ (5,000) $ -
Deferred Tax Valuation Allowance 1,240,000 - (540,000) 700,000
-------------- ------------ ------------ ------------
$ 1,245,000 $ - $ (545,000) $ 700,000
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS
DESCRIPTIONS OF EXHIBITS
10.1 Revolving Note and Security Agreement for working capital line of
credit between Company and Northern National Bank dated December 29,
1995.
10.2 Promissory Note for purchase of facility in Fairmont, Minnesota
between Company and Northern National Bank dated December 29, 1995.
10.3 Promissory Note for purchase of capital equipment located at
Fairmont, Minnesota facility between Company and Northern National
Bank dated December 29, 1995.
10.4 Security Agreement covering Promissory Notes in Exhibits 10.1, 10.2
and 10.3.
10.5 Asset Purchase Agreement for the purchase of assets of Monitor
Technology Corporation dated February 24, 1995.
10.6 Asset Purchase Agreement for the purchase of Aerospace Division of
Communication Cable, Inc. dated August 23, 1995.
23.1 Letter of Consent from Larson, Allen, Weishair & Company in
reference to the S-8 Forms filed June 21 1994 and June 30, 1993.
43
<PAGE>
BORROWER
NORTECH SYSTEMS INCORPORATED
NORTECH MEDICAL SERVICES, INC.
[LOGO]NORTHERN COMMERCIAL/
NATIONAL BANK AGRICULTURAL
201 3RD STREET REVOLVING OR DRAW
BEMIDJI, MN 56601-0790 NOTE-VARIABLE RATE
TELEPHONE: 218-751-1530
"LENDER"
ADDRESS
641 EAST LAKE STREET SUITE 234
WAYZATA, MN 55391
TELEPHONE NO. IDENTIFICATION NO.
- --------------------------------------------------------------------------------
OFFICER INTEREST PRINCIPAL FUNDING MATURITY CUSTOMER LOAN
INITIALS RATE AMOUNT DATE DATE NUMBER NUMBER
BAS VARIABLE $3,000,000.00 12/29/95 01/01/97 533551
- --------------------------------------------------------------------------------
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of THREE MILLION AND NO/100 Dollars ($3,000,000.00)
or, if less, the aggregate unpaid principal amount of all loans or advances made
by the Lender to the Borrower, plus interest on the unpaid principal balance at
the rate and in the manner described below. All amounts received by Lender
shall be applied first to late payment charges and expenses, then to accrued
interest, and then to principal or in any other order as determined by Lender,
in Lender's sole discretion, as permitted by law.
INTEREST RATE: This Note has a variable rate feature. Interest on the Note
may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days per year. Interest on
this Note shall be calculated at a variable rate equal to TWO AND 500/1000
percent (2.500%) per annum over the Index Rate. The initial Index Rate is
currently FIVE AND 63/100 percent (5.625%) per annum. The initial interest
rate on this Note shall be EIGHT AND 125/1000 percent (8.125%) per annum. Any
change in the interest rate resulting from a change in the Index Rate will be
effective on APRIL 1, 1996 AND QUARTERLY THEREAFTER.
INDEX RATE: The Index Rate for this Note shall be: THE 90 DAY LIBOR RATE AS
QUOTED BY FIRSTAR BANK MILWAUKEE, N.A. AND IN EFFECT AS OF THE DATE OF RATE
CHANGE.
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be FOUR
AND NO/1000 percent (4.000%) per annum. The maximum interest rate on this Note
shall not exceed NINETEEN AND NO/1000 percent (19.000%) per annum or the maximum
interest rate Lender is permitted to charge by law, whichever is less.
POST-MATURITY RATE: [ ] If checked, this loan is for a binding commitment of at
least $100,000.00 and after maturity, due to scheduled maturity or acceleration,
past due amounts shall bear interest at the lesser of:____________________
__________________________, or the maximum interest rate Lender is permitted to
charge by law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule:
INTEREST ONLY PAYMENTS BEGINNING FEBRUARY 1, 1996 AND CONTINUING AT MONTHLY TIME
INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE PLUS
ACCRUED INTEREST IS DUE AND PAYABLE ON JANUARY 1, 1997.
All payments will be made to Lender at its address described above and in lawful
currency of the United States of America.
RENEWAL: If checked, [X] this Note is a renewal of loan number
533404/532577/530821, and is not in payment of that Note.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest, in all monies,
instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
any or all of its rights or remedies as a secured party with respect to such
property which rights and remedies shall be in addition to all other rights and
remedies granted to Lender including, without limitation, Lender's common law
right of setoff. [X] If checked, the obligations under this Note are also
secured by a lien and/or security interest in the property described in the
documents executed in connection with this Note as well as any other property
designated as security now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all
prepayments will be credited as determined by Lender and as permitted by law.
If this Note is prepaid in full, there will be [X] No prepayment penalty.
[ ] A prepayment penalty of ___% of the principal prepaid.
LATE PAYMENT CHARGE: If a payment is received more than 10 days late, Borrower
will be charged a late payment charge of 5.00% of the unpaid late installment.
REVOLVING OR DRAW FEATURE: [X] This Note possesses a revolving feature. Upon
satisfaction of the conditions set forth in this Note, Borrower shall be
entitled to borrow up to the full principal amount of the Note and to repay and
reborrow from time to time during the term of this Note. [ ] This Note
possesses a draw feature. Upon satisfaction of the conditions set forth in this
Note, Borrower shall be entitled to make one or more draws under this Note. The
aggregate amount of such draws shall not exceed the full principal amount of
this Note.
Lender shall maintain a record of the amounts loaned to and repaid by Borrower
under this Note. The aggregate unpaid principal amount shown on such record
shall be rebuttable presumptive evidence of the principal amount owing and
unpaid on this Note. The Lender's failure to record the date and amount of any
loan or advance shall not limit or otherwise affect the obligations of the
Borrower under this Note to repay the principal amount of the loans or advances
together with all interest accruing thereon. Lender shall not be obligated to
provide Borrower with a copy of the record on a periodic basis. Borrower shall
be entitled to inspect or obtain a copy of the record during Lender's business
hours.
CONDITIONS FOR ADVANCES: If there is no default under this Note, Borrower shall
be entitled to borrow monies or make draws under this Note (subject to the
limitations described above) under the following conditions:
- --------------------------------------------------------------------------------
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: DECEMBER 29, 1995
BORROWER:NORTECH SYSTEMS INCORPORATED BORROWER:NORTECH MEDICAL SERVICES, INC.
/S/ GARRY M. Anderly /s/ GARRY M. Anderly
- ------------------------ ------------------------
GARRY M. ANDERLY GARRY M. ANDERLY
VICE PRESIDENT VICE PRESIDENT
BORROWER: BORROWER:
- ------------------------ ------------------------
BORROWER: BORROWER:
- ------------------------ ------------------------
BORROWER: BORROWER:
- ------------------------ ------------------------
<PAGE>
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor or any other third party: (a) fails to make any
payment on this Note or any other indebtedness to Lender when due; (b) fails to
perform any obligation or breaches any warranty or covenant to Lender contained
in this Note or any other present or future written agreement regarding this or
any indebtedness of Borrower to Lender; (c) provides or causes any false or
misleading signature or representation to be provided to Lender; (d) allows the
collateral securing this Note (if any) to be lost, stolen, destroyed, damaged in
any material respect, or subjected to seizure or confiscation; (e) permits the
entry or service of any garnishment, judgment, tax levy, attachment or lien
against Borrower, any guarantor, or any of their property or the Collateral;
(f) dies, becomes legally incompetent, is dissolved or terminated, ceases to
operate its business, becomes insolvent, makes an assignment for the benefit of
creditors, fails to pay debts as they become due, or becomes the subject of any
bankruptcy, insolvency or debtor rehabilitation proceeding; or (g) causes Lender
to deem itself insecure for any reason, or Lender, for any reason, in good faith
deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law): (a) to cease making additional
advances under this Note; (b) to declare the principal amount plus accrued
interest under this Note and all other present and future obligations of
Borrower immediately due and payable in full; (c) to collect the outstanding
obligations of Borrower with or without resorting to judicial process; (d) to
take possession of any collateral in any manner permitted by law; (e) to require
Borrower to deliver and make available to Lender any collateral at a place
reasonably convenient to Borrower and Lender; (f) to sell, lease or otherwise
dispose of any collateral and collect any deficiency balance with or without
resorting to legal process; (g) to set-off Borrower's obligations against any
amounts due to Borrower including, but not limited to monies, instruments, and
deposit accounts maintained with Lender; and (h) to exercise all other rights
available to Lender under any other written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately, and in
any order. Lender's remedies under this paragraph are in addition to those
available at common law, including, but not limited to, the right of set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, Lender's right to
demand payment, at any time, and from time to time, shall be in Lender's sole
and absolute discretion, whether or not any default has occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements and other financial information (including, but not limited to,
balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay or
fail to exercise any of its rights without causing a waiver of those obligations
or rights. A waiver on one occasion will not constitute a waiver on any other
occasion. Borrower's obligations under this Note shall not be affected if Lender
amends, compromises, exchanges, fails to exercise, impairs or releases any of
the obligations belonging to any co-borrower or guarantor or any of its rights
against any co-borrower, guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this Note is
invalid, illegal or unenforceable, the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Notwithstanding anything contained in this Note to the contrary, in no event
shall interest accrue under this Note, before or after maturity, at a rate in
excess of the highest rate permitted by applicable law, and if interest
(including any charge or fee held to be interest by a court of competent
jurisdiction) in excess thereof be paid, any excess shall constitute a payment
of, and be applied, to the principal balance hereof, and if the principal
balance has been fully paid, then such interest shall be repaid to the Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written consent
of Lender which may be withheld by Lender in its sole discretion. Lender will
be entitled to assign some or all of its rights and remedies described in this
Note without notice to or the prior consent of Borrower in any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and venue
of any court located in the state indicated in Lender's address in the event of
any legal proceeding pertaining to the negotiation, execution, performance or
enforcement of any term or condition contained in this Note or any related loan
document and agrees not to commence or seek to remove such legal proceeding in
or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any
amount due or enforcing any right or remedy under this Note, Borrower agrees to
pay Lender's attorney's fees, to the extent permitted by applicable law, and
collection costs.
11. RETURNED CHECK: If a check for payment is returned to Lender for any
reason, Lender will charge an additional fee of $15.00.
12. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower
waives presentment, demand for payment, notice of dishonor and protest. If
Lender obtains a judgment for any amount due under this Note, interest will
accrue on the judgment at the judgment rate of interest permitted by law. All
references to Borrower in this Note shall include all of the parties signing
this Note. If there is more than one Borrower, their obligations will be joint
and several. This Note and any related documents represent the complete and
integrated understanding between Borrower and Lender pertaining to the terms and
conditions of those documents.
13. JURY TRIAL WAIVER: BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
CIVIL ACTION ARISING OUT OF, OR BASED UPON, THIS NOTE OR THE COLLATERAL SECURING
THIS NOTE.
14. ADDITIONAL TERMS:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PRINCIPAL ADVANCES AND PAYMENTS INTEREST PAYMENTS RATE CHANGE
- ----------------------------------------------------------------------------------------------------------------
Made Date Amount of Amount of Principal Undisbursed Received Date Interest Date Date Rate
By Advance Payment Balance Commitments By Paid Paid to
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
[LOGO]NORTHERN
NATIONAL BANK COMMERCIAL SECURITY
201 3RD STREET AGREEMENT
BEMIDJI, MN 56601-0790
TELEPHONE: 218-751-1530
"LENDER"
BORROWER OWNER OF COLLATERAL
NORTECH MEDICAL SERVICES, INC. NORTECH MEDICAL SERVICES, INC.
ADDRESS ADDRESS
641 EAST LAKE STREET SUITE 234 641 EAST LAKE STREET SUITE 234
WAYZATA, MN 55391 WAYZATA, MN 55391
TELEPHONE NO. IDENTIFICATION NO. TELEPHONE NO. IDENTIFICATION NO.
1. SECURITY INTEREST. For good and valuable consideration, Owner of
Collateral ("Owner") grants to Lender identified above a continuing security
interest in the Collateral described below to secure the obligations
described in this Agreement.
2. OBLIGATIONS. The Collateral shall secure the payment and performance
of all of Borrower's and Owner's present and future, joint and/or several,
direct and indirect, absolute and contingent, express and implied,
indebtedness, (including costs of collection, legal expenses and attorneys'
fees, incurred by Lender upon the occurrence of a default under this
Agreement, in collecting or enforcing payment of such indebtedness, or
preserving, protecting or realizing on the Collateral herein), liabilities,
obligations and covenants (cumulatively "Obligations") to Lender including
(without limitation) those arising under or pursuant to:
a. this Agreement and the following promissory notes and agreements:
- --------------------------------------------------------------------------------
INTEREST PRINCIPAL FUNDING MATURITY CUSTOMER LOAN
RATE AMOUNT DATE DATE NUMBER NUMBER
VARIABLE $3,000,000.00 12/29/95 01/01/97 533551
- --------------------------------------------------------------------------------
b. all other present or future, Obligations of Borrower or Owner to
Lender (whether incurred for the same or different purposes than
the foregoing);
c. all renewals, extensions, amendments, modifications, replacements
or substitutions to any of the foregoing; and
d. applicable law.
3. COLLATERAL. The Collateral shall consist of all of the
following-described property and Owner's rights, title and interest in such
property whether now owned or hereafter acquired by Owner and wherever
located:
[X] All accounts, contract rights and rights to payment in money or in
kind for goods sold or leased or for services rendered, and all
guarantees and security therefor; all returned or repossessed
goods arising from or relating to any account, contract right, or
right to payment; and any rights of Owner as an unpaid seller of
goods or services; including, but not limited to, the accounts and
contract rights described on Schedule A attached hereto and
incorporated herein by this reference;
[ ] All chattel paper, together with all guarantees and security
therefor; including, but not limited to, the chattel paper
described on Schedule A attached hereto and incorporated herein by
this reference;
[ ] All documents of title including, but not limited to, the
documents described on Schedule A attached hereto and incorporated
herein by this reference;
[X} All equipment, machinery, and vehicles including, but not limited
to, the equipment described on Schedule A attached hereto and
incorporated herein by this reference;
[ ] All fixtures, including, but not limited to, the fixtures located
or to be located on the real property described on Schedule B
attached hereto and incorporated herein by this reference;
[X} All general intangibles of any kind or nature including, but not
limited to, goodwill, literary rights, copyrights, trademarks and
patents; all securities, stocks, bonds, partnership interests, and
similar devices, any right to performance or payment, including,
without limitation, rights to receive dividends, tax refunds,
insurance claims and insurance proceeds, pension payments, and
other disbursements; things in action; and rights in intangible
property of any kind, specifically including, but not limited to,
the general intangibles described on Schedule A attached hereto
and incorporated herein by this reference;
[ ] All instruments including, but not limited to, the instruments
described on Schedule A attached hereto and incorporated herein by
this reference;
[X] All inventory (goods, merchandise, and other personal property)
which are held for sale or lease, or are furnished or to be
furnished under any contract of service or are raw materials,
work-in-process, supplies, or materials used or consumed in
Owner's business, and any right of Owner as an unpaid seller of
goods or services, including, but not limited to, the inventory
described on Schedule A attached hereto and incorporated herein by
this reference;
[ ] All minerals or the like located on or related to the real
property described on Schedule B attached hereto and incorporated
herein by this reference;
[ ] All standing timber located on the real property described on
Schedule B attached hereto and incorporated herein by this
reference;
[ ] Other:
All monies, instruments, and savings, checking or other deposit accounts
that are now or in the future in Lender's custody or control (excluding IRA,
Keogh, trust accounts, and deposits subject to tax penalties if so
assigned);
All accessions, accessories, additions, amendments, attachments,
modifications, replacements and substitutions to any of the above;
All proceeds and products of any of the above;
All policies of insurance pertaining to any of the above as well as any
proceeds and unearned premiums pertaining to such policies; and
All books and records pertaining to any of the above.
Page 1 of 5 /s/GMA
<PAGE>
4. OWNER'S TAXPAYER IDENTIFICATION. Owner's social security number or
federal taxpayer identification number is: 41-1681094.
5. RESIDENCY/LEGAL STATUS. [ ] Owner is an individual(s) and a resident
of the state of: _______________________________.
[X] Owner is a: Corporation duly organized, validly existing and in good
standing under the laws of the state of: MINNESOTA.
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS. Owner represents, warrants
and covenants to Lender that:
(a) Owner is and shall remain the sole owner of the Collateral;
(b) Neither Owner nor, to the best of Owner's knowledge, has any other
party used, generated, released, discharged, stored or disposed of
any hazardous material, toxic substance, or related material on
any of the Collateral. Owner shall not commit or permit such
actions to be taken in the future. The term "Hazardous Materials"
shall mean any substance, material, or waste which is or becomes
regulated by any governmental authority including, but not limited
to, (i) petroleum; (ii) asbestos; (iii) polychlorinated biphenyls;
(iv) those substances, materials or wastes designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water
Act or listed pursuant to Section 307 of the Clean Water Act or
any amendments or replacements to these statutes; (v) those
substances, materials or wastes defined as a "hazardous waste"
pursuant to Section 1004 of the Resource Conservation and Recovery Act
or any amendments or replacements to that statute; or (vi) those
substances, materials or wastes defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, or any amendments or
replacements to that statute;
(c) Owner's chief executive office, chief place of business, office
where its business records are located, or residence is the
address identified above. Owner's other executive offices, places
of business, locations of its business records, or domiciles are
described on Schedule C attached hereto and incorporated herein by
this reference. Owner shall immediately advise Lender in writing
of any change in or addition to the foregoing addresses;
(d) Owner shall not become a party to any restructuring of its form of
business or participate in any consolidation, merger, liquidation
or dissolution without providing Lender with thirty (30) or more
days' prior written notice of any such change;
(e) Owner shall notify Lender of the nature of any intended change of
Owner's name, or the use of any trade name, and the effective date
of such change;
(f) The Collateral is and shall at all times remain free of all tax
and other liens, security interests, encumbrances and claims of
any kind except for those belonging to Lender and those described
on Schedule D attached hereto and incorporated herein by this
reference. Without waiving the event of default as a result
thereof, Owner shall take any action and execute any document
needed to discharge the foregoing liens, security interests,
encumbrances and claims;
(g) Owner shall defend the Collateral against all claims and demands
of all persons at any time claiming any interest therein;
(h) All of the goods, fixtures, minerals or the like, and standing
timber constituting the Collateral is and shall be located at
Owner's executive offices, places of business, residence and
domiciles specifically described in this Agreement;
(i) Owner shall provide Lender with possession of chattel paper and
instruments constituting the Collateral unless otherwise agreed by
Lender. Owner shall promptly mark all chattel paper, instruments,
and documents constituting the Collateral to show that the same
are subject to Lender's security interest;
(j) All of Owner's accounts or contract rights; chattel paper,
documents; general intangibles; instruments; and federal, state,
county, and municipal government and other permits and licenses;
trusts, liens, contracts, leases, and agreements constituting the
Collateral are and shall be valid, genuine and legally enforceable
obligations and rights belonging to Owner and not subject to any
claim, defense, set-off or counterclaim of any kind;
(k) Owner shall not amend, modify, replace or substitute any account
or contract right; chattel paper; document; general intangible; or
instrument constituting the Collateral without the prior consent
of Lender, which shall not be unreasonably withheld;
(l) Owner has the right and is duly authorized to enter into and
perform its obligations under this Agreement. Owner's execution
and performance of these obligations do not and shall not conflict
with the provisions of any statute, regulation, ordinance, rule of
law, contract or other agreement which may now or hereafter be
binding on Owner;
(m) No action or proceeding is pending against Owner which might
result in any material adverse change in its business operations
or financial condition or materially affect the Collateral.
(n) Owner has not violated and shall not violate any applicable
federal, state, county or municipal statute, regulation or
ordinance (including but not limited to those governing Hazardous
Materials) which may materially and adversely affect its business
operations or financial condition or the Collateral;
(o) Owner shall, upon Lender's request, deposit all proceeds of the
Collateral into an account or accounts maintained by Owner or
Lender at Lender's institution;
(p) Owner will, upon receipt, deliver to Lender as additional
Collateral all securities distributed on account of the Collateral
such as stock dividends and securities resulting from stock
splits, reorganizations and recapitalizations; and
(q) This Agreement and the obligations described in this Agreement are
executed and incurred for business and not consumer purposes.
7. SALE OF COLLATERAL. Owner shall not assign, convey, lease, sell or
transfer any of the Collateral to any third party without the prior written
consent of Lender except for sales of inventory to buyers in the ordinary
course of business.
8. FINANCING STATEMENTS AND OTHER DOCUMENTS. Owner shall take all actions
and execute all documents required by Lender to attach, perfect and maintain
Lender's security interest in the Collateral and establish and maintain
Lender's right to receive the payment of the proceeds of the Collateral
including, but not limited to, executing any financing statements, fixture
filings, continuation statements, notices of security interest in the
Collateral by filing carbon, photographic or other reproductions of the
aforementioned documents with any authority required by the Uniform
Commercial Code or other applicable law. Lender may execute and file any
financing statements, as well as extensions, renewals and amendments of
financing statements in such form as Lender may require to perfect and
maintain perfection of any security interest granted in this Agreement. Owner
appoints Lender as its agent and attorney-in-fact to endorse Owner's name on
all instruments and other remittances payable to Owner with respect to the
Collateral. This power of attorney is coupled with an interest and is
irrevocable.
9. INQUIRIES AND NOTIFICATION TO THIRD PARTIES. Owner hereby authorizes
Lender to contact any third party and make any inquiry pertaining to Owner's
financial condition or the Collateral. In addition, Lender is authorized to
provide oral or written notice of its security interest in the Collateral to
any third party.
10. COLLECTION OF INDEBTEDNESS FROM THIRD PARTIES. Lender shall be
entitled to notify, and upon the request of Lender, Owner shall notify any
account debtor or other third party (including, but not limited to, insurance
companies) to pay any indebtedness or obligation owing to Owner and
constituting the Collateral (cumulatively "Indebtedness") to Lender whether
or not a default exists under this Agreement. Owner shall diligently collect
the Indebtedness owing to Owner from its account debtors and other third
parties until the giving of such notification. In the event that Owner
possesses or receives possession of any instruments or other remittances with
respect to the Indebtedness following the giving of such notification or if
the instruments or other remittances constitute the prepayment of any
Indebtedness or the payment or any insurance proceeds. Owner shall hold such
instruments and other remittances in trust for Lender apart from its other
property, endorse the instruments and other remittances to Lender, and
immediately provide Lender with possession of the instruments and other
remittances. Lender shall be entitled, but not required, to collect (by legal
proceedings or otherwise), extend the time for payment, compromise, exchange
or release any obligor or collateral upon, or otherwise settle any of the
Indebtedness whether or not an event of default exists under this Agreement.
Lender shall not be liable to Owner for any action, error, mistake, omission
or delay pertaining to the actions described in this paragraph or any damages
resulting therefrom.
11. POWER OF ATTORNEY. Owner hereby appoints Lender as its
attorney-in-fact to endorse Owner's name on all instruments and other
remittances payable to Owner with respect to the Indebtedness or other
documents pertaining to Lender's actions in connection with the Indebtedness.
In addition, Lender shall be entitled, but not required, to perform any
action or execute any document required to be taken or executed by Owner
under this Agreement. Lender's performance of such action or execution of
such documents shall not relieve Owner from any obligation or cure any
default under this Agreement. The powers of attorney described in this
paragraph are coupled with an interest and are irrevocable.
12. USE AND MAINTENANCE OF COLLATERAL. Owner shall use the Collateral
solely in the ordinary course of its business, for the usual purposes
intended by the manufacturer (if applicable), with due care, and in
compliance with the laws, ordinances, regulations, requirements and rules of
all federal, state, county and municipal authorities including environmental
laws and regulations and insurance policies. Owner shall not make any
alterations, additions or improvements to the Collateral without the prior
written consent of Lender. Without limiting the foregoing, all alterations,
additions and improvements made to the Collateral shall be subject to the
security interest belonging to Lender, shall not be removed without the prior
written consent of Lender, and shall be made at Owner's sole expense. Owner
shall take all actions and make any repairs or replacements needed to
maintain the Collateral in good condition and working order.
Page 2 of 5 /s/GMA
<PAGE>
13. LOSS OR DAMAGE. Owner shall bear the entire risk of any loss, theft,
destruction or damage (cumulatively "Loss or Damage") to all or any part of
the Collateral. In the event of any Loss or Damage, Owner will either restore
the Collateral to its previous condition, replace the Collateral with similar
property acceptable to Lender in its sole discretion, or pay or cause to be
paid to Lender the decrease in fair market value of the affected Collateral.
14. INSURANCE. The Collateral will be kept insured for its full value
against all hazards including loss or damage caused by fire, collision, theft
or other casualty. If the Collateral consists of a motor vehicle, Owner will
obtain comprehensive and collision coverage in amounts at least equal to the
actual cash value of the vehicle with deductibles not to exceed $ n/a.
Insurance coverage obtained by Owner shall be from a licensed insurer subject
to Lender's approval. Owner shall assign to Lender all rights to receive
proceeds of insurance not exceeding the amount owed under the obligations
described above, and direct the insurer to pay all proceeds directly to
Lender. The insurance policies shall require the insurance company to provide
Lender with at least thirty (30) days' written notice before such policies
are altered or canceled in any manner. The insurance policies shall name
Lender as a loss payee and provide that no act or omission of Owner or any
other person shall affect the right of Lender to be paid the insurance
proceeds pertaining to the loss or damage of the Collateral. In the event
Owner fails to acquire or maintain insurance, Lender (after providing notice
as may be required by law) may in its discretion procure appropriate
insurance coverage upon the Collateral and charge the insurance cost as an
advance of principal under the promissory note. Owner shall furnish Lender
with evidence of insurance indicating the required coverage. Lender may act
as attorney-in-fact for Owner in making and settling claims under insurance
policies, cancelling any policy or endorsing Owner's name on any draft or
negotiable instrument drawn by any insurer.
15. INDEMNIFICATION. Lender shall not assume or be responsible for the
performance of any of Owner's obligations with respect to the Collateral
under any circumstances. Owner shall immediately provide Lender with written
notice of and indemnify and hold Lender and its shareholders, directors,
officers, employees and agents harmless from all claims, damages, liabilities
(including attorneys' fees and legal expenses), causes of action, actions,
suits and other legal proceedings (cumulatively "Claims") pertaining to its
business operations or the Collateral including, but not limited to, those
arising from Lender's performance of Owner's obligations with respect to the
Collateral. Owner, upon the request of Lender, shall hire legal counsel to
defend Lender from such Claims, and pay the attorneys' fees, legal expenses
and other costs to the extent permitted by applicable law, incurred in
connection therewith. In the alternative, Lender shall be entitled to employ
its own legal counsel to defend such Claims at Owner's cost.
16. TAXES AND ASSESSMENTS. Owner shall execute and file all tax returns
and pay all taxes, licenses, fees and assessments relating to its business
operations and the Collateral (including, but not limited to, income taxes,
personal property taxes, withholding taxes, sales taxes, use taxes, excise
taxes and workers' compensation premiums) in a timely manner.
17. INSPECTION OF COLLATERAL AND BOOKS AND RECORDS. Owner shall allow
Lender or its agents to examine, inspect and make abstracts and copies of the
Collateral and Owner's books and records pertaining to Owner's business
operations and financial condition or the Collateral during normal business
hours. Owner shall provide any assistance required by Lender for these
purposes. All of the signatures and information pertaining to the Collateral
or contained in the books and records shall be genuine, true, accurate and
complete in all respects.
18. DEFAULT: Owner shall be in default under this Agreement in the event
that Owner, Borrower or any guarantor:
(a) fails to make any payment on this Agreement or any other
indebtedness to Lender when due;
(b) fails to perform any obligation or breaches any warranty or
covenant to Lender contained in this Agreement or any other
present or future written agreement regarding this or any
indebtedness to Lender;
(c) provides or causes any false or misleading signature or
representation to be provided to Lender;
(d) allows the Collateral to be destroyed, lost or stolen, damaged in
any material respect, or subjected to seizure or confiscation;
(e) seeks to revoke, terminate or otherwise limit its liability under
any continuing guaranty;
(f) permits the entry or service of any garnishment, judgment, tax
levy, attachment or lien against Owner, any guarantor, or any of
their property;
(g) dies, becomes legally incompetent, is dissolved or terminated,
ceases to operate its business, becomes insolvent, makes an
assignment for the benefit of creditors, or becomes the subject of
any bankruptcy, insolvency or debtor rehabilitation proceeding;
(h) allows the Collateral to be used by anyone to transport or store
goods, the possession, transportation, or use of which, is
illegal; or
(i) causes Lender in good faith to deem itself insecure for any
reason.
19. RIGHTS OF LENDER ON DEFAULT: If there is a default under this
Agreement, Lender shall be entitled to exercise one or more of the following
remedies without notice or demand (except as required by law):
(a) to declare the Obligations immediately due and payable in full;
(b) to collect the outstanding Obligations with or without resorting
to judicial process;
(c) to retain any instruments or other remittances constituting the
Collateral;
(d) to take possession of any Collateral in any manner permitted by
law;
(e) to apply for and obtain, without notice and upon ex parte
application, the appointment of a receiver for the Collateral
without regard to Owner's financial condition or solvency, the
adequacy of the Collateral to secure the payment or performance of
the obligations, or the existence of any waste to the Collateral;
(f) to require Owner to deliver and make available to Lender any
Collateral at a place reasonably convenient to Owner and Lender;
(g) to sell, lease or otherwise dispose of any Collateral and collect
any deficiency balance with or without resorting to legal process;
(h) to set-off Owner's obligations against any amounts due to Owner
including, but not limited to, monies, instruments, and deposit
accounts maintained with Lender; and
(i) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lenders rights are cumulative and may be exercised together, separately, and
in any order. If notice to Owner of intended disposition of Collateral is
required by law, Lender will provide reasonable notification of the time and
place of any sale or intended disposition as required under the Uniform
Commercial Code. In the event that Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of a prejudgment remedy
in an action against Owner, Owner waives the posting of any bond which might
otherwise be required. Lender's remedies under this paragraph are in addition
to those available at common law, such as setoff.
20. APPLICATION OF PAYMENTS. Whether or not a default has occurred under
this Agreement, all payments made by or on behalf of Owner and all credits
due to Owner from the disposition of the Collateral or otherwise may be
applied against the amounts paid by Lender (including attorneys' fees and
legal expenses) in connection with the exercise of its rights or remedies
described in this Agreement and any interest thereon and then to the payment
of the remaining Obligations.
21. REIMBURSEMENT OF AMOUNTS EXPENDED BY LENDER. Owner shall reimburse
Lender for all amounts (including attorneys' fees and legal expenses)
expended by Lender in the performance of any action required to be taken by
Owner or the exercise of any right or remedy belonging to Lender under this
Agreement, together with interest thereon at the lower of the highest rate
described in any promissory note or credit agreement executed by Borrower or
Owner or the highest rate allowed by law from the date of payment until the
date of reimbursement. These sums shall be included in the definition of
Obligations, shall be secured by the Collateral identified in this Agreement
and shall be payable upon demand.
22. ASSIGNMENT. Owner shall not be entitled to assign any of its rights,
remedies or obligations described in this Agreement without the prior written
consent of Lender. Consent may be withheld by Lender in its sole discretion.
Lender shall be entitled to assign some or all of its rights and remedies
described in this Agreement without notice to or the prior consent of Owner
in any manner.
23. MODIFICATION AND WAIVER. The modification or waiver of any of Owner's
Obligations or Lender's rights under this Agreement must be contained in a
writing signed by Lender. Lender may perform any of Owner's Obligations or
delay or fail to exercise any of its rights without causing a waiver of those
Obligations or rights. A waiver on one occasion shall not constitute a waiver
on any other occasion. Owner's Obligations under this Agreement shall not be
affected if Lender amends, compromises, exchanges, fails to exercise, impairs
or releases any of the obligations belonging to any Owner or third party or
any of its rights against any Owner, third party or collateral.
24. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Owner and Lender and their respective successors,
assigns, trustees, receivers, administrators, personal representatives,
legatees, and devisees.
25. NOTICES. Any notice or other communication to be provided under this
Agreement shall be in writing and sent to the parties at the addresses
described in this Agreement or such other address as the parties may
designate in writing from time to time.
26. SEVERABILITY. If any provision of this Agreement violates the law or
is unenforceable, the rest of the Agreement shall remain valid.
Page 3 of 5 /s/GMA
<PAGE>
27. APPLICABLE LAW. This Agreement shall be governed by the laws of the
state indicated in Lender's address. Owner consents to the jurisdiction and
venue of any court located in the state indicated in Lender's address in the
event of any legal proceeding pertaining to the negotiation, execution,
performance or enforcement of any term or condition contained in this
Agreement or any related document and agrees not to commence or seek to
remove such legal proceeding in or to a different court.
28. COLLECTION COSTS. If Lender hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Agreement, Owner
agrees to pay Lender's attorneys' fees and collection costs.
29. MISCELLANEOUS. This Agreement is executed for commercial purposes.
Owner shall supply information regarding Owner's business operations and
financial condition or the Collateral in the form and manner as requested by
Lender from time to time. All information furnished by Owner to Lender shall
be true, accurate and complete in all respects. Owner and Lender agree that
time is of the essence. Owner waives presentment, demand for payment, notice
of dishonor and protest except as required by law. All references to Owner in
this Agreement shall include all parties signing below except Lender. If
there is more than one Owner, their obligations shall be joint and several.
This Agreement shall remain in full force and effect until Lender provides
Owner with written notice of termination. This Agreement and any related
documents represent the complete and integrated understanding between Owner
and Lender pertaining to the terms and conditions of those documents.
30. WAIVER OF JURY TRIAL. LENDER AND OWNER HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN
CONJUNCTION WITH THE PROMISSORY NOTE, THIS AGREEMENT AND ANY OTHER AGREEMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH OR THEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
LENDER MAKING THE LOAN EVIDENCED BY THE PROMISSORY NOTE.
31. ADDITIONAL TERMS:
Owner acknowledges that Owner has read, understands, and agrees to the
terms and conditions of this Agreement.
Dated: DECEMBER 29,1995
LENDER: NORTHERN NATIONAL BANK
/s/Barbara A. Smith
--------------------------------
BARBARA A. SMITH
SENIOR VICE PRESIDENT
OWNER: NORTECH SYSTEMS INCORPORATED OWNER:
/s/Garry M. Anderly
- ----------------------------------- --------------------------------
GARRY M. ANDERLY
VICE PRESIDENT
OWNER: OWNER:
- ----------------------------------- --------------------------------
OWNER: OWNER:
- ----------------------------------- --------------------------------
OWNER: OWNER:
- ----------------------------------- --------------------------------
OWNER: OWNER:
- ----------------------------------- --------------------------------
Page 4 of 5 /s/GMA
<PAGE>
SCHEDULE A
SCHEDULE B
The name of the record owner is:
-----------------------------------------
SCHEDULE C
SCHEDULE D
Page 5 of 5 /s/GMA
<PAGE>
BORROWER
NORTECH SYSTEMS INCORPORATED
[LOGO]NORTHERN VARIABLE RATE
NATIONAL BANK COMMERCIAL
201 3RD STREET PROMISSORY
BEMIDJI, MN 56601-0790 NOTE
TELEPHONE: 218-751-1530
"LENDER"
ADDRESS
4050 NORRIS COURT
BEMIDJI, MN 56601
TELEPHONE NO. IDENTIFICATION NO
218-751-0110
- --------------------------------------------------------------------------------
OFFICER INTEREST PRINCIPAL FUNDING MATURITY CUSTOMER LOAN
INITIALS RATE AMOUNT DATE DATE NUMBER NUMBER
BAS VARIABLE $510,000.00 12/29/95 01/01/01 533522
- --------------------------------------------------------------------------------
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of FIVE HUNDRED TEN THOUSAND AND NO/100 Dollars
($ 510,000.00) plus interest on the unpaid principal balance at the rate and in
the manner described below. All amounts received by Lender shall be applied
first to late payment charges and expenses, then to accrued interest, and then
to principal or in any other order as determined by Lender, in Lender's sole
discretion, as permitted by law.
INTEREST RATE: This note has a variable interest rate feature. Interest on the
note may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days per year. Interest on this
Note shall be calculated at a variable rate equal to TWO AND FIVE 500/1000
percent (2.500%) per annum OVER the Index Rate. The initial Index Rate is FIVE
AND 625/1000 percent (5.625%) per annum. The initial interest rate on this Note
shall be EIGHT AND 125/1000 percent (8.125%) per annum. Any change in the
interest rate resulting from a change in the Index Rate will be effective on:
APRIL 1, 1996 AND QUARTERLY THEREAFTER.
INDEX RATE: The Index Rate for this Note shall be:
THE 90 DAY LIBOR RATE AS QUOTED BY FIRSTAR BANK MILWAUKEE, N.A. AND IN
EFFECT AS OF THE DATE OF RATE EXCHANGE.
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be FOUR
AND NO/1000 percent (4.000%) per annum. The maximum interest rate on this Note
shall not exceed NINETEEN AND NO/1000 percent (19.000%) per annum or the maximum
interest rate Lender is permitted to charge by law, whichever is less.
POST-MATURITY RATE: [ ] if checked, this loan is for at least $100,000, and
after maturity, due to scheduled maturity or acceleration, past due amounts
shall be interest at the lesser of:____________________________________________,
or the maximum interest rate Lender is permitted to charge by law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule:
59 PAYMENTS OF $5,000 BEGINNING FEBRUARY 1, 1996 AND CONTINUING AT MONTHLY
TIME INTERVALS THEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL BALANCE
PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON JANUARY 1, 2001.
ANY CHANGE IN THE INTEREST RATE MAY RESULT IN A CHANGE IN THE MONTHLY
PAYMENT AMOUNT, SUCH THAT THE NEW MONTHLY PAYMENT WOULD BE SUFFICIENT TO
FULLY AMORTIZE THE LOAN BASED UPON A 15 YEAR AMORTIZATION FROM THE
ORIGINATION DATE.
All payments will be made to Lender at its address described above and in lawful
currency of the United States of America.
RENEWAL: If checked, [x] this Note is a renewal of Loan Number 533404, and not
in payment of that Note.
SECURITY: To secure the payment and performance of obligations incurred under
this Note. Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of the Borrower's rights, title, and interest, in all
monies, instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control.
Upon default, and to the extent permitted by applicable law, Lender may exercise
any or all of its rights or remedies as a secured party with respect to such
property which rights and remedies shall be in addition to all other rights and
remedies granted to Lender including, without limitation, Lender's common law
right of setoff. [x] If checked, the obligations under this Note are also
secured by a lien and/or security interest in the property described in the
documents executed in connection with this Note as well as any other property
designated as security now or in the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
will be credited as determined by Lender and as permitted by law. If this Note
is prepaid in full, there will be: [x] no prepayment penalty. [ ] A prepayment
penalty of__________% of the principal perpaid.
LATE PAYMENT CHARGE: If a payment is received more than 10 days late, Borrower
will be charged a late payment charge of 5.00% of the unpaid late installment.
- --------------------------------------------------------------------------------
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: DECEMBER 29, 1995
BORROWER: NORTECH SYSTEMS INCORPORATED BORROWER
/S/ G.M. Anderly
- --------------------------------------- ------------------------------
GARRY M. ANDERLY
VICE PRESIDENT
BORROWER BORROWER
- --------------------------------------- ------------------------------
BORROWER BORROWER
- --------------------------------------- ------------------------------
BORROWER BORROWER
- --------------------------------------- ------------------------------
<PAGE>
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor or any other third party:
(a) fails to make any payment on this Note or any other indebtedness to
Lender when due;
(b) fails to perform any obligation or breaches any warranty or covenant to
Lender contained in this Note or any other present or future written
agreement regarding this or any indebtedness of Borrower to Lender.
(c) provides or causes any false or misleading signature or representation to
be provided to Lender;
(d) allows the collateral securing this Note (if any) to be lost, stolen,
destroyed, damaged in any material respect, or subjected to seizure or
confiscation;
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, any guarantor, or any of their
property or the Collateral;
(f) dies, becomes legally incompetent, is dissolved or terminated, ceases to
operate its business, becomes insolvent, makes an assignment for the
benefit of creditors, fails to pay debts as they become due, or becomes
the subject of any bankruptcy, insolvency or debtor rehabilitation
proceeding; or
(g) causes Lender to deem itself insecure for any reason, or Lender, for any
reason, in good faith deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law);
(a) to declare the principal amount plus accrued interest under this Note and
all other present and future obligations of Borrower immediately due and
payable in full;
(b) to collect the outstanding obligations of Borrower with or without
resorting to judicial process;
(c) to take possession of any collateral in any manner permitted by law;
(d) to require Borrower to deliver and make available to Lender any
collateral at a place reasonably convenient to Borrower and Lender;
(e) to sell, lease or otherwise dispose of any collateral and collect any
deficiency balance with or without resorting to legal process;
(f) to set-off Borrower's obligations against any amounts due to Borrower
including, but not limited to monies, instruments, and deposit accounts
maintained with Lender; and
(g) to exercise all other rights available to Lender under any other written
agreement or applicable law. Lenders rights are cumulative and may be
exercised together, separately, and in any order. Lender's remedies
under this paragraph are in addition to those available at common law,
including, but not limited to, the right of set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, Lender's right to
demand payment, at any time, and from time to time, shall be in Lender's sole
and absolute discretion, whether or not any default has occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements and other financial information (including, but not limited to,
balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrowers
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay or
fail to exercise any of its rights without causing a waiver of those obligations
or rights. A waiver on one occasion will not constitute a waiver on any other
occasion. Borrower's obligations under this Note shall not be affected if
Lender amends, compromises, exchanges, fails to exercise, impairs or releases
any of the obligations belonging to any co-borrower or guarantor or any of its
rights against any co-borrower, guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this Note is
invalid, illegal or unenforceable, the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Notwithstanding anything contained in this Note to the contrary, in no event
shall interest accrue under this Note, before or after maturity, at a rate in
excess of the highest rate permitted by applicable law, and if interest
(including any charge or fee held to be interest by a court of competent
jurisdiction) in excess thereof be paid, any excess shall constitute a payment
of, and be applied to, the principal balance hereof, and if the principal
balance has been fully paid, then such interest shall be repaid to the Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written consent
of Lender which may be withheld by Lender in its sole discretion. Lender will
be entitled to assign some or all of its rights and remedies described in this
Note without notice to or the prior consent of Borrower in any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and venue
of any court located in the state indicated in Lender's address in the event of
any legal proceeding pertaining to the negotiation, execution, performance or
enforcement of any term or condition contained in this Note or any related loan
document and agrees not to commence or seek to remove such legal proceeding in
or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any
amount due or enforcing any right or remedy under this Note, Borrower agrees to
pay Lender's attorney's fees, to the extent permitted by applicable law, and
collection costs.
11. RETURNED CHECK: If a check for payment is returned to Lender for any
reason, Lender will charge an additional fee of $15.00.
12. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower
waives presentment, demand for payment, notice of dishonor and protest. If
Lender obtains a judgment for any amount due under this Note, interest will
accrue on the judgment at the judgment rate of interest permitted by law. All
references to Borrower in this Note shall include all of the parties signing
this Note. If there is more than one Borrower their obligations will be joint
and several. This Note and any related documents represent the complete and
integrated understanding between Borrower and Lender pertaining to the terms and
conditions of those documents.
13. JURY TRIAL WAIVER: BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
CIVIL ACTION ARISING OUT OF, OR BASED UPON, THIS NOTE OR THE COLLATERAL SECURING
THIS NOTE.
14. ADDITIONAL TERMS:
<PAGE>
BORROWER
NORTECH SYSTEMS INCORPORATED
[LOGO]NORTHERN VARIABLE RATE
NATIONAL BANK COMMERCIAL
201 3RD STREET PROMISSORY
BEMIDJI, MN 56601-0790 NOTE
TELEPHONE: 218-751-1530
"LENDER"
ADDRESS
4050 NORRIS COURT
BEMIDJI, MN 56601
TELEPHONE NO. IDENTIFICATION NO.
218-751-0110
- --------------------------------------------------------------------------------
OFFICER INTEREST PRINCIPAL FUNDING MATURITY CUSTOMER LOAN
INITIALS RATE AMOUNT DATE DATE NUMBER NUMBER
BAS VARIABLE $640,000.00 12/29/95 01/01/01 533553
- --------------------------------------------------------------------------------
PROMISE TO PAY
For value received, Borrower promises to pay to the order of Lender indicated
above the principal amount of SIX HUNDRED FORTY THOUSAND AND NO/100 Dollars
($640,000.00) plus interest on the unpaid principal balance at the rate and
in the manner described below. All amounts received by Lender shall be
applied first to late payment charges and expenses, then to accrued interest,
and then to principal or in any other order as determined by Lender, in
Lender's sole discretion, as permitted by law.
INTEREST RATE: This Note has a variable interest rate feature. Interest on
the Note may change from time to time if the Index Rate identified below
changes. Interest shall be computed on the basis of 360 days per year.
Interest on this Note shall be calculated at a variable rate equal to TWO AND
500/1000 percent (2.500%) per annum over the Index Rate. The initial Index
Rate is FIVE AND 625/1000 percent (5.625%) per annum. The initial interest
rate on this Note shall be EIGHT AND 125/1000 percent (8.125%) per annum. Any
change in the interest rate resulting from a change in the Index Rate will be
effective on: APRIL 1, 1996 AND QUARTERLY THEREAFTER.
INDEX RATE: The Index Rate for this Note shall be:
THE 90 DAY LIBOR RATE AS QUOTED BY FIRSTAR BANK MILWAUKEE, N.A. AND IN
EFFECT AS OF THE DATE OF RATE CHANGE.
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be
FOUR AND NO/1000 percent (4.000%) per annum. The maximum interest rate on
this Note shall not exceed NINETEEN AND NO/1000 percent (19.000%) per annum
or the maximum interest rate Lender is permitted to charge by law, whichever
is less.
POST-MATURITY RATE: [ ] If checked, this loan is for at least $100,000.00,
and after maturity, due to scheduled maturity or acceleration, past due amounts
shall bear interest at the lessor of:__________________________________________,
or the maximum interest rate Lender is permitted to charge by law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to
the following schedule:
59 PAYMENTS OF $13,060.00 BEGINNING FEBRUARY 1, 1996 AND CONTINUING AT
MONTHLY TIME INTERVALS TEREAFTER. A FINAL PAYMENT OF THE UNPAID PRINCIPAL
BALANCE PLUS ACCRUED INTEREST IS DUE AND PAYABLE ON JANUARY 1, 2001.
ANY CHANGE IN THE INTEREST RATE MAY RESULT IN A CHANGE IN THE MONTHLY
PAYMENT AMOUNT, SUCH THAT THE NEW MONTHLY PAYMENT WOULD BE SUFFICIENT
TO FULLY AMORTIZE THE LOAN BY THE MATURITY DATE.
All payments will be made to Lender at its address described above and in lawful
currency of the United States of America.
RENEWAL: If checked, [X] this Note is a renewal of Loan Number 533353/533404,
and not in payment of that Note.
SECURITY: To secure the payment and performance of obligations incurred
under this Note. Borrower grants Lender a security interest in, and pledges
and assigns to Lender all of Borrower's rights, title, and interest, in all
monies, instruments, savings, checking and other deposit accounts of
Borrower's, (excluding IRA, Keogh and trust accounts and deposits subject to
tax penalties if so assigned) that are now or in the future in Lender's
custody or control. Upon default, and to the extent permitted by applicable
law, Lender may exercise any or all of its rights or remedies as a secured
party with respect to such property which rights and remedies shall be in
addition to all other rights and remedies granted to Lender including,
without limitation, Lender's common law right of setoff. [X] If checked, the
obligations under this Note are also secured by a lien and/or security
interest in the property described in the documents executed in connection
with this Note as well as any other property designated as security now or in
the future.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
will be credited as determined by Lender and as permitted by law. If this
Note is prepaid in full, there will be [X] No prepayment penalty [ ] A
prepayment penalty of ___________% of the principal prepaid.
LATE PAYMENT CHARGE: If a payment is received more than 10 days late, Borrower
will be charged a late payment of 5.00% of the unpaid installment.
- --------------------------------------------------------------------------------
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE
SIDE. BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: DECEMBER 29, 1995
BORROWER: NORTECH SYSTEMS INCORPORATED BORROWER:
/s/Garry M. Anderly
- ----------------------------------- -----------------------------------
GARRY M. ANDERLY
VICE PRESIDENT
BORROWER: BORROWER:
- ----------------------------------- -----------------------------------
BORROWER: BORROWER:
- ----------------------------------- -----------------------------------
BORROWER: BORROWER:
- ----------------------------------- -----------------------------------
<PAGE>
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor or any other third party:
(a) fails to make any payment on this Note or any other indebtedness to Lender
when due:
(b) fails to perform any obligation or breaches any warranty or covenant to
Lender contained in this Note or any other present or future written
agreement regarding this or any indebtedness of Borrower to Lender.
(c) provides or causes any false or misleading signature or representation to
be provided to Lender:
(d) allows the collateral securing this Note (if any) to be lost, stolen,
destroyed, damaged in any material respect, or subjected to seizure or
confiscation;
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, any guarantor, or any of their
property or the Collateral;
(f) dies, becomes legally incompetent, is dissolved or terminated, ceases to
operate its business, becomes insolvent, makes an assignment for the
benefit of creditors, fails to pay debts as they become due, or becomes the
subject of any bankruptcy, insolvency or debtor rehabilitation proceeding;
or
(g) causes Lender to deem itself insecure for any reason, or Lender, for any
reason, in good faith deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note,
Lender will be entitled to exercise one or more of the following remedies
without notice or demand (except as required by law);
(a) to declare the principal amount plus accrued interest under this Note and
all other present and future obligations of Borrower immediately due and
payable in full;
(b) to collect the outstanding obligations of Borrower with or without
resorting to judicial process;
(c) to take possession of any collateral in any manner permitted by law;
(d) to require Borrower to deliver and make available to Lender any collateral
at a place reasonably convenient to Borrower and Lender;
(e) to sell, lease or otherwise dispose of any collateral and collect any
deficiency balance with or without resorting to legal process;
(f) to set-off Borrower's obligations against any amounts due to Borrower
including, but not limited to monies, instruments, and deposit accounts
maintained with Lender; and
(g) to exercise all other rights available to Lender under any other written
agreement or applicable law.
Lenders rights are cumulative and may be exercised together, separately, and in
any order. Lender's remedies under this paragraph are in addition to those
available at common law, including, but not limited to, the right of set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, Lender's right to
demand payment, at any time, and from time to time, shall be in Lender's sole
and absolute discretion, whether or not any default has occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current
financial statements and other financial information (including, but not
limited to, balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a writing
signed by Lender. Lender may perform any of Borrower's obligations or delay
or fail to exercise any of its rights without causing a waiver of those
obligations or rights. A waiver on one occasion will not constitute a waiver
on any other occasion. Borrower's obligations under this Note shall not be
affected if Lender amends, compromises, exchanges, fails to exercise, impairs
or releases any of the obligations belonging to any co-borrower or guarantor
or any of its rights against any co-borrower, guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this Note is
invalid, illegal or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby. Notwithstanding anything contained in this Note to the contrary, in
no event shall interest accrue under this Note, before or after maturity, at
a rate in excess of the highest rate permitted by applicable law, and if
interest (including any charge or fee held to be interest by a court of
competent jurisdiction) in excess thereof be paid, any excess shall
constitute a payment of, and be applied to, the principal balance hereof, and
if the principal balance has been fully paid, then such interest shall be
repaid to the Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written
consent of Lender which may be withheld by Lender in its sole discretion.
Lender will be entitled to assign some or all of its rights and remedies
described in this Note without notice to or the prior consent of Borrower in
any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and
venue of any court located in the state indicated in Lender's address in the
event of any legal proceeding pertaining to the negotiation, execution,
performance or enforcement of any term or condition contained in this Note or
any related loan document and agrees not to commence or seek to remove such
legal proceeding in or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Note, Borrower
agrees to pay Lender's attorney's fees, to the extent permitted by applicable
law, and collection costs.
11. RETURNED CHECK: if a check for payment is returned to Lender for any
reason, Lender will charge an additional fee of $15.00.
12. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower
waives presentment, demand for payment, notice of dishonor and protest. If
Lender obtains a judgment for any amount due under this Note, interest will
accrue on the judgment at the judgment rate of interest permitted by law. All
references to Borrower in this Note shall include all of the parties signing
this Note. If there is more than one Borrower, their obligations will be
joint and several. This Note and any related documents represent the
complete and integrated understanding between Borrower and Lender pertaining
to the terms and conditions of those documents.
13. JURY TRIAL WAIVER: BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY CIVIL ACTION ARISING OUT OF, OR BASED UPON, THIS NOTE OR THE COLLATERAL
SECURING THIS NOTE.
14. ADDITIONAL TERMS:
<PAGE>
[LOGO] [LETTERHEAD]
COMMERCIAL SECURITY
AGREEMENT
BORROWER OWNER OF COLLATERAL
NORTECH SYSTEMS INCORPORATED NORTECH SYSTEMS INCORPORATED
ADDRESS ADDRESS
4050 NORRIS COURT 4050 NORRIS COURT
BEMIDJI, MN 56601 BEMIDJI, MN 56601
TELEPHONE NO. IDENTIFICATION NO. TELEPHONE NO. IDENTIFICATION NO.
218-751-0110 218-751-0110
1. SECURITY INTEREST. For good and valuable consideration, Owner of
Collateral ("Owner") grants to Lender identified above a continuing security
interest in the Collateral described below to secure the obligations described
in this Agreement.
2. OBLIGATIONS. The Collateral shall secure the payment and performance of
all of Borrower's and Owner's present and future, joint and/or several, direct
and indirect, absolute and contingent, express and implied, indebtedness,
(including costs of collection, legal expenses and attorneys' fees, incurred by
Lender upon the occurrence of a default under this Agreement, in collecting or
enforcing payment of such indebtedness, or preserving, protecting or realizing
on the Collateral herein), liabilities, obligations and covenants (cumulatively
"Obligations") to Lender including (without limitation) those arising under or
pursuant to:
a. this Agreement and the following promissory notes and agreements:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
INTEREST PRINCIPAL AMOUNT/ FUNDING/ MATURITY CUSTOMER LOAN
RATE CREDIT LIMIT AGREEMENT DATE DATE NUMBER NUMBER
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VARIABLE $3,000,000.00 12/29/95 01/01/97 533551
VARIABLE $510,000.00 12/29/95 01/01/01 533552
VARIABLE $640,000.00 12/29/95 01/01/01 533553
- ---------------------------------------------------------------------------------------------------------
</TABLE>
b. all other present or future, Obligations of Borrower or Owner to
Lender (whether incurred for the same or different purposes
than the foregoing):
c. all renewals, extensions, amendments, modifications, replacements or
substitutions to any of the foregoing; and
d. applicable law.
3. COLLATERAL. The Collateral shall consist of all of the following-
described property and Owner's rights, title and interest in such property
whether now owned or hereafter acquired by Owner and wherever located:
[X] All accounts, contract rights and rights to payment in money or in
kind for goods sold or leased or for services rendered, and all
guarantees and security therefor; all returned or repossessed goods
arising from or relating to any account, contract right, or right to
payment; and any rights of Owner as an unpaid seller of goods or
services; including, but not limited to, the accounts and contract
rights described on Schedule A attached hereto and incorporated herein
by this reference;
[ ] All chattel paper, together with all guarantees and security thereof;
including, but not limited to, the chattel paper described on
Schedule A attached hereto and incorporated herein by this reference;
[ ] All documents of title including, but not limited to, the documents
described on Schedule A attached hereto and incorporated herein by
this reference;
[X} All equipment, machinery, and vehicles including, but not limited to,
the equipment described on Schedule A attached hereto and incorporated
herein by this reference;
[ ] All fixtures, including, but not limited to, the fixtures located or
to be located on the real property described on Schedule B attached
hereto and incorporated herein by this reference;
[X} All general intangibles of any kind or nature including, but not
limited to, goodwill, literary rights, copyrights, trademarks and
patents; all securities, stocks, bonds, partnership interests, and
similar devices; any right to performance of payment, including,
without limitation, rights to receive dividends, tax refunds,
insurance claims and insurance proceeds, pension payments, and other
disbursements; things in action; and rights in intangible property of
any kind, specifically including, but not limited to, the general
intangibles described on Schedule A attached hereto and incorporated
herein by this reference;
[ ] All instruments including, but not limited to, the instruments
described on Schedule A attached hereto and incorporated herein by
this reference;
[X] All inventory (goods, merchandise, and other personal property) which
are held for sale or lease, or are furnished or to be furnished under
any contract of service or are raw materials, work-in-process,
supplies, or materials used or consumed in Owner's business, and any
right of Owner as an unpaid seller of goods or services, including,
but not limited to, the inventory described on Schedule A attached
hereto and incorporated herein by this reference;
[ ] All minerals or the like located on or related to the real property
described on Schedule B attached hereto and incorporated herein by
this reference;
[ ] All standing timber located on the real property described on Schedule
B attached hereto and incorporated herein by this reference;
[ ] Other:
All monies, instruments, and savings, checking or other deposit accounts that
are now or in the future in Lender's custody or control (excluding IRA, Keogh,
trust accounts, and deposits subject to tax penalties if so assigned);
All accessions, accessories, additions, amendments, attachments, modifications,
replacements and substitutions to any of the above;
All proceeds and products of any of the above;
All policies of insurance pertaining to any of the above as well as any proceeds
and unearned premiums pertaining to such policies; and
All books and records pertaining to any of the above.
<PAGE>
4. OWNER'S TAXPAYER IDENTIFICATION. Owner's social security number or
federal taxpayer identification number is: 41-1681094.
5. RESIDENCY/LEGAL STATUS. [ ] Owner is an individual(s) and a resident of
the state of: _______________________________
[X] Owner is a: Corporation duly organized, validly existing and in good
standing under the laws of the state of: MINNESOTA
6. REPRESENTATIONS, WARRANTIES, AND COVENANTS. Owner represents, warrants
and covenants to Lender that:
(a) Owner is and shall remain the sole owner of the Collateral;
(b) Neither Owner nor, to the best of Owner's knowledge, has any other
party used, generated, released, discharged, stored or disposed of any
hazardous material, toxic substance, or related material on any of the
Collateral. Owner shall not commit or permit such actions to be taken
in the future. The term "Hazardous Materials" shall mean any
substance, material, or waste which is or becomes regulated by any
governmental authority including, but not limited to, (i) petroleum;
(ii) asbestos; (iii) polychlorinated biphenyls; (iv)those substances,
materials or wastes designated as a "hazardous substance" pursuant to
Section 311 of the Clean Water Act or listed pursuant to Section 307
of the Clean Water Act or any amendments or replacements to these
statutes; (v) those substances, materials or wastes defined as a
"hazardous waste" pursuant to Section 101 of the Resource Conservation,
Recovery Act or any amendments or replacements to that statute; or
(vi) those substances, materials or wastes defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, or any amendments or
replacements to that statute;
(c) Owner's chief executive office, chief place of business, office where
its business records are located, or residence is the address
identified above. Owner's other executive offices, places of
business, locations of its business records, or domiciles are
described on Schedule C attached hereto and incorporated herein by
this reference. Owner shall immediately advise Lender in writing of
any change in or addition to the foregoing addresses;
(d) Owner shall not become a party to any restructuring of its form of
business or participate in any consolidation, merger, liquidation or
dissolution without providing Lender with thirty (30) or more days,
prior written notice of such change;
(e) Owner shall notify Lender of the nature of any intended change of
Owner's name, or the use of any trade name, and the effective date of
such change;
(f) The Collateral is and shall at all times remain free of all tax and
other liens, security interests, encumbrances and claims of any kind
except for those belonging to Lender and those described on Schedule D
attached hereto and incorporated herein by this reference. Without
waiving the event of default as a result thereof, Owner shall take
any action and execute any document needed to discharge the foregoing
liens, security interests, encumbrances and claims;
(g) Owner shall defend the Collateral against all claims and demands of
all persons at any time claiming any interest therein;
(h) All of the goods, fixtures, minerals or the like, and standing timber
constituting the Collateral is and shall be located at Owner's
executive offices, places of business, residence and domiciles
specifically described in this Agreementnt;
(i) Owner shall provide Lender with possession of all chattel paper and
instruments constituting the Collateral unless otherwise agreed by
Lender. Owner shall promptly mark all chattel paper, instruments, and
documents constituting the Collateral to show that the same are
subject to Lender's security interest;
(j) All of Owner's accounts or contract rights; chattel paper, documents;
general intangibles; instruments; and federal, state, county, and
municipal government and other permits and licenses; trusts, liens,
contracts, leases, and agreements constituting the Collateral are and
shall be valid, genuine and legally enforceable obligations and rights
belonging to Owner and not subject to any claim, defense, set-off or
counterclaim of any kind;
(k) Owner shall not amend, modify, replace or substitute any account or
contract right; chattel paper; document; general intangible; or
instrument constituting the Collateral without the prior consent of
Lender, which shall not be unreasonably withheld;
(l) Owner has the right and is duly authorized to enter into and perform
its obligations under this Agreement. Owner's execution and
performance of these obligations do not and shall not conflict with
the provisions of any statute, regulation, ordinance, rule of law,
contract or other agreement which may now or hereafter be binding on
Owner;
(m) No action or proceeding is pending against Owner which might result in
any material adverse change in its business operations or financial
condition or materially affect the Collateral;
(n) Owner has not violated and shall not violate any applicable federal,
state, county or municipal statute, regulation or ordinance (including
but not limited to those governing Hazardous Materials) which may
materially and adversely affect its business operations or financial
condition or the Collateral;
(o) Owner shall, upon Lender's request, deposit all proceeds of the
Collateral into an account or accounts maintained by Owner or Lender
at Lender's institution;
(p) Owner will, upon receipt, deliver to Lender as additional Collateral
all securities distributed on account of the Collateral such as stock
dividends and securities resulting from stock splits, reorganizations
and recapitalizations; and
(q) This Agreement and the obligations described in this Agreement are
executed and incurred for business and not consumer purposes.
7. SALE OF COLLATERAL. Owner shall not assign, convey, lease, sell or
transfer any of the Collateral to any third party without the prior written
consent of Lender except for sales of inventory to buyers in the ordinary course
of business.
8. FINANCING STATEMENTS AND OTHER DOCUMENTS. Owner shall take all actions
and execute all documents required by Lender to attach, perfect and maintain
Lender's security interest in the Collateral and establish and maintain
Lender's right to receive the payment of the proceeds of the Collateral
including, but not limited to, executing any financing statements, fixture
filings, continuation statements, notices of security interest and other
documents required by the Uniform Commercial Code and other applicable law.
Owner shall pay costs of filing documents in all offices whereever filing or
recording is deemed by Lender to be necessary or desirable. Lender shall be
entitled to perfect its security interest in the Collateral by filing carbon,
photographic or other reproductions of the aforementioned documents with any
authority required by the Uniform Commercial Code or other applicable law.
Lender may execute and file any financing statements, as well as extensions,
renewals and amendments of financing statements in such form as Lender may
require to perfect and maintain perfection of any security interest granted
in this Agreement. Owner appoints Lender as its agent and attorney-in-fact
to endorse Owner's name on all instruments and other remittances payable to
Owner with respect to the Collateral. This power of attorney is coupled with
an interest and is irrevocable.
9. INQUIRIES AND NOTIFICATION TO THIRD PARTIES. Owner hereby authorizes
Lender to contact any third party and make any inquiry pertaining to Owner's
financial condition or the Collateral. In addition, Lender is authorized to
provide oral or written notice of its security interest in the Collateral to
any third party.
10. COLLECTION OF INDEBTEDNESS FROM THIRD PARTIES. Lender shall be entitled
to notify, and upon the request of Lender, Owner shall notify any account debtor
or other third party (including, but not limited to, insurance companies) to pay
any indebtedness or obligation owning to Owner and constituting the Collateral
(cumulatively "Indebtedness") to Lender whether or not a default exists under
this Agreement. Owner shall diligently collect the Indebtedness owing to Owner
from its account debtors and other third parties until the giving of such
notification. In the event that Owner possesses or receives possession of
any instruments or other remittances with respect to the Indebtedness
following the giving of such notification or if the instruments or other
remittances constitute the prepayment of any indebtedness or the payment or
any insurance proceeds. Owner shall hold such instruments and other
remittances in trust for Lender apart from its other property, endorse the
instruments and other remittances to Lender, and immediately provide Lender
with possession of the instruments and other remittances. Lender shall be
entitled, but not required, to collect (by legal proceedings or otherwise),
extend the time for payment, compromise, exchange or release any obligor or
collateral upon, or otherwise settle any of the Indebtedness whether or not
an event of default exists under this Agreement. Lender shall not be liable
to Owner for any action, error, mistake, omission or delay pertaining to the
actions described in this paragraph or any damages resulting therefrom.
11. POWER OF ATTORNEY. Owner hereby appoints Lender as its attorney-in-fact
to endorse Owner's name on all instruments and other remittances payable to
Owner with respect to the Indebtedness or other documents pertaining to Lender's
actions in connection with the Indebtedness. In addition, Lender shall be
entitled, but not required, to perform any action or execute any document
required to be taken or executed by Owner under this Agreement. Lender's
performance of such action or execution of such documents shall not relieve
Owner from any obligation or cure any default under this Agreement. The powers
of attorney described in this paragraph are coupled with an interest and are
irrevocable.
12. USE AND MAINTENANCE OF COLLATERAL. Owner shall use the Collateral solely
in the ordinary course of its business, for the usual purposes intended by the
manufacturer (if applicable), with due care, and in compliance with the laws,
ordinances, regulations, requirements and rules of all federal, state, county
and municipal authorities including environmental laws and regulations and
insurance policies. Owner shall not make any alterations, additions or
improvements to the Collateral without the prior written consent of Lender.
Without limiting the foregoing, all alterations, additions and improvements made
to the Collateral shall be subject to the security interest belonging to Lender,
shall not be removed without the prior written consent of Lender, and shall be
made at Owner's sole expense. Owner shall take all actions and make any repairs
or replacements needed to maintain the Collateral in good condition and working
order.
<PAGE>
13. LOSS OR DAMAGE. Owner shall bear the entire risk of any loss, theft,
destruction or damage (cumulatively "Loss or Damage") to all or any part of the
Collateral. In the event of any Loss or Damage, Owner will either restore the
Collateral to its previous condition, replace the Collateral with similar
property acceptable to Lender in its sole discretion, or pay or cause to be paid
to Lender the decrease in fair market value of the affected Collateral.
14. INSURANCE. The Collateral will be kept insured for its full value
against all hazards including loss or damage caused by fire, collision, theft or
other casualty. If the Collateral consists of a motor vehicle, Owner will
obtain comprehensive and collision coverage in amounts at least equal to the
actual cash value of the vehicle with deductibles not to exceed $ n/a.
Insurance coverage obtained by Owner shall be from a licensed insurer subject to
Lender's approval. Owner shall assign to Lender all rights to receive proceeds
of insurance not exceeding the amount owed under the obligations described
above, and direct the insurer to pay all proceeds directly to Lender. The
insurance policies shall require the insurance company to provide Lender with at
least thirty (30) days' written notice before such policies are altered or
canceled in any manner. The insurance policies shall name Lender as a loss
payee and provide that no act or omission of Owner or any other person shall
affect the right of Lender to be paid the insurance proceeds pertaining to the
loss or damage of the Collateral. In the event Owner fails to acquire or
maintain insurance, Lender (after providing notice as may be required by law)
may in its discretion procure appropriate insurance coverage upon the Collateral
and charge the insurance cost as an advance of principal under the promissory
note. Owner shall furnish Lender with evidence of insurance indicating the
required coverage. Lender my act as attorney-in-fact for Owner in making and
settling claims under insurance policies, cancelling any policy or endorsing
Owner's name on any draft or negotiable instrument drawn by any insurer.
15. INDEMNIFICATION. Lender shall not assume or be responsible for the
performance of any Owner's obligations with respect to the Collateral under any
circumstances. Owner shall immediately provide Lender with written notice of
and indemnify and hold Lender and its shareholders, directors, officers,
employees and agents harmless from all claims, damages, liabilities (including
attorneys' fees and legal expenses), causes of action, actions, suits and other
legal proceedings (cumulatively "Claims") pertaining to its business operations
or the Collateral including, but not limited to, those arising from Lender's
performance of Owner's obligations with respect to the Collateral. Owner, upon
the request of Lender, shall hire legal counsel to defend Lender from such
Claims, and pay the attorneys' fees, legal expenses and other costs to the
extent permitted by applicable law, incurred in connection therewith. In the
alternative, Lender shall be entitled to employ its own legal counsel to defend
such Claims at Owner's cost.
16. TAXES AND ASSESSMENTS. Owner shall execute and file all tax returns and
pay all taxes, licenses, fees and assessments relating to its business
operations and the Collateral (including, but not limited to, income taxes,
personal property taxes, withholding taxes, sales taxes, use taxes, excise taxes
and workers' compensation premiums) in a timely manner.
17. INSPECTION OF COLLATERAL AND BOOKS AND RECORDS. Owner shall allow Lender
or its agents to examine, inspect and make abstracts and copies of the
Collateral and Owner's books and records pertaining to Owner's business
operations and financial condition or the Collateral during normal business
hours. Owner shall provide any assistance required by Lender for these
purposes. All of the signatures and information pertaining to the Collateral or
contained in the books and records shall be genuine, true, accurate and complete
in all respects.
18. DEFAULT: Owner shall be in default under this Agreement in the event that
Owner, Borrower or any guarantor:
(a) fails to make any payment on this Agreement or any other indebtedness
to Lender when due;
(b) fails to perform any obligation or breaches any warranty or covenant
to Lender contained in this Agreement or any other present or future
written agreement regarding this or any other indebtedness to Lender;
(c) provides or causes any false or misleading signature or representation
to be provided to Lender;
(d) allows the Collateral to be destroyed, lost or stolen, damaged in any
material respect, or subjected to seizure or confiscation;
(e) seeks to revoke, terminate or otherwise limit its liability under any
continuing guaranty;
(f) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Owner, any guarantor, or any of their
property;
(g) dies, becomes legally incompetent, is dissolved or terminated, ceases
to operate its business, becomes insolvent, makes an assignment for
the benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding;
(h) allows the Collateral to be used by anyone to transport or store
goods, the possession, transportation, or use of which, is illegal; or
(i) causes Lender in good faith to deem itself insecure for any reason.
19. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Agreement,
Lender shall be entitled to exercise one or more of the following remedies
without notice or demand (except as required by law):
(a) to declare the Obligations immediately due and payable in full;
(b) to collect the outstanding Obligations with or without resorting to
judicial process;
(c) to retain any instruments or other remittances constituting the
Collateral;
(d) to take possession of any Collateral in any manner permitted by law;
(e) to apply for and obtain, without notice and upon ex parte application,
the appointment of a receiver for the Collateral without regard to
Owner's financial condition or solvency, the adequacy of the
Collateral to secure the payment or performance of the obligations, or
the existence of any waste to the Collateral;
(f) to require Owner to deliver and make available to Lender any
Collateral at a place reasonably convenient to Owner and Lender;
(g) to sell, lease or otherwise dispose of any Collateral and collect any
deficiency balance with or without resorting to legal process;
(h) to set-off Owner's obligations against any amounts due to Owner
including, but not limited to monies, instruments, and deposit
accounts maintained with Lender; and
(i) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lenders rights are cumulative and may be exercised together, separately, and in
any order. If notice to Owner of intended disposition of Collateral is required
by law, Lender will provide reasonable notification of the time and place of any
sale or intended disposition as required under the Uniform Commercial Code. In
the event that Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of a prejudgement remedy in an action against
Owner, Owner waives the posting of any bond which might otherwise be required.
Lender's remedies under this paragraph are in addition to those available at
common law, such as setoff.
20. APPLICATION OF PAYMENTS. Whether or not a default has occurred under
this Agreement, all payments made by or on behalf of Owner and all credits due
to Owner from the disposition of the Collateral or otherwise may be applied
against the amounts paid by the Lender (including attorneys' fees and legal
expenses) in connection with the exercise of its rights or remedies described in
this Agreement and any interest thereon and then to the payment of the remaining
Obligations.
21. REIMBURSEMENT OF AMOUNTS EXPENDED BY LENDER. Owner shall reimburse Lender
for all amounts (including attorneys' fees and legal expenses) expended by
Lender in the performance of any action required to be taken by Owner or the
exercise of any right or remedy belonging to Lender under this Agreement,
together with interest thereon at the lower of the highest rate described in any
promissory note or credit agreement executed by Borrower or Owner or the highest
rate allowed by law from the date of payment until the date of reimbursement.
These sums shall be included in the definition of Obligations, shall be secured
by the Collateral identified in this Agreement and shall be payable upon demand.
22. ASSIGNMENT. Owner shall not be entitled to assign any of its rights,
remedies or obligations described in this Agreement without the prior written
consent of Lender. Consent may be withheld by Lender in its sole discretion.
Lender shall be entitled to assign some or all of its rights and remedies
described in this Agreement without notice to or prior written consent of Owner
in any manner.
23. MODIFICATION AND WAIVER. The modification or waiver of any of Owner's
Obligations or Lender's rights under this Agreement must be contained in a
writing signed by Lender. Lender may perform any Owner's Obligations or delay
or fail to exercise any of its rights without causing a waiver of those
Obligations or rights. A waiver on one occasion shall not constitute a waiver
on any other occasion, Owner's Obligations under this Agreement shall not be
affected if Lender amends, compromises, exchanges, fails to exercise, impairs or
releases any of the obligations belonging to any Owner or third party or any of
its rights against any Owner, third party or Collateral.
24. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of Owner and Lender and their respective successors, assigns,
trustees, receivers, administrators, personal representatives, legatees, and
devisees.
25. NOTICES. Any notice or other communication to be provided under this
Agreement shall be in writing and sent to the parties at the addresses described
in this Agreement or such other address as the parties may designate in writing
from time to time.
26. SEVERABILITY. If any provision of this Agreement violates the law or is
unenforceable, the rest of the Agreement shall remain valid.
<PAGE>
27. APPLICABLE LAW. This agreement shall be governed by the laws of the
state indicated in Lender's address. Owner consents to the jurisdiction and
venue of any court located in the state indicated in Lender's address in the
event of any legal proceeding pertaining to the negotiation, execution,
performance or enforcement of any term or condition contained in this Agreement
or any related document and agrees not to commence or seek to remove such legal
proceeding in or to a different court.
28. COLLECTION COSTS. If Lender hires an attorney to assist in collecting
any amount due or enforcing any right or remedy under this Agreement, Owner
agrees to pay Lender's attorneys' fees and collection costs.
29. MISCELLANEOUS. This Agreement is executed for commercial purposes.
Owner shall supply information regarding Owner's business operations and
financial condition or the Collateral in the form and manner as requested by
Lender from time to time. All information furnished by Owner to Lender shall be
true, accurate and complete in all respects. Owner and lender agree that time
is of the essence. Owner waives presentment, demand for payment, notice of
dishonor and protest except as required by law. All references to Owner in this
Agreement shall include all parties signing below except Lender. If there is
more than one Owner, their obligations shall be joint and several. This
Agreement shall remain in full force and effect until Lender provides Owner with
written notice of termination. This Agreement and any related documents
represent the complete and integrated understanding between Owner and Lender
pertaining to the terms and conditions of those documents.
30. WAIVER OF JURY TRIAL. LENDER AND OWNER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THE
PROMISSORY NOTE. THIS AGREEMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH OR THEREWITH, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER MAKING THE LOAN EVIDENCED BY
THE PROMISSORY NOTE.
31. ADDITIONAL TERMS:
Owner acknowledges that Owner has read, understands, and agrees to the
terms and conditions of this Agreement.
Dated: DECEMBER 29,1995
LENDER: NORTHERN NATIONAL BANK
/s/Barbara A. Smith
-----------------------------------
BARBARA A. SMITH
SENIOR VICE PRESIDENT
OWNER: NORTECH SYSTEMS INCORPORATED OWNER:
/s/Garry M. Anderly
- ----------------------------------- -----------------------------------
GARRY M. ANDERLY
VICE PRESIDENT
OWNER: OWNER:
- ----------------------------------- -----------------------------------
OWNER: OWNER:
- ----------------------------------- -----------------------------------
OWNER: OWNER:
- ----------------------------------- -----------------------------------
<PAGE>
SCHEDULE A
SCHEDULE B
The name of the record owner is:
------------------------------------------------
SCHEDULE C
SCHEDULE D
<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT, (hereinafter, together with the Exhibits annexed here to the
"Agreement") made and entered into as of the 24th day of February, 1995, by
and among Nortech Systems Incorporated, a Minnesota corporation
("Purchaser"), Monitor Technology Corporation, a Minnesota corporation,
("Seller") and C. Paul Pesek, John Dettloff, Jack Lehtinen, Joseph Lloyd,
Daniel J. Jones, Michael Wheelock, Timothy J. Kalstad, Thomas J. Tingo,
Curtis S. Gustafson, John L. Roudebush, and John F. Lamoureux, who are all of
the shareholders (the "Shareholders") of Seller.
WITNESSETH:
WHEREAS, Seller owns and operates the Plant located at 2864 Vicksburg Lane,
Plymouth, Minnesota 55447 (the "Plant") .
WHEREAS, Purchaser desires to purchase and acquire all the assets and
business of Seller, and Seller is willing to sell said assets and business to
Purchaser, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the purchase and sale of the assets and
of the premises and the mutual promises, covenants and conditions hereinafter
set forth, Seller and Shareholder, jointly and severally, and Purchaser, hereby
agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the meanings set forth
below, and where said meanings are intended, said terms shall be capitalized:
1.1 "INVENTORY" shall mean all of Seller's inventory and supplies,
including parts, supplies, raw materials, work in process, finished goods and
goods held for sale to customers.
1.2 "RECEIVABLES" shall mean Seller's accounts receivable arising from
sales of merchandise or services to customers in the ordinary course of
Seller's business.
1.3 "EQUIPMENT" means all of Seller's tangible assets, other than
inventory, including but not limited to furniture, machinery, equipment,
tooling, computers and the software utilized therewith, and vehicles,
specifically including but not limited to the items listed on Exhibit A.
1.4 "CONTRACTS" shall mean all of Seller's right, title and interest in
and to all contracts, commitments and agreements which relate to the Assets
or Seller's business, all of which are listed on an Exhibit B attached
hereto. Those Contracts which Purchaser elects to acquire as provided herein
are referred to as the "Acquired Contracts."
<PAGE>
1.5 "ORDERS" shall mean all Seller's orders. Exhibit C attached hereto
lists all of Sellers Orders for the Plant as of the date set forth on said
Exhibit.
1.6 "PERMITS AND APPROVALS" shall mean all licenses, permits, franchises,
approvals and authorizations by governmental authorities or third parties held
by Seller.
1.7 "BOOKS AND RECORDS" shall mean all of Seller's books and records
relating to the Assets or Seller's business (other than Seller's tax returns)
including without limitation, lists of customers and suppliers, and records with
respect to pricing, volume, payment history, cost, inventory, machinery and
equipment, mailing lists, distribution and customer lists, sales, purchasing and
materials, and including any such records which are maintained on computer.
1.8 "PLANS" shall mean all plans, blueprints, designs, processes,
computer programs and related documents, formulae, process sheets, drawings,
instructions, machine manuals, any non-expired warranties and guarantees, and
similar items used or required by Seller in its business, including, but not
limited to, such items used in production of products, such items relating to
equipment and its operation, and such items relating to the building and
improvements on the Real Estate.
1.9 "INTELLECTUAL PROPERTY RIGHTS" shall mean all patent copyrights,
trademarks, trade names, trade secrets, and knowhow, utilized by Seller,
including but not limited to those items listed on Exhibit D attached hereto.
1.10 "GOODWILL" shall mean all goodwill and business of Seller.
1.11 "ASSETS" shall mean all of the assets, properties and rights of
Seller, including but not limited to cash on hand and on deposit, Inventory,
Receivables, Equipment, Acquired Contracts, Orders, Permits and Approvals,
Books and Records, Plans, Intellectual Property Rights, and Goodwill.
1.12 "CLOSING DATE" shall mean the date on which the Closing hereunder is
held. The Closing shall be held at 10:00 a.m., then current Minnesota time,
on March 1, 1995, or at such other time or date as the parties may mutually
agree upon in writing, unless delayed by a party for failure to satisfy
conditions precedent to said party's obligations hereunder, in which case
Closing shall be held as soon as practicable after such conditions are
satisfied.
1.13 "LIABILITIES AND OBLIGATIONS" shall mean any indebtedness, claim,
obligation or liability of any kind or nature whatsoever, whether absolute or
contingent, liquidated or unliquidated, due or to become due, accrued or not
accrued, or
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otherwise.
1.16 "GUARANTOR" shall mean Myron Kunin.
ARTICLE II
PURCHASE AND SALE
2.1 PURCHASE PRICE. On the Closing Date, subject to terms and
conditions set forth in this Agreement, Seller agrees to sell and convey to
Purchaser, and Purchaser agrees to purchase, the Assets, for an amount (the
"Purchase Price") equal to the sum of $1,500,000 plus those liabilities of
Seller that are assumed by Purchaser pursuant to this Agreement. The parties
agree to allocate the Purchase Price among the Assets in accordance with an
allocation schedule to be prepared at Closing based upon the results of
Purchaser's review or audit of the financial statements of Seller.
Each of the parties hereto agrees to report this transaction consistently
with the foregoing allocation, specifically including for income tax purposes.
2.2 PAYMENT AT CLOSING. The $1,500,000 portion of the Purchase Price
shall be paid as follows:
(a) By delivery to Seller of 200,000 shares of Purchaser's common stock
(the "Nortech Shares") with a guaranteed minimum value one year after
Closing of $6 per share, as provided below. The Nortech Shares will
be restricted for one year after Closing and shall not be sold or
otherwise transferred or encumbered during such one-year period
without Purchaser's prior written consent; and
(b) By delivery to the Escrow Agent of 50,000 shares of Purchaser's common
stock (the "Escrow Shares"). The Escrow Shares shall be held by the
Escrow Agent pursuant to an escrow agreement in the form attached
hereto as Exhibit H.
(c) Commencing on the anniversary date of Closing and for a 30-day period
thereafter, Seller shall have the right to require Purchaser to
purchase the Nortech Shares for $1,200,000 (the "Put Option"). The
Put Option shall be exercised by Seller, if at all, by giving written
notice to Purchaser within the 30-day period referred to above. If
Seller does not give such notice, the Put Option shall terminate and
be of no further force and effect. The obligation of Purchaser to
purchase the Nortech Shares pursuant to the Put Option shall be
unconditionally guaranteed by the Guarantor;
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<PAGE>
(d) Purchaser shall, within six months after Closing, file a registration
statement at its expense under the Securities Act of 1933 covering the
Nortech Shares and use its best efforts to cause the Nortech Shares to
be registered and available for public distribution by the Seller,
without restriction under federal and Minnesota state law, within one
year after Closing. Purchaser shall keep the registration effective
for a period of 24 months after registration to enable the Seller to
make a public distribution of the Nortech Shares acquired pursuant to
this agreement.
(e) Commencing on the anniversary date of Closing and for a 30-day
period thereafter, Seller shall have the right to require Purchaser to
purchase any Escrow Shares delivered to Seller pursuant to the Escrow
Agreement for $6 per share (the"Escrow Put Option"). The Escrow Put
Option shall be exercised by Seller, if at all, by giving written
notice to Purchaser within the 30-day period referred to herein. If
Seller does not give such notice, the Escrow Put Option shall
terminate and be of no further force and effect. The obligation of
Purchaser to purchase the Escrow Shares pursuant to the Escrow Put
Option shall be unconditionally guaranteed by the Guarantor.
All payments made hereunder are subject to the terms and conditions
herein set forth, and will be made by Purchaser in reliance upon the
representations, warranties, covenants and agreements contained herein.
2.3 NO ASSUMPTION OF LIABILITIES. Purchaser shall not assume or become
liable for any Liabilities and Obligations of Seller except only those
liabilities and obligations expressly assumed by Purchaser pursuant to Section
2.4 thereof.
2.4 ASSUMED LIABILITIES. At Closing, Purchaser shall execute and deliver
to Seller an undertaking wherein Purchaser shall assume and agree to pay or
discharge the following:
(a) All of Seller's liabilities and obligations as of December 31, 1994,
which are reflected or reserved against in Seller's balance sheet of
that date, but only to the extent so reflected or reserved against;
(b) All of Seller's liabilities and obligations arising in the ordinary
course of its business between December 31, 1994 and the Closing,
except those referred to in subdivisions (i), (ii) and (iii) of
subparagraph (d) of this section;
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<PAGE>
(c) All of Seller's liabilities and obligations arising under Acquired
Contracts and all other contracts and commitments entered into in the
ordinary course of Seller's business at any time before Closing;
(d) Purchaser shall not assume or be liable for any liability of Seller in
respect of:
(i) any profit derived from the sale provided for by this agreement;
(ii) the payment of any accrued vacation pay owed to any shareholder
by Seller.
2.5 INDEMNIFICATION AGAINST NON-ASSUMED LIABILITIES. Seller shall
indemnify, defend and hold Purchaser harmless from and against all claims,
demands, losses, expenses, and liabilities, including but not limited to
reasonable attorneys' fees, arising in any fashion out of any non-assumed
Liabilities or Obligations of Seller. This indemnity shall be limited to
Purchaser's rights in the Escrow Shares.
2.6 NON-COMPETE. At the closing, Purchaser and Seller and the
Shareholders shall enter into a Non-Compete Agreement in the form of Exhibit E
attached hereto, pursuant to which each of Seller and the Shareholders will
agree not to compete with Purchaser for a period of five (5) years after the
Closing.
ARTICLE III
DELIVERIES BY SELLER
3.1 SELLER'S DELIVERIES. On the Closing Date, subject to the terms and
conditions set forth in this Agreement, Seller shall make the following
deliveries:
(a) Bill of Sale, Assignments, certificates of title, and other
instruments of conveyance reasonably requested by Purchaser;
(b) Any assignments of registered intellectual property such as patents or
registered trademarks;
(c) A current certified search showing all financing statements on file
against the Assets, together with appropriate releases or termination
statements for any security interests in the Assets;
(d) Non-Compete Agreements duly executed by Seller and the Shareholders;
(e) The Escrow Agreement duly executed by Seller;
5
<PAGE>
(f) All other items or documents necessary or appropriate hereunder.
3.2 PURCHASER'S DELIVERIES. On the Closing Date, subject to the terms and
conditions set forth in this Agreement, Purchaser shall make the following
deliveries:
(a) A certificate for the Nortech Shares in the number determined pursuant
to Sections 2.2 and 2.3 above.
(b) Purchaser shall execute and deliver the Non-Compete Agreement.
(c) The guaranty of the Guarantor pursuant to Section 2.2(b) above, in the
form as set forth in Exhibit F annexed hereto:
(d) The Escrow Agreement duly executed by Purchaser;
(e) All other items or documents necessary or appropriate hereunder.
ARTICLE IV
CLOSING
The Closing hereunder shall take place at the offices of Phillips & Gross,
P.A., attorneys for Purchaser, 5420 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, on the Closing Date, or at such other place as may
be mutually agreed upon in writing by Purchaser and Seller.
ARTICLE V
INVESTIGATION
From and after the date hereof and through the Closing Date, Seller shall
afford to the officers and representatives of Purchaser free access to the
properties and records of Seller in order that Purchaser may have full
opportunity to make such investigation at reasonable times as it shall desire of
the assets and of the affairs of Seller, and Seller shall provide to Purchaser
reasonable assistance in the conduct of said investigation by Purchaser.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND SHAREHOLDERS
Seller and Shareholders represent and warrant to Purchaser that the
following statements are true and correct as of the date of this Agreement and
will be true and correct on the Closing Date as if made on said Date.
6
<PAGE>
6.1 SELLER. Seller is a corporation duly organized and existing and in
good standing under the laws of the state of Minnesota and is entitled to own or
lease its properties and to carry on its business as and in the places where
such properties are now owned, leased or operated, or such business is now
conducted. Seller has full power and authority to sell, convey, assign,
transfer and deliver the Assets as herein provided, and all corporate and other
proceedings necessary to be taken by Seller in connection with the transactions
provided for by this Agreement and necessary to make the same effective have
been duly and validly taken, and this Agreement has been duly and validly
executed and delivered by each of Seller and Shareholders and constitutes a
valid and binding obligation of each of Seller and Shareholders enforceable in
accordance with its terms.
Shareholders constitute the only shareholders of Seller, and no other
persons or entities hold stock or other equity interests in Seller. Seller does
not have any subsidiaries, nor does it have any equity interest in any
corporation, partnership, limited liability company, or other business entity.
6.2 TITLE. Except as set forth on Exhibit G, Seller has good and
marketable title to the Assets, free and clear of any mortgages, liens, security
interests, pledges, easements or encumbrances of any kind or nature whatsoever.
At the Closing, Seller will convey good and marketable title to the Assets to be
sold hereunder, free and clear of any and all mortgages, liens, security
interests, pledges, easements, or encumbrances of any kind or nature whatsoever.
6.3 OTHER OPERATIONS. Each of Seller and Shareholders does not have any
divisions or other operations, nor do any subsidiaries or other affiliated or
controlled corporations or entities of Seller or Shareholders have any divisions
or operations, which produce products similar to those sold by Seller.
6.4 NON-BREACH, ETC. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by Seller and each of
Shareholders will not (a) result in a breach of any of the terms or conditions
of, or constitute a default under, any mortgage, note, bond, indenture,
agreement, license or other instrument or obligation (including any "Contracts")
to which Seller or each Shareholder is now a party or by which it or any of its
properties or assets may be bound or affected, or (b) violate any order, writ,
injunction or decree of any court, administrative agency or governmental body.
6.5 CONTRACTS. Except as listed in Exhibit B, Seller is not a party to
any written or oral:
(i) contract, agreement or understanding for the employment of
any officer, consultant, director or
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employee;
(ii) contract, agreement or understanding with any labor union;
(iii) contract, agreement or understanding for the purchase of any
materials, supplies or equipment;
(iv) contract, agreement or understanding for the sale of
products or performance of services;
(v) license or franchise agreement, either as licensor or
licensee or franchisor or franchisee, including any related
to intellectual property, or distributor, dealership or
sales agency contract, agreement or understanding;
(vi) lease for real or personal property under which Seller is a
lessor or lessee, or contract, agreement or understanding to
purchase or sell real property or a material amount of
personal property;
(vii) pension, profit-sharing, bonus, deferred compensation,
retirement or stock option or stock purchase plan in effect
with respect to employees or others;
(viii) contract or agreement granting to any person the right to
use any property or property right of Seller, including any
trademark or patent licensing agreement, contract or
understanding;
(ix) plan or contract or other arrangement providing for
insurance for any officer, director or employee or member of
their families;
(x) construction contract;
(xi) contract or agreement containing covenants by Seller not to
compete in any line of business or with any person;
(xii) joint venture contract or partnership or arrangement or
other agreement involving a sharing of profits; or
(xiii) contract or agreement relating to the borrowing or lending
of money by Seller, providing for letters of credit, or
providing for any mortgage, lien or security interest upon
any of the Assets; or
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(xiv) any guaranties or indemnifications by Seller, except for
Seller's obligations resulting from the endorsement of
checks deposited for collection;
(xiv) any contracts calling for payments by Seller in excess of
$25,000.00;
(xvi) other material contract, agreement or understanding.
Seller has provided to Purchaser true, current, correct and complete copies
of all of the Contracts, including all items specified in the preceding
paragraph.
Seller has performed all obligations required to be performed by it to date
under, and Seller and each other party to each Contract is not in default under,
each of the Contracts, all of which are in full force and effect. Upon request
of Purchaser, Seller shall assign to Purchaser any or all of the Contracts.
Except as stated on Exhibit H each of said Contracts are assignable without
consent.
6.6 INVENTORY. The Inventory reflected on the Current Statement is valued
at the lower of cost or market and has not been written down since the date of
the Interim Statement. The cost of all such inventory is determined using the
last-in first-out method, in accordance with generally accepted accounting
principles.
6.7 EQUIPMENT. Except as may be set forth on Exhibit I, all items
included in the Equipment are in good condition and repair, ordinary wear and
tear excepted.
6.8 ASSETS COMPLETE, ETC. The Assets which will be acquired by Purchaser
at Closing include (i) all Assets used in or necessary for the operation of
Seller's business, and (ii) except for assets leased under leases disclosed
herein, except for inventory and supplies utilized in the ordinary course of
business, and except non-material items of personal property owned by employees,
all assets presently located at the Plant. No tooling, fixtures or any
manufacturing operation is located other than at the Plant, except that certain
tooling is held by third parties ("Tooling Holders") who perform manufacturing
operations for Seller as is specified on Exhibit I. There are no contracts,
agreements, or understandings with the Tooling Holders except as referenced on
Exhibit 1. At the Closing, Seller will send notices to the Tooling Holders
advising them that the Tooling is the property of Purchaser, and will take such
other actions as may be reasonably required to give purchaser ownership and
control of the tooling held by the Tooling Holders.
Seller does not lease or otherwise use any property owned by third parties
in its operations, except as may occur under leases
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disclosed as Contracts hereunder.
6.9 LITIGATION. There are no claims, actions, suits, proceedings or
investigations (whether or not purportedly on behalf of Seller) pending or
threatened against or affecting Seller or the Assets, or before or by any
federal, state, municipal or other governmental department, commission, board,
agency or instrumentality, domestic or foreign, nor has any such action, suit,
proceeding or investigation been pending during the three (3)-year period
preceding the date hereof; and Seller is not operating under or subject to, or
in default with respect to, any order, writ, injunction or decree of any court
or federal, state, municipal or other governmental department, commission,
board, agency or instrumentality, domestic or foreign.
6.10 COMPLIANCE WITH LAWS. Seller has complied with, and the Assets comply
with, all applicable laws, regulations and orders applicable including without
limitation CERCLA, RCRA, MERLA, the Occupational Safety & Health Act, the Clean
Air Act, the Clean Water Act, the Toxic Substances Control Act, the Safe
Drinking Water Act, and the Refuse Act, and the present uses by Seller of the
Assets do not violate any such laws, regulations and orders.
6.11 INTELLECTUAL PROPERTY. Exhibit D lists all service marks, patents,
trademarks, trade names, trademark and trade name registrations, brand names,
copyrights and copyright registrations, all pending applications for any of the
foregoing, and any other proprietary rights, inventions, trade secrets, or know-
how or processes (hereinafter the foregoing are collectively referred to as
"Intellectual Property") used in the operation of Seller's business, or owned by
Seller, and any licenses granted by or to Seller, and any other agreements to
which it is a party, which relate, in whole or in part, to Intellectual
Property. Said Exhibit further includes a brief description of the filing,
registration or issuance dates of any such Intellectual Property. Seller owns
or is licensed to use, all Intellectual Property used by it in the conduct of
currently conducted. The use by Seller of any such Intellectual Property, and
the conduct by Seller of its business, does not infringe on the rights of any
third party, and no claim has been asserted to such effect or otherwise
affecting any Intellectual Property of Seller. The Intellectual Property to be
assigned, transferred or conveyed to Purchaser hereunder constitutes all the
Intellectual Property used by Seller in the conduct of its business, or in
connection with the Assets.
6.12 LABOR CONTROVERSIES. There are no controversies pending or to the
best knowledge of Seller, threatened, between Seller and (i) any union or (ii)
any of Seller's employees. Seller is not currently subject to (i) any threats
of strikes or work stoppages, or (ii) any organizational efforts or demands for
collective bargaining or any union organization. Seller is in substantial
compliance with applicable labor laws. Seller is not party to any
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collective bargaining agreements.
6.13 PENSION AND PROFIT SHARING PLANS; BENEFITS. Seller has no pension or
profit sharing plans which cover any of its employees, except as referenced on
Exhibit J. All contributions required to be made or accrued prior to the Closing
Date to any such plans shall have been paid.
Exhibit J contains a complete list of all benefit plans and employee
benefits provided by Seller to its employees including but not limited to any
disability, medical, dental, workers compensation, health insurance, life
insurance, vacation, benefits plans, incentive plans, fringe benefit plans and
any other material plans, programs, agreements or arrangements which provide
benefits to any current or former employee of Seller.
6.14 CHANGES IN SUPPLIERS AND CUSTOMERS. Seller is not aware of any facts
which indicate that any of the customers of Seller intends to cease being a
customer of Seller (or intends to not continue as customer with Purchaser after
the Closing hereunder), nor is Seller aware of any facts which indicate that any
supplier to Seller intends to cease doing business with Seller, or to not do
business with Purchaser after the Closing hereunder, whether as a result of the
transactions contemplated hereby or otherwise.
6.15 CONDUCT OF BUSINESS. Since the ending date of the most recent Seller
Statement and until the Closing Date, Seller has not and will not have:
(i) incurred any Liabilities or Obligations (absolute or contingent),
except for Liabilities and Obligations disclosed in the Current
Statement, or in the Exhibits annexed hereto, and except for such
Liabilities and Obligations as have arisen in the ordinary course
of business of Seller since the date of the Current Statement,
none of which newly arisen Liabilities and Obligations have a
material adverse effect upon Seller, the Assets, or Seller's
organization, business, properties, or financial condition;
(ii) mortgaged, pledged or subjected to any lien, charge or other
encumbrance, any of the Assets, tangible or intangible;
(iii) sold or transferred any assets included in the Assets, other than
sales of inventory or utilization of supplies in the ordinary
course of business;
(iv) sold, assigned or transferred any Intellectual Property, or other
intangible assets of Seller or
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relating to the Assets or Seller's business, or included in the
Assets;
(v) suffered any extraordinary losses or waived any rights of
substantial value relating to Seller's business or the Assets;
(vi) suffered any damage, destruction or loss to any Assets, whether
or not covered by insurance;
(vii) entered into any transaction involving or relating to Seller's
business or the Assets other than in the ordinary course of
business;
(viii) increased the compensation payable, or to become payable by
Seller to any of its employees including, but not limited to, any
bonus payment or deferred compensation;
(ix) made or suffered any amendment or termination of any Contracts;
(x) increased any benefits to employees of Seller under pension,
insurance or other employee benefit programs;
(xi) changed its methods of accounting in any respect;
(xii) acquired a significant portion of the assets or stock of any
person or business entity; or
(xiii) suffered a termination of, or amended, any license or permit.
6.16 EMPLOYEES. Seller is not aware that any employees of Seller intend
to cease their employment with Seller, whether as a result of the transactions
contemplated hereby or otherwise.
6.17 LICENSES AND PERMITS. All licenses, permits, franchises, approvals
and governmental authorizations required for Seller, its business, the
Assets, or their operations, are listed on Exhibit K. No other licenses,
permits, franchises, approvals or other governmental authorizations are
required for Seller, its business, the Assets or their operations as
heretofore conducted by Seller. True, current, correct and complete copies
of such licenses, permits, franchises, approvals, and governmental
authorizations have been delivered by Seller to Purchaser. Seller has
performed in all material respects all obligations required to be performed
by it to date under, and is not in default under, any such licenses,
permits, franchises, approvals, or governmental authorizations or the laws,
regulations and requirements of the licensing and permit authorities. All
such licenses, permits,
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franchises, approvals, and governmental authorizations are in full force and
effect. Except as set forth on Exhibit K, all such licenses, permits,
franchises, approvals, and governmental authorizations will be assigned to
Purchaser at the Closing.
6.18 PLANS. The Plans relating to products produced by Seller are
complete and of such quality that competent personnel by use of such Plans
can produce, manufacture and assemble such products so that they meet the
specifications and requirements applicable thereto.
6.19 SUPPLIERS. Exhibit L attached hereto lists all significant
suppliers of products or services to Seller.
6.20 PRODUCTS AND WARRANTIES. Except as listed on Exhibit M, all
products sold or leased by Seller during the last five (5) years complied,
and all finished goods included in Seller's inventory on the Closing Date
will comply, with Seller's standard warranties applicable thereto and with
all requirements in any applicable agreements of sale as to such products.
True, complete and correct copies of Seller's standard warranties have been
provided to Purchaser.
6.21 MATERIAL CHANGE. Since the date of the Current Statement there has
been no material change in the condition, financial or otherwise, of Seller,
Seller's business, or the Assets from that shown in said Statement, except
changes occurring in the ordinary course of business, which changes have not
materially adversely affected the Assets, or Seller's organization, business,
properties or financial condition.
No statute, order, judgment, writ, injunction, decree, permit, rule or
regulation of any court or governmental or regulatory body has been adopted
or entered, or is proposed to be adopted or entered, which may materially and
adversely affect Seller, the Assets or the business of Seller. There has
been no event or occurrence affecting Seller, the Assets, or the business of
Seller which may have a material adverse effect upon Seller's business,
prospects or Assets.
6.22 DISCLOSURE. No representation or warranty made by Seller or
Shareholders herein or in any agreements, certificates or documents delivered
in connection with this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make such representation
or warranty not misleading.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES BY PURCHASER
Purchaser represents and warrants to Seller that the following statements
are true and correct as of the date of this Agreement
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and will be true and correct on the Closing Date as if made on said date:
7.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly organized,
existing and in good standing under the laws of the State of Minnesota.
7.2 NO CONFLICT. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (a) result in a
breach of any of the terms or conditions of, or constitute a default under, any
mortgage, note, bond, indenture, agreement, license or other instrument or
obligation to which Purchaser is a party or by which it or any of its properties
or assets may be bound or affected, or (b) violate any order, writ, injunction
or decree of any court, administrative agency or governmental body, or (c)
conflict with or result in the breach of the terms, conditions or provisions of
the Articles of Incorporation or Bylaws of the Purchaser.
7.3 AUTHORITY. Purchaser has full power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby, and all
corporate and other proceedings required to be taken by Purchaser in connection
with this Agreement and the transactions contemplated hereby and necessary to
make the same effective have been duly and validly taken. This Agreement
constitutes a valid and binding obligation of Purchaser and is enforceable in
accordance with its terms.
ARTICLE VIII
COVENANTS OF THE SELLER
8.1 ACTION BY SELLER. Seller will not take or permit to be taken any
action or do or permit to be done anything in the conduct of its business or
otherwise, which would be contrary to or in breach of any of the terms,
conditions or provisions of this Agreement, or which would cause any of the
representations and warranties of Seller to be untrue as of the Closing Date
or any time thereafter. Seller will not enter into any contract or incur any
liability the amount of which would exceed $25,000 without the prior consent
of Purchaser.
8.2 FEES. Seller shall pay all fees and disbursements of counsel and
accountants for Seller arising in connection with this Agreement and the
transactions contemplated hereby.
8.3 FURTHER ASSURANCES. On the Closing Date, and from time to time
thereafter, at the request of Purchaser, Seller will execute and deliver to
Purchaser all such assignments, endorsements and other documents, and take
such other action as Purchaser may reasonably request in order more
effectively to transfer and assign to Purchaser the Assets transferred to
Purchaser pursuant to this Agreement, to confirm the title of Purchaser
thereto and to assist
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Purchaser in exercising its rights with respect thereto and under this
Agreement.
8.4 NON-COMPETE AGREEMENT. At the Closing, Purchaser and Seller shall
enter into the Non-Compete Agreement in the form of Exhibit E annexed hereto.
ARTICLE IX
NO BROKERS OR FINDERS
Seller and Purchaser represent and warrant to each other that each did
not directly or indirectly engage any person, corporation or partnership to
bring about the consummation of the transactions contemplated herein, and,
that no person, corporation or partnership is entitled to a broker's
commission, finder's fee or any similar compensation upon the consummation of
the transactions contemplated herein. If this representation and warranty is
breached by either Seller or Purchaser, the breaching party shall indemnify
and hold harmless the other party from any and all claims, demands,
liabilities and obligations (and any and all expenses and costs incurred in
connection with or in defending against the same), which may arise due to any
third party's claim as a broker or finder.
ARTICLE X
CONDITIONS PRECEDENT OF PURCHASER
The obligations of Purchaser hereunder are subject to the conditions
that, on or before the Closing Date:
10.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations
and warranties of Seller and Shareholders contained in this Agreement or in
any certificate or document delivered pursuant to the provisions hereof or in
connection with the transactions contemplated hereby shall be true on and as
of the Closing Date as though such representations and warranties were made
at and as of such date.
10.2 COMPLIANCE WITH THE AGREEMENT. Seller and Shareholders shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
10.3 DELIVERIES. The documents required under Article 3.1 hereof shall
be tendered by Seller for delivery to Purchaser at the Closing.
10.4 INJUNCTION. On the Closing Date, there shall be no effective
injunction, writ, preliminary restraining order or any order of any nature
issued by a court of competent jurisdiction directing that the transactions
provided for herein or any of them not be consummated as herein provided.
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10.5 CASUALTY. Prior to the Closing Date, the business and the Assets of
Seller, or any portion thereof, shall not have been adversely affected in any
material way as a result of any fire, accident, flood or other casualty or act
of God or the public enemy.
10.6 ADVERSE DEVELOPMENT. There shall have been no developments in the
business of Seller, or in the Assets, between the date of the Interim Statement
and the Closing Date which would have a materially adverse effect on Seller's
business or the Assets.
10.7 NON-COMPETE AGREEMENT. The Non-Compete Agreement (Exhibit E) shall
have been executed and delivered by Seller and Shareholders to Purchaser.
10.8 INVESTIGATIONS. Purchaser shall be satisfied with the results of its
legal, accounting, business, environmental and other due diligence review of
Seller's business and the Assets. Without limiting the generality of the
foregoing, an environmental inspection of the Assets shall have been completed
on behalf of Purchaser, and the results of said inspection shall be satisfactory
to Purchaser, in its sole discretion.
ARTICLE XI
CONDITIONS PRECEDENT OF THE SELLER
The obligations of the Seller hereunder are subject to the conditions
that, on or before the Closing Date:
11.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations
and warranties of Purchaser contained in this Agreement or in any certificate
or document delivered pursuant to the provisions hereof or in connection with
the transactions contemplated hereby, shall be true on and as of the Closing
Date as though such representations and warranties were made at and as of
such date.
11.2 PURCHASER'S COMPLIANCE WITH THE AGREEMENT. Purchaser shall have
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
11.4 INJUNCTION. There shall be no effective injunction, restraining
order or order of any nature issued by a court of competent jurisdiction
which shall direct that this Agreement, or any of the transactions provided
for herein, not be consummated as herein provided.
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ARTICLE XII
INDEMNIFICATION
12.1 INDEMNIFICATION. Seller and Shareholders hereby agree that,
notwithstanding the Closing, the delivery of instruments of conveyance, and
regardless of any investigation at any time made by or on behalf of any party
hereto or of any information any party hereto may have in respect thereof,
Seller and the Shareholders will for a period of one (1) year after Closing
indemnify, save and hold Purchaser harmless from and against any and all
liabilities, losses, damages, claims, deficiencies, costs and expenses
(including, without limitation, reasonable attorney fees and other costs and
expenses incident to any suit, action or proceeding) arising out of or
resulting from and will pay to Purchaser the amount of damages suffered
thereby together with any amount which it may pay or become obligated to pay
on account of:
(a) the breach or inaccuracy of any warranty or representation by Seller
or Shareholders herein or any misstatement of a fact or facts herein
made by the Seller or Shareholders;
(b) the failure by Seller or Shareholders to state or disclose a material
fact herein necessary in order to make the facts herein stated or
disclosed not misleading;
(c) any failure of the Seller or Shareholders to perform or observe any
term, provision, covenant or condition hereunder on the part of any of
them to be performed or observed; or
(d) any act performed, transaction entered into, or state of facts
suffered to exist by Seller or Shareholders in violation of the terms
of this Agreement.
The liability of Seller and Shareholders under this indemnification shall
be limited to Purchaser's rights in the Escrow Shares.
ARTICLE XIII
NATURE AND SURVIVAL OF REPRESENTATIONS
All statements contained in any documents, certificates or other
instruments delivered by or on behalf of Seller or Purchaser pursuant to this
Agreement or in connection with the transactions contemplated hereby shall be
deemed representations and warranties by Seller or Purchaser hereunder. All
representations and warranties and agreements made by Seller or Purchaser in
this Agreement or in any documents, certificates, or other instruments
delivered pursuant hereto shall survive the Closing hereunder (and any
investigation at any time made by or on behalf of Seller or Purchaser).
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ARTICLE XIV
NOTICES
All notices, requests, demands, and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered or mailed
first-class postage prepaid:
(a) To the Seller or Shareholders:
Monitor Technology Corporation
2284 Vicksburg Lane
Plymouth, Minnesota 55447
Attention:
--------------------------
with a copy thereof to:
------------------------------------
------------------------------------
------------------------------------
(b) To Purchaser:
Nortech Systems Incorporated
641 East Lake Street, Suite 234
Wayzata, Minnesota 55391
Attention: Quentin Finkelson, President
with a copy thereof to:
Bert M. Gross
Phillips & Gross, P.A.
5420 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
or to such other address or to such other person as Purchaser or
Seller shall have last designated by notice to the other.
ARTICLE XV
MODIFICATION
This Agreement contains the entire agreement between the parties hereto
with respect to the transactions contemplated herein and shall not be modified
or amended except by an instrument in writing signed by or on behalf of the
parties hereto.
ARTICLE XVI
EXPENSES
Whether or not the transactions contemplated hereby are consummated, each
of the parties hereto shall pay its own expenses incurred in connection with the
authorization, preparation,
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execution or performance of this Agreement and all transactions contemplated
hereby, including without limitation all fees and expenses of agents,
representatives, counsel and accountants.
ARTICLE XVII
ASSIGNMENT
This Agreement shall not be assignable by any party hereto without the
prior written consent of the other party.
ARTICLE XVIII
MINNESOTA LAW TO GOVERN
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Minnesota.
ARTICLE XIX
COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
ARTICLE XX
HEADINGS
The headings in this Agreement are for convenience of reference only and
shall not be deemed to alter or affect any provision thereof. Reference to
numbered "articles," "sections," "paragraphs" and "subparagraphs," and to
lettered "Exhibits" refer to articles, sections, paragraphs and subparagraphs of
this Agreement and Exhibits annexed thereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
NORTECH SYSTEMS INCORPORATED
/s/ Quentin E. Finkelson
-----------------------------
By: Quentin E. Finkelson
Its President, Chairman and
Chief Executive Officer
MONITOR TECHNOLOGY CORPORATION
/s/ (Illegible)
--------------------------------
By: (Illegible)
Its Chairman
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SHAREHOLDERS
/s/ C. Paul Pesek
--------------------------------
C. PAUL PESEK
/s/ John Detloff
--------------------------------
JOHN DETLOFF
/s/ Jack Lehtinen
--------------------------------
JACK LEHTINEN
/s/ Joseph A. Lloyd
--------------------------------
JOSEPH LLOYD
/s/ Daniel J. Jones
--------------------------------
DANIEL J. JONES
--------------------------------
MICHAEL WHEELOCK
--------------------------------
TIMOTHY J. KALSTAD
--------------------------------
THOMAS J. TINGO
--------------------------------
CURTIS S. GUSTAFSON
--------------------------------
JOHN L. ROUDEBUSH
--------------------------------
JOHN F. LAMOUREUX
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (together with the exhibits and schedules
hereto, the "Agreement") is entered into as of AUGUST 23, 1995 , by and between
Communication Cable, Inc., a North Carolina corporation ("Seller" herein) and
Nortech Systems Incorporated ("Buyer" herein):
RECITALS
A. Seller, through its Aerospace Division, is the owner of certain
assets more particularly described in this Agreement used by it in the business
of manufacturing and selling multi-conductor electrical cable assemblies to
customer specifications for the aerospace industry.
B. Buyer wishes to purchase those assets and is willing to assume
certain associated obligations and liabilities, and Seller is willing to sell
those assets, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties agree as follows:
1. DEFINITIONS. The Following terms shall have the following meanings
when used in this Agreement:
<PAGE>
"Affiliate" shall mean any parent, subsidiary, or division, whether
direct or indirect, of a specified corporation or division.
"Assets" shall have the meaning set forth in Section 2.1.
"Assigned Contracts" shall have the meaning set forth in Section 2.1.8.
"Assignment and Assumption Agreement" shall mean an Assignment and
Assumption Agreement substantially in the form of Exhibit A hereto.
"Assumed Liabilities" shall have the meaning set forth in Section 3.5.
"Balance Sheet" shall mean the unaudited balance sheet of the Division
as of July 31, 1995 (the "Balance Sheet Date"), attached hereto as Exhibit B-1,
subject to adjustments reflecting Intercompany Transactions not reflected in
such balance sheet.
"Bill of Sale" shall mean a Bill of Sale substantially in the form of
Exhibit C hereto.
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"Closing" and "Closing Date" shall have the respective meanings set
forth in Section 3.1.
"Contract" shall mean any contract, agreement, license, lease, sales
order, purchase order, or other legally binding commitment, whether written or
oral.
"Division" shall mean Seller's Aerospace Division, as it exists and is
conducting business on the date hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Employees" shall have the meaning set forth in Section 4.8.1.
"Environmental Laws" means all applicable present and future statutes,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
plans, authorizations, concessions, franchises, and similar items, of all
governmental agencies, departments, commissions, boards, bureaus, or
instrumentalities of the United States, states and political subdivisions
thereof and all applicable judicial and administrative and regulatory decrees,
judgments, and orders relating to the protection of human health or the
environment, including, without limitation, all requirements, including but not
limited to those
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pertaining to reporting, licensing, permitting, investigation, and remediation
of emissions, discharges, releases, or threatened releases of Hazardous
Materials, chemical substances, pollutants, contaminants, or hazardous or toxic
substances, materials or wastes whether solid, liquid or gaseous in nature, into
the air, surface, water, groundwater, or land, or relating to the manufacture,
processing, distribution, user, treatment, storage, disposal, transport, or
handling of chemical substances, pollutants, contaminants, or hazardous or toxic
substances, materials or wastes, whether solid, liquid, or gaseous in nature.
"Environmental Losses" shall have the meaning set forth in
Section 3.5.4.
"Excluded Assets" shall have the meaning set forth in Section 2.2.
"Excluded Liabilities shall have the meaning set forth in Section 3.6.
"Financial Statements" shall mean the Balance Sheet and Income
Statement.
'Hazardous Material" means any chemical substance: (i) the presence of
which requires investigation or remediation
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under any federal, state, or local statute, regulation, ordinance, order,
action, policy, or common law, or (ii) which is or becomes defined as a
"hazardous waste" or "hazardous substance" under any federal, state, or local
statute, regulation or ordinance, or amendments thereto including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. 9601, et seq.) and/or the Resource Conservation and
Recovery Act (42 U.S.C. 6901, et seq.); or (iii) which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is or becomes regulated by any governmental authority,
agency, department, commission, board, agency, or instrumentality of the United
States, states, or any political subdivision thereof; or (iv) the presence of
which on the Real Property causes or threatens to cause a nuisance upon the Real
Property or to adjacent properties or poses or threatens to pose a hazard to the
health or safety of persons on or about the Real Property; or (v) without
limitation, which contains gasoline, diesel fuel, or other petroleum
hydrocarbons.
"Income Statement" shall mean the unaudited income statement of the
Division for the period ended July 31, 1995, attached hereto as Exhibit B-2, as
adjusted to reflect Intercompany Transactions not reflected in such income
statement.
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"Indemnifying Party" shall mean, with respect to any Losses, the party
from whom indemnity is being sought hereunder.
"Intellectual Property" shall have the meaning set forth in
Section 2.1.5.
"Intercompany Transactions" shall mean (a) transactions among Seller
and its Affiliates which are allocable or attributable to the Division,
including, but limited to, any services (such as administrative, data
processing, employee benefits, insurance, etc.) provided by Seller or any such
Affiliate to the Division, and (b) transactions between Seller or any of its
Affiliates, on the one hand, and the Division, on the other, including, but not
limited to, any products or services (such as administrative, data processing,
employee benefits, insurance etc.) provided by Seller or any such Affiliate to
the Division.
"Inventories" shall have the meaning set forth in Section 2.1.2.
"Real Property" shall have the meaning set forth in Section 2.1.3.
"Losses" shall mean any and all costs and expenses (including, but not
limited to, reasonable attorneys', fees), damages and losses actually incurred
by the Indemnified Party
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net of (i) any tax adjustments, benefits, savings, or reductions, and (ii) any
insurance proceeds, in either case to which the indemnified Party is entitled by
virtue of such costs, expenses, damages, and losses.
"Machinery and Equipment" shall have the meaning set forth in
Section 2.1.1.
"Management Employees" shall mean employees of the Seller working
exclusively for the Division.
"Material Contracts" shall have the meaning set forth in Section 4.9.
"Purchase Price" shall have the meaning set forth in Section 3.2.
"Responsible Contracting Officer" means, with respect to any Contract
with the United States Government, the person identified as such with respect
thereto in Section 42.1202(a) of the Federal Acquisition Regulation, Part 42 of
the Code of Federal Regulations.
"Tangible Personal Property" shall mean the Machinery and Equipment and
Inventories.
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"Transaction Documents" shall mean this Agreement, the Assignment and
Assumption Agreement, and the Bill of Sale to be delivered to Buyer by Seller on
the Closing Date pursuant to Section 3.4.
"Transactions" shall mean the transactions contemplated by the
Transaction Documents.
"U.S. Government" means the United States Government including any
agencies, commissions, branches, instrumentalities, and departments thereof.
"Working Capital" shall mean current assets (other than cash or cash
equivalents) less total liabilities, determined in a manner consistent with
the Balance Sheet. For purposes of determining the value of current assets,
inventory will be valued an the FIFO basis without giving effect to a LIFO
reserve.
2. TRANSFER OF ASSETS.
2.1 TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement, on the Closing Date, Seller will sell, convey, transfer, assign, and
deliver to Buyer, and Buyer will purchase from Seller, for the Purchase Price,
all of Seller's right, title, and interest at the time of the Closing
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Date in and to the following assets and properties to the extent that (a) they
are tangible property located on or at Seller's Aerospace Division at Fairmont,
Minnesota, and relate to or are used in the operations of the Division or (b)
they are intangible property and are used exclusively in or relate as the same
shall exist on the Closing Date (except the Excluded Assets):
2.1.1 PERSONAL PROPERTY. All tangible personal property including, but
not limited to, fixtures, machinery and equipment, furniture, tools, and
Supplies a list of which as of July 31' 1995 is set forth in Schedule 2.1.1
(the "Machinery and Equipment");
2.1.2 INVENTORIES. All inventories including, but not limited to, all
finished goods, work-in-progress, raw materials, spare parts, packaging,
and supplies (the "Inventories"); provided, however, that notwithstanding
anything to the contrary contained in this Section 2.1.2, all consigned
customer materials (as identified to Buyer ten (10) days after execution
of this Agreement) are specifically excluded from the Inventories and shall
be retained by Seller;
2.1.3 REAL PROPERTY. The realty listed on Schedule 2.1.3 hereto,
including all improvements thereto;
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2.1.4 Prepayments. All prepaid items and deposits paid by Seller
exclusively in connection with the Division (to the extent reflected an the
Final Balance Sheet);
2.1.5 PATENTS A TRADEMARKS. Subject to Section 2.2.6, the patents,
trademarks and trade names, trademark and trade name registrations, service
marks and service mark registrations, copyrights and copyright
registrations, the applications therefor and the with respect thereto
listed in Schedule 2.1.5, together with the goodwill and the business
appurtenant thereto and any rights, claims, or choses in action relating
to or deriving from any of the foregoing and attributable to the Division,
and together with any unregistered intellectual property used exclusively
by the Division to the extent owned by the Division (collectively, the
"Intellectual Property");
2.1.6 SALES MATERIALS. Subject to the restrictions in Section 11.4,
all catalogues, brochures, sales literature, promotional material, and
other selling material relating solely to the products of the Division;
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2.1.7 BOOKS AND RECORDS. All books and records (other than
historical accounting and financial records and personnel reviews and
medical records), and all files, documents, papers, and agreements
pertaining to the Assets, the Assumed Liabilities, or otherwise to the
business of the Division that are material to continuing the operation
of the Division as a going concern and that are located at the
Division, subject to Seller retaining copies (at Seller's expense) or
originals of the same if and as it so chooses;
2.1.8 ASSIGNED CONTRACTS. The rights of Seller under all
Contracts relating to the Division including, but not limited to, the
Contracts listed on any of the schedules hereto (including all Material
Contracts listed in Schedule 4.9) and those entered into in the
ordinary course of the business of the Division through the Closing
Date, except for any Contract that requires the consent to assignment
of a party thereto (or such novation agreements as may be required)
and for which such consent or novation agreement executed by any other
contracting party has not been obtained pursuant to Section 6.3 prior
to the Closing (the "Assigned Contracts");
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2.1.9 INSURANCE FROM DESTROYED OR DAMAGED ASSETS. All insurance
proceeds from any insurance provider, other than any proceeds under any
retroactively rated insurance policy or other self-insurance program
which constitute a refund of excess premiums, for any Asset that is
destroyed or damaged after the date hereof and prior to the Closing, or
any replacement property or asset actually acquired for such destroyed
or damaged Asset; and
2.1.10 PERMITS AND LICENSES. All transferable business licenses,
permits, and equivalent documents used exclusively in or relating
exclusively to the operations of the Division.
The Assets shall include all assets of the type described above that
are acquired by Seller for use exclusively in connection with the Division
between the date hereof and the Closing Date, except any such assets that are
disposed of, sold, or consumed after the date hereof in the ordinary course of
business on a basis consistent with past practice.
2.2 ASSETS NOT TRANSFERRED. Notwithstanding anything to the contrary
contained herein, the following assets and properties of Seller are specifically
excluded from the Assets and shall be retained by Seller (the "Excluded
Assets"):
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2.2.1 CASH AND CASH EQUIVALENTS. Subject to Section 2.1.8, all
cash on hand and cash equivalents of Seller (whether or not relating to
the Division), including, but not limited to, bank accounts and
temporary cash investments;
2.2.2 REFUND CLAIMS. Rights to or claims for refunds of taxes
and other governmental charges for periods ending on or prior to the
Closing Date and the benefit of net operating loss carry-forwards or
other credits of Seller, whether or not attributable to the Division;
2.2.3 THIRD PARTY CLAIMS. Claims or rights against third
parties, except those arising with respect to events or breaches
occurring after the Closing Date under the Assigned Contracts;
provided, however, that any rights of indemnification, contribution, or
reimbursement that may exist under the Assigned Contracts in respect of
liabilities or obligations retained by Seller hereunder shall be
Excluded Assets;
2.2.4 INSURANCE. Except as set forth in Section 2.1.9, all
insurance policies and rights thereunder, including but not limited to
rights to any cancellation value as of the Closing Date;
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2.2.5 UNRELATED CONFIDENTIAL INFORMATION Proprietary or
confidential business or technical information, records, and policies
that relate generally to Seller or any of its affiliates and are not
used primarily by the Division including, but not limited to, the
Aerospace directory, management procedures and guidelines, proprietary
financial reporting formats, accounting procedures, instructions,
organization manuals, and strategic plans, but specifically excluding
technical drawings, quality control, and manufacturing procedures used
by the Division;
2.2.6 AEROSPACE MARKS AND PROPRIETARY SYSTEMS AND PROCEDURES.
All "Aerospace" marks, including any and all trademarks or service
marks, trade names, slogans, or other like property relating to or
including the name "Aerospace," the mark Aerospace, or any derivative
thereof, and the Aerospace logo or any derivative thereof, and Seller's
proprietary computer programs or other software including, but not
limited to, Seller's proprietary data bases, accounting and reporting
formats, systems, and procedures;
2.2.7 SELLER'S RIGHTS. Seller's rights under the Transaction
Documents;
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2.2.8 UNRELATED AND CORPORATE ASSETS. All other assets of Seller
not specifically included in the Assets to be sold hereunder including,
but not limited to, any and all fixtures and improvements located on
the Real Property and assets used by Seller or its Affiliates in other
businesses of Seller or its Affiliates, and assets used primarily in
connection with Seller's corporate functions (including but not limited
to the corporate charter, taxpayer and other identification numbers,
seals, minute books, and stock transfer books), whether or not used for
the benefit of the Division;
2.2.9 VEHICLES. All vehicles owned or leased by Seller and not
reflected on the Balance Sheet; and
2.1.10 ACCOUNTS RECEIVABLE. All accounts receivable and notes
receivable of Seller on the Closing Date arising exclusively out of the
activities of the Division (to the extent reflected on the Final
Balance Sheet).
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3. CLOSING, PURCHASE PRICE, ALLOCATION OF PURCHASE PRICE, ASSUMPTION
OF LIABILITIES.
3.1 CLOSING. The Closing (the "Closing") shall take place at such
place as the parties may agree on or before August 25, 1995, at 9:00 a.m.
C.D.T., or at such other date and time as Seller and Buyer may mutually agree
(the "Closing Date"). The parties agree that time is of the essence.
3.2 PURCHASE PRICE AND ADJUSTMENT.
PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Assets hereunder shall be:
(a) $1.45 Million for the fixed assets; and
(b) An amount equal to the inventory at book value as of the
settlement date. The inventory will be valued in a manner which is
consistent with Seller's current
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accounting policies. At the settlement date, the inventory value will
be estimated using the most recent end-of-month value and adjusted to
the actual amount as soon as possible following the Closing.
3.3 PAYMENT TO SELLER ON CLOSING DATE. On the Closine Date, Buyer
shall pay the Purchase Price to Seller by certified check or wire transfer.
3.4 INSTRUMENTS OF CONVEYANCE AND TRANSFER. On the Closing Date,
Seller shall execute and deliver to Buyer (a) a warranty deed conveying
marketable title to the Real Property, free of all liens and encumbrances,
(b) the Bill of Sale transferring good title to the Assets (except the Real
Property), free and clear of all liens and encumbrances, (c) the Assignment
and Assumption Agreement, and (d) such other documents as may be reasonably
requested by Buyer in order to carry out the Transactions.
3.5 ASSUMPTION OF LIABILITIES. On the Closing Date, Buyer shall
execute and deliver to Seller the Assignment and Assumption Agreement, pursuant
to which Seller shall agree to retain and pay the Excluded Liabilities (as
hereinafter defined) and Buyer shall assume and agree to pay, perform, and
discharge when due only the following liabilities and obligations of
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Seller arising out of the business of the Division as presently or previously
conducted (collectively, the "Assumed Liabilities"):
3.5.1 CONTRACTS AND OTHER OBLIGATIONS. All liabilities and obligations
of Seller under the Assigned Contracts;
3.5.2 PRODUCT LIABILITY. All Losses from any products shipped or
services provided by Seller through the Division at any time prior to the
Closing Date, but only to the extent arising from occurrences on or after
the Closing Date; provided, however, that Seller shall reimburse Buyer from
the first dollar for any Losses suffered by Buyer under this Section 3.5.2
when and if the cost to Buyer of such Losses exceeds $5,000 for any one
occurrence, or $15,000 in the aggregate. With reepect to products
manufactured or sold but not shipped prior to the Closing Date, Seller
shall reimburse Buyer when and if the cost to Buyer exceeds $5,000 for any
one occurrence, or $15,000 in the aggregate;
3.5.3 WARRANTY OBLIGATIONS. All liabilities and obligations of Seller
whether arising before or after the Closing, arising under warranties
provided by Seller
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relating to products shipped by the Division prior to the Closing Date,
including any obligations to repair or replace any item as a result of a
material deficiency report under any contract with the U.S. Government, and
all additional obligations and commitments of Seller to provide spare
parts, service, product support, or other goods and services relating to
products shipped by the Division prior to the Closing Date; prcvided,
however, Seller shall reimburse Buyer from the first dollar for any cost
determined on the basis of direct labor, direct material and direct
overhead costs incurred by Buyer in repairing or replacing such product in
fulfillment of such obligations if and when the cost to Buyer of such
warranty obligation exceeds $5,000 for any one occurrence, or $15,000 in
the aggregate. Buyer agrees to Consult with Seller regarding any warranty
claim which is the subject of this Section 3.5.3 prior to providing
warranty service and to cooperate with Seller in connection with any
investigation or other proceeding relating to such warranty claim. With
respect to products manufactured or sold but not shipped prior to the
Closing Date, Buyer assumes full responsibility for any claims based on
such products without any recourse for reimbursement by Seller; and
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3.5.4 ENVIRONMENTAL LIABILITIES. Subject to the indemnification
obligations of Seller under Section 9.2.3, all Losses, whether arising
from claims by private or governmental parties which are incurred at
any time as a result of the existence of Hazardous Material upon,
about, beneath, or migrating, or threatening to migrate to or from the
Real Property on which Hazardous Material is or has been used,
generated, or disposed of in connection with or arising out of the
business of the Division as presently or previously conducted or the
existence of a violation of any Environmental Law pertaining to the
Real Property or the business of the Division as presently or
previously conducted (the "Environmental Losses.")
3.6 NON-ASSUMPTION OF CERTAIN LIABILITIES. Buyer is not assuming,
and shall not be deemed to have assumed, any obligation, liability, or
commitment of Seller relating to or arising out of the operation of the business
of the Division prior to the Closing Date other than the Assumed Liabilities
(the "Excluded Liabilities"), including, but not limited to, (a) liabilities for
taxes of Seller or the Division (other than as set forth in Section 3.8) not
shown on the Final Balance Sheet with respect to the operation of the Division
prior to the Closing; or (b) liabilities (including but not limited to any
liabilities resulting from unfunded contributions under any
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employee benefit plan subject to ERISA) for any pension, profit sharing, or
welfare benefit plans maintained by Seller or its Affiliates; and (c)
liabilities arising from claims brought by former employees of Seller who are
not Employees.
3.7 TAX ALLOCATION. Buyer and Seller shall allocate the Purchase
Price to broad categories constituting components of the Assets in accordance
with the basis of allocation used in preparing the Form 8594 attached hereto as
Schedule 3.7 and shall file a Form 8594 with respect to the Transactions similar
to that set forth in Schedule 3.7, except to the extent that modifications are
necessary to reflect changes in the Assets between the date hereof and the
Closing Date. Each party will report the purchase and sale of the Assets in
accordance with the agreed upon allocation among such broad categories for all
federal, state, local, and other tax purposes, but such allocation shall not
constrain reporting for other purposes.
3.8 SALES AND USE TAX. Buyer and Seller shall cooperate in preparing
and filing use and sales tax returns relating to, and Buyer shall pay any and
all sales, real estate, transfer, or use tax due with regard to, the
Transactions; provided that any real estate transfer taxes shall be divided
equally by the parties. Buyer shall also furnish Seller with a form of reseller
certificate that complies with the requirements of
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Section 297A of the Minnesota Statutes Annotated and other applicable state
taxation laws.
4. REPRESENTATION AND WARRANTIES OF SELLER.
As an inducement for Buyer to enter into this Agreement, Seller
represents and warrants to Buyer that each of the following statements is true
and correct as of the date hereof:
4.1 ORGANIZATION, CORPORATE POWER, AND AUTHORITY. Seller is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of North Carolina, and is duly qualified to do business as a
foreign corporation in the jurisdictions in which Seller conducts the business
of the Division, except where the failure so to qualify will not have a material
adverse effect on the business of the Division. Seller has all requisite
corporate power and authority to own, operate, and sell the Assets, to conduct
the business of the Division, to execute and deliver the Transactions Documents,
and to perform its obligations thereunder.
4.2 AUTHORIZATION OF AGREEMENTS. The execution, delivery, and
performance by Seller of the Transaction Documents, and the consummation by it
of the Transactions, have been duly authorized by all necessary corporate action
by Seller. This
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Agreement has been, and each other Transaction Document will be at the Closing,
duly executed and delivered by Seller and constitute, or will, when delivered,
constitute, the legal, valid, and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium, and other similar
laws and equitable principles relating to or limiting creditors', rights
generally.
4.3 EFFECT OF AGREEMENT. The execution, delivery, and performance by
Seller of the Transaction Documents, and the consummation by it of the
Transactions, will not violate the Articles of Incorporation or By-Laws of
Seller or any judgment, award or decree, or any material indenture, material
agreement, or other material instrument to which Seller is a party, or by which
Seller or the Assets are bound, or conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under, any such
indenture, agreement, or other instrument, or result in the creation or
imposition of any lien, charge, security interest, or encumbrance of any nature
whatsoever upon any of the Assets, except to the extent that (a) the effect
thereof is not materially adverse to the business of the Division, (b) consents
may be required under Seller's loan agreements, (c) consents may be required for
assignment of certain of the Contracts, (d) consents of the lessors of personal
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properties used in the operation of the Division may be required, or (e)
novation agreements may be required with respect to Contracts with the U.S.
Government.
4.4 GOVERNMENTAL APPROVALS. Except for novation agreements that may
be required with respect to Contracts with the U.S. Government, noapproval,
authorization, consent or order, or action of or filing with any court,
administrative agency, or other governmental authority is required to be
obtained by Seller for the execution and delivery by Seller of the Transaction
Documents or the consummation by it of the Transactions.
4.5 FINANCIAL STATEMENTS. Except as set forth in Schedule 4.5, the
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved.
Except as set forth in Schedule 4.5, the Balance Sheet fairly presents the
financial condition of the Division as of the Balance Sheet Date and the Income
Statement fairly presents the results of operations of the Division for the
period then ended. There have been no liabilities incurred in connection with
the operation of the Division since the Balance Sheet date of July 31, 1995,
except as listed on Schedule 4.5.
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4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Balance Sheet
Date except as contemplated hereunder, Seller has not with respect to the
Division:
4.6.1 MATERIAL OBLIGATIONS. Incurred any material obligation
or liability (fixed or contingent), except normal trade or business
obligations and liabilities incurred in the ordinary course of
business and obligations and liabilities in connection with this
Agreement and the Transactions;
4.6.2 DISCHARGE OR SATISFACTION OF LIENS. Discharged or
satisfied any material lien, security interest, or encumbrance, or
paid any material obligation or liability (fixed or contingent), other
than pursuant to the terms of such obligation or in the ordinary
course of business;
4.6.3 ADDITIONAL LIENS. Mortgaged, pledged, or subjected the
Assets to any material lien, security interest, or other encumbrance
(other than of the type set forth in Section 4.7);
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4.6.4 ACQUISITION OR DISPOSITION OF ASSETS. Transferred, leased,
or otherwise disposed of any material portion of the Assets, or
acquired any material assets or properties, except those acquired,
disposed of, sold, or consumed in the ordinary course of business;
4.6.5 COMPROMISE OF DEBTS OR CLAIMS. Canceled or compromised
any material debt or claim, except in the ordinary course of business;
4.6.6 WAIVER OF MATERIAL RIGHTS. Waived or released in writing
any rights of material value to the Division;
4.6.7 RIGHTS IN LICENSES, TRADEMARKS, PATENTS. Transferred or
granted any material rights under any material Intellectual Property
(other than licenses granted by Seller in the ordinary course of business);
4.6.8 EMPLOYEE COMPENSATION. Except for any "stay" bonus or
special severance agreements listed on Schedule 4.6.8 hereto or as
otherwise required by law, made or granted any material wage or salary
increase applicable generally to any group or classification of
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employees working exclusively for the Division (other than in
connection with Seller's general salary plan), entered into any
written employment contract with any officer or employee of Seller
working exclusively for the Division or made any material loan to, or
entered into any material transaction of any other nature with, any
officer or employee of Seller working exclusively for the Division; or
4.6.9 MATERIAL CONTRACTS. Entered into any Material Contract,
except for Contracts listed in Schedule 4.6.9 and the Transaction
Documents and sales or purchases in the ordinary course of business.
4.7 TITLE TO PROPERTIES, ABSENCE OF LIENS AND ENCUMBRANCES. Seller
has good and valid title to all of the Tangible Personal Property (except for
leased Tangible Personal Property), in each case free and clear of all
mortgages, liens, charges, security interests, or other encumbrances of any
nature whatsoever, other than (a) liens for taxes not yet due and (b) matters
set forth on Schedule 4.7 hereto.
4.8 EMPLOYEE COMPENSATION. Attached hereto as Schedule 4.8 is a list
setting forth the following with respect to the Division:
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4.8.1 EMPLOYEE COMPENSATION PLANS AND BENEFITS. All material
collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred
compensation agreements, employee pension plans or retirement plans,
and employee profit sharing plans, employee stock purchase and stock
option plans (other than employment arrangements terminable at will
without liability on the part of the employer or upon payment of no
more than the applicable statutory or regulatory severance or
termination benefits) providing for benefits to employees of Seller
working exclusively for the Division (the "Employees"); and
4.8.2 MANAGEMENT EMPLOYEES. The names and current annual
compensation rates of all Management Employees as of the date hereof.
4.9 MATERIAL CONTRACTS. Schedule 4.9 sets forth each executory
Contract (collectively, the "Material Contracts") that (a) obligates Seller to
pay an amount of $10,000 and (b) by which any or all the Assets are bound or to
which the Division is a party and by which it is bound. Seller has made
available to Buyer true and complete copies of all written Material Contracts,
together with all amendments thereto, and accurate
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descriptions of all oral Material Contracts, listed, or required to be listed,
on Schedule 4.9 Except as set forth in Schedule 4.9, to the best knowledge of
Seller, there is no Material Contract that is not valid and enforceable in
accordance with its terms for the periods stated therein, or that there is under
any such Material Contract any existing material default or event of material
default or event that, with notice or lapse of time or both, would constitute
such a material default. Except as set forth in Schedule 4.9, to the knowledge
of Seller, there are no disputes with customers or vendors of the Division with
respect to performance by Seller or the Division under any Material Contracts
requiring, or which could require, payment by Seller or the Division, or
performance of services or delivery of assets or properties of the Division in
excess of $17,500.
4.10 LITIGATION. Except as set forth in Schedule 4.10, there are no
actions, suits, or proceedings relating to the Division (other than actions,
suits, or proceedings against Seller generally which do not relate specifically
to the Division) pending or, to the knowledge of Seller, overtly threatened
against Seller at law or in equity, or before or by any federal, state, or other
governmental agency or instrumentality that might reasonably be expected to have
a material adverse effect on the Division; provided, however, that any action,
suit, or proceeding as to which Seller has not received service of
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process shall not be deemed pending for purposes hereof. Except as set forth in
Schedule 4.10, there are no legal written orders, judgments, or decrees of any
court or governmental agency, that apply specifically to the Division or any of
the Assets (other than orders, judgments, or decrees which relate to Seller
generally and not specifically to the Division).
4.11 LABOR MATTERS. Except as set forth in Schedule 4.11, there are
no unfair labor practice or labor arbitration proceedings with respect to the
Division (other than actions, suits, or proceedings against Seller generally
which do not relate specifically to the Division) pending against Seller or the
Division, and to Seller's knowledge, there are no organizational efforts
presently being made or overtly threatened involving any of Seller's employees
working exclusively for the Division. Since the Balance Sheet Date, Seller has
not received notice of any claim that, with respect to the Division, it has not
complied with any laws relating to the employment of labor, including any
provisions thereof relating to wages, hours, collective bargaining, the payment
of Social Security, and similar taxes, equal employment opportunity, employment
discrimination and employment safety, or that it is liable for any arrears of
wages or any taxes or penalties for failure to comply with any of the foregoing.
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4.12 USE OF REAL PROPERTY. To Seller's knowledge, all Real Estate
is used and operated in compliance and conformity with law, except to the
extent that the failure so to conform would not materially adversely affect
the business of the Division. Seller has not received notice of any material
violation of any applicable zoning or building regulation or ordinance
relating to the Real Estate and, to the knowledge of Seller, there is no such
material violation.
4.13 COMPLIANCE WITH LAW. Seller (a) is not in default with respect to
any legal, written order of any court or governmental authority to which Seller
is subject and which applies specifically to the Division or the Assets, and (b)
to the knowledge of Seller, is not in violation of any laws, ordinances,
governmental rules or regulations to which it is subject, except to the extent
that novation agreements have not been obtained and may be required with respect
to any Contracts with the U.S. Government.
4.14 Assets. The Assets constitute all of the assets and properties
used exclusively by the Division as of the Balance Sheet Date, except for (a)
Assets sold, disposed of, or consumed in the ordinary course of business since
such date, (b) the Excluded Assets, and (c) Contracts, the assignment of which
has not been consented to by a party thereto.
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4.15 COMMISSIONS. Neither Seller nor any of its directors, officers,
employees, or agents have employed, or incurred any liability to, any broker,
finder, or agent for any brokerage fees, finder's fees, commissions, or other
amounts with respect to the Transactions.
4.16 CONDITION OF ASSETS; LIMITED WARRANTIES. Except as otherwise
expressly provided in this Agreement, Seller makes no representations or
warranties whatsoever to Buyer, express, implied, or statutory, concerning the
Assets or the Division including, but not limited to, any representation or
warranty as to value, quality, quantity, condition, merchantability, design,
suitability, usability, salability, obsolescence, working order, compliance with
law, validity, or enforceability. ALL PERSONAL PROPERTY INCLUDED IN THE ASSETS
IS SOLD "AS IS, WHERE IS." BUYER SPECIFICALLY ACKNOWLEDGES THAT NO WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE MADE OR SHOULD BE
IMPLIED IN THE TRANSACTIONS. Buyer acknowledges that it has had an opportunity
to thoroughly inspect the Assets.
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5. REPRESENTATIONS AND WARRANTIES OF BUYER.
As an inducement for Seller to enter into this Agreement, Buyer
represents and warrants to Seller that each of the following statements is true
and correct as of the date hereof:
5.1 ORGANIZATION, CORPORATE POWER AND AUTHORITY. Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Minnesota and is duly qualified to perform its obligations
under the Transaction Documents and, after the Closing, to use the Assets and
operate the Division. Buyer has all requisite corporate power and authority to
acquire, own, lease, and operate the Assets, to conduct the business of the
Division, to execute and deliver the Transaction Documents to which it is a
party, and to perform its obligations thereunder.
5.2 AUTHORIZATION OF AGREEMENT. The execution, delivery, and
performance by Buyer of the Transaction Documents to which it is a party, and
the consummation by it of the Transactions, have been duly authorized by all
necessary corporate action by Buyer. This Agreement has been, and each other
Transaction Document to which Buyer is a party will be at the Closing, duly
executed and delivered by Buyer and constitute, or will, when delivered,
constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with
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their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, and other similar laws and equitable principles
relating to or limiting creditors' rights generally.
5.3 EFFECT OF AGREEMENT. The execution, delivery, and performance by
Buyer of the Transaction Documents to which it is a party, and the consummation
by it of the Transactions, will not violate the Articles of Incorporation or By-
Laws of Buyer or any judgment, award or decree, or any material indenture,
material agreement, or other material instrument to which Buyer is a party, or
by which Buyer or its properties or assets are bound, or conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement, or other instrument, or result in
the creation or imposition of any lien, charge, security interest, or
encumbrance of any nature whatsoever upon any of the properties or assets of
Buyer, except to the extent the effect thereof will not be materially adverse to
Buyer's ability to fulfill its obligations under the Transaction Documents to
which it is a party and, after the Closing, to use the Assets and operate the
business of the Division.
5.4 GOVERNMENTAL APPROVALS. To the knowledge of Buyer, except for
novation agreements that may be required with respect to any Contracts with the
U.S. Government, no approval,
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authorization, consent or order, or action of or filing with any court,
administrative agency, or other governmental authority is required to be
obtained by Buyer for the execution and delivery by Buyer of the Transaction
Documents to which it is a party or the consummation by it of the Transactions.
5.5 COMMISSIONS. Neither Buyer nor any of its directors, officers,
employees, or agents have employed, or incurred any liability to, any broker,
finder, or agent for any brokerage fees, finder's fees, commissions, or other
amounts with respect to the Transactions.
5.6 FINANCING. Buyer has available cash sufficient to consummate the
Transactions. No financing is required to enable Buyer to consummate the
Transactions.
5.7 EXON-FLORIO. Buyer is not a "foreign person" for the purposes of
the Exon-Florio Amendment to the Defense Production Act of 1950.
5.8 INVESTIGATION. Buyer has conducted a full and complete
investigation and inspection of the Assets, the Assumed Liabilities, and the
Division as Buyer may have deemed necessary or appropriate for the purpose of
entering into this Agreement and consummating the Transactions. In executing
this Agreement, Buyer is relying on its own investigation and on the provisions
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set forth herein and not on any other statements, representations, warranties,
or assurances of any kind made by Seller, its representatives, or any other
person other than the representations and warranties of Seller pursuant to
Section 4, or any statements made during any presentation by any employee or
representative of Seller or the Division.
6. COVENANTS OF SELLER.
6.1 CONDUCT OF DIVISION. During the period from the date hereof to
the Closing Date, unless Buyer consents otherwise in writing (which consent
shall not be unreasonably withheld), Seller shall use its reasonable efforts to:
6.1.1 ORDINARY COURSE. Conduct the business of the Division only in
the ordinary course consistent with past practice, except as contemplated
by this Agreement;
6.1.2 PRESERVATION OF GOODWILL. Preserve the goodwill of those of its
suppliers, customers, and distributors having business relations with the
Division;
6.1.3 MAINTAIN INSURANCE. Maintain any insurance coverage existing as
of the date hereof against loss or damage to the Assets;
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6.1.4 SALE OF ASSETS. Not transfer or encumber any of the Assets
except for any transfer or encumbrance in the ordinary course of business
consistent with past practice;
6.1.5 MAINTENANCE OF ASSETS. Maintain the Assets, in the aggregate, in
a condition comparable to their current condition, reasonable wear, tear,
and depreciation excepted, and except for Assets disposed of, sold, or
consumed in the ordinary course of business;
6.1.6 ASSIGNED CONTRACTS. Not materially amend any Assigned Contract;
and
6.1.7 EMPLOYMENT CONTRACTS. Not enter into any employment contract
with any Employees or materially increase the compensation of any of the
Division's current officers or key Employees.
6.2 ACCESS. Seller will (a) during ordinary business hours and upon
reasonable notice from Buyer, permit Buyer and its authorized representatives
to have access to all Assets, (b) furnish, as soon as reasonably practicable,
to Buyer or its authorized representatives such other information in Seller's
possession with respect to the Division as Buyer may from time to time
reasonably request, and (c) otherwise reasonably cooperate in the examination
or audit of the Division by Buyer.
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6.3 PERMITS, CONSENTS, AND NOVATIONS. As promptly as practicable
after the date hereof, Seller shall make all filings with governmental bodies
and other regulatory authorities, and use all reasonable efforts to obtain all
permits, approvals, authorizations, and consents of all third parties required
for Seller to consummate the Transactions. Seller shall furnish promptly to
Buyer all information that is in Seller's possession and not otherwise available
to Buyer that Buyer may reasonably request in connection with any such filing to
be made by Buyer. Seller and Buyer shall use reasonable efforts to obtain such
consents to the assignment of the Contracts and such novation agreements as may
be required. Notwithstanding anything herein to the contrary, the parties hereto
acknowledge and agree that at the Closing, Seller will not assign to Buyer any
Contract that by its terms requires, prior to such assignment, the consent of
any other contracting party thereto (or a novation agreement executed by any
other contracting party) unless such consent has been obtained prior to the
Closing Date. With respect to each such Contract not assigned on the Closing
Date, after the Closing Date Seller shall continue to deal with the other
contracting party(ies) to such Contract as the prime contracting party, and
Buyer and Seller shall use reasonable efforts to obtain the consent of all
required parties to the assignment or novation agreement as may be required.
Such Contract shall be promptly assigned by Seller to Buyer after receipt of
such consent or novation of such Contract after the Closing Date, and
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thereafter shall be deemed to be an Assigned Contract for all purposes
hereunder. Notwithstanding the absence of any such consent or novation, Buyer
shall be entitled to the benefits of such Contract accruing after the Closing
Date to the extent that Seller may provide Buyer with such benefits without
violating the terms of such Contract; Buyer agrees to perform at its sole
expense all of the obligations of Seller to be performed under such Contract
after the Closing Date. As soon as practicable following the date hereof, with
respect to any Contract with the U.S. Government to which Seller is a party,
Seller shall submit to the relevant Responsible Contracting Officer a written
request that the U.S. Government enter into a novation agreement with Buyer with
respect to such Contract. In this regard, Seller and Buyer shall take all
actions required or customary under the Federal Acquisition Regulations System.
Except as provided in the immediately preceding sentence, in no event shall
Seller or Buyer be obligated to pay any money to the U.S. Government or to offer
or grant other financial or other accommodations to the U.S. Government in
connection with obtaining any novation agreement or any such consent or waiver.
6.4 COOPERATION WITH BUYER. After the Closing, Seller shall provide
such cooperation as Buyer or its counsel may reasonably request in connection
with: (a) any proceedings relating to the Assumed Liabilities which are
hereafter pending or threatened and to which Buyer is a party; and (b) any
proceedings for which Seller is entitled to indemnification from Buyer
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under Section 9.2.2 hereof. Such cooperation shall include, but not be limited
to: (i) making available at the reasonable request of Buyer or its counsel, and
permitting Buyer and its counsel to make and retain copies of, any and all
documents in the possession of or otherwise available to Seller; (ii) making
available upon the reasonable request of Buyer or its counsel, employees, and
other persons within the control of or available to Seller to consult with and
assist Buyer and its counsel and to prepare for and testify truthfully in
connection with any proceedings, including depositions, trials, and arbitration
proceedings; and (iii) making available at the reasonable request of Buyer or
its counsel such other resources as may be within the control of or available to
Seller. The cooperation of Seller required by this Section 6.5 shall be provided
at Seller's cost; provided, however, that Buyer shall reimburse Seller for
Seller's reasonable out-of-pocket expenses incurred pursuant to this Section.
7. COVENANTS OF BUYER.
7.1 PERMITS AND CONSENTS. As promptly as practicable after the date
hereof, Buyer will make all filings with governmental bodies and other
regulatory authorities required of Buyer in connection with the Transactions,
and use all reasonable efforts to obtain all permits, approvals, authorizations,
and consents of all third parties, required for Buyer to consummate the
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Transactions. Buyer shall promptly furnish to Seller all information that is in
Buyer's possession and not otherwise available to Seller which Seller may
reasonably request in connection with any such filing to be made by Seller.
7.2 ACCESS TO BOOKS AND RECORDS. Buyer shall maintain for five (5)
years after the Closing Date all original books, records, files, documents,
papers, and agreements pertaining to the Assets, the Assumed Liabilities or
otherwise to the business of the Division before the Closing. After the Closing,
Buyer shall provide Seller and its representatives, during ordinary business
hours and upon reasonable notice from Seller, with reasonable access to such
original documents. If, at any time after the expiration of the five (5) year
period described above, Buyer proposes to dispose of any such original
documents, Buyer shall first offer in writing to deliver the same to Seller at
the expense of Seller. If Seller fails to respond to such offer within ninety
(90) days of its receipt, Buyer shall be permitted to dispose of such documents.
7.3 COOPERATION WITH SELLER. After the Closing, Buyer shall provide
such cooperation as Seller or its counsel may reasonably request in connection
with: (a) pending or threatened proceedings set forth in Schedule 4.10; (b) any
proceedings relating to the Division which are hereafter pending or threatened
and to which Seller is a party; (c) any proceedings for which
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Buyer is entitled to indemnification from Seller under Section 9.2.1 hereof; and
(d) the liabilities described in Section 3.6 hereof. Such cooperation shall
include, but not be limited to: (i) making available at the reasonable request
of Seller or its counsel, and permitting Seller and its counsel to make and
retain copies of, any and all documents in the possession of or otherwise
available to Buyer; (ii) making available upon the reasonable request of Seller
or its counsel, employees, and other persons within the control of or available
to Buyer to consult with and assist Seller and its counsel and to prepare for
and testify truthfully in connection with any proceedings, including
depositions, trials, and arbitration proceedings; and (iii) making available at
the reasonable request of Seller or its counsel such other resources as may be
within the control of or available to Buyer. The cooperation of Buyer required
by this Section 7.3 shall be provided at Buyer's cost; provided, however, that
Seller shall reimburse Buyer for Buyer's reasonable out-of-pocket expenses
incurred pursuant to this Section.
7.4 INSURANCE. Buyer shall secure insurance with respect to the
Division from the Closing Date covering general liability and products liability
in amounts consistent with Buyer's past practices.
8. CONDITIONS PRECEDENT.
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8.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of
Buyer under this Agreement are subject, at the option of Buyer, to the
satisfaction or waiver of each of the following conditions on or prior to the
Closing Date:
8.1.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller contained in this Agreement
or in any certificate delivered to Buyer pursuant hereto shall be true
and correct in all material respects on and as of the Closing Date as
though made at and as of that date (except where such representation
and warranty is made as of a date specifically set forth therein), and
Seller shall have delivered to Buyer a certificate to that effect;
8.1.2 COMPLIANCE WITH COVENANTS. Seller shall in all
material respects have performed and complied with all terms,
agreements, covenants, and conditions of this Agreement to be
performed or complied with by it at the Closing Date, and Seller shall
have delivered to Buyer a certificate to that effect;
8.1.3 OPINION OF COUNSEL FOR SELLER. Buyer shall have received
the favorable opinion of McDaniel & Anderson, L.L.P., counsel to
Seller, dated the Closing Date, substantially in the form attached as
Exhibit F;
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8.1.4 LEGAL ACTIONS OR PROCEEDINGS. No legal action or
proceeding shall have been instituted or overtly threatened by any
governmental agency seeking to restrain, prohibit, invalidate, or
otherwise affect the consummation of the Transactions;
8.1.5 CONSENTS OBTAINED. Each party hereto shall have obtained
all material consents and approvals required to be obtained from any
governmental authority, except where the failure to obtain such
consents or approvals is a result of a breach by Buyer and except for
novation agreements required to be obtained with respect to government
Contracts; and
8.1.6 OTHER TRANSACTION DOCUMENTS. Seller shall have executed
and delivered to Buyer original counterparts of each Transaction
Document to which it is a party.
8.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations
of Seller under this Agreement are subject, at the option of Seller, to the
satisfaction or waiver of each of the following conditions at or prior to the
Closing Date:
8.2.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Buyer contained in this Agreement or in any certificate
delivered to
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Seller pursuant hereto shall be true and correct in all material
respects on and as of the Closing Date as though made at and as of
that date (except where such representation and warranty is made as of
a date specifically set forth therein), and Buyer shall have delivered
to Seller a certificate to that effect;
8.2.2 COMPLIANCE WITH COVENANTS. Buyer shall in all material
respects have performed and complied with all terms, agreements,
covenants, and conditions of this Agreement to be performed or
complied with by it at the Closing Date, and Buyer shall have
delivered to Seller a certificate to that effect;
8.2.3 OPINION OF COUNSEL FOR BUYER. Seller shall have received
the favorable opinion of Phillips & Gross, P.A., counsel for Buyer,
dated the Closing Date, substantially in the form attached as Exhibit G;
8.2.4 LEGAL ACTIONS OR PROCEEDINGS. No legal action or
proceeding shall have been instituted or overtly threatened by any
governmental agency seeking to retrain, prohibit, invalidate, or
otherwise affect the consummation of the Transactions;
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8.2.5 CONSENTS OBTAINED. Each party hereto shall have obtained
all material consents and approvals required to be obtained from any
governmental authority, except where the failure to obtain such
consents or approvals is a result of a breach by Seller and except for
novation agreements required to be obtained with respect to government
Contracts:
8.2.6 PURCHASE PRICE. Buyer shall have delivered the Purchase
Price in accordance with Section 3.3;
8.2.7 RELEASE OF GUARANTIES. Seller (other than the Division)
shall have been fully released from any and all guaranties listed an
Schedule 8.2.7, with respect to any obligations or liabilities of the
Division; and
8.2.8 OTHER TRANSACTION DOCUMENTS. Buyer shall have executed
and delivered to Seller original counterparts of each Transaction
Document to which it is a party.
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9. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATIONS.
9.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties
set forth in Sections 4.2, 4.17, 5.2, and 5.7 shall survive indefinitely. All
other representations or warranties contained herein shall survive for a period
of two years from the Closing Date and shall then expire. Upon the expiration
of a representation or warranty pursuant to this Section 9.1, unless written
notice of a claim based on such representation or warranty specifying in
reasonable detail the facts on which the claim is based shall have been
delivered to the Indemnifying Party prior to the expiration of such
representation or warranty, such representation or warranty shall be deemed to
be of no further force or effect, as if never made, and no action may be brought
based on the same, whether for breach of contract, tort, or under any other
legal theory.
9.2 AGREEMENTS TO INDEMNIFY.
9.2.1 SELLER INDEMNITY. Subject to the terms and conditions of
this Section 9, Seller hereby agrees to indemnify, defend, and hold
Buyer harmless from and against all Losses incurred by Buyer and
Buyer's Affiliates, employees, directors, officers, shareholders, and
agents resulting form (a) a breach of any representation, warranty, or
covenant of Seller made in this Agreement, or (b) any liabilities or
obligations of, or
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claims against, Seller other than the Assumed Liabilities;
9.2.2 BUYER INDEMNITY. Subject to the terms and conditions of
this Section 9, Buyer hereby agrees to indemnify, defend, and hold
Seller harmless from and against all Losses incurred by Seller and
Seller's Affiliates, employees, directors, officers, shareholders, and
agents resulting from (a) a breach of any representation, warranty, or
covenant of Buyer made in this Agreement, (b) the failure of Buyer to
pay, perform, and discharge when due the Assumed Liabilities, or (c)
the conduct of the business of the Division after the Closing;
9.2.3 INDEMNIFICATION FOR ENVIRONMENTAL MATTERS.
(a) Subject to the terms and conditions of this Section 9, Seller
shall indemnify and hold Buyer harmless from and against all
Environmental Losses to the extent such Environmental Losses are
attributable to Seller's use and/or occupancy of the Real Property;
provided, however, that this indemnification obligation shall expire
three (3) years from the Closing Date, Seller shall have no obligation
to indemnify Buyer with respect to any conditions that existed prior
to Seller's use and/or occupancy of the Real Property; and
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(b) Notwithstanding the obligation of seller to indemnify Buyer
pursuant to this Agreement, Seller may take any actions required by
any federal, state, or local governmental agency or political
subdivision or reasonably necessary to mitigate Losses referred to in
Section 9.2.3(a), and Buyer shall allow Seller reasonable access to
the Real Property for that purpose. Such actions may include, but
need not be limited to, the investigation of the environmental
condition of the applicable Real Property, the preparation of any
feasibility studies, reports, or remedial plans, and the performance
of any cleanup, remediation, containment, operation, maintenance,
monitoring, or restoration work. Seller shall proceed diligently with
any such actions it elects to take, provided that in all cases such
actions shall be in accordance with all applicable requirements of
governmental entities. Any such actions shall be performed in a good,
safe and workmanlike manner, and shall to the extent reasonable
minimize any impact on the business conducted at the applicable Real
Property. Seller shall have the exclusive right to undertake and
control actions of the type described in this Section 9.2.3(b), using
agents reasonably satisfactory to Buyer. Costs and expenses incurred
by Buyer as a result of their undertaking any such actions shall be
deemed Losses;
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9.2.4 INDEMNIFICATION THRESHOLD. No claim for indemnification
will be made by either party hereunder unless the aggregate of all
Losses (excluding Losses under Section 3.5.2 [Product Liability] and
3.5.3 [Warranty Obligations]) incurred by such party otherwise
indemnified against hereunder exceeds $20,000, and any such claim
shall be made only for the amount by which such aggregate Losses
exceed $20,000;
9.2.5 MAXIMUM LOSSES. No claim for indemnification of Losses
(whether in an action for indemnification or otherwise) may be made by
either party hereunder to the extent the aggregate Losses claimed
(including any Losses previously recovered, but excluding Losses under
Sections 9.2.1(b), 9.2.2(b) and (c), and 9.2.3(a)) by such party
exceeds the Purchase Price. Notwithstanding anything to the contrary
in this Section 9.2.5, no claim for indemnification of Environmental
Losses may be made by Buyer under Section 9.2.3(a) to the extent that
such aggregate Environmental Losses suffered by Buyer exceed the
Purchase Price; and
9.2.6 SUBROGATION. If the Indemnifying Party makes any payment
under this Section 9 in respect of any Losses, the Indemnifying Party
shall be subrogated, to the extent of such payment, to the rights of
the Indemnified Party against any Insurer or third party
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with respect to such Losses; provided, however, that the Indemnifying
Party shall not have any rights of subrogation with respect to the
other party hereto or any of its Affiliates or any of its or its
Affiliates' officers, directors, agents, or employees.
9.3 CONDITIONS OF INDEMNIFICATION. The respective obligations and
liabilities of the Indemnifying Party to the Indemnified Party under Section 9.2
shall be subject to the following terms and conditions:
9.3.1 NOTICE. Within 60 days after receipt of notice of
commencement of any action or the assertion of any claim by a third
party (but in any event at least 10 days preceding the date on which
an answer or other pleading must be served in order to prevent a
judgment by default in favor of the party asserting the claim), the
Indemnified Party shall give the Indemnifying Party written notice
thereof together with a copy of such claim, process, or other legal
pleading, and the Indemnifying Party shall have the right to undertake
the defense thereof by representatives of its own choosing that are
reasonably satisfactory to the Indemnified Party;
9.3.2 FAILURE TO ASSUME DEFENSE. If the Indemnifying Party, by
the fifteenth day after receipt of notice of any such claim (or, if
earlier, by the fifth
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day preceding the day on which an answer or other pleading must be
served in order to prevent judgment by default in favor of the person
asserting such claim), does not elect to defend against such claim,
the Indemnified Party will have the right to undertake the defense,
compromise, or settlement of such claim on behalf of and for the
account and risk of the Indemnifying Party;
9.3.3 CLAIM ADVERSE TO INDEMNIFYING PARTY. Notwithstanding
anything to the contrary in this Section 9.3, if there is a reasonable
probability that a claim may materially adversely affect the
Indemnifying Party other than as a result of money damages or other
money payments, the Indemnifying Party shall have the right, at its
own cost and expense, to compromise or settle such claim, but the
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party, settle or compromise any claim or consent to the
entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified
Party a release from all liability in respect of such claim; and
9.3.4 COOPERATION. In connection with any such indemnification,
the Indemnified Party will cooperate in all reasonable requests of the
Indemnifying Party.
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9.4 REMEDIES EXCLUSIVE. Except as provided in Section 12.11,
the remedies provided in this Section 9 shall be the exclusive remedy for
monetary damages (whether at law or in equity) . Without limiting the foregoing,
and except for statements, representations, warranties, and assurances made in
this Agreement, neither Seller nor any of its officers, employees, agents,
stockholders, Affiliates, consultants, investment bankers, legal advisers, or
representatives shall have any liability or obligation to Buyer in respect of
any statement, representation, warranty, or assurance of any kind made by
Seller, its representatives, or any other person including, but not limited to,
any statements set forth in the Information Memorandum or any statements made
during any presentation by any employee or representative of Seller to the
Division.
10. TERMINATION. This Agreement may be terminated at any time on or
prior to the Closing Date:
10.1 INJUNCTION. By either party if any court of competent
jurisdiction in the United States shall have issued an order (other than a
temporary restraining order), decree or ruling or taken any other action
restraining, enjoining, or otherwise prohibiting the Transactions and such
order, decree, ruling, or other action shall have become final and
non-appealable.
10.2 MUTUAL AGREEMENT. By mutual written agreement of the parties.
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10.3 TERMINATION DATE. By either party if the Closing shall not have
occurred on or before September 30, 1995, time being of the essence.
10.4 MATERIAL BREACH. By either Buyer or Seller, if there has been a
material breach on the part of the other party in its representations,
warranties, or covenants set forth herein; provided, however, that if such
breach is susceptible to cure, the breaching party shall have three (3) business
days after receipt of notice from the other party of its intention to terminate
this Agreement pursuant to this Section 10.4 in which to cure such breach.
10.5 EFFECTS OF TERMINATION. If this Agreement is terminated pursuant
to Section 10, all obligations of the parties hereunder (except for this Section
and Sections 11.1, 12.2, 12.8, 12.9, 12.10, and 12.11) shall terminate without
liability of any party to any other party, except that in the event of any
termination under Section 10.4, the breaching party shall be liable for the
reasonable expenses (including attorneys' fees and court costs) of the other
party incurred in connection with this Agreement and the Transactions. Nothing
contained in this Section 10.5 shall relieve any party of liability for any
breach of this Agreement that occurred prior to the date of termination of this
Agreement.
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11. OTHER COVENANTS.
11.1 ANNOUNCEMENTS. Each party agrees not to make, nor cause to be
made, any news releases or other public announcements pertaining to the
Transactions without first consulting the other party and attempting to
formulate a mutually satisfactory arrangement for such disclosure, and in any
case will make an announcement thereafter without the consent of the other only
to the extent required by applicable law.
11.2 EMPLOYEES. Buyer agrees that it will offer employment to all
Employees working for the Division on the Closing Date, effective on such date.
Each Employee shall be offered such employment at his or her basic annual
salary in effect on the date of this Agreement, together with employment
benefits, to the extent available at reasonable cost to Buyer reasonably
equivalent to those provided by Buyer to its Employees (a) for (i) group life
insurance, and (ii) accidental death and dismemberment insurance, and (b) under
its group comprehensive medical plan. Buyer acknowledges that Seller is
terminating employees of the Division in reliance upon Buyer's commitment to
offer the Employees employment. Buyer agrees to comply with the terms of the
Worker Adjustment and Retraining Notification Act.
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11.3 COOPERATION. Each party hereto agrees, both before and after
the Closing, to execute any and all further documents and writings and perform
such other reasonable actions which may be or become necessary or expedient to
effectuate and carry out the Transactions (which shall not include any
obligation to make payments).
11.4 NOTIFICATION OF SALE. In utilizing existing stocks of packaging
material, catalogues, brochures, sales literature, promotional material, and
other selling material included in the Assets that bear the "Aerospace" name or
any other trade name, trademark, service mark, slogan, logo, or like property
retained by Seller under Section 2.2.6, Buyer shall, after the Closing Date,
promptly indicate prominently on all such material (by sticker or otherwise)
that the business of the Division is not being conducted by Seller. In no event
shall Buyer use any such packaging material, catalogues, brochures, sales
literature, promotional, and other selling material more than 90 days after the
Closing Date.
11.5 EXCLUDED ASSETS. If, after the Closing Date, Excluded Assets
including, but not limited to, proprietary information of Seller, shall remain
on the premises utilized by or under the control of Buyer, then buyer shall take
reasonable efforts to deliver such Excluded Assets to Seller at the expense of
Seller and, so long as such information shall remain on said
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premises, Buyer shall exercise the same reasonable degree of care with respect
thereto as it does with respect to its own property.
11.6 TAX COOPERATION. After the Closing, the parties shall, and
shall cause their respective Affiliates to, cooperate with each other in the
preparation of all tax returns and shall provide, or cause to be provided, to
such other party any records and other information reasonably requested by such
party in connection therewith as well as access to, and the cooperation of, the
auditors of such other party and its Affiliates. After the Closing, the parties
shall, and shall cause their respective Affiliates to, cooperate with the other
party in connection with any tax investigation, tax audit, or other tax
proceeding relating to the Division. Any information obtained pursuant to this
Section relating to taxes shall be kept confidential by the other party.
11.7 BEST EFFORTS. Each party will use its best efforts to cause all
conditions to its obligations hereunder to be timely satisfied and to perform
and fulfill all obligations on its part to be performed and fulfilled under this
Agreement to the end that the Transactions shall be effected substantially in
accordance with the terms of this Agreement as soon as reasonably practicable.
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12. MISCELLANEOUS.
12.1 BULK TRANSFER LAWS. Subject to Section 9.2, Seller hereby
waives compliance by Buyer with any applicable bulk transfer laws including, but
not limited to, the bulk transfer provisions of the Uniform Commercial Code of
any state, or any similar statute, with respect to the transactions contemplated
hereby.
12.2 EXPENSES. Except as set forth in Section 10.5, whether or not
the Transactions are consummated, neither of the parties hereto shall have any
obligation to pay any of the fees and expenses of the other party incident to
the negotiation, preparation, execution of the Transaction Documents, or the
closing of the Transactions including, but not limited to, the fees and expenses
of counsel, accountants, investment bankers, and other experts.
12.3 WAIVERS. Either party may, by written notice to the other
party, (a) extend the time for the performance of any of the obligations or
other actions of the other party under this Agreement; (b) waive any
inaccuracies in the representations or warranties of the other party contained
in this Agreement or in any document delivered pursuant to this Agreement; (c)
waive compliance with any of the conditions or covenants of the other contained
in this Agreement; or (d) waive performance
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of any of the obligations of the other under this Agreement. With regard to any
power, remedy, or right provided herein or otherwise available to any party
hereunder, (i) no waiver or extension of time will be effective unless expressly
contained in a writing signed by the waiving party, and (ii) no alteration,
modification, or impairment will be implied by reason of any previous waiver,
extension of time, or delay or omission in exercise of rights or other
indulgence.
12.4 AMENDMENTS, SUPPLEMENTS. This Agreement may be amended or
supplemented at any time by the mutual written consent of the parties.
12.5 ENTIRE AGREEMENT. This Agreement, its exhibits and schedules,
the documents incorporated by reference, and the documents executed on the
Closing Date in connection herewith, constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral and written, between the parties hereto with
respect to the subject matter hereof. No representation, warranty, promise,
inducement, or statement of intention has been made by either party that is not
embodied in this Agreement or such other documents, and neither party shall be
bound by, or be liable for, any alleged representation, warranty, promise,
inducement, or statement of intention not ambodied herein or therein.
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12.6 BINDING EFFECT, BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective permitted
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer an any person other than the parties hereto or their respective permitted
successors and assigns, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement.
12.7 ASSIGNABILITY. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by either party without the prior written
consent of the other party.
12.8 NOTICES. All notices under this Agreement shall be in writing
and shall be delivered by personal service or telegram, telecopy, or certified
mail (if such service is not available, then by first class mail), postage
prepaid, or overnight courier, to such address as may be designated from time to
time by the relevant party, and which shall be deemed given when received. No
objection may be made to the manner of delivery of any notice actually received
in writing by an authorized agent of a party. Notices shall be addressed as
follows or to such other address as the party to whom the same is directed will
have specified in conformity with the foregoing:
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(a) If to Buyer:
Nortech Systems Incorporated
641 East Lake Street
Suite 234
Wayzata, Minnesota 55391
Attention: Quentin E. Finkelson, President
(b) If to Seller:
Communication Cable, Inc.
Post Office Box 1575
Sanford, North Carolina 27331
Attention: James R. Fore, President
12.9 GOVERNING LAW; JURISDICTION. This Agreement has been negotiated
and entered into in the State of Minnesota, and all questions with respect to
the Agreement and the rights and liabilities of the parties will be governed by
the laws of that state, regardless of the choice of laws provisions of Minnesota
or any other jurisdiction. Any and all disputes between the parties which may
arise pursuant to this Agreement will be heard and determined before an
appropriate federal or state court located in Minnesota. The parties hereto
acknowledge that such courts have the jurisdiction to interpret and enforce the
provisions of this Agreement and the parties waive any and all
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objections that they may have as to jurisdiction or venue in any other court.
12.10 ATTORNEYS' FEES. If any litigation is commenced (including any
proceedings in a bankruptcy court) between the parties hereto or their
representatives concerning any provision of this Agreement or the rights and
duties of any person or entity hereunder, solely as between the parties
hereto or their successors, the party or parties prevailing in such
proceeding will be entitled to the reasonable attorneys' fees and expenses of
counsel and court costs incurred by reason of such litigation.
12.11 EQUITABLE REMEDIES. Seller and Buyer acknowledge that the
remedy at law for any breach, or threatened breach, of their respective
covenants to consummate the Transactions will be inadequate and, accordingly,
each covenants and agrees that, with respect to any such breach or threatened
breach, the other will, in addition to any other rights or remedies that it may
have and regardless of whether such other rights or remedies have been
previously exercised, be entitled to such equitable and injunctive relief as may
be available from any appropriate court referred to in Section 12.9.
Notwithstanding the foregoing sentence, any monetary damages which are all or a
portion of any equitable relief granted hereunder shall be subject to the
limitations set forth in Section 9.
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12.12 REPRESENTATIONS AND WARRANTIES. No fact, event,
misrepresentation, or occurrence that, in the absence of this Section 12.12,
would constitute a breach or breaches of any representation or warranty of
either party under this Agreement shall be deemed to constitute a breach or
breaches by such party of its representations or warranties under this Agreement
if such party has knowledge of such breach or breaches on the date hereof and/or
as of the Closing Date. The disclosure of any information on any schedule to
this Agreement shall be deemed to constitute the disclosure of such information
on all other schedules to this Agreement applicable to such information.
12.13 RULES OF CONSTRUCTION.
12.13.1 HEADINGS. The section headings in this Agreement are
inserted only as a matter of convenience, and in no way define, limit,
or extend or interpret the scope of this Agreement or of any
particular section.
12.13.2 TENSE AND CASE. Throughout this Agreement, as the
context may require, references to any word used in one tense or case
shall include all other appropriate tenses or cases.
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12.13.3 SEVERABILITY. The validity, legality, or enforceability
of the remainder of this Agreement will not be affected even if one or
more of the provisions of this Agreement will be held to be invalid,
illegal, or unenforceable in any respect.
12.13.4 KNOWLEDGE. Whenever a representation or warranty is
stated to be based on the knowledge of a party, such phrase refers to
whether any of such party's senior management has actual knowledge of
the matters involved. As used herein, "senior management" shall mean
any officer of Seller or Buyer, as the case may be, with a title of
vice president or its equivalent or higher.
12.13.5 AGREEMENT NEGOTIATED. The parties hereto are
sophisticated and have been represented by lawyers through the
Transactions who have carefully negotiated the provisions hereof. As
a consequence, the parties do not believe the presumption of laws or
rules relating to the interpretation of contracts against the drafter
of any particular clause should be applied in this case and therefore
waive its effects.
12.14 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
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<PAGE>
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly
executed and delivered by the duly authorized officers of the parties hereto as
of the date first-above written.
NORTECH SYSTEMS INCORPORATED
Buyer
By: /s/ Q. E. Finkelson
-----------------------------
President
COMMUNICATION CABLE, INC.
Seller
By: /s/ James R. Fore
-----------------------------
President
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<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference, in the Registration Statements of
Nortech Systems Incorporated on Forms S-8 registered on June 21, 1994 and June
30, 1993, of our reports dated February 16, 1996 in the Annual Report on Form
10-K for the year ended December 31, 1995.
/s/Larson, Allen, Weishair & Co., LLP
LARSON, ALLEN, WEISHAIR & CO., LLP
St. Cloud, Minnesota
March 27, 1996
<TABLE> <S> <C>
<PAGE>
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<NAME> NORTECH
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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